PLNT - Earnings call 3 2023 | Planet Fitness, Inc.

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Operator

Ladies and gentlemen, thank you for standing by. My name is [ Balesh, ] and I will be your conference operator today. At this time, I would like to welcome everyone to the Q3 2023 Planet Fitness Earnings Conference Call. [Operator Instructions]

I will now hand the call over to Stacey Caravella, our VP of Investor Relations.

conference. your begin may You

Stacey Caravella

Thank you, morning, and good everyone. operator,

questions be Fitness Chief the Chief on available Officer, today's live Officer, prepared Planet recorded will call for be is will and Speaking remarks. Executive Today's session being interim Craig for Fitzgerald. replay. Both the call during Q&A Tom webcast following Financial and Benson;

that that our Before our to our that applies we note will I'd like comments Investor website during I'd I Relations to call. our turn updates included the also the remind also call over on summarize this discussing during be like in made morning slides forward-looking release statements we everyone to on the language Craig, call. earnings posted that to the

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

call I'll turn Craig. Now the over to

Craig Benson

for Call. Thank joining for you, Fitness us Planet and Earnings thanks, Stacey, the QX everyone,

I'm a such honored enter chapter to serve Fitness unique of as the track journey. the of strong brand we next Planet of growth truly a record as interim CEO with

As of power this welcoming to the a franchisee, of Planet a the commitment strength our team continue which all industry. of uniquely our lead and position nonintimidating brand, to firsthand know culture, Board to member I and the Fitness us

candidate an CEO a strategy My us. enhancing priority outstanding is growth to lead store to lead opportunities we capturing execute focus the on with finding of Look the the current us team on ahead as returns. in forward to

by members. was growth. third XX.X results. XX% and to with on the System-wide X.X%, new more sales more growth million our EBITDA than move same-store Let's member adjusted growth quarter primarily driven ended than We

targets fourth that our will revenue our performance through for go Tom year a quarter, and later guidance financial and the on. given As raising EBITDA adjusted XXXX. our result for full we're for outlook of

growth outperforming members period for as net We We trends. added XXX,XXX as nearly well QX, feel really in last good year about net new XXXX. the our membership same

for to Gen membership continue We growth make now who base. member X/X our up Zs, net see our strongest of

most We this our believe program. and the member school teams program. more parents enhanced Summer than unique further by and for we This that year's up successful are another average and multiunit X We X decrease. age Pass brands continues among high guardians was to had of sign million million

members XX% of our XX% X% rate team versus than end the pre-COVID. participants paying More in last October, At to new our of conversion members about is compared year. to were previous joins of QX X.X%

member, improvement We higher to all our visits also groups again it as for straight see overall continues ninth the more its decline per in rate quarter. continue experienced We year-over-year. year-over-year age as visiting cancel well frequently as

store We've our quarter, is Xx we global stores XX bringing added Lastly, of combined. new the this new to the opened of X,XXX. locations XX competitors XXX of year, since nearly top growth our which QX nearly count last

part It we that franchisees the the performance of we are model. as We for with long-term what the month, this all have last of was even that a as met backdrop call to more excited review growth we our making all against brand. opportunities new updates meeting our we industry-leading left of

for to of strong us on further attractiveness manage their their the great deployment our the maintaining franchisees focus investments, and returns as our addressing are believe for a We timing win they our franchisees for opportunities member We as franchisor. a experience. biggest improve capital the the while it's of and

on proud years. First haven't the XX raised we price We're $XX that pricing. Card in Classic

in highly changed world. a However, consumer expectations on price have inflationary

markets messaging price Card and that end, around different To have several opportunity for we've testing to the we without on sacrificing country an structures, than take now. in a been whether months couple of growth. our exploring number price Classic are price more points We

are revenue running an increasing to the we tests growth. these price impact recurring has understand As to a continue plan model, we on membership

Now to our levels. membership

coming in high levels. membership membership resulted closures all-time out the has pandemic system-wide Our recovery of

stores are back XXXX will levels. that is to And on clubs mature store of indexing new close XXXX levels as of cohort pre-COVID our the pre-pandemic very Additionally, to new March average. membership importantly, ramp

XXXX by is early that These However, stores the XX% XXX experienced have stores critical of nearly that growth their from our maturity, yet years years first quarters. cohort much interrupted slower of have typical nearly of of consecutive given COVID. from opened This to to ramps member system. not benefited XXXX, were

a net for historically occurs member XX% in As growth of year the reminder, our QX.

eventually stores with longer system, to across levels on take given weigh franchisees but to portfolio. and likely will they rest We expect the will returns membership the consistent these the grow of a

franchise pressures further addressing interest agreement our we're plan over inflation, cost the XX% higher cost new and CapEx control store which returns increased enhance life a total and of of ago. CapEx up in are to The versus continues a a store stores. And the build rates, today, be total approximately primarily to the such that external existing things or The from while XXXX. XX% cost as nearly higher burden to business re-equipment than build, XX-year remodel and for factors lessen includes decade within the are are

year, model the Our management P&L. portion working team growth without improving our returns new impacting of the for been to balance good store trying a significantly on has new

on reducing equips includes committing operating on This focused a of for also while and reduce operating Fitness and new the requirements for CapEx usage adjusting to Planet capital for build is remodel, expenses. franchise opening franchise. the looking and timing changes to and to ways agreement, the reduce making strength plan based Our cardio

the we're through details their us making free for for and the will resources with Tom capital to them We additional significant a long franchisees the momentarily. term. portfolios providing to build that changes of term, near believe amount up going store in the our is walk flexibility

moving new standard The is all for agreements structure forward.

