UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
| | | | | |
| ☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2024
OR
| | | | | |
| ☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from ___________to ______________
Commission file number: 001-37534
PLANET FITNESS, INC.
(Exact Name of Registrant as Specified in Its Charter)
| | | | | | | | |
| Delaware | | 38-3942097 |
| (State or Other Jurisdiction of Incorporation or Organization) | | (I.R.S. Employer Identification No.) |
4 Liberty Lane West, Hampton, NH 03842
(Address of Principal Executive Offices and Zip Code)
(603) 750-0001
(Registrant’s Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act:
| | | | | | | | |
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
| Class A common stock, $0.0001 Par Value | PLNT | New York Stock Exchange |
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| | | | | | | | | | | | | | | | | | | | |
| Large accelerated filer | | ☒ | | Accelerated filer | | ☐ |
| | | | |
| Non-accelerated filer | | ☐ | | Smaller reporting company | | ☐ |
| | | | | | | |
| Emerging growth company | | ☐ | | | | |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒
As of November 1, 2024 there were 84,180,623 shares of the Registrant’s Class A Common Stock, par value $0.0001 per share, outstanding and 413,207 shares of the Registrant’s Class B Common Stock, par value $0.0001 per share, outstanding.
PLANET FITNESS, INC.
TABLE OF CONTENTS
Cautionary Note Regarding Forward-Looking Statements
This Quarterly Report on Form 10-Q, as well as information included in oral statements or other written statements made or to be made by us, contain statements that constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Forward-looking statements are neither historical facts nor assurances of future performance. Instead, they are based on our current beliefs, expectations and assumptions regarding the future of our business, future plans and strategies, and other future conditions. Forward-looking statements can be identified by words such as “anticipate,” “believe,” “envision,” “estimate,” “expect,” “intend,” “may,” “goal,” “plan,” “prospect,” “predict,” “project,” “target,” “potential,” “will,” “would,” “could,” “should,” “continue,” “ongoing,” “contemplate,” “future,” “strategy” and the negative thereof and other similar words or expressions, although not all forward-looking statements contain these identifying words. Examples of forward-looking statements include, among others, statements we make regarding:
•future financial position;
•business strategy;
•budgets, projected costs and plans;
•future industry growth;
•financing sources;
•potential return of capital initiatives;
•the impact of litigation, government inquiries and investigations; and
•all other statements regarding our intent, plans, beliefs or expectations or those of our directors or officers.
We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements, and you should not place undue reliance on our forward-looking statements. Actual results or events could differ materially from the plans, intentions and expectations disclosed in the forward-looking statements we make. Important factors that could cause actual results and events to differ materially from those indicated in the forward-looking statements include, among others, risks and uncertainties associated with the following:
•Our success depends substantially on the value of our brand, which could be materially and adversely affected by the high level of competition in the health and fitness industry, our ability to anticipate and satisfy consumer preferences, shifting views of health and fitness and our ability to obtain and retain high-profile strategic partnership arrangements.
•Our and our franchisees’ clubs may be unable to attract and retain members, which would materially and adversely affect our business, results of operations and financial condition.
•Our intellectual property rights, including trademarks, trade names, copyrights and trade dress, may be infringed, misappropriated or challenged by others.
•We and our franchisees rely heavily on information systems, including the use of email marketing, mobile application and social media, and any material failure, interruption or weakness may prevent us from effectively operating our business, damage our reputation or subject us to potential fines or other penalties.
•If we fail to properly maintain the confidentiality and integrity of our data, including member credit card, debit card, bank account information and other personally identifiable information, our reputation and business could be materially and adversely affected.
•The occurrence of cyber incidents, or a deficiency in cybersecurity, could negatively impact our business by causing a disruption to our operations, a compromise or corruption of confidential information, and/or damage to our employee and business relationships and reputation, all of which could harm our brand and our business.
•If we fail to successfully implement our growth strategy, which includes new club development by existing and new franchisees, our ability to increase our revenues and operating profits could be adversely affected.
•Our planned growth and changes in the industry could place strains on our management, employees, information systems and internal controls, which may adversely impact our business.
•If we cannot retain our key employees and hire additional highly qualified employees, we may not be able to successfully manage our businesses and pursue our strategic objectives.
•Economic, political and other risks associated with our international operations could adversely affect our profitability and international growth prospects.
•Our financial results are affected by the operating and financial results of, our relationships with and actions taken by our franchisees.
•We are subject to a variety of additional risks associated with our franchisees, such as potential franchisee bankruptcies, franchisee changes in control, franchisee turnover, rising costs related to construction of new clubs and maintenance of existing clubs, including rising costs due to inflation and supply chain disruptions, which could adversely affect the attractiveness of our franchise model, and in turn our business, results of operations and financial condition.
•We and our franchisees could be subject to claims related to health and safety risks to members that arise while at both our corporate-owned and franchise clubs.
•Our business is subject to various laws and regulations including, among others, those governing indoor tanning, electronic funds transfer, ACH, credit card, debit card, digital payment options, auto-renewal contracts, membership cancellation rights and consumer protection more generally, and changes in such laws and regulations, failure to comply with existing or future laws and regulations or failure to adjust to consumer sentiment regarding these matters, could harm our reputation and adversely affect our business.
•Our failure to address evolving environmental, social and governance (“ESG”) issues may have an adverse effect on our business, financial condition and results of operations.
•We are subject to risks associated with leasing property subject to long-term non-cancelable leases.
•If we and our franchisees are unable to identify and secure suitable sites for new franchise clubs, our revenue growth rate and profits may be negatively impacted.
•Opening new clubs in close proximity may negatively impact our existing clubs’ revenues and profitability.
•Our franchisees may incur rising costs related to construction of new clubs and maintenance of existing clubs, including rising costs due to inflation, supply chain disruptions and other market conditions, which could adversely affect the attractiveness of our franchise model, and in turn our business, results of operations and financial condition.
•Our dependence on a limited number of suppliers for equipment and certain products and services could result in disruptions to our business and could adversely affect our revenues and gross profit.
•The other factors identified under the heading “Risk Factors” in our annual report on Form 10-K for the fiscal year ended December 31, 2023 filed with the Securities and Exchange Commission.
The forward-looking statements in this Quarterly Report on Form 10-Q represent our views as of the date of this Report. Unless legally required, we undertake no obligation to publicly update any forward-looking statements whether as a result of new information, future developments or otherwise.
