PLNT - Earnings call transcript Q1 2018

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Operator

Good afternoon. My name is Sarah, and I'll be your conference operator today. At this time, I would like to welcome everyone to the Planet Fitness First Quarter 2018 Earnings Call. [Operator Instructions] Thank you. I will now turn the call over the call over to Mr. ICR. of Frey Brendon sir. ahead, go Please

Brendon Frey

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

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

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

Chris Rondeau

pleased of earnings share of which in system-wide you, performance, top year joining is sales for growth of an an another we call. QX our of earnings a thank today XX%, year I'm prior XX% same-store Brendon, financial per period. highlighted adjusted $X.XX, you, us by and $X.XX for XX% that the gain and very over delivered Thank everyone, strong on ago; increase

expand Republic have the opening through Canada, new ended Mexico, in a now to of And with following U.S., XX Planet a of the very in locations newer system-wide the the opening continued the X,XXX last both we Fitness stores Dominican markets Monterrey. successful and month, of presence of first of in Panama. and and franchise the established We a quarter as brand location city total in

per the and than XX has quarter believe ended nonintimidating accessible more X,XXX clear industry point with never at an increasingly and all-time million club resonating casual we first high the It members close also is XX.X of with our environment the of roughly QX. members is seeing welcoming with We first-time approaching to that end million, are and come before, price this quickly user. gym milestones

this and our and recent attendance open brand, and grow vendors in to staff, many people's more corporate us: participating. held record stores franchise conference, X,XXX Vegas with members we franchisees, was tremendous theme improve is which year's have highlight was included lives. bullish front March team in of Another we The as energized the opportunity, of approximately opportunity the are event and in on club a

competitive top-notch the in advantage stores to member an providing harnessing our at on us. unique a providing passion our experience welcoming people day, empowering and for within high-quality incredible non-intimidating, purpose We also fitness our our is system, to a and believe focused every which each delivering experience on we value huge

via by connected our members' us, future. leveraging technology enhance to our fitness working and ways and of equipment look vision more we to we coming the our leverage about franchisees enhanced possibilities forward deliver experience week exploring are with of We focus the a and The in to to app was system members and new and apps. outlined partners key our and for personalized Another our the data years. journey mobile how is the our ahead energized size, scale to

Turning current our equipment to RFP.

We dialogue equipment have and productive to current Life with Fitness; potential Matrix Precor. equipment continue our and supplier, vendors,

new experience. our we've stores, in discussed enhanced provides user before, from each As some equipment an of we're that company testing

share our in call. are our and QX fee more the We to on negotiations, we process of plan detail

April, As to decided leave announced other Planet to former Officer, Rob Development in opportunities. Chief Fitness Sopkin, pursue

that successfully Until scheduled aggressive execute initiated Dorvin the confident our for be will Rob's the next X important, we strong role, functions. X,XXX open strategy CDO new And years. franchisees fill open our the they and XXX to as search replacement. with overseeing pipeline place remains store stores new we robust, the pipeline equally in have will over I'm our team in stores. and growth We development an have his already to continue support in

Our expanding are franchisees their markets. in new existing as and energized about presence as ever

to mind, for of recruiting our depth have the support a we to continues team Finally, aggressive begun our for new the growth. Marketing pursue us of and With be Chief position leadership focus Officer. that in

through and unaided records we a in funds figures marketing surpass continue great technology, embark partnerships. development and increased As future, focus build of talent In the a of brand our summary, guide the team on to and previously industry to sales exciting a local XX%; same-store to existing new gym and start. System-wide is XXXX great our next awareness us membership we an national help with this position strengthened things the life our and solid the established. opportunity cycle the on off like our we optimizing increased work company, as category; upon data is advertising and leading in

doesn't of more and store very achieving double to the other a prospects where have Mexico outlook, on Mexico, even population extremely groups about focus remain we building participation I In Looking we confident are our and concepts, with ahead, the over businesses their future, long-term our full X,XXX. for have they growth to our several are than generating bullish Canada alone, base membership, now Meanwhile, to and I'll strong With eager the than the Dorvin. opportunity our gym share franchise gym see we the year compelling business. high-value, the U.S. of markets having to low-cost the U.S. we our continue to enthusiasm the turn know on about that, fitness and lower including returns. rate XX% call

Dorvin Lively

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

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

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

the increase now $XX.X in Our year million, national advertising beginning fund XX.X% revenue, includes of XXXX was franchise segment an $XX.X revenue, which period. million prior from in

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

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

million system, as $X.X amended from fees to operational their have compared and and in The transfer new to agreements. sale is paying existing fee stores their processing the and goods franchise franchise other Next, of fees cost our for from as our decrease agreements of agreements the that us fees of received members million prior number sign-ups, existing agreements increased franchise were higher are paid well due dues expenses. instead area through development of period. new to year for point-of-sale of rate the and fees These online $X.X royalty

about prior compared QX recognize revenue in the change and year. of $X.X fee addition, agreement In year how a area franchise the development to was million headwind in agreements this we

revenue, million our franchise to a segment to placement need revenue which versus equipment $X.X with now is QX the XX-year franchisee-owned As for and first quarter, agreement at we fees the placement sold year stores. These time we our assembly receive on fees are outlined is and over our these Also signed. related we ago. flat a in was within Franchise of the period call, lease recognize

for new income, commission $X paying and their to arrangements of Our attributable existing for of rate increased the operational as decrease The amended million above. stores, vendor their $X.X instead a number preferred compared franchise stores cost are which and expenses, have million goods was of that was ago. commissions equipment to year commissions higher from international third-party agreements discussed royalty

January advertising GAAP account effect fund contributions on to as national to new $XX.X X went how compared last revenue rules for Finally, this NAF year related the was year. we into of X million

NAF changes prior record associated these revenue Due Ad as the as reminder, Fund this must contributions our managing contributions expenses. recognize now to to an a As balance accounting recent marketing really had expenses on the year, with sheet. and only National we the impact

store $X.X acquired in increase year to the sales prior corporate $XX the by of segment period. increase X stores XX% we franchise million Long same-store opened late revenue fee Island corporate-owned Our in driven we The January; that million XXXX; stores annual X%; increased corporate-owned was $XX.X Eastern from in X increased in the and million revenue.