therefore, our their sustainable landscape for closing, taken growth. In and of Our franchisee approaches has for responsible drive franchisees sustainability We right return We we believe recognize it we set our of the management both stores. which and are evolving adjusting the existing to take ultimately long-term pulling without the to has that internal model operating model, data-driven up team correct compromising the leverage us our for for we can experience. changed, outcomes and also advantage believe member all of long-term and the returns the are increase to stakeholders, external.

turn will I Tom. it to Now over

Thomas Fitzgerald

morning, Craig, X address Today, to topics. I'm and Thanks, good going everyone.

as First, further details referenced. on Craig we're our model evolving how

and outlook. XXXX results financial our QX our Second, lastly,

most franchisees fitness including franchisee, pandemic, to and were building reequipped included valuable and stores. provided maintaining importance quickly This needs temporarily our the extensions franchisees We XX-month while both recover. changes and and the for were made help learned trusted until brand franchisor a These were and greater lessons to as levels development temporarily of area our obligations, liquidity for extensions began stores closed. relationship. membership closed while of on stores cycles store various We franchisor meet during and to pressing their agreements existing flexibility new obligations support with the under their nimble

our post-pandemic of construction versus permanently our The refine to store experience our the any for and the reduction U.S. all that with close costs, to due model in of we're significantly a gyms result did further XX% position that using higher continued world was industry, in And COVID today's persistent not new which experienced us we sustainable inflation and has franchisees increased that growth. stores

franchisor. our as also interest Craig the win franchisees. of our As And we in just also long-term is shareholders. It's a isn't for a the this noted, us win believe it for best

part structure. plan As we're making as our of obligations accountable hold build new fee changes to franchisees their how store updating joint to as well the we

of more walk new depth. of parts growth X the through in each our me Let model

are but franchise to the as years from less The franchisees length our change to to franchise of to mark The and a the agreement. it component fee years recognize the our P&L pay impact remodel and required $XX,XXX of the initial first time. to extend the our is is fee. to plan franchise Franchisees to the fee be eliminate agreement of our meaningful pay when XX-year XX franchise life that opens, store over at will at XX fee who we the required

model The the to be reequip extend for Clubs X years element will for X system a of have strength. and with X average achieve be while new to is will to lower and of usage reequips X higher-than-average timing required years. second our for cardio at usage growth and that years, clubs years X X still

As a reminder, stores the received opened previous of reequipped end XXXX at that were extension. the all

minimal So year this schedule today, stores to change our X.X a on X.X those average, Therefore, expect we already. financials. have are near-term impact on to and

X its It X XX XX-year remodel the the second will the number X today's to cardio disruptions first to in in and disruptions eliminates years reducing reequip with have from to operation. of club model. of coincide members deal The with requirement, that the members consecutive years

component third member of the X% growth to without experience. we're targeting model, store XX% required investment the a to build new the to the a reduction compromising For new

In store of the franchise the [ fee wave consistently initial this changes strength past the addition reduction and year to refining our cardio. ] more this and to build, as equipment, value are been we mix engineering have less seeking which in members targeted the includes

open less than reducing of stretching for we're cardio, the and spaces out. equipment The adding CapEx latter and strength added also benefit additional has and costs working investment

revenue. this We to will expect continue to a headwind equipment that be segment

to and potential periods equipment mechanism, affects and pricing on development protect grace will our transition lead our the development pipeline. placement our clarity for as However, of typical growth appropriate we from greater to reequip. The agreements, margin new where to model period adjustments examine we our more alignment dollars fourth part continue will tier to our which margin will to and area

period franchise in an control. will Grace they in outside unit default to a there additional delay X-month months on obligation, world. of a a if periods a enter a their practice a are was now allowed franchisee location which more is if the cure open common XX Franchisees

us fifth our for to equal us of for joins, structure to in a online franchisees model the new all on of fee is growth allows potential to joins, price Now fixed participate and members fee This a element new the dues the percent to final joint from future shift of channel. paying increase. the upside a regardless

still as working we new and this There structure. to through nuances specifics transition are we are that many

As Craig we their response it. that encouraged and is our franchisees, propose noted, enthusiastic we are this highly by model to to the

will accept most it. expect We

results. Now I'll quarter cover third our

my noted. of to unless comparing year, regarding be otherwise quarter performance last All comments QX of will our QX XXXX

with growth new sales More XX.X%. rate increased grew than same-store balance sales was net in the increase opened to compared the QX Franchisee X.X% XX quarter. of same-store X.X% X/X stores third driven We comp by sales of corporate member growth We XX. being same-store growth. delivered and our

Black paying school conversion the Gen pass Card basis was points. The and XX.X%, decrease primarily of a decrease Z of members. summer in participants membership high to our XX penetration increase the reflects continued growth

For due was growth to XX.X% The the third quarter, royalties total new on annual web of and was increase X ad $XXX.X increase franchise revenue to $XXX.X revenue. million. fees increase primarily was join segments. same-store compared The primarily across royalties, driven driven in fees royalty and segment all national increases growth, by was the The revenue revenue stores. by in million fund sales