PART I-FINANCIAL INFORMATION
ITEM 1. Financial Statements
Planet Fitness, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets (Unaudited)
| | | | | | | | | | | |
| (in thousands, except per share amounts) | September 30, 2024 | | December 31, 2023 |
| Assets | | | |
| Current assets: | | | |
| Cash and cash equivalents | $ | 298,783 | | | $ | 275,842 | |
| Restricted cash | 67,766 | | | 46,279 | |
| Short-term marketable securities | 108,629 | | | 74,901 | |
| Accounts receivable, net of allowances for uncollectible amounts of $0 and $0 as of September 30, 2024 and December 31, 2023, respectively | 48,958 | | | 41,890 | |
| Inventory | 4,858 | | | 4,677 | |
| Restricted assets - national advertising fund | 363 | | | — | |
| Prepaid expenses | 14,432 | | | 13,842 | |
| Other receivables | 7,882 | | | 11,072 | |
| Income tax receivable and prepayments | 4,773 | | | 3,314 | |
| Total current assets | 556,444 | | | 471,817 | |
| Long-term marketable securities | 55,535 | | | 50,886 | |
| Investments, net of allowance for expected credit losses of $18,538 and $17,689 as of September 30, 2024 and December 31, 2023, respectively | 75,078 | | | 77,507 | |
| Property and equipment, net of accumulated depreciation of $347,586 and $322,958, as of September 30, 2024 and December 31, 2023, respectively | 421,633 | | | 390,405 | |
| Right-of-use assets, net | 400,246 | | | 381,010 | |
| Intangible assets, net | 334,236 | | | 372,507 | |
| Goodwill | 719,127 | | | 717,502 | |
| Deferred income taxes | 481,456 | | | 504,188 | |
| Other assets, net | 4,426 | | | 3,871 | |
| Total assets | $ | 3,048,181 | | | $ | 2,969,693 | |
| Liabilities and stockholders’ deficit | | | |
| Current liabilities: | | | |
| Current maturities of long-term debt | $ | 22,500 | | | $ | 20,750 | |
| Accounts payable | 31,844 | | | 23,788 | |
| Accrued expenses | 66,530 | | | 66,299 | |
| Equipment deposits | 10,345 | | | 4,506 | |
| Deferred revenue, current | 67,517 | | | 59,591 | |
| Payable pursuant to tax benefit arrangements, current | 48,553 | | | 41,294 | |
| Other current liabilities | 39,001 | | | 35,101 | |
| Total current liabilities | 286,290 | | | 251,329 | |
| Long-term debt, net of current maturities | 2,152,276 | | | 1,962,874 | |
| Lease liabilities, net of current portion | 408,588 | | | 381,589 | |
| Deferred revenue, net of current portion | 33,578 | | | 32,047 | |
| Deferred tax liabilities | 1,566 | | | 1,644 | |
| Payable pursuant to tax benefit arrangements, net of current portion | 428,858 | | | 454,368 | |
| Other liabilities | 4,139 | | | 4,833 | |
| Total noncurrent liabilities | 3,029,005 | | | 2,837,355 | |
| Commitments and contingencies (Note 13) | | | |
| Stockholders’ equity (deficit): | | | |
| Class A common stock, $0.0001 par value, 300,000 shares authorized, 84,104 and 86,760 shares issued and outstanding as of September 30, 2024 and December 31, 2023, respectively | 9 | | | 9 | |
| Class B common stock, $0.0001 par value, 100,000 shares authorized, 488 and 1,397 shares issued and outstanding as of September 30, 2024 and December 31, 2023, respectively | — | | | — | |
| Accumulated other comprehensive (loss) income | 220 | | | 172 | |
| Additional paid in capital | 602,948 | | | 575,631 | |
| Accumulated deficit | (869,309) | | | (691,461) | |
| Total stockholders’ deficit attributable to Planet Fitness, Inc. | (266,132) | | | (115,649) | |
| Non-controlling interests | (982) | | | (3,342) | |
| Total stockholders’ deficit | (267,114) | | | (118,991) | |
| Total liabilities and stockholders’ deficit | $ | 3,048,181 | | | $ | 2,969,693 | |
See accompanying notes to condensed consolidated financial statements
Planet Fitness, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations (Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Three Months Ended September 30, | | Nine Months Ended September 30, |
| (in thousands, except per share amounts) | | 2024 | | 2023 | | 2024 | | 2023 |
| Revenue: | | | | | | | | |
| Franchise | | $ | 82,873 | | | $ | 80,587 | | | $ | 254,783 | | | $ | 237,313 | |
| National advertising fund revenue | | 19,542 | | | 17,578 | | | 59,442 | | | 52,378 | |
| Corporate-owned clubs | | 128,132 | | | 113,245 | | | 375,976 | | | 332,885 | |
| Equipment | | 61,699 | | | 66,141 | | | 151,003 | | | 163,664 | |
| Total revenue | | 292,246 | | | 277,551 | | | 841,204 | | | 786,240 | |
| Operating costs and expenses: | | | | | | | | |
| Cost of revenue | | 45,701 | | | 53,751 | | | 116,628 | | | 132,561 | |
| Club operations | | 71,614 | | | 63,120 | | | 216,119 | | | 188,011 | |
| Selling, general and administrative | | 32,647 | | | 33,290 | | | 93,453 | | | 93,705 | |
| National advertising fund expense | | 19,720 | | | 17,618 | | | 59,624 | | | 52,496 | |
| Depreciation and amortization | | 41,033 | | | 37,477 | | | 120,230 | | | 110,254 | |
| Other losses (gains), net | | 280 | | | (56) | | | 698 | | | 7,705 | |
| Total operating costs and expenses | | 210,995 | | | 205,200 | | | 606,752 | | | 584,732 | |
| Income from operations | | 81,251 | | | 72,351 | | | 234,452 | | | 201,508 | |
| Other income (expense), net: | | | | | | | | |
| Interest income | | 5,610 | | | 4,245 | | | 16,687 | | | 12,339 | |
| Interest expense | | (26,603) | | | (21,704) | | | (72,569) | | | (64,771) | |
| Other (expense) income, net | | (558) | | | 148 | | | 1,132 | | | 631 | |
| Total other expense, net | | (21,551) | | | (17,311) | | | (54,750) | | | (51,801) | |
| Income before income taxes | | 59,700 | | | 55,040 | | | 179,702 | | | 149,707 | |
| Provision for income taxes | | 16,523 | | | 13,474 | | | 49,824 | | | 38,855 | |
| Losses from equity-method investments, net of tax | | (782) | | | (242) | | | (3,198) | | | (580) | |
| Net income | | 42,395 | | | 41,324 | | | 126,680 | | | 110,272 | |
| Less: net income attributable to non-controlling interests | | 386 | | | 2,190 | | | 1,722 | | | 7,299 | |
| Net income attributable to Planet Fitness, Inc. | | $ | 42,009 | | | $ | 39,134 | | | $ | 124,958 | | | $ | 102,973 | |
| Net income per share of Class A common stock: | | | | | | | | |
| Basic | | $ | 0.50 | | | $ | 0.46 | | | $ | 1.45 | | | $ | 1.22 | |
| Diluted | | $ | 0.50 | | | $ | 0.46 | | | $ | 1.45 | | | $ | 1.21 | |
| Weighted-average shares of Class A common stock outstanding: | | | | | | | | |
| Basic | | 84,570 | | | 84,610 | | | 86,090 | | | 84,558 | |
| Diluted | | 84,728 | | | 84,886 | | | 86,289 | | | 84,870 | |
See accompanying notes to condensed consolidated financial statements.
Planet Fitness, Inc. and Subsidiaries
Condensed Consolidated Statements of Comprehensive Income (Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Three Months Ended September 30, | | Nine Months Ended September 30, |
| (in thousands) | | 2024 | | 2023 | | 2024 | | 2023 |
| Net income | | $ | 42,395 | | | $ | 41,324 | | | $ | 126,680 | | | $ | 110,272 | |
| Other comprehensive income (loss), net: | | | | | | | | |
| Foreign currency translation adjustments | | 286 | | | (393) | | | (403) | | | 17 | |
| Unrealized gain (loss) on marketable securities, net of tax | | 1,030 | | | 42 | | | 451 | | | (253) | |
| Total other comprehensive income (loss), net | | 1,316 | | | (351) | | | 48 | | | (236) | |
| Total comprehensive income | | 43,711 | | | 40,973 | | | 126,728 | | | 110,036 | |
| Less: total comprehensive income attributable to non-controlling interests | | 386 | | | 2,190 | | | 1,722 | | | 7,299 | |
| Total comprehensive income attributable to Planet Fitness, Inc. | | $ | 43,325 | | | $ | 38,783 | | | $ | 125,006 | | | $ | 102,737 | |
See accompanying notes to condensed consolidated financial statements.