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

compared stores, our opened sales Store $XX.X amounted costs $XX.X the ago. driven increase million million with to year Our $XX.X primarily quarter compared or acquired first which was and and support are SG&A million was of $XX.X to increase payroll $XX.X sales related infrastructure associated for of as during The the to was relates cost primarily $XX.X was primarily a the well million to XX.X%, incremental operations year. by million existing equipment to increase expenses, increase a an to stores, of since growing increased last quarter franchisee to the quarter. was as and our which ago. in higher franchisee-owned direct Advertising year year driven XX the stores not with million to our revenue year March, quarter. operation compensation generated a Fund in offsetting the million, to was expenses in held conference which The which equipment quarter. to ago, of new equity in we NAF cost expense by revenue, the aforementioned associated National related the prior $XX.X corporate-owned compared

of margins The revenue $XX.X new yet at third, $XX.X and while of operating significant to to corporate stores a XXX the expense approximately and decrease XXXX, the approximately impact million SG&A million the XX.X% XXX year margins to threefold. points; XX, in and income mentioned operating above, first opened the income decreased for to are XXXX. points compared mature ago. rate; was by which of which period, margins prior of run in compared XX.X% gross-up since decreased Our operating the second, The not quarter NAF X most basis a quarter of increased operating was year addition basis higher of in March

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

adjusted of all earnings noncontrolling income corporate tax if of Planet company not before, interest the XXXX at the were rate Fitness, to Fitness stated for an the attributable approximately the XX.X%, the Planet appropriate was and the level, we taxed Inc. level. taxed at As because income have

the an Planet Planet late reform rate Fitness Fitness Inc. While appropriate diluted tax of On million Adjusted a quarter ago. attributable basis net has $X.XX prior share and expenses compared income net and year per with $X.X was million XXXX, a adjusted for million diluted or On diluted increase be or first XX%. GAAP $X.XX year, the to approximately $XX.X was million been basis, tax prior year $XX.X quarter adjusted attributable share net income for XXXX, XXXX, XX.X% Net normalized $X.XX per of share rate nonrecurring and income to tax exclude to of net XX.X% an following the compared passage million XXXX $XX.X per $XX.X year share, in was the the of or diluted income would compared reflect period. the adjusted last period. in income to of $X.XX respectively. for a per first million to $XX.X an Inc. income or XX.X%

performance, XX.X% have noncash We $XX.X EBITDA, considered in not of reconciliation in higher the driven franchisee-owned net of year which adjusted XX.X% increased from other net be to taxes, from amortization, reconciliation evaluation overall increase earnings prior net release. segment, million depreciation today's $XX.X sales royalties the same-store in by as adjusted that sales EBITDA in release. the certain income GAAP rate. million of provided income higher not the as in Franchise interest, GAAP impact income well EBITDA can found By to franchisee-owned same-store the of before operating segment A adjusted net average Adjusted to are XX.X% base as period. a stores and is items of included for a defined and an $XX.X ongoing to and royalty received earnings our also income increased million, additional in

prior decrease higher above. adjusted increase incremental payroll discussed compared million, expense, expenses the year. fees and the the $XX.X Franchise Excluding approximately to segment January. sales, points and the franchisee annual in the XX.X% to primarily by franchise our related NAF SG&A the with store XX.X%, EBITDA to This increase X% Corporate-owned margins revenue conference corporate we increased decreased X SG&A acquired to expense basis by XXX and driven in to stores in same-store higher was segment, EBITDA the due

result EBITDA rate. EBITDA new points was that four segment are decreased Stores corporate yet stores XX.X%. primarily a XXX of decrease adjusted run Corporate margins at adjusted margins the This basis Our mature to in operating not the

EBITDA placements segment $X.X year increased replacement stores Equipment equipment by store existing to to new versus Our franchisee-owned sales and a higher XX.X% ago. higher million, driven equipment

decreased EBITDA segment Equipment approximately points margins Our basis adjusted XX XX%. to

sheet. balance the to turning Now

at of As had cash million. cash capacity we our $XX XX, under March and facility and $XXX.X million, of borrowing equivalents XXXX, credit stood revolving

bank $XX loan. approximately first million the a X-store $XXX.X complete financing the reminder, of As debt, cost, to our during deferred solely excluding the QX, utilized end at was aforementioned we million acquisition of quarter. Total consisting term senior

Now year outlook. full to the

to expect approximately to sell in For anticipate grow approximately the still total be equipment in adjusted adjusted same-store System-wide range. sales developing forecasted year approximately the sales. sales revenue at ended have stores used to not year equipment percentage increase mid-teens XXXX, high of net equipment increase year XXX to expecting by approximately changed. We're full The to to increase are December single-digit adjusted and range this replacement XXX and place XX%. EBITDA income XX, and assumptions EPS again new XX% by percentage and the guidance XX%, to our we in

turn call to Finally, are of assuming the effective tax we XX.X%. now an for rate the questions. back operator I'll

Operator

[Operator question of from Oliver go from Cowen Instructions] first comes line Your and ahead. Chen Company. the Please