X.X%, royalty quarter, up third the For the from was rate average X.X%.

we store driven that well acquired sales new quarter. the store increase in the same-store as growth segment second in as revenue openings, corporate-owned by XX% in was X the primarily and stores The

segment last increased year. to store revenue new We Equipment XX quarter X%. XX compared this placements completed

equipment the quarter, equipment of XX% accounted revenue. For replacement total for

to cost $XX.X stores, Our of million. franchisee-owned to to to sales relates which of cost the amounted revenue, $XX.X primarily million compared equipment

relates million. a our includes million. $XX.X To CEO our $XX.X was which corporate-owned adjustment $X.X SG&A $XX.X quarter SG&A for to $XX.X from compared to million Adjusted segment for to million operations million the transition-related expenses. expense, increased million. was store $XX.X This

net was share net National $X.XX. Net found release. adjusted diluted to was GAAP net expense can advertising $XX.X was adjusted income compared to of $XX.X Adjusted million. and the earnings fund reconciliation income A $XX.X in million. income income $XX.X was million be per million, income net

GAAP adjusted million was can to to $XXX.X the release. A EBITDA margin and income with million in reconciliation net XX.X%. EBITDA compared earnings was EBITDA found $XX.X of adjusted margin be EBITDA of Adjusted XX.X% adjusted

and and adjusted Corporate million margin was $XX.X was adjusted segment, adjusted adjusted million was store By margin $XX.X EBITDA was and margin EBITDA Equipment was EBITDA EBITDA million, XX.X%, $XX.X was EBITDA XX.X%. adjusted EBITDA franchise adjusted XX.X%.

sheet. the to turning balance Now

$XX.X on million securities cash December respectively, As of XXXX, included million XX, to and restricted we each equivalents XX, cash, cash, had cash which and September XXXX, total equivalents $XXX.X of marketable cash $XXX.X of and million $XX.X compared of million period. in

fixed-rate we as September long-term shares. XX, costs, used rate to $X.X million approximately of of debt billion of XXXX, Year-to-date our Total that $XXX was excluding debt, consisting repurchase interest financing blended a X.X%. X securitized September, deferred through of tranches carries

reminder, a coming we As September debt until of due don't have XXXX.

Finally, this morning. we particular, updated which XXXX the in stores skewed typically hard Historically, store work Eve. openings December, our and press Year's to included franchisees as new in moving outlook, New our on before to new release quarter, our open fourth to their to

similar in open Chief time the a to the municipalities. experience the them line past new to in few However, among many we delays continue store. various to years, extended steps is unpredictable permitting

believe that in stores we our a remaining than XXX range have and XXX less store for between equipment now placements XXX for on the expect With we that control. things we placements year, and X XXX franchisees months between and narrowed new and new can new and openings We franchise in in equipment accounts stores. franchisee the

up continue mid-XX% growth to segment in for expect will same-store re-equip expect range given membership system-wide year. We make of sales approximately that to be We equipment the total single-digit now sales the trends. our revenue strong high percentage

in invest to expect by originally existing revenue than to as evidenced continuing full re-equipped we forecasted. the year had greater that we franchisees what stores, their Our be fact our

growth strong revised XX% our growth. capital as on outstanding we approximately growth expect approximately our XX% year-to-date, light EBITDA Given to We share $XX franchisees approximately are shares sales primary behind reequipped approximately driver adjusted income net This building stores. our approximately now the promotions of QX new expect growth sales is revenue expectation and adjusted per in XX% reequipped of adjusted XX%, earnings million. and during allocating based of

We and million, in to expense XX% continue high to CapEx up teens $XX range. the approximately up expect low in the net be percent D&A interest

we quarter, X-year for XXXX, next targets November mentioned will XXXX. which year revisit provide we last we we initially our when As in back outlook, provided our

leading sustainable XXXX the meantime, believe teams our are remodel their long-term requirements and working they our their further benefits continue and our development under to growth franchisee increase We competitive will this returns, determine long-term and as and for entire priorities that new plans In franchisees system. enhance new structure. our value position with on near- and our model shareholders capital deliver reequip

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

Operator

from Our Instructions] the Jefferies. comes of [Operator from line question Randal Konik first

Randal Konik

shaping us but I you're talked guess, would is couple be guidance us what be change be the just perspective all directional for just much going equipment helpful in there be should would on call quarters, the helpful is openings how and you to about about going around some revenues, on shouldn't change 'XX what next I in replacement into thinking you to a give get that think we like of from unit perspective. a year, said curve

obviously, the give in be us you're from path year. guidance, year framing just just -- out without but So kind about us going would here about of not going specific and takes super next think helpful next puts just help for to

Thomas Fitzgerald

is to to to is couple that Randy, that we're the big we free I thanks talk them franchisees. that's made because -- for move question. We at this in One, these for to work for to doing there's of move the desire difficult up move capital appreciate the ahead Particularly the that know remodels a of a the did reasons. right? changes moment us, about that's out. the XXXX it

will. but will have more are those of get we a that take on, done, ones little that brand we to can some Now time damaging

that capital. up so the And frees

we drive the even should -- strong, while them some -- then making stronger growth. are other So the unit returns making help changes some to also think improve and

all plays both their out XXXX, just but they to the us also and How our that of both -- pipeline, play play and ahead things is work how out, of this the in teams executing our of question, see directionally sort changes. through, how franchisees to terms of work those agreement really in with your

So anyway, Craig, go ahead.