Planet Fitness, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows (Unaudited)
| | | | | | | | | | | |
| | Nine Months Ended September 30, |
| (in thousands) | 2024 | | 2023 |
| Cash flows from operating activities: | | | |
| Net income | $ | 126,680 | | | $ | 110,272 | |
| Adjustments to reconcile net income to net cash provided by operating activities: | | | |
| Depreciation and amortization | 120,230 | | | 110,254 | |
| Amortization of deferred financing costs | 3,984 | | | 4,114 | |
| Loss on extinguishment of debt | 2,285 | | | — | |
| Accretion of marketable securities discount | (2,658) | | | (2,224) | |
| Losses from equity-method investments, net of tax | 3,198 | | | 580 | |
| Dividends accrued on held-to-maturity investment | (1,618) | | | (1,490) | |
| Credit loss (gain) on held-to-maturity investment | 849 | | | (6) | |
| Deferred tax expense | 40,077 | | | 34,884 | |
| Gain on re-measurement of tax benefit arrangement liability | (774) | | | — | |
| Loss on disposal of property and equipment | 400 | | | 158 | |
| Loss on reacquired franchise rights | — | | | 110 | |
| Equity-based compensation expense | 5,965 | | | 6,326 | |
| Other | 138 | | | (25) | |
| Changes in operating assets and liabilities, net of acquisitions: | | | |
| Accounts receivable | (7,443) | | | 10,086 | |
| | | |
| Inventory | (201) | | | (2,270) | |
| Other assets and other current assets | 1,735 | | | (1,722) | |
| Restricted assets - national advertising fund | (368) | | | 805 | |
| Accounts payable and accrued expenses | 8,818 | | | (7,488) | |
| Other liabilities and other current liabilities | (741) | | | 6,855 | |
| Income taxes | (1,553) | | | (104) | |
| Payments pursuant to tax benefit arrangements | (28,786) | | | (21,780) | |
| Equipment deposits | 5,835 | | | 5,495 | |
| Deferred revenue | 9,552 | | | 9,428 | |
| Leases | 9,138 | | | 4,662 | |
| Net cash provided by operating activities | 294,742 | | | 266,920 | |
| Cash flows from investing activities: | | | |
| Additions to property and equipment | (112,968) | | | (84,636) | |
| Acquisition of franchisees, net of cash acquired | — | | | (26,264) | |
| Proceeds from sale of property and equipment | 568 | | | 2 | |
| | | |
| Purchases of marketable securities | (116,833) | | | (155,007) | |
| Maturities of marketable securities | 80,922 | | | 37,990 | |
| Other investments | — | | | (20,000) | |
| Net cash used in investing activities | (148,311) | | | (247,915) | |
| Cash flows from financing activities: | | | |
| Proceeds from issuance of long-term debt | 800,000 | | | — | |
| Proceeds from issuance of Class A common stock | 17,221 | | | 8,575 | |
| Principal payments on capital lease obligations | (100) | | | (152) | |
| Repayment of long-term debt | (603,063) | | | (15,563) | |
| Payment of deferred financing and other debt-related costs | (12,055) | | | — | |
| Repurchase and retirement of Class A common stock | (300,205) | | | (125,030) | |
| Distributions paid to members of Pla-Fit Holdings | (3,345) | | | (4,216) | |
| Net cash used in financing activities | (101,547) | | | (136,386) | |
| Effects of exchange rate changes on cash and cash equivalents | (456) | | | 233 | |
| Net increase (decrease) in cash, cash equivalents and restricted cash | 44,428 | | | (117,148) | |
| Cash, cash equivalents and restricted cash, beginning of period | 322,121 | | | 472,499 | |
| Cash, cash equivalents and restricted cash, end of period | $ | 366,549 | | | $ | 355,351 | |
| Supplemental cash flow information: | | | |
| Cash paid for interest | $ | 53,718 | | | $ | 60,964 | |
| Net cash paid for income taxes | $ | 11,248 | | | $ | 4,394 | |
| Non-cash investing activities: | | | |
| Non-cash additions to property and equipment included in accounts payable and accrued expenses | $ | 18,446 | | | $ | 20,590 | |
See accompanying notes to condensed consolidated financial statements.
Planet Fitness, Inc. and Subsidiaries
Condensed Consolidated Statements of Changes in Equity (Deficit) (Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Class A
common stock | | Class B
common stock | | Accumulated other comprehensive income | | Additional paid-
in capital | | Accumulated
deficit | | Non-controlling
interests | | Total (deficit)
equity |
| (In thousands) | Shares | | Amount | | Shares | | Amount | | | | | |
| Balance at December 31, 2023 | 86,760 | | | $ | 9 | | | 1,397 | | | $ | — | | | $ | 172 | | | $ | 575,631 | | | $ | (691,461) | | | $ | (3,342) | | | $ | (118,991) | |
| Net income | — | | — | | — | | — | | — | | — | | 124,958 | | | 1,722 | | | 126,680 | |
| Equity-based compensation expense | — | | — | | — | | — | | — | | 5,965 | | | — | | | — | | 5,965 | |
| Repurchase and retirement of Class A common stock | (4,073) | | | — | | | — | | | — | | — | | 2,363 | | | (302,806) | | | (2,363) | | | (302,806) | |
| Exchanges of Class B common stock and other adjustments | 909 | | | — | | | (909) | | | — | | | — | | (5,336) | | | — | | 5,336 | | | — | |
| Exercise of stock options, vesting of restricted share units and ESPP share purchase | 508 | | | — | | — | | — | | — | | 17,366 | | | — | | — | | 17,366 | |
| Tax benefit arrangement liability and deferred taxes arising from exchanges of Class B common stock | — | | | — | | | — | | | — | | | — | | | 6,259 | | | — | | | — | | | 6,259 | |
| Distributions paid to members of Pla-Fit Holdings | — | | — | | — | | — | | — | | — | | — | | | (3,345) | | | (3,345) | |
| Issuance of subsidiary stock to non-controlling interest | — | | — | | — | | — | | — | | 700 | | | — | | 1,010 | | | 1,710 | |
| Other comprehensive income | — | | — | | — | | — | | 48 | | | — | | — | | — | | | 48 | |
| Balance at September 30, 2024 | 84,104 | | | $ | 9 | | | 488 | | | $ | — | | | $ | 220 | | | $ | 602,948 | | | $ | (869,309) | | | $ | (982) | | | $ | (267,114) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Class A
common stock | | Class B
common stock | | Accumulated other comprehensive loss | | Additional paid-
in capital | | Accumulated
deficit | | Non-controlling
interests | | Total (deficit)
equity |
| (In thousands) | Shares | | Amount | | Shares | | Amount | | | | | |
| Balance at December 31, 2022 | 83,430 | | | $ | 8 | | | 6,146 | | | $ | 1 | | | $ | (448) | | | $ | 505,144 | | | $ | (703,717) | | | $ | (12,549) | | | $ | (211,561) | |
| Net income | — | | — | | — | | — | | — | | — | | 102,973 | | | 7,299 | | | 110,272 | |
| Equity-based compensation expense | — | | — | | — | | — | | — | | 6,326 | | | — | | | — | | 6,326 | |