Oliver Chen

there? trend Dorvin, margins was your margins how in the members what overall equipment are time terms the per opportunity question of was in over the of the the of second expectations? And by And division, about driving the club. and number just on versus units margins terms the our

your really this strong addressable momentum. at on the viewing thoughts such you're point? are had how You've market What

Dorvin Lively

for cardio lower respect equipment because points. varying primarily on to kind stated quarter, of during past, perspective. quarter. is We the of The the from We specific is we the historically, re-equips particular divisional the our in range, with quarter times. we a bit a been in margins. this of margin little some lower XX% that have much question talking a to margin had came XX% just of few little between in bit expectations pretty where which at a But of a the we're mix strength There basis and our

So maybe XX%. around said, as but slightly to we've guided below, the I right

In I - year, place which would we're time, goal units ago it, stated think, we're terms, we call in, gave of guidance equipment is that to XXX year. minutes XXX maintaining two with a much the of the we've that few consistent for where the long-term to of to stated close pretty stores XXX and that guidance of I over we our been three last years for more we've a is that, what

still is stores. X,XXX pipeline Our over

are to opening still about guys - were larger continuing the than The before. the doing are more smaller ones are franchisees same. Our they

As But the strong. comps that had members we've of consolidation some you the And I ownership. mean, of the pipeline we've we've had, this average some know, remain the in is store to had. ever with continues terms highest per

good we of about So the feel X-wall economics the of overall pretty kind stores.

Chris Rondeau

it I'm that, going members more of X,XXX confirms to per X,XXX to the kind the to back the it store, need. talked eventually got kind is member is to continue goes we've doors add past, the think we've in what more potential. to unit about of open satisfy to Because I

Oliver Chen

And in point high? you job balance making from members your tipping against just customer become I too there how full. the service is do is and units just the good which know front. But club, when per done with you really that you've sure that a do monitor recognition satisfaction very a

Chris Rondeau

Buxton can stress store, next order it probably where map in have box, and XX,XXX using how to members many software. help of market in the where, we have when But and stores each plotting We XX,XXX our every the when location have gets call talk for to purposely lives, store yes, dicey. we we say members, number, when the a - example, about in can in. where of stores - a on use little about the our we our put members so we put we I alleviate And that I'd planning, know store. we talk we market. XX,XXX our So get per one a think had typical square-foot so members many, see we XX,XXX it, other expand single we that,

Oliver Chen

same the terms feel the time? mix the comps. comps net will members And lastly, member being top versus Do in Dorvin, of been on pricing growth? strong mix impressive it over stay the of XX% of of change like that will number had you Or between

Dorvin Lively

Yes.

the feel there that to additional pretty where with where could see I think Black at in a Black this to where it's lot from, growth, incremental year beginning QX number. historically. we shifted bad we or it out of call had line. is maximize Card variable But try is than XX% ever being probably member through and at the is flow membership, the being that the effect of in to in a respect think has club, to that of I - XX-XX last point percentage club mean, that But Certainly, was not franchisees, dollar, I while operations now. quite clearly, and because rate if the first obviously, to quarter get the pricing quarter impact our in back growth we there's a run right of to put that it, changing. Card we've maybe of every nearer-term, comfortable XX% with this a bottom I our once, the it we it's bigger offerings

Operator

Dave go of from from ahead. Your next line comes Roth question Please Capital. King the

Dave King

can sign-ups beyond Is about Mexico. find more it on ADAs sort you initial Do what's then the XXX longer-term And locations? of there? And the to multiple you pace plan guess in first Monterrey? long-term what's broadly expect JEG-Fit? speaking, guess say I What still of I the expectation?

Chris Rondeau

opened that first So opens of store with It its week opened members ahead actually expectations. it doors. X,XXX

well, what turnout. what Kind of couple couple a particular is of to great to learn a the based group were opening. was I've was sources it XX% couple help People that that, demographic of markets potential a it potential of other us as there in. of actually one going mentioned open lot open stores timers a figure out, happy. were that could which in or on I true Unlike great, demographic more it. from true That markets past, Panama at general grand it, think from We I us Republic is lot our from will down other as tell Usage U.S. attended think of a people a So of and had of that Canada. there's heard different has stores Mexico. opens potential event we we've the A media great. But more this you help in like first more rule great prove a kind there. their is they in was it's a that the thumb And out great the a Dominican potential, extremely what is, turnout. is for like how I definitely look more

it as So company. growth for more a gives us

how As stores. how out. couple up for master or it, we still how whether goes plays on as it's see the ADAs that in next far in franchises, determination of the we'll it But air, grow

Dave King

gears. and good hear. then switching That's And good to all color

is productivity six the those of versus there those acquired, well are in comping? And you then included How weren't assuming corporate average? how stores terms In corporate-owned the comp. the the

Dorvin Lively

stores Sure. the side really on out Six eastern island. good of the

the we the made island. lot we there stores Western own franchisee retiring of As of Island. markets, Long that of eastern out part Island of synergistically, and had to our it island. Long is stated, the better the particular sense. on one these We our are in existing stores was This side comparable very stores or a the

complementary contribution. line So in of and terms EBITDA top very

So acquisition. we're really pleased with the

Dave King

you membership contribution and the - because terms the those or memberships corporate-owned they or - ramp? for revenue what's lastly like far, But How opened guess what just share it thus X opened. are I sounds of in then ones. newly of about kind And matured obviously, haven't yet, can productivity me - those they

Dorvin Lively

maturity frankly, mean, a corporate the we a a I have we're we that have number of of of it's mean, always every stores think or per open at look stores stores we year, whether and we you opening number whether franchisee when curve - base month. store. the I

we stores years So in stores the several that stores, any other say of past over line quarter. back in averages are opened particular know right or looking are tracking X what same any that month corporate particular those the vintage. stores in with the I'd

comparable curve. So very maturity

Operator

next from You're question comes Guggenheim Please from go the line Securities. Heinbockel of John ahead.