Craig Benson

Yes.

know, this add many want to organizations of mean, rolled just October I big franchisees. I the These cases. you in out So our thing. to as are we one to XXth

well. it going takes about no as what these process so changes bring huddle. And sort to to time They inkling to the them we're for of had

they're well. so And as processing this

little us So to of a it their take it's our to through into bit invest organization. [indiscernible] going time get organizations

So that's, Tom think, what talking about. a I big portion of is

Randal Konik

the price or can close kind you so you would updated of that those get how been change top tests, that so guidance -- doing, on price kind And Craig, you a some pipeline at can for of to in you probability it. about or then would I the do that How floor on some floor believe, then changing the just you is of pricing gave elaborating, sensitivity, give there, White so us -- And . been point? unit just we you get think Card that, on the can off based you far a flavor be $XX of month just you've to year it, you for little those a elasticity, so Got tests? the White Maybe in would that we have feel the talked least perspective you what could see? of Card. high this work kind on price testing lift then have what's the learned handicap

Craig Benson

to store talk sort but the wanted far about we about I'm as openings of where go. I pricing, let talk going Tom just as to are

of permitting the at said call. Tom increasingly of a forecast the to process become beginning changes, It difficult and getting it certificate because and right occupancy. the has in the inspections of Listen, entire especially openings

more a changed for little used a be -- worst. straightforward, what straightforward And or has more the to lot so maybe

the with dealing we can. And franchise of best one are that we're our me, very hard working them. and trust so And I'm

is I things out what's get be able to ready have in happened So get to as marketplace, and to it the all the not complete but opening. frustrating go

Thomas Fitzgerald

model, the know, it Yes. longer QSR subscription as than And test. you you with one, the to have a Randy, read on typical pricing would we retail

so we're test. few it XXX stores We've and different in got through. the reading DMAs $XX roughly And a

And on it's not so sale. sale, we're it's $XX on $XX when

in call So in periods what it those both sort we reading nonsale of we're the evergreen sale periods.

the don't growth. for we But to is off our a growth we member member some end criteria at sustainable can the sacrifice getting better want is off don't about upside, or trying careful then say think how we're is to lifeblood of cost than for that dose be -- us the restaurant given barrier retailer like we business. where into adding what learn way get And couch. people couch, want transactions We them, while of very are to and just is our today. to day, to place we we want the the a If a this will. We we maintain

and may have only we may move with It be to -- find that not it. if prove tests, bunches not bet something we'll these little may some have. we definitely a or that on to that can't be to hunches. to out other take got better than they run what scientifically prove we what's something, we figure price tests points X We to time, us it's but And

Craig Benson

time stays not somebody one And ours member. of then the the length thing. a of add just Part to want price. entry I is It's just

So extent, harmful That's that influences member. to value in at looking we're a of our and a lifetime the business, dramatic price the way. to

Thomas Fitzgerald

that of we're part member talking is growth Which about. that

Okay.

Craig Benson

That's right.

Operator

Markets. BMO Our comes Siegel from Simeon from next question Capital

Simeon Siegel

Hoping in your families [indiscernible] challenging times. are these

is gym. ask our the store or just to decision talk the there for guess change guys a will Or returns? you to in going used concession is help run you change save what an you to gyms I to a the this bit a Is are can new little commitment model. you to be towards requirements are a seeing something or more level more, this the to Or as structural to their agreement else? the dollars So got to?

way to improve equipment. own So Tom, mentioned for margins you think see the I maybe your a

thinking through won't just you how then and the to remodels do gyms ensure keep kind loosening that that experience. So these replacements of really just hurt restrictions through, historically fresh, that and thinking if customer where necessary

lastly to negotiations? is believe then Or you for And to sorry, there just -- I franchisee expect anything guess, benefits? this do the of lastly, else come is end

Thomas Fitzgerald

Yes, Simeon.

You're setting record there. a

Simeon Siegel

Sorry.

Thomas Fitzgerald

that's -- okay. don't I

what I -- been -- could looking think with the so and working that we things consider. on for here, this team months at various and we've the leadership Board

the I costs, remodel recognizing things them to can some was this value that calls from do. done acquired of think still you them we've has inflation in a corporate anything somebody is inflation first asked, get side, that on our of build they about have cost At when If sorry, some what store. end day, all then higher And spot the store been kind else liquidity cost they and we've us is those to on time talked the brand help the engineer we sweet thinking. to there the are give we of thought the of that's -- or member remodels. this a damaging, whether franchise fixed, the

to do a have variation, than the if goes on cases even the to that's more So there from you members going little the to re-equip beat where may that to are reequips, average, earlier to X-year got some more away of that a really if have moving probably, it's and But a a And cycle. the want one-size-fits-all lot getting store bit cases, you're up. cardio in we're a right? you

And with strength. the same

a on not X-year the store else quite cycle strong then on your is membership, would would as less has be do cycle. as you thought everybody X-year and or you If it just

is the considered taking into that of that So based usage member it is essentially. the on some so account experience

can't the it's estate. and pacing quo, find growth terms of recognize And ADA. difficult as quid ADA trying rewrite This is really the We pro increased as to an a store it's -- do. to your sort store real get also not harder of growth but I'll a, and mine, the it, to to -- call