| Repurchase and retirement of Class A common stock | (1,699) | | | — | | | — | | | — | | — | | 3,117 | | | (126,078) | | | (3,117) | | | (126,078) | |
| Exchanges of Class B common stock and other adjustments | 3,413 | | | 1 | | | (3,413) | | | (1) | | | — | | (9,096) | | | — | | 9,096 | | | — | |
| Exercise of stock options, vesting of restricted share units and ESPP share purchase | 266 | | | — | | — | | — | | — | | 8,611 | | | — | | — | | 8,611 | |
| Tax benefit arrangement liability and deferred taxes arising from exchanges of Class B common stock | — | | | — | | | — | | | — | | | — | | | 56,295 | | | — | | | — | | | 56,295 | |
| Non-cash adjustments to VIEs | — | | — | | — | | — | | — | | — | | | — | | | (389) | | | (389) | |
| Deconsolidation of VIEs | — | | — | | — | | — | | — | | — | | 22 | | | (3,976) | | | (3,954) | |
| Distributions paid to members of Pla-Fit Holdings | — | | — | | — | | — | | — | | — | | — | | | (4,216) | | | (4,216) | |
| Other comprehensive loss | — | | — | | — | | — | | (236) | | | — | | — | | — | | | (236) | |
| Balance at September 30, 2023 | 85,410 | | | $ | 9 | | | 2,733 | | | $ | — | | | $ | (684) | | | $ | 570,397 | | | $ | (726,800) | | | $ | (7,852) | | | $ | (164,930) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Class A
common stock | | Class B
common stock | | Accumulated other comprehensive (loss) income | | Additional paid-
in capital | | Accumulated
deficit | | Non-controlling
interests | | Total (deficit)
equity |
| (In thousands) | Shares | | Amount | | Shares | | Amount | | | | | |
| Balance at June 30, 2024 | 84,496 | | | $ | 9 | | | 650 | | | $ | — | | | $ | (1,096) | | | $ | 594,049 | | | $ | (910,626) | | | $ | (2,166) | | | $ | (319,830) | |
| Net income | — | | | — | | | — | | | — | | | — | | | — | | | 42,009 | | | 386 | | | 42,395 | |
| Equity-based compensation expense | — | | | — | | | — | | | — | | | — | | | 3,118 | | | — | | | — | | | 3,118 | |
| Repurchase and retirement of Class A common stock | (669) | | | — | | | — | | | — | | | — | | | — | | | (692) | | | — | | | (692) | |
| Exchanges of Class B common stock and other adjustments | 162 | | | — | | | (162) | | | — | | | — | | | (2,411) | | | — | | | 2,411 | | | — | |
| Exercise of stock options, vesting of restricted share units and ESPP share purchase | 115 | | | — | | | — | | | — | | | — | | | 7,826 | | | — | | | — | | | 7,826 | |
| Tax benefit arrangement liability and deferred taxes arising from exchanges of Class B common stock | — | | | — | | | — | | | — | | | — | | | 366 | | | — | | | — | | | 366 | |
| Distributions paid to members of Pla-Fit Holdings | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (1,613) | | | (1,613) | |
| | | | | | | | | | | | | | | | | |
| Other comprehensive income | — | | | — | | | — | | | — | | | 1,316 | | | — | | | — | | | — | | | 1,316 | |
| Balance at September 30, 2024 | 84,104 | | | $ | 9 | | | 488 | | | $ | — | | | $ | 220 | | | $ | 602,948 | | | $ | (869,309) | | | $ | (982) | | | $ | (267,114) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Class A
common stock | | Class B
common stock | | Accumulated other comprehensive loss | | Additional paid-
in capital | | Accumulated
deficit | | Non-controlling
interests | | Total (deficit)
equity |
| (In thousands) | Shares | | Amount | | Shares | | Amount | | | | | |
| Balance at June 30, 2023 | 83,980 | | | $ | 9 | | | 4,151 | | | $ | — | | | $ | (333) | | | $ | 564,170 | | | $ | (765,815) | | | $ | (13,992) | | | $ | (215,961) | |
| Net income | — | | — | | — | | — | | — | | — | | 39,134 | | | 2,190 | | | 41,324 | |
| Equity-based compensation expense | — | | — | | — | | — | | — | | 1,533 | | | — | | | — | | 1,533 | |
| | | | | | | | | | | | | | | | | |
| Exchanges of Class B common stock and other adjustments | 1,418 | | | — | | | (1,418) | | | — | | | — | | (4,430) | | | — | | 4,430 | | | — | |
| Exercise of stock options, vesting of restricted share units and ESPP share purchase | 12 | | | — | | — | | — | | — | | 591 | | | — | | — | | 591 | |
| Tax benefit arrangement liability and deferred taxes arising from exchanges of Class B common stock | — | | | — | | | — | | | — | | | — | | | 8,533 | | | — | | | — | | | 8,533 | |
| | | | | | | | | | | | | | | | | |
| Deconsolidation of VIEs | — | | — | | — | | — | | — | | — | | (119) | | | — | | | (119) | |
| Distributions paid to members of Pla-Fit Holdings | — | | — | | — | | — | | — | | — | | — | | | (480) | | | (480) | |
| Other comprehensive loss | — | | — | | — | | — | | (351) | | | — | | — | | — | | | (351) | |
| Balance at September 30, 2023 | 85,410 | | | $ | 9 | | | 2,733 | | | $ | — | | | $ | (684) | | | $ | 570,397 | | | $ | (726,800) | | | $ | (7,852) | | | $ | (164,930) | |
See accompanying notes to condensed consolidated financial statements.
Planet Fitness, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
(Amounts in thousands, except share and per share amounts)
(1) Business organization
Planet Fitness, Inc. (the “Company”), through its subsidiaries, is a franchisor and operator of fitness clubs (historically referred to as stores or centers), with approximately 19.6 million members and 2,637 owned and franchised locations (referred to as clubs) in all 50 states, the District of Columbia, Puerto Rico, Canada, Panama, Mexico, Australia and Spain as of September 30, 2024.
The Company serves as the reporting entity for its various subsidiaries that operate three distinct lines of business:
•Licensing and selling franchises under the Planet Fitness trade name;
•Owning and operating fitness clubs under the Planet Fitness trade name; and
•Selling fitness-related equipment to franchisee-owned clubs.
In 2012 investment funds affiliated with TSG Consumer Partners, LLC (“TSG”), purchased interests in Pla-Fit Holdings.
The Company was formed as a Delaware corporation on March 16, 2015 for the purpose of facilitating an initial public offering (the “IPO”) and related transactions in order to carry on the business of Pla-Fit Holdings, LLC and its subsidiaries (“Pla-Fit Holdings”). As of August 5, 2015, in connection with the recapitalization transactions, the Company became the sole managing member and holder of 100% of the voting power of Pla-Fit Holdings. Pla-Fit Holdings owns 100% of Planet Intermediate, LLC, which has no operations but is the 100% owner of Planet Fitness Holdings, LLC, a franchisor and operator of fitness clubs. With respect to the Company, Pla-Fit Holdings and Planet Intermediate, LLC, each entity owns nothing other than the respective entity below it in the corporate structure and each entity has no other material operations.