John Heinbockel

on Guys, mean, let up, Where that it I consolidation me what franchisees. impact a there we referenced any you among you'd start has from bit. Is in right, expansion, terms the you if for the that continue capabilities, forward? here do that it impact operational What with here any, business, of picked do - think as obviously I execution? think, will looks gather go

Chris Rondeau

lot sophistication CMO, these development when groups help the and build these of As the businesses the they not got offices. have to financial some say really only private a in to in the as Back guy. bring the of of guy, we past, a big the acting and bring equity franchisees - lot were ops talked to operators guy the I'd the back

and So the that's do best, on the do equity get private streets service what open let allowing members to and the back build franchisees their back stores, and to they offices. build and

been that opens being groups around an Xs, is maybe which and as because around much guys larger the is the consolidation, issue. a lot for cannibalization the them not then by has acquired are in door smaller us other X some Xs, more these think ADAs of good expansion, for market of which of are I smaller the

a at good look So think it. to that's also I way

John Heinbockel

maybe more topic about insurers because potential a is We've the any down it the talked compliance actually the of more there. here. pretty about of members that sort think Has for while one standards that X members. been discussion people been reimbursement that side Has another of we about the nonstarter. I health instead was that's actually of then - talked right, some but coming among is high. a there maybe there around of that they're things provided discussion there And something to incentives, have of visits any doing Is discussion or visiting, - XX but or

Chris Rondeau

it It hasn't I to cardio, it's it's to work lot future. in almost a happened the the to through or the we just And with hopefully, insurance XX, they're lifestyles. the insight should of companies, think a begin think the should But table be many people's the drives of how are which more opposed to that probably memberships the companies XX think all look I whether especially on correctly, capture as their at future, visits partnerships both today. with partners out report rates calories to us insurance will is allow on give month, able yet, with more fact corporate to of that in what no. it I in unattainable or about the burning, up heart requirement data companies, they hopefully, some and showed And

John Heinbockel

and from referenced you the franchisee remainder recurring is that that in is that lot a conference points So of investments right? to lastly, through much the million But payroll basis the $X.X franchisee XXX maybe X/X some I $X impact then is How of conference, nonrecurring? And of guess the XX%, nonrecurring. of the million. is year?

Dorvin Lively

related about the XX months. Yes, every to it conference was half We conference. now John, the do of

half But to incremental that I guess, comping we're to related comping, - over not expense about speak. or so the conference. So of that

Operator

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

Sharon Zackfia

separate and question up question. that Maybe then on I'll follow a last

of first bit year-over-year run terms a obviously So SG&A of the in quarter. up rate on growth quite picked the growth

there the is in For for to the year secondarily, for to the that expecting of step And revenue kind hard full of dollar Or as the few the which full last contain the growth years? mid-XX% XX%. are then range, a year, for it's been pretty well? up kind you year be growth to it's on revenue,

maybe XX%, implies get of the from XX% you alone. rest think quarter. the your you the ad through of year I it kind fund XX% revenue first phenomenal And math, if growth for go given the

So the rest would about growth can the you why help me of year? decelerate think so revenue much

Dorvin Lively

it of XXX balance the that the to of X we of confident talked I beginning, past, placements. said, There of in in first. at today, close slight to at expectations in but albeit QX terms handful play take it feel think, obviously from it's bit was we of can a bit the way lowest year With the the just XX%. QX. cadence least margin been openings, quarter, piece a as last little And you as in go. the the I of out think when this increase of a it's through, business of the it the should then timing flowing the to as We said, me it, in Let from here, about through pretty flow think see shift shift new I still, mean, quarter-to-quarter. the we're the of one with talking XXX store our past, the of a as said terms months little about in really cadence kind I we still here a call

with particularly the there's the QX, revenue, of maybe in equipment we're coming on slight that, a but sitting upside biggest So side. here driver to

XXX we that And the we're have insight the so that in moment, XXX. with at comfortable to

more we'll the top leases whole then insight end specificity have line side. we to the respect and more report, QX signed of As with a I the openings lot we and get in to think to

thought down I in think if having on of in little have get on year. of With ago, rate an there. think one-timer the kind fixed-cost coming end would relatively down probably because a were the expect of I come I of the out some, leverage we stated albeit mean, bit year minute where leverage it's of by bit we year. the we kind terms from that perspective, to as the were structure a structure. over balance that come a would the pretty I end to upside, revenue would we But we on some SG&A, of come a expense by a I much will the

Sharon Zackfia

because this has you you've public. follow-up future expect as that SG&A gone line a do leverage quick to Can Is a been I years? of up ask - percent just in item revenue a since

Dorvin Lively

of One And that rate prepared been remarks the I would we a what a I and I in X-year vesting while had the - our have when side" in kind think waterfall we element equity in bit on particular couple run kind has compensation. equity. a public, because call, things, of we of a full our not a we of were it represent a, There's were not Sharon. "G&A past at ago. One went my little I

all good year. you run we're you X/X of And a at the basis. prior that buildup year, midyear we when have. point play that mentioned. grant, you've comes By across then couple get, respects. those two, equity that number comped to mediums that of training, the the we marketing. at franchise kind on as X/X a another brand we're of year, whether about a And and end an Point a year, over year, is business training of you and where this initiate number there next X/X plan, field to which and stores talked and that And probably it's a it's get hundred that believe it, I reinforcing level of then we do new so had bit by where have lot really program call the have a little have operations, our in consistency whether there open to There's I go-forward got and our that, pretty it, you rate we've That's of a a a into to and whether some did, call really benefit certainly, one. company it, keep this a we'll of of next lot, operations, the infrastructure it's a that's of will have out

point to least for, you approach ought on probably in think new point recruiting ago And today the where up to But time, to make position. position a a doing as the very should that much point it At so that training basis. we it an CMO we're Xx that some we're Chris as as build be a a at mentioned I you stair-step go-forward example able to XX be did months now. good

only our as the really would call base one that's today. incremental So is from that I kind where of

be pretty built XX we're then to incrementally it, months the we revenue think leveraging I have look SG&A over a to in good up place or it, with So last, growth that so. at start structure able if call you the