I of the growth. record year low's fourth in center really it's think said CBRE a row

So we're trying is of to I the factor our with out work and in think figure those really best all dynamics combination to franchisees what changes.

grace on They're franchising going pipeline. want get the While a better point, method to the in side, to also more uncommon move and of periods. these and to have we from allows away control visibility to us, cure Craig's over

And so to intent. but to to we have to we where take where it that, we will transition and want go, are the from months probably a do few that's

ultimately, those was the best store the we -- think, could to free set to we returns it. excited stores. that improve in of some growth, And store to about we're develop this of invest up And cash new improve changes new

enthusiastic. has And the so quite from been far, reaction franchisees

and to compelling, yes. and Now through end go up we saying, how the all most but plays how many in feel we out and see have convert, that economics are we'll

to for I this? economy think a we think more while, our set of the that's how evaluate the continue and sit after to changes and is this how world going how changes, big come there a -- changes to Is business moves. we'll

what you member across We're magnitude, impacting growth. business last to stores our all lost good orders competitors. overall, is year. of growth X/X opening driven up. compared is quarters by when growth fact some sales want Profitability to us that of our timing well. strong. about I member the is is our than the feel really is don't more performing that's tell same-store But equipment got on We've get this in I'll we

business. our our a So and a a feel what about us, it's win And -- created, in this a things for win a for just ultimately, good franchisees think, lot we for is win we shareholders. of we

Simeon Siegel

Perfect.

the well for I a rest. lot that's think

Operator

Our next comes from from the of Raymond James. Joe Altobello question line

Joseph Altobello

the that? question, can I out accelerate first the permitting guess anything this, I on your but inspection and know is on do guys town? Or is depends just I there and it of you really side and really the to it hands -- think particular answer to

Craig Benson

upon you're dependent is completely It trying to locate. where

the start, are through towns And way and just goes towns other are starts the inspections. it and very Some to getting the all very cooperative with it slow. permit

The and I tell My for last a X.X anybody. decided second go ago. the decide spec didn't to club, last so Italy or guy -- just building to month months a opened

so we waiting for into come to get And was couldn't trip for them back that unplanned. reset his month a from

departments lot permits and some a far have since expediting and new personality of taken of the and towns And so the of as certificates inspections COVID, as some occupancy. of

you don't it's know That's if to case, process. you in because you're happen. sometimes doesn't what And in go in but other So that going new into don't a even the going you expect what you're you till you're the hope the town, and starts. it my with thing deal know to best, for until

are towns don't it's But Other great. you -- know.

one and inspection be process may So different as portions it's fine. difficult fine be to another people, not the are run that may and so by section project and different of the process permitting section

all the is it place. over So

Thomas Fitzgerald

want maybe On so on And so not and -- that. an mean expeditor can I Yes. want add they'll permitting is franchisees get Joe, it one use In really they I inspection thing some store track fast cases, to that. to you Craig, than definitely the more -- like they difficult to there's nobody it's been. whatever can. they going do much. But open, --

Craig Benson

opening, we if the not and on of And free difficult free you're benefits us periods have not enjoy to stuck even rent but it's you're open free rent rent. periods, those too expire because

Joseph Altobello

it. Got

Is a timing of must but you And do see qualifications? what fitness a you or obviously know I new Okay. guys experience that of early, not it's the And in are maybe how just CEO. playing terms out? necessarily? on looking for

Thomas Fitzgerald

is going it's good interest. I The process early. So some hear, from what We're well. attracting

clearly, there's far fitness pretty anybody were don't well. As us qualifications bigger I than as in fitness. go, the think

our least would important do is attract perhaps know. public we important at can't bigger how somebody and important us company to well. experience us obviously, is that know we as to all to understanding a company, a So Consumer Consumer is important more certainly, international what globally is marketing than this, But fitness experience we us. from us. company, to branding

Joseph Altobello

guidance And you year be to would expect place after? in for or someone before provide you next

Craig Benson

That the might who moving know this know be a a job it focused doing don't that I Board is bit proceeding. how good But is tight, but on exactly I this maybe. and along. process fast is very running

Thomas Fitzgerald

you hard of find this an place your always competitor bigger times know, Joe, role. think you're growth is as and to lots than ] point, predict, attractive to opportunity. next where to [ with I X-ish Craig's Hard It's a

an important job, is time. But it our to obviously, we take make sure

end February. providing we're the guidance at think of I

think that's go not -- hastily. I urgency, Craig's moving the I But but tight things Board is pretty to as with these point. think

Operator

Our comes Guggenheim from next line Heinbockel from of the Partners. John question

John Heinbockel

Tom, talk of on you forward, any out? have shifting then period, one you do other, it Meaning, X that impact, Is way now, do openings, transition you it continue? or does And the that can think, does about push X? cadence if January so on mechanics over? you grace When of the it from the think I'm pull whether right? --

do returns Is need ago, need As Craig, just to need what X Do that's some -- And fine because see up to alternatives? see see improvement? to never stabilization they want were it maybe relatedly, step others will a and to you relative franchisee, for you you other think right? again? what be then to -- to years modest