The Company is a holding company whose principal asset is a controlling equity interest in the membership units (“Holdings Units”) in Pla-Fit Holdings. As the sole managing member of Pla-Fit Holdings, the Company operates and controls all of the business and affairs of Pla-Fit Holdings, and through Pla-Fit Holdings, conducts its business. As a result, the Company consolidates Pla-Fit Holdings’ financial results and reports a non-controlling interest related to the portion of Holdings Units not owned by the Company.
As of September 30, 2024, the Company held 100.0% of the voting interest and approximately 99.4% of the economic interest in Pla-Fit Holdings and the owners of Holdings Units other than the Company (the “Continuing LLC Owners”) held the remaining 0.6% economic interest in Pla-Fit Holdings. As future exchanges of Holdings Units occur, the economic interest in Pla-Fit Holdings held by Planet Fitness, Inc. will increase.
(2) Summary of significant accounting policies
(a) Basis of presentation and consolidation
The accompanying unaudited interim condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Accordingly, these interim financial statements do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) necessary for a fair presentation of the results of operations, financial position and cash flows for the periods presented have been reflected. All significant intercompany balances and transactions have been eliminated in consolidation.
The condensed consolidated financial statements as of and for the three and nine months ended September 30, 2024 and 2023 are unaudited. The condensed consolidated balance sheet as of December 31, 2023 has been derived from the audited financial statements at that date but does not include all of the disclosures required by GAAP. These interim condensed consolidated financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2023 filed with the SEC on February 29, 2024. The Company’s significant interim accounting policies include the proportional recognition of national advertising fund expenses within interim periods. Operating results for the interim periods are not necessarily indicative of the results that may be expected for the full year ending December 31, 2024.
Planet Fitness, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
(Amounts in thousands, except share and per share amounts)
(b) Use of estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and accompanying notes. Although these estimates are based on management’s knowledge of current events and actions it may undertake in the future, they may ultimately differ from actual results. Significant areas where estimates and judgments are relied upon by management in the preparation of the condensed consolidated financial statements include revenue recognition, valuation of equity-based compensation awards, valuation of assets and liabilities acquired in business combinations, the evaluation of the recoverability of goodwill and long-lived assets, including intangible assets, allowance for expected credit losses, the present value of lease liabilities, income taxes, including deferred tax assets and liabilities, and the liability for the Company’s tax benefit arrangements.
(c) Fair Value
ASC 820, Fair Value Measurements and Disclosures, establishes a three-level valuation hierarchy for disclosure of fair value measurements. The valuation hierarchy is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date. Categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The three levels are defined as follows:
Level 1—Inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.
Level 2—Inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.
Level 3—Inputs to the valuation methodology are unobservable and significant to the fair value measurement.
Certain of the Company’s financial instruments, including cash and cash equivalents, restricted cash, accounts receivable, accounts payable, accrued expenses and other current liabilities are carried at cost, which approximates their fair value because of their short-term nature. See Note 3 for investments that are measured at fair value on a recurring basis.
The carrying value and estimated fair value of long-term debt were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | September 30, 2024 | | December 31, 2023 |
| | Carrying value | | Estimated fair value(1) | | Carrying value | | Estimated fair value(1) |
Long-term debt(1) | | $ | 2,201,375 | | | $ | 2,141,443 | | | $ | 2,004,438 | | | $ | 1,829,286 | |
(1) The estimated fair value of the Company’s fixed rate long-term debt is estimated primarily based on current bid prices for the long-term debt. Judgment is required to develop these estimates. As such, the fair value of long-term debt is classified within Level 2, as defined under GAAP.
(d) Non-controlling interests
Non-controlling interests represent third-party interests in certain of the Company’s subsidiaries. Allocation of net income or loss is generally based upon relative ownership interests held by equity owners in each subsidiary or based upon contractual arrangements. If such contractual arrangements are substantive and provide for a disproportionate allocation of economic returns among equity holders, the Company uses the hypothetical liquidation at book value (“HLBV”) method to allocate net income and loss of the subsidiary. The HLBV method is a balance sheet focused approach which measures each party’s capital account at each balance sheet date to determine the amount that the Company would receive if the subsidiary were to hypothetically liquidate its net assets at their carrying values determined in accordance with GAAP and distribute such hypothetical proceeds based on the liquidation rights and priorities defined in the contractual arrangement. Under the HLBV method, net income and losses of the subsidiary are attributed based on the change in each party’s capital account between the beginning and the end of the reporting period, after adjusting for capital contributions and distributions. The proportion of net income and losses attributed to non-controlling interests under the HLBV method is subject to change as the net assets in the subsidiary change.
(e) Reclassification
Certain amounts have been reclassified to conform to current year presentation.
Planet Fitness, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
(Amounts in thousands, except share and per share amounts)
(f) Recent accounting pronouncements
The FASB issued ASU No. 2023-07, Improvements to Reportable Segment Disclosures, in November 2023. The standard expands reportable segment disclosures by requiring disclosure of significant segment expenses that are regularly provided to the Chief Operating Decision Maker (“CODM”) and included within each reported measure of segment profit or loss, an amount and description of its composition for other segment items, and interim disclosures of a reportable segment’s profit or loss and assets. The new standard is effective for annual periods beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. The Company is currently evaluating the impact of adoption on our financial disclosures.
The FASB issued ASU No. 2023-09, Improvements to Income Tax Disclosures, in December 2023. The standard requires disaggregated information about a reporting entity's effective tax rate reconciliation as well as information on income taxes paid. The standard is intended to benefit investors by providing more detailed income tax disclosures that would be useful in making capital allocation decisions and applies to all entities subject to income taxes. The new standard is effective for annual periods beginning after December 15, 2024. The Company is currently evaluating the impact of adoption on our financial disclosures.