Operator

question JPMorgan. from comes go the next Your Please from John of ahead. Ivankoe line

John Ivankoe

their franchise they Obviously, the successful feedback more. have satisfied that what by was of people you aren't just list of want from had. probably you the a the success, I was always that nature conference wondering

of them. what was curious that the I item more deliver wanted back I What you terms more was. So mean for number their from on in franchisees you was agenda to the one they what push what to perspective? do

Chris Rondeau

was a franchisees engaged It’s yet all It's But of John, me looks not some definitely good. at what morale were do doing see general these see the hands the - this - nervous, years honestly even to throttle undertone conference, is off more they more territory. private camaraderie took get before, best the down, seen I've ever. they even you mean and interesting of were which To chips is table. that equity all the that in you more a I this where in of And lot bullish and than than it think part was and was for And with to was the think all-in. see we way. really thought the ones I yet besides in And anybody honestly really, than myself inning they're who's excited more really that retired, here, - of - honestly. X,XXX. third the we're X,XXX back. personally interesting at can't I the stores of company actually I saying really that They're was for they potential I'm I retired. that And It's or conference all open it's the so mean, it in franchisee ever for I so all bullish it same future. and just the have fourth feel the bought

I - So a think year XXX last opened that's we're year and going why this we'll record like it's great exciting stores year. to we number - to at another we have look of see, and do

all to see. was it great So

Dorvin Lively

Just think the that franchisee about I to had Chris's it Because conference. to point to speaks add one X "they're people all-in." comment, John. brought We XX

much did think in that same the that kind ago, to to So peer-to-peer people they to have people, one, for them other franchisee Three big four but bring of that, they wouldn't training, bring invested give their them that about bring with investment ops them weren't it. people. let years or money that conversations have -

So that. it was pretty see - really interesting to

John Ivankoe

you sites. want That's or that them would really fantastic and expect. mean build to certainly territory, you if certainly to they I what asked more more could anything allow Is give them them more sites build there for? I

So in you years? more what seen the 'XX, was agenda gave wanted to of what 'XX than in for of of you see it on kind previous them that and item in what you've terms example,

Chris Rondeau

not build I'd laurels, rest that's say the or and we double hungry and stay down was our to the let's members. all-in do in were throttle continue here, best my back, service what that undertone do conference that stores not whole third and fourth to really and to of we on continue go and inning

the they and to want I stay for excited that make stay So hungry brand. sure

that my session. resonated So standpoint in and was top I it really general truly from my think message a

John Ivankoe

balance credit up, debt putting interest going if and on And rates go are especially in sheet. balance is then balance final terming questions and update and sheet? out the terms of the Any markets, advantage on sheet looking more taking current at now to

Dorvin Lively

Yes.

and been half mid on it, year that's more board. call to this for, a the this is think, And clearly as and that last year. early year I a I of that focus I of Chris back focus John, with even our stated here we're early

Operator

ahead. the Your Baird. from Jonathan comes from Komp go Please of question next line

Jonathan Komp

asking digits, I start wanted the here. And same-store bit the incremental a single high about up about you that. get held the next year yet guidance for the thinking know how above off you sales. tracking to pricing by I coming of little quarters X up I you're QX believe

are the trends? how sales you same-store of about and on near-term any thinking guidance directional kind So

Dorvin Lively

Yes.

what to business deliver business more anticipating as go. our about mentioned the earlier that, Chris we've in and basis terms basis good in as think, QX. Slight had cycle we've quarter-over-quarter on movement points I you're pricing our XX got what that the quarters now Card We're call impact that couple more really got a QX, we've able said we in feel we move where I could said are in will Black Jon, and seen improvement of our seen, until look much terms side. we a at that right in the we've as where of on I I earlier, think not franchisees

flattish. that think stay, should call I it,

thought to to the certainly QX. a expected little particularly higher As terms than obviously the see good bit It the we get a it higher bit be It of single-digit think the about gets little of believe moving. certainly less, the nearer business, term, we for we in we still range harder the and QX, year. kind we of little is model we a high peg way in then QX. that little don't, We that that But balance number was would bit a be in to in when in QX bit comparison. a

we've the in way been the of composition. that's So about terms thinking it

Jonathan Komp

of wanted you started the I'm on in business. of is any disappointed in the lack like the know you've It will, then question kind And sounds but or like raising of the what driving And the the your you're the less to record terms wondering if sign raise, outlook. incremental consistently needed investment totally track bit. of confidence Maybe a keep establish in of few this to good a seeing a quarter. of pieces I sound maybe a the a to you're if fair pretty unique of that's follow flow-through doesn't are past up flow-through. little isn't It the question, with to I

thoughts have there? curious. you Any Just

Dorvin Lively

guidance, way would the when I quarterly guess back But years. confident thought more back I you point we haven't end we've day, as business, We certainly it's our more Yes. it, that. we've visibility in go the the with at to given of consistent that guidance say about we've of go changed given year, and the I'll previous the we as the we felt certainly, X I we've by is X that ago now We year. top of the equipment a equipment X change years. call for and that now. of a in and of as a side anticipate franchisees in just huge weeks last, to right a of way it's big the the it, made to they've don't cadence still minute that think lot had hits that's chunk such driven line sales the - that get We

this the be time equipment way get year to At the lease to sand that open. consistent time, it's so relatively kind - this we're to started, easy similar ready with we're for and about a when the get when turnover get we is And balance to of last construction into the same thinking where year. construction the club a pretty and draw I'd in then of line landlord then signed to - once that, that But we visibility at say going year. were the