Thomas Fitzgerald

the there, one I'll first Joe. take Yes,

documents. take a gosh. We're those -- moving little -- while. going we're through all to in sorry, here changes So It's John, my the

by period. a through store period whatever the -- We our time not to today, transition is grace to be cure meaningfully it. is under a in that's different We if And individually. we grace intent than expect -- need would how store to process moving a move exist see for case work essentially grace to it have will which method. by the January, we'll that But particular line that a

So we from process will don't [ other. of the Craig It's timing now. on new think maybe of the question. that defer matter Al, ] it stores are one to affect the just to a what transitioning in

Unknown Executive

No, Yes. no.

what X we and being need talked this the to question. to for starts make it So as you inflationary is. deal stronger together I'll brand able it and do all it with of from sides both of aligned where us plan And frequent about this with franchisees to work maybe environment. take thanks our buying the with even to I be to huddle than having to enable our together back And franchisees. do I the love pillars

It's to at away, not go not soon. least going

we need best we And the aspects so of model on to different can. that to work do together ensure we this

so And those areas leverage. one of is

never Our to a size pricing, directly. leveraging job that done so for is people good for we've with of work really that big opportunities

to XX.X locations. starting consumer we're has Some to promotional changed that to clubs sell at to X,XXX but doing of our before, million merchandise that vendors would the within and their now, members, come we're want have brands us scale see things never happened

is the But $XXX,XXX Total I'm to likes going renewal to that Tom last came in laugh last my build harken less X back over $XXX,XXX. for years I And about. to quote due before X got claims in $XXX. business insurance. insurance paid than at days year my came that

XX that I to work best got with with and not product gyms, but with different to say, insurance all acceptable. on of the But X,XXX, an and get don't leverage people we've price these opportunity some things. at an lean goes that's company the across to -- best have the So

So that's leverage.

this more earlier important story promotional need is value because we into much that into our is what job as out these marketing. also And do do Gen are We that have that and as well that we get need to stand to We to thing branding opportunity but other a to what to very sure us. for? do you brand talked Zs there, you The better with make have marketing. an about

do the job better just to brand. to order are need this we in really grow those some a of of things So

can have I make look at maximum we to believer different clubs, big and testing the our the be So a putting really pricing that in things augment new brand, this iterations value experience. of customer innovative pricing to in our -- getting we that we sure we're way in the to have

well, So at those this are if do another things we those the to around we for be need brand will do. of least XX some And years.

John Heinbockel

spend quick higher, spend restructure like and To do million that a right? that They . basis about How that? right? -- near-term provide up $XXX you Guys, XXX That's down As opportunity, looked you get is follow-up to and one an right? that not of can maybe right? less. franchisees, brought relief Is points you the it's to national, more marketing, think always opportunity road? since

Craig Benson

coming, It's changing I be we need And branding said the million right and We're not At grow with to into to by have closer spend it's bit to -- we to way, little going now. the about promotion. more hull, the much year. mix. this probably less about next And better. talked thing brand we're because ready a I a little $XXX

And it's big be spend it So effectively. need nut. to getting a we to

the of else We biggest every far, of marketing. and anybody member $X.XX goes into and dollar marketing are, spender by

use have a term. communicate is big the I'm flywheel. it nobody a with some it's sure it's call also big I to the So but do people Chris what does. else expenditure, used not same But opportunity. I'd to we the term that ways

Thomas Fitzgerald

is was merely there's Craig and of it. folks that X start think lowering get reducing discussion rate. the remixing John mentioning thinking And the we not before fitness a it, that just lot into still We about to taking

Operator

Rahul from Our question from comes Krotthapalli JPMorgan. next

Rahul Krotthapalli

something your about from the in what clarify equipment comments way you to to just on cost equipment profits probably franchises talked meant basis? a you the is case-to-case it the how the know the the I there differently can Or pass least through Is buy protecting margins? can segment. you thinking Tom, a at about you you're it? where dollar

Thomas Fitzgerald

clearly we Z functional you evolve about continue seems getting of convey to the Yes, same I far to to have used. strength versus about and like heard things and was may where are the cardio. us bikes as Treadmills there what I mix still prefer equipment, elliptical the less get talk think workouts is but Gen trying use,

cardio readjust -- it's taking now of So just cardio, swing cases, just first work because more bigger space the some Zs than similar XX% base it's open areas took mix millennials We're and a to move this or so have less are more because, to given, quite and costs out. a strength though have -- Gen in have strength. been That to at mix the we've because -- same. functional the adjust the less not people habits we our can member and on that

the new per Overall, store revenue will come down.

charge, the And so convey. That's trying was the what we new roughly that we what earn placement adjusted store that to we've margin is our are I dollar margins same. so on that that done

historically. that do see how that's trying was it continue and to But -- that, so done the convey. Now we've We'll we'll I what evolves. all to

Rahul Krotthapalli

it. on And growth -- the the follow-up on Got a model. changes to

here, the uplift it's looks million value close terms at period XXX up the present over is $X.X to and store and close returns it bps of per this looking of build math like life the to new savings. in cash-on-cash of translating So

this So by is to expect improves of at back think it this to XX fair year, like stores each the about that to is way right visibility it? on least XX envelope, the

Thomas Fitzgerald

Yes.