(3) Investments
Marketable securities
The following tables summarize the amortized cost, net unrealized gains and losses, fair value, and the level in the fair value hierarchy of the Company’s available-for-sale investments in marketable securities. As of September 30, 2024, the marketable securities had maturity dates that range from less than 1 month to approximately 23 months. Realized gains and losses were insignificant for the three and nine months ended September 30, 2024 and 2023.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Amortized Cost | | Unrealized Gains, Net | | Fair Value(1) | | Level 1 | | Level 2 |
| September 30, 2024 | | | | | | | | | |
| Cash equivalents | | | | | | | | | |
| Money market funds | $ | 1,260 | | | $ | — | | | $ | 1,260 | | | $ | 1,260 | | | $ | — | |
| | | | | | | | | |
| | | | | | | | | |
| Total cash equivalents | 1,260 | | | — | | | 1,260 | | | 1,260 | | | — | |
| Short-term marketable securities | | | | | | | | | |
| Commercial paper | 17,731 | | | 33 | | | 17,764 | | | — | | | 17,764 | |
| Corporate debt securities | 83,339 | | | 330 | | | 83,669 | | | — | | | 83,669 | |
| U.S. treasury securities | 1,976 | | | — | | | 1,976 | | | — | | | 1,976 | |
| U.S. government agency securities | 5,207 | | | 13 | | | 5,220 | | | — | | | 5,220 | |
| Total short-term marketable securities | 108,253 | | | 376 | | | 108,629 | | | — | | | 108,629 | |
| Long-term marketable securities | | | | | | | | | |
| | | | | | | | | |
| Corporate debt securities | 52,616 | | | 418 | | | 53,034 | | | — | | | 53,034 | |
| | | | | | | | | |
| U.S. government agency securities | 2,500 | | | 1 | | | 2,501 | | | — | | | 2,501 | |
| Total long-term marketable securities | 55,116 | | | 419 | | | 55,535 | | | — | | | 55,535 | |
| Total marketable securities | $ | 164,629 | | | $ | 795 | | | $ | 165,424 | | | $ | 1,260 | | | $ | 164,164 | |
Planet Fitness, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
(Amounts in thousands, except share and per share amounts)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Amortized Cost | | Unrealized Gains (Losses), Net | | Fair Value(1) | | Level 1 | | Level 2 |
| December 31, 2023 | | | | | | | | | |
| Cash equivalents | | | | | | | | | |
| Money market funds | $ | 761 | | | $ | — | | | $ | 761 | | | $ | 761 | | | $ | — | |
| U.S. treasury securities | 2,997 | | | 1 | | | 2,998 | | | — | | | 2,998 | |
| Total cash equivalents | 3,758 | | | 1 | | | 3,759 | | | 761 | | | 2,998 | |
| Short-term marketable securities | | | | | | | | | |
| Commercial paper | 37,063 | | | 24 | | | 37,087 | | | — | | | 37,087 | |
| Corporate debt securities | 34,632 | | | (38) | | | 34,594 | | | — | | | 34,594 | |
| | | | | | | | | |
| U.S. government agency securities | 3,210 | | | 10 | | | 3,220 | | | — | | | 3,220 | |
| Total short-term marketable securities | 74,905 | | | (4) | | | 74,901 | | | — | | | 74,901 | |
| Long-term marketable securities | | | | | | | | | |
| | | | | | | | | |
| Corporate debt securities | 47,388 | | | 328 | | | 47,716 | | | — | | | 47,716 | |
| | | | | | | | | |
| U.S. government agency securities | 3,151 | | | 19 | | | 3,170 | | | — | | | 3,170 | |
| Total long-term marketable securities | 50,539 | | | 347 | | | 50,886 | | | — | | | 50,886 | |
| Total marketable securities | $ | 129,202 | | | $ | 344 | | | $ | 129,546 | | | $ | 761 | | | $ | 128,785 | |
(1) Fair values were determined using market prices obtained from third-party pricing sources.
For marketable securities with unrealized loss positions, the Company does not intend to sell these securities before maturity and it is more likely than not that the Company will hold these securities until maturity or a recovery of the cost basis and they are therefore all categorized as available for sale. No allowance for credit losses was recorded for these securities as of September 30, 2024 and December 31, 2023.
Held-to-maturity debt security
As of September 30, 2024, the Company’s debt security investment consists of redeemable preferred shares that are accounted for as a held-to-maturity investment. The Company’s investment is measured at amortized cost within investments in the condensed consolidated balance sheets. The Company reviews its held-to-maturity securities for expected credit losses under ASC Topic 326, Financial Instruments – Credit Losses, on an ongoing basis.
The Company utilized probability-of-default (“PD”) and loss-given-default (“LGD”) methodologies to calculate the allowance for expected credit losses. The Company derived its estimates using historical lifetime loss information for assets with similar risk characteristics, adjusted for management’s expectations. Adjustments for management’s expectations were based on the investee’s recent financial results, current financial position, and forward-looking financial forecasts. Based upon its analysis, the Company recorded a credit loss expense of $292 and a gain on the reversal of credit loss allowance of $101 during the three months ended September 30, 2024 and 2023, respectively, and a credit loss expense of $849 and a gain on the reversal of credit loss allowance of $6 during the nine months ended September 30, 2024 and 2023, respectively, on the adjustment of its allowance for credit losses within other (gains) losses, net on the condensed consolidated statements of operations.
The amortized cost, including accrued dividends, of the Company’s held-to-maturity debt security investment was $31,961 and $30,343 and the allowance for expected credit losses was $18,538 and $17,689, as of September 30, 2024 and December 31, 2023, respectively. The amortized cost, net of the allowance for expected credit losses, approximates fair value. The Company recognized dividend income of $553 and $511 during the three months ended September 30, 2024 and 2023, respectively, and $1,618 and $1,490 during the nine months ended September 30, 2024 and 2023, respectively, within other income, net on the condensed consolidated statements of operations.
The Company’s held-to-maturity investment has a contractual maturity in 2026.
Planet Fitness, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
(Amounts in thousands, except share and per share amounts)
A roll forward of the Company’s allowance for expected credit losses on its held-to-maturity investment is as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2024 | | 2023 | | 2024 | | 2023 |
| Beginning allowance for expected credit losses | $ | 18,246 | | | $ | 15,052 | | | $ | 17,689 | | | $ | 14,957 | |
| Loss (gain) on adjustment of allowance for expected credit losses | 292 | | | (101) | | | 849 | | | (6) | |
| Write-offs, net of recoveries | — | | | — | | | — | | | — | |
| Ending allowance for expected credit losses | $ | 18,538 | | | $ | 14,951 | | | $ | 18,538 | | | $ | 14,951 | |
Equity method investments
For the following investments, the Company recorded its proportionate share of the investees’ earnings, prepared in accordance with GAAP, on a one-month lag, with an adjustment to eliminate unrealized profits on intra-entity sales, if any, and the amortization of basis differences, within losses from equity-method investments, net of tax on the condensed consolidated statements of operations. As of September 30, 2024, the Company determined that no impairment of its equity method investments existed.
As of September 30, 2024 and December 31, 2023, the Company held a 21.8% ownership interest in Bravo Fit Holdings Pty Ltd, a franchisee of the Company and club operator in Australia, which is deemed to be a related party, for a total investment carrying value of $12,080 and $13,220, respectively. The difference between the carrying amount of the Company’s investment and the underlying amount of equity in net assets of the investment was $5,287 and $6,812 as of September 30, 2024 and December 31, 2023, respectively. This basis difference is primarily attributable to intangible assets, which are being amortized on a straight-line basis over a weighted-average life of 9 years, and equity method goodwill. The Company’s proportionate share of the losses in accordance with the equity method was $674 and $94 for the three months ended September 30, 2024 and 2023, respectively, and $1,140 and $432 for the nine months ended September 30, 2024 and 2023, respectively, which included the amortization of basis differences of $66, $65, $198 and $195, respectively.
As of September 30, 2024 and December 31, 2023, the Company held a 33.2% ownership interest in Planet Fitmex, LLC, a franchisee of the Company and club operator in Mexico, which is deemed to be a related party and classified as an equity method investment as a result of its organizational structure, for a total investment carrying value of $49,575 and $51,633, respectively. The difference between the carrying amount of the Company’s investment and the underlying amount of equity in net assets of the investment was $20,060 and $17,458 as of September 30, 2024 and December 31, 2023, respectively. This basis difference is primarily attributable to intangible assets, which are being amortized on a straight-line basis over a weighted-average life of 9 years, and equity method goodwill. The Company’s proportionate share of the losses in accordance with the equity method was $108 and $148 for the three months ended September 30, 2024 and 2023, respectively, and $2,058 and $148 for the nine months ended September 30, 2024 and 2023, respectively, which included the amortization of basis differences of $174, $56, $511, and $56 respectively.