Jonathan Komp

ongoing you authorized the the you know the appetite of at line plan for year. then know that thoughts, the last But guide $XXX on item you And buyback to any thoughts take one that? of start to. advantage I me. Any million had isn't I a this

Dorvin Lively

felt place and I we a year we last think board like that did it we buyback when the our plan - we and way in is, didn't enough that's big why work with have increased certainly that. we we

ability to road. performance to of kind need are it of available it's little very of we terms confident we And we we're had. if addition Ivankoe's and to question take got advantage about and continuing the some aligned that aligned our were we've to in of to if clearly, of the recapitalization company. John think model in on, all down I capital board do But thinking feel there right a bit our how the Chris we've with have still earlier type of the the in structure

way So about our that's talking to the board that we've been it.

Operator

ahead. Piper comes of Peter Keith question go line Jaffray. the next from Your from Please

Unidentified Analyst

Bobby for on It's actually today. Peter

some And to do total replacement equipment. remind of what the is? just partial a equipment cost to refresh equipment average that adopt the guys us technology cardio you to that, they franchisee you replace around related Could discussed? if Just new a want can

Dorvin Lively

Yes.

- So is in franchisee it, services typical and the majority placement of is today that's freight, XX% is About everything, which it $XXX,XXX-ish, of cardio that the about strength. delivered what XX,XXX to a cost open the call the XX% we is that $XXX,XXX-plus total box, range, ballpark. square-foot in of

X. And cardio of year strength and so they have year by to the X replace their the end by of end

or or frame. quarter a Typically, replace XXX% cardio it cycle you if their by not are obviously, store, that third tenth X,XXX-plus within the there. going they'll four cycles open replacement. do So of And into usually second in a of different fourth second, stores, your of door through type a at But first get and and we've franchisee your you time fifth some got will stores their all once.

will. them of Some

like Some in say, once. period are going of all all we're X equipment. years, last today, or cost be the of for the they quarters it's contract X the for their within of, same. at just has unusual the call replace them an term example, But treads over okay, of a it, all when will - our franchisee cardio replace not as replacing pricing our it X exactly to to we're to the The been the to

to ago it years today X same treadmill So if as you then. today, were new back the to cardio it's your buy was a want cost bought and you

difference respect can cycle, the in the the a that from is case, quarter. there this margins particular overall that made with in - be there's earlier to no a point I'd So perspective. between pricing The

have to any bit. between and it or respect few the but a bit COGS, can the strength, way you little the it's not vary the event, huge for in little If cardio will, if vary points. a works you mix franchisee. can of cycle replacement it basis a a that's higher But with

Unidentified Analyst

seeing. you in comp or any Have And good churn rate change strength in just a seen real churn lately? have improvement been the you quick,

Chris Rondeau

the last over better slightly gotten probably... and has It probably XX months

Operator

go ahead. the Jadrosich question Please from line Bank America. of comes Rafe of from next You're

Rafe Jadrosich

change XQ? Is And you can the you're the expecting $X think of think, the last I to about revenue recognition for impacts I still million Dorvin, year. same quarter, that you said expectation? the talk

Dorvin Lively

Yes. in about $X.X It QX. was million

bit transfer have million at to fees. time, that sales the franchise be may it of fees, the and and that didn't we But north a obviously, the area - any finalized. $X million fees totally little number everything $X.X that So relates that or development

spread my primarily And about million, recognize obviously, much Fund we top the million in previously period. upfront, and marketing on those and earlier, $XX.X $XX.X in SG&A. Advertising our over line, but remarks gross-up they're then mentioned were the out as then able P&L whereas National I So to million XX-year pretty neutral, a $XX.X was expense now,

about was Rafe, $X.X it, of net the million. So

it think million bit the of I a north $X be will little full year. for the

Rafe Jadrosich

no And then - $X higher million, that's bit EBITDA not that'll cash. - revenue little than impact a and to but

Dorvin Lively

Yes. Correct. Less revenue and income any impact but not cash. to

Rafe Jadrosich

the And and in - equipment then, seeing Chris, the that some you around about new RFP. innovation technology you of you're the spoke Can specifics some the talk about pipeline?

Chris Rondeau

term, were to have we talking is not RFPs the past, the which actually RFPs the - fourth June. in underway. that and full So the test quarter of the probably looks Which going technology the we're implemented down XX end thing have the about we've contract like nailed clubs by in

accomplish going to accomplish have best think want is do RFP. think is year to we customer in the a to to want - still we we process to a like what it do about to it be to the the it's But figure favor, and work X suited standpoint. what reporting finalizing how technology our out what technology, standpoint we're is pilot experience get the which So the manufacturer going it to to through and from I of

contracts. piece still up announced RFP going we in be the the will early the as good which quarter stages end when X-year to been the to So it out, which to roll at be pilot cardio really see look but is has it front, is the think a second equipment pretty to intriguing - comes I how final the it's with the in technology

Rafe Jadrosich

the the entirely just change recognizing or year-over-year, margins, just the was is there that? anything at you're When else the look way the was from in franchise you decline NAF that driving that

Dorvin Lively

it the the revenue basis, NAF P&L grosses the because a and and On up GAAP yes, - expense.