CapEx are I there the X dollars. think different right? One is things,

lighter our stores, rates a the at thought patterns look CapEx and this and model most, heavier higher of to compared cycles, to we our we've flow-through OpEx usage attest all light way stores But created Rahul, I is built appropriate either Prior we model standard. . And didn't that to inflation not today, interest read and in the that know, have you the that. much X building it back when then strength and and equips were have was saying cardio, on all a and to forward, cardio closer XXXX before, to and in them. really As design what the like -- reinvestment XXXX, to margins stores changed also comes was it that to And look the equal we're stores remodels. remodeling. are

more stores cost to were remodel XXXX those prior going stores So cost be to than and the forward. the remodel is that the to built

So one when we not some but them. go apply frankly, we can't size fits again, happy there are we're with that, a in all, stores them,

remodeled, that's we're translate you calling units. sort economics, ahead to need admittedly begin place So strong those of from brand store improved and damaging. about work be improved can't us To still the new really as franchisees, I starting stores working and But talked store That's what will the returns a darn to and store earlier. with of new pretty our -- with. incremental Craig that's

Craig Benson

margin just I there's that's bring to to not it no all maybe up corporate. in thing clear at And everybody. Remodels, want one for

from royalties It looks margin But comes new and there's therefore, more nice that. a members, our no box. better nice hopefully it's and get remodel. from it So attracts we that direct

Thomas Fitzgerald

revenue or margin There's no implication.

Craig Benson

Yes.

Operator

comes Our from question of Chris the next Stifel. from O'Cull line

Christopher O'Cull

impact made growth the investment the Tom, model initial on franchise this elimination changes fee? can quantify expecting cash-on-cash new to also, you're And the by of being what can returns the million changes? to just beyond $X from XX% reduce describe are X% the you you

Thomas Fitzgerald

Yes.

a So it's not one to done, a target, continue want and to now going Chris, right? to We and and forward. it's ourselves challenge

little a we higher for of better have build. historically, a cost term, urgency now everything the lack maybe of given more to As

nicely. project they pretty members But historically The maybe and of average, my way again thinking ahead so improvement may on forth. on store the current It move we and environment. returns saying many we up it's about, from so that modeled think take on with think how no I it, the we've get depends and should and obviously schedule the an folks

turns now really yes. all we in conclusion. model, changes the once this I through think new And a to maybe folks hopefully new intent growth after. themselves But to that this and And will model, and so that's the no same I that on, these come we're do that think work math

Christopher O'Cull

of understand system. the ] from in made new industries, us into you're had announcement desire franchisees with grow And then saw and to Can kind to a bring Flynn system? in whether operators you interest recent Group's opportunity we the Craig, franchise the filling help that and a experienced investment significant other how meaningful [ from . much Okay. scale there's

Craig Benson

have Dunkin' just have I well. mean, And XXX I and interest Donuts we we have know, franchisees at Donuts, in you about as X,XXX Dunkin' about here. as

So scale many of are operators. our and they big have franchisees

We're wants Group to with Flynn excited the participate us.

we've different But their -- the the brings had a is of in different models. help can be of a dynamic. helpful this clearly, sources interest experience other franchise to from number over all they think and because system past, I

what somebody strong pretty system. the the in system it have that for operators opportunities see in So brings some learn to and anxious from the large to now. us else we right But comes

Thomas Fitzgerald

Chris, in the the the in investing situations. too. other rolling case Group Flynn And on in operators just thing They're that, like one of

Christopher O'Cull

makes That Yes. sense.

Operator

Our next from question comes Zackfia from of Blair. Sharon the William line

Sharon Zackfia

just I top there. of I'm of of development that do guess that I within anything maybe is appreciating top the that are for funnel? more that funnel can you delays buffer challenges do curious, of the all can control? kind back going into anyone's mean, to bring what kind not to against to you the and help

there? franchisee And requirements capital to then guess changes will if be develop, to a capital do secondarily, these lag logical time just to open by the a really time theoretically adopted that would more I what I'm future free that frame for up be XXXX? is impact late club. Is the franchisees. not-too-distant to given too in extended it now these Just

Craig Benson

associated don't all with now. Tom one, Again, this other few which development question. a availability. good there's mentioned know a ago franchisees month answers real estate it's the got a and just than Yes, But we is information less our because issues

ago. And we heard have we And the leverage years earlier. estate industry scale talk hard bring. just me that about way leverage have think employee -- need the the we employed so scale work real to Again, should an for you as with our in I we

of able the We're I space, be scale their $X generals largest take that we're [ X. don't leverage consumer X we've of retail employed all that and that. But third TJX ] think to is and advantage to and concepts

do site. finding go through order things you have first it. the other it's a on, to to all is in then the thing from So And

amount that Tom last so the over gone the of has development consistently CBRE And mentioned years. said down also that X

really past us, help to that we're into. So dynamics. our and to a places finding different push trying we're maybe wouldn't get few that into should the we help us got in scale have But

at City. to the open day, we need expeditor. and find better club. think It each took and me that. But Tom from end and years bureaucracy's process, the we other the the that to the in an try bureaucracy mean, X of learn in and towns through expeditor then I ways And do can I had permitting, get of to these mentioned some I Jersey

it unbelievable. so And was

what to it have it. you it is -- is sometimes cope just it and And so with

Thomas Fitzgerald

able like And maybe be recently, that, come former back to of Yes. try do here. that a time Bed corporate get segment in point, our more funnel of top Bed -- the come are to & stores to actually to to to a big couple way. of folks sites number Beyond, we our those Bath Aid, do brands Bath opening Sharon, to add your We're at & some of Rite Beyond we over