(4) Acquisition
Florida Acquisition
On April 16, 2023, the Company purchased from one of its franchisees a majority of the assets associated with four franchisee clubs operating in Florida (the “Florida Acquisition”) for cash consideration of $26,264. As a result of the transaction, the Company incurred a loss on unfavorable reacquired franchise rights of $110, which is included in other losses, net on the condensed consolidated statement of operations. The loss incurred reduced the net purchase price to $26,154. The Company financed the purchase through cash on hand. The acquired clubs are included in the Corporate-owned clubs segment.
Planet Fitness, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
(Amounts in thousands, except share and per share amounts)
The allocation of the purchase consideration was as follows:
| | | | | |
| Amount |
| Property and equipment | $ | 3,851 | |
| Right of use assets | 5,424 | |
| Other long-term assets | 95 | |
| Intangible assets | 6,880 | |
| Goodwill | 14,812 | |
| Deferred revenue | (687) | |
| Other current liabilities | (17) | |
| Lease liabilities | (4,204) | |
| Total | $ | 26,154 | |
The goodwill created through the purchase is attributable to the assumed future value of the cash flows from the clubs acquired. The goodwill is amortizable and deductible for tax purposes over 15 years.
The following table sets forth the components of identifiable intangible assets acquired in the Florida Acquisition and their estimated useful lives in years as of the date of the acquisition:
| | | | | | | | | | | |
| Fair value | | Useful life |
Reacquired franchise rights (1) | $ | 6,650 | | | 6.8 |
Customer relationships (2) | 230 | | | 6.0 |
| Total intangible assets subject to amortization | $ | 6,880 | | | |
(1) Reacquired franchise rights represent the fair value of the reacquired franchise agreements using the income approach, specifically, the multi-period excess earnings method.
(2) Customer relationships represent the fair value of the existing contractual customer relationships using the income approach, specifically, the multi-period excess earnings method.
The acquisition did not have a material effect on the results of operations of the Company.
(5) Goodwill and intangible assets
Goodwill and related changes in its carrying amount were as follows:
| | | | | |
| Amount |
| Goodwill at December 31, 2023 | $ | 717,502 | |
| Acquisition | 1,572 | |
| Foreign currency translation | 53 | |
| Goodwill at September 30, 2024 | $ | 719,127 | |
The Company completed an immaterial acquisition of an operating entity in Spain during the first quarter of fiscal 2024, which resulted in the addition of $1,572 in the carrying value of goodwill. During the nine months ended September 30, 2024, the Company issued stock of the subsidiary holding the operating entity in Spain to a third-party investor which resulted in the creation of a non-controlling interest of such subsidiary holding company and the subsidiary operating entity. The Company intends to operate corporate-owned clubs through this entity.
Planet Fitness, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
(Amounts in thousands, except share and per share amounts)
A summary of intangible assets is as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| September 30, 2024 | | December 31, 2023 |
| Gross
carrying
amount | | Accumulated
amortization | | Net carrying
Amount | | Gross
carrying
amount | | Accumulated
amortization | | Net carrying
Amount |
| Finite-lived intangible assets: | | | | | | | | | | | |
| Customer relationships | $ | 199,043 | | | $ | (180,952) | | | $ | 18,091 | | | $ | 199,043 | | | $ | (169,155) | | | $ | 29,888 | |
| Reacquired franchise rights | 274,708 | | | (105,163) | | | 169,545 | | | 274,708 | | | (78,689) | | | 196,019 | |
| Total finite-lived intangible assets | 473,751 | | | (286,115) | | | 187,636 | | | 473,751 | | | (247,844) | | | 225,907 | |
| Indefinite-lived intangible assets: | | | | | | | | | | | |
| Trade and brand names | 146,600 | | | — | | | 146,600 | | | 146,600 | | | — | | | 146,600 | |
| Total intangible assets | $ | 620,351 | | | $ | (286,115) | | | $ | 334,236 | | | $ | 620,351 | | | $ | (247,844) | | | $ | 372,507 | |
The Company determined that no impairment charges were required during any periods presented.
Amortization expense related to the finite-lived intangible assets totaled $12,768 and $12,965 for the three months ended September 30, 2024 and 2023, respectively, and $38,304 and $38,517 for the nine months ended September 30, 2024 and 2023, respectively. The anticipated amortization expense related to intangible assets to be recognized in future periods as of September 30, 2024 is as follows:
| | | | | |
| | Amount |
| Remainder of 2024 | $ | 10,918 | |
| 2025 | 36,713 | |
| 2026 | 32,079 | |
| 2027 | 27,956 | |
| 2028 | 27,300 | |
| Thereafter | 52,670 | |
| Total | $ | 187,636 | |
(6) Long-term debt
Long-term debt consists of the following:
| | | | | | | | | | | | | | |
| | | September 30, 2024 | | December 31, 2023 |
| 2018-1 Class A-2-II notes | | $ | — | | | $ | 592,187 | |
| 2019-1 Class A-2 notes | | 523,875 | | | 528,000 | |
| 2022-1 Class A-2-I notes | | 414,375 | | | 417,563 | |
| 2022-1 Class A-2-II notes | | 463,125 | | | 466,688 | |
| 2024-1 Class A-2-I notes | | 425,000 | | | — | |
| 2024-1 Class A-2-II notes | | 375,000 | | | — | |
| Total debt, excluding deferred financing costs | | 2,201,375 | | | 2,004,438 | |
| Deferred financing costs, net of accumulated amortization | | (26,599) | | | (20,814) | |
| Total debt, net | | 2,174,776 | | | 1,983,624 | |
| Current portion of long-term debt | | 22,500 | | | 20,750 | |
| Long-term debt, net of current portion | | $ | 2,152,276 | | | $ | 1,962,874 | |
Planet Fitness, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
(Amounts in thousands, except share and per share amounts)
Future principal payments of long-term debt as of September 30, 2024 are as follows:
| | | | | |
| | Amount |
| Remainder of 2024 | $ | 5,625 | |
| 2025 | 22,500 | |
| 2026 | 427,313 | |
| 2027 | 18,250 | |
| 2028 | 18,250 | |
| Thereafter | 1,709,437 | |
| Total | $ | 2,201,375 | |
On August 1, 2018, Planet Fitness Master Issuer LLC (the “Master Issuer”), a limited-purpose, bankruptcy remote, wholly-owned indirect subsidiary of Pla-Fit Holdings, LLC, entered into a base indenture and a related supplemental indenture (collectively, the “2018 Indenture”) under which the Master Issuer may issue multiple series of notes. On the same date, the Master Issuer issued Series 2018-1 4.262% Fixed Rate Senior Secured Notes, Class A-2-I (the “2018 Class A-2-I Notes”) with an initial principal amount of $575,000 and Series 2018-1 4.666% Fixed Rate Senior Secured Notes, Class A-2-II (the “2018 Class A-2-II Notes” and, together with the 2018 Class A-2-I Notes, the “2018 Notes”) with an initial principal amount of $625,000. In connection with the issuance of the 2018 Notes, the Master Issuer also entered into a revolving financing facility that allows for the incurrence of up to $75,000 in revolving loans and/or certain letters of credit (the “Letters of Credit”) under the Master Issuer’s Series 2018-1 Variable Funding Senior Notes, Class A-1 (the “2018 Variable Funding Notes”). The Company fully drew down on the 2018 Variable Funding Notes on March 20, 2020. On December 3, 2019, the Master Issuer issued Series 2019-1 3.858% Fixed Rate Senior Secured Notes, Class A-2 (the “2019 Notes”) with an initial principal amount of $550,000. The 2019 Notes were issued under the 2018 Indenture and a related supplemental indenture dated