decline I will said the franchisee last basis was that now So didn't XX about related year's take earlier, happen if decline out, XXX of in it quarter. and months about that as essence. to which we from have in half you points' That conference,

stock half every months, roughly you so it's a is compensation XX salaries previous you kind of half in mentioned will. related that of could So then that if call to it the And the and caller. I other onetime

Operator

of question Jefferies. Please Konik ahead. line next comes from Randy go from Your the

Randal Konik

it of of seems to in placing other maybe of gotten On the some where of U.S. how you're is in to about messaging and nice think areas the about distorting some awareness think and it things those the awareness of potentially about talking of market the the getting terms you since dollars, in might seeding happening continued dollars opportunities. areas unaided you're kind international ad think perspective brand ad differently distorting fund, markets you And not a real volume, in - awareness you today. from in the accelerate National Fund, how brand a the do about has Mexico change? as of brand to place be the like to you talked increases do Advertising international ad How terms do changing but nice

that how perspective forward. about some us give thinking Just you're going

Chris Rondeau

Canada Fund and U.S. Yes, really to Canada U.S. has the forth. the for like NAF, It and in on and Ad is so the National stay stays in so

cross So spend wouldn't we that.

I what asking. that's think you're

has XX started that are spent that its their opened So NAF there. that's actually, Canada with are own stores

to in the it the spend as of that think member be members not to think But to markets I and really penetrate go wouldn't up potential us we drive to yet. that. we're growth, to continue the per outside awareness, dollars to more drives So to to I That's brand continue able we continue allow fill in to of U.S., need here X,XXX, continues open of stores, our with store. what more continue which

Massachusetts, about stores. about had think we You XX-something

where have runway I that CMO new We role. a We that's had to continue as mentioned, just looking for lot - role have California. is here penetrate we're think in many we here I more and haven't to a the

the do. hot how as New a on best partnerships from U.S. other over figure somebody to of out in their Year's countries big use U.S. above competition dollars continue thing the ability. our to So just come well all we're do NAF for the to to have And that pursuit can't to we the quite Eve, that what's in can our next and other frankly and

Randal Konik

member going And have what the know the decades for the how fitness then think Card in just changing about back both various and changes on think Do you Card any in change you you've think you to trends perspective just may equipment, like versus focus seen there's on you in about then about laying of in DRP, think the all? in seeing it, been of you're area? But strength you. the been Card cardio you experience proportion I Black getting at area at that or out the when being you've market amenities White changing Black area about the the in trend floor, themes do all it

Chris Rondeau

it I added run-through typically is When up when six come make or adding they a or per later when back, I've seen stairs. definitely store recent cardio, that of patent five they back, made step off came they StairMaster two run store. trends some to per the and in to they big four, mills now from and we've decided revolving we're Matrix, a think three and

especially, comeback bread-and-butter think cardio our because seem put have little comeback to makeup. are cardio you're And cardio, And well. if bit look far, space, probably back. you still pieces cardio a treadmills. minus close come our comes to three machines honestly especially still really that members by or our stepmills it the gym when but floor is per have So model. putting XX% store from rowing of to when still XXX a Treadmills for or XX XX as or workout it's two in we a store a But I per we the have at

on long are to go treadmill, one down sure. how on it think Is comes that on they the gym, or really about check just people any think a for trend you they comes us same a using long So not they I doing. technology, it's and into member definitely are to, but industry, and member a where no what home. to the back bike. going anything cardio knows when and we bike the to is But entire about How treadmill are a just

better They're technology makeup the is So us and find just member but why us find, really time. is what is now per not likes piece members, but is X One so the it's the educate just hopping cardio is - for still recent the of right that's true true the their on experiences. is they're I workout workout we going average XX early, with the X as around. what the recent to can cardio that whole minutes to think XX, the average on piece so

is didn't just It data we that never hands exist. this could just our get So on.

So on XX learn be from same thing the me, how varieties, we the they like it's want different can that. minutes. for looking To looks it to they're for don't full

Randal Konik

Can just capture member vendors, that - forward? you the list of visit on some on of that technology want at this and how give last you a of to vendors want new you're of of to some you cetera, capture opportunity Have is think equipment data get like and getting that that or give pieces how the types with perspective equipment or equipment. That minutes With looking going system medium et piece want about referenced time? XX many what count to long-term you on to now. perspective guys us data Yes. thinking - about thought us items my of like and the member to capture or vendor and could person per of million me the towards question the what through - of inputs you you leads monetization over you get

Chris Rondeau

about that XX-year-olds. to not only XX example, you the they're what doing? active, we running know XX- - so good back It's doing look comment at I when but by really over But things, now multiple stuff, a which to now When right now question. on the that, they're on XX-year-olds, made minutes more used we but they're the outdoors things. know they they're For XX, but is that it's TV. is still using the virtual primarily early, But are

virtual are retention. then well okay, happen which to to the that, would on those to So as think would - out be which we can about results then lead active, lead better longer, people actually working

the sort back get trials on do of sort that, get it's calories, on we Netflix, to get gain or So it doing use then and perk behavior driving is some to learn Or get we is end. and long-term then free just to try what aren't, active. more of know we is that or to it retention, can others some burn with them Spotify? once people incentivize need to virtual whether - results will them we get So longer more work we'll which because out people

just honestly, next us. Randy, as I to to long as revolutionize same membership. intel $XX new X- for that I've on. be think now, capture to huge not just able this is with advantage. done to to going give I X-year room get be hands we our the that's this do it's their data So And going that competitive a this we the just could going And CDOI the building this, pioneered driver way - here our to is think what industry data, really

Operator

Wedbush Please comes the You're go next Securities. question of from line from James Hardiman ahead.