So but I think trickier rates that's another opportunity, it are vacancy tougher. is the given

where centers some exclusionary fitness the thing cases, allow people have other we in say, space. don't I'd clauses into The

block will retailer it. Another

team center gym the there the we around those to And are very say, in and experiences. get us as we're those the can that leadership because usually team center or with what see real traffic of our doing from if so top different patterns are some brands, to estate you've our flipped heard fitness exclusions typical tops than

are and Our days not Saturday. busiest Monday Tuesday,

work So fighting lot all of of and on fight the we're lot it's fronts. a a activity, but

Sharon Zackfia

royalties at streams looking base past Card the there revenue introduce there mentioned monetizing there could mean Okay. And of been of with the just keeping just associated I very you're -- doing you've White other is really I disciplined the the membership are members? you Are kind that and membership with increase mean, you're franchisee changing that. complexity? there. playing in you that then revenue ancillary other some of equipment that and tests points price beyond ways dues coming about the would it from the

Thomas Fitzgerald

me heard includes you innovation, So we price. say -- innovation and earlier about

the even the how ] in And we market. way be more go They so a we're [ creative lot helpful figuring out using and Group an as be example. Fling and to of to may getting information

first a innovating of looking if including longer in in some sweet But we're here in to And as already add-on and lot price the to what at but testing well so of we at. can't foray run, service the find got going I've there's to announced. constantly at we're experience our we've we things, different or be it, point something franchisees areas, But be have that in going be. spots no looking that that this time, see to like we're need is places

Operator

of of America. the Perry Alex final Our Bank comes question line from from

Alexander Perry

on potential you right thinking you are Just Black gap the help the penetration in how sort Card? move tiers? Classic a the X gets between about Does pricing what going to from narrow Card here, Card pricing tier the first, about higher of that how thinking Black Just direction? are

Thomas Fitzgerald

Yes, or add will I'll and answer that, Craig it. maybe start to

think we Gen Card Black So lower to couple Card I year-on-year being is probably the the mix things. a of Black us Alex, you mix. Z is a think, talk due penetration. They One down heard about, have

first bigger hitting. The second last is sorry, thing -- part, in though, and we this may feel QX be QX, was actually year than in the Omicron

sale muted. Classic our was Card really So

against first So been half the or in the of that the mix mix. Card that up QX we've a carried unique of what and of was Black part Classic Black through was really the of our the And Card that's in penetration bigger rest year. Card to

January when anything gauge sale it is our okay, better year, of QX of on in are everything 'XX. think assuming we'll we by and affected So was get is like in I all a that next not

up against QX, which was think this true that year's will a be So I more typical. much read

of the we're in the at that's something spread looking Black test. clearly Classic Card, Card and between terms In

in member test earlier. number the growth, to As I you is in sacrifice versus dues as way can raise imagine, mentioned a doesn't our stores, but goal control the that

And the point to as trends as Black well Craig's so the and earlier joint changes. that how cancel Card we're at mix trends, looking to

it were there's factor enabled Classic Card we've gap for lot and $XX.XX. At it come there. out was point, made XX attractive they were Card but in and who to amenities people $XX.XX, had increasing Black the a for its thought one until the $XX in Card now, Card, So Black in all to way X going so a an that up membership membership. between way And to Black of the it come

but So more to other points to goes to drive that see growth. we'll mix member a find without sacrificing dues, see also continue price evaluate how if of and and the options we can test better

Alexander Perry

our Perfect. model And for terms the sort models there the we as pretty on incorporating implications some call be it in move Are helpful of you store anything final just we modeling that impacts my of new with any like, to then sounds forward? people should think like But just question. the of transition near-term muted. is would be the are sort quick that there growth of in

Thomas Fitzgerald

thing, Yes. here. No. Alex. the points just maybe high And Sure

then in cycles. stores as on stores were anything forward, built got a all through XX-month and XXXX any cycles. were in So to X XXXX that reequipped those we X And were built built got they they the that And extension and extension years. on and those our XX-month way were any an XXXX they their XXXX making changes, back prior,

So are we stores X those that on the what changing and X to and are strength. cardio described

stores in when cardio we it X-year now equipped in a the impact way really, they're see they be XXXX due until some that's were is cycle. But So pushed isn't year. on being of that the XXXX, would the XXXX, the

the first So impact there. really that's

if carries and there. impact on not think enough And close then what always that stores opened you exact, you be. when it forward through I what -- will from not your modeling work get might and it's it's it So but

new But in is some for cardio how liquidity changing usage we sort we here and that was the think not one to up recognizing in the could strength free the trade fits way size model, best cash all to all, shifting of what we're about. reinvestment, and from things out we talking equipment recognizing growth about talked and the

day, outcome We benefits far thought at years. in re-equipped the out -- the the outweighed the end impact the of the

Alexander Perry

Perfect. That's of helpful. Best luck forward. incredibly going

Thomas Fitzgerald

Alex. Thanks, Okay.

Operator

does and for ladies conference Thank This you you, call. conclude today's participating. Thank gentlemen.

You disconnect. may now

Planet Fitness (PLNT) 7 Nov 232023 Q3 Earnings call transcript