December 3, 2019 (together, the “2019 Indenture”). On February 10, 2022, the Company completed a prepayment in full of its 2018 Class A-2-I Notes and an issuance of Series 2022-1 3.251% Fixed Rate Senior Secured Notes, Class A-2-I with an initial principal amount of $425,000 and Series 2022-1 4.008% Fixed Rate Senior Secured Notes, Class A-2-II with an initial principal amount of $475,000 (the “2022 Notes”), and also entered into a new revolving financing facility that allows for the issuance of up to $75,000 in Variable Funding Notes (“2022 Variable Funding Notes”) and certain Letters of Credit (the issuance of such notes, the “Series 2022-I Issuance”). The 2022 Notes were issued under the 2018 Indenture and a related supplemental indenture dated February 10, 2022 (together, the “2022 Indenture”). On June 12, 2024, the Company completed a prepayment in full of its 2018 Class A-2-II Notes and an issuance of Series 2024-1 5.765% Fixed Rate Senior Secured Notes, Class A-2-I with an initial principal amount of $425,000 and Series 2024-1 6.237% Fixed Rate Senior Secured Notes, Class A-2-II with an initial principal amount of $375,000 (the “2024 Notes” and, together with the 2018 Notes, 2019 Notes and 2022 Notes, the “Notes”). The 2024 Notes were issued under the 2018 Indenture and a related supplemental indenture dated June 12, 2024 (together, with the 2019 Indenture and 2022 Indenture, the “Indenture”). Together, the Notes and the 2022 Variable Funding Notes will be referred to as the “Securitized Senior Notes”.
The Notes were issued in securitization transactions pursuant to which most of the Company’s domestic revenue-generating assets, consisting principally of franchise-related agreements, certain corporate-owned club assets, equipment supply agreements and intellectual property and license agreements for the use of intellectual property, were assigned to the Master Issuer and certain other limited-purpose, bankruptcy remote, wholly-owned indirect subsidiaries of the Company that act as guarantors of the outstanding Securitized Senior Notes and that have pledged substantially all of their assets to secure the Securitized Senior Notes.
Interest and principal payments on the outstanding Notes are payable on a quarterly basis. The requirement to make such quarterly principal payments on the Notes is subject to certain financial conditions set forth in the Indenture. The legal final maturity date of the 2019 Notes is in December 2049, but it is anticipated that, unless earlier prepaid to the extent permitted under the Indenture, the 2019 Notes will be repaid in or prior to December 2029 (the “2019 Notes Anticipated Repayment Date”). The legal final maturity date of the 2022 Notes is in February 2052, but it is anticipated that, unless earlier prepaid to the extent permitted under the Indenture, the 2022 Class A-2-I Notes will be repaid in or prior to December 2026 and the 2022 Class A-2-II Notes will be repaid in or prior to December 2031 (together, the “2022 Notes Anticipated Repayment Dates”). The legal final maturity date of the 2024 Notes is in June 2054, but it is anticipated that, unless earlier prepaid to the extent permitted under the Indenture, the 2024 Class A-2-I Notes will be repaid in or prior to June 2029 and the 2024 Class A-2-II Notes will be repaid in or prior to June 2034 (together, the “2024 Notes Anticipated Repayment Dates” and together with the 2019 Notes Anticipated Repayment Date and the 2022 Notes Anticipated Repayment Dates, the “Anticipated Repayment
Planet Fitness, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
(Amounts in thousands, except share and per share amounts)
Dates”). If the Master Issuer has not repaid or refinanced the outstanding Notes prior to the respective Anticipated Repayment Dates, additional interest will accrue pursuant to the Indenture.
If outstanding, the 2022 Variable Funding Notes will accrue interest at a variable interest rate based on (i) the prime rate, (ii) overnight federal funds rates, (iii) the secured overnight financing rate for U.S. Dollars, or (iv) with respect to advances made by conduit investors, the weighted average cost of, or related to, the issuance of commercial paper allocated to fund or maintain such advances, in each case plus any applicable margin and as specified in the 2022 Variable Funding Notes. There is a commitment fee on the unused portion of the 2022 Variable Funding Notes of 0.5% based on utilization. It is anticipated that the principal and interest on the 2022 Variable Funding Notes, if any, will be repaid in full on or prior to December 2026, subject to two additional one-year extension options. Following the anticipated repayment date (and any extensions thereof), additional interest will accrue on the 2022 Variable Funding Notes equal to 5.0% per year.
In connection with the issuance of the 2019 Notes, 2022 Notes and 2024 Notes, the Company incurred debt issuance costs of $10,577, $16,193 and $12,055, respectively. The debt issuance costs are being amortized to interest expense through the Anticipated Repayment Dates of the Notes utilizing the effective interest rate method. As a result of the repayment of the 2018 Class A-2-II Notes prior to the Anticipated Repayment Date, the Company recorded a loss on early extinguishment of debt of $2,285 within interest expense on the condensed consolidated statements of operations, consisting of the write-off of remaining unamortized deferred financing costs related to the issuance of the 2018 Class A-2-II Notes.
The outstanding Securitized Senior Notes are subject to covenants and restrictions customary for transactions of this type, including (i) that the Master Issuer maintains specified reserve accounts to be used to make required payments in respect of the Securitized Senior Notes, (ii) provisions relating to optional and mandatory prepayments and the related payment of specified amounts, including specified make-whole payments in the case of the Notes under certain circumstances, (iii) certain indemnification payments in the event, among other things, the assets pledged as collateral for the Securitized Senior Notes are in stated ways defective or ineffective, (iv) a cap on non-securitized indebtedness of $50,000 (provided that the Company may incur non-securitized indebtedness in excess of such amount, subject to the leverage ratio cap described below, under certain conditions, including if the relevant lenders execute a non-disturbance agreement that acknowledges the bankruptcy-remote status of the Master Issuer and its subsidiaries and of their respective assets), (v) a leverage ratio cap incurrence test on the Company of 7.0x (calculated without regard for any indebtedness subject to the $50,000 cap) and (vi) covenants relating to recordkeeping, access to information and similar matters.
Pursuant to a parent company support agreement, the Company has agreed to cause its subsidiary to perform each of its obligations (including any indemnity obligations) and duties under the Management Agreement and under the contribution agreements entered into in connection with the securitized financing facility, in each case as and when due. To the extent that such subsidiary has not performed any such obligation or duty within the prescribed time frame after such obligation or duty was required to be performed, the Company has agreed to either (i) perform such obligation or duty or (ii) cause such obligations or duties to be performed on the Company’s behalf.
The outstanding Securitized Senior Notes are also subject to customary rapid amortization events provided for in