James Hardiman

that questions. about clarification few around the guess, And a there not question respect it that to placements. the that through I think with to year. timing quarter that really and was had asked going I think I a first, I you first shifted mentioned was some Sharon good

the was I How to the benefit first remainder clarify, should about quarter? a me placement timing that? Just the detriment presumably the And year? help to of a to the think

Dorvin Lively

James. Yes,

we terms placements obviously. So openings, of in total, both and have

so for XX this And XX the quarter, last placements We first year. had had year. we

same that So to still XXX the in guided QX, to in at number we're we which of year a higher still the beginning to came bit now. believe is at the XXX, we guiding we but

is there equipment team when So to will, happen to if number the maybe equipment construction got flooring get pull these slight and contractor's take to goes. a get open you ready before get is and in. rubber the out have when down things and placement mean, Obviously, a the they've of I can the the forward, - ready it

So days through members there gone ready last and franchisee there's rush obviously store presell, members up a the and X. got they've wants to to as as get signed possible, mad they've because that start already few open out in working fast day

a our a than up year. at a look maybe bit as would've cadence opened So thought of earlier number just that bit we slight little stores we for the

last cadence cadence of of very balance year, the think openings a it was basis. last gave way I I to think the similar the for within year guidance that remaining the quarters, the on X should range I kind of be

in So question. that to response was the comment I Sharon's made

James Hardiman

a over just on guess months. the news next clear we the couple that I to want expect should And then be RFP. on flow few I the

the So at up of end is June. contract the

quarter more then which full mentioned that pilot. cardio you'd I the this of talked second think you about call, terms on early But would a have year in share assuming to I'm be August. you

off suppliers. proceeding us that minuses that negotiations then - underway multiple maybe so be to you of on comment commenting help walk last on pluses feel seemed mentioned exclusive Life like nonexclusive me under we Fitness, have their and assumption grain on versus sort Obviously, news. Maybe call, with are But that of salt. the there going that. however like significant So deal to a how the take some to they're to a with speak out. going suppliers. it's that's they everything But multiple And play of through

Chris Rondeau

is I iterations still figure Yes X.X, and out who's still go is need the through couple I'd the we before we to partner. have stuff of new say technology a you, right so of almost that cardio and because would think

ourselves the tell who's want think one back and too I to into team wrong and to right don't corner it's I exclusive. the partner early a up with

year, Negotiations I think we what that piece one going are it's two or but figuring whether exclusive exclusive, at or three looking out. see whether it's all today, one. cardio underway, So it's or not for

the is anyway, cheaper all also business our two think, worked it's so so think in I lose just because you they three mix, or if large get out it might the volumes getting they're they know but to pricing, now, because although Our favor. the are competitive

on call QX pricing normal fine. and be the that is and we'll looking in the more up So notice yet but look margins isn't

James Hardiman

think bridge is we this longer up, how a think should final that a But there's contract or about of for to next the year to you'll contract a the way of then that, over about that? the sort period going once comes be term have contract course and

Chris Rondeau

of options, Yes. That's the one right?

James Hardiman

then that your in And of guess lastly franchisees me. turnover I the terms just the of I equipment. time for replacement realize have frame, requirements

we're I at expected been being of purchasing of new how some if all deferral contract, current getting of technology available. your equipment would've to closer the affecting ahead the But maybe level behavior? that that have the is their good. end really Now sales

all they're purchases deferring So that of me help at re-up. if ahead understand those

Chris Rondeau

a it. for road and the the technology new the the and treadmill bought - console so current then launched, Life down if take the you today Fitness could a good literally That's question that example you treadmill console put of on

that don't it's this slow that don't - they old. it have looks so down equipment that like XX they process years get doesn't So

Operator

go the comes question Matthew line Macquarie. Please from Brooks next ahead. from Your of

Matthew Brooks

that the First in How did to some of Mexico. long store how that have Dominican Republic? on about you X,XXX to, to pre-open I to in compare want openings opening just day? say, ask the get did And

Chris Rondeau

a was The kind typical normal line time about the states of XX here presale that Yes. see It's days and opening. in a XX grand to roughly. you

Matthew Brooks

a the still members attracted many you But don't it's the you country where a can other opening that first because brand. to have with a location, not in you're say are disadvantage in at product that People necessarily countries.

Chris Rondeau

Yes.

And example, barely gym a to not see wealthy. there's options you Mexico, extremely U.S. penetration not Mexico space and a membership. in the unless gym In lot there's I the like think lot when XX% a for of belongs of of a lot it's X%. you're

recognition part the So we we United a States here model of much with the resonates brand have does. that population larger have than don't just in the

Matthew Brooks

quick really mix ones. two many Could agreement in of give housekeeping us you quarter? And And franchisees commissions? amended the to have their requips remove how a first

Dorvin Lively

for XX% it was reequip the the think I right was percentage around quarter.

around gave It should we guidance So for right year. XX. be the

was your the was it close year. be pretty for full question, to we'll the where part we of think What Matthew? last yes, So

Matthew Brooks

How amended giving of many their agreement now? that, have the remove a total sort You've franchisees to on been running commission.

Dorvin Lively

think we're right north of Yes. now. so total around right - We're I XX% or in

Operator

at Chris no there over turn Mr. call Rondeau. to back other I time. are will questions And the this

Chris Rondeau

look call, rest another to of year everybody, today, at and you, great give that more joining and and quarter, the update the for on I well. our the equipment Thank Great. you QX it's RFP us point as forward

look up. Thank for again you. thanks the and call, So to catching forward

Operator

participation. for call. Thank This concludes today's conference your you

may You now disconnect.

Planet Fitness (PLNT) 13 May 182018 Q1 Earnings call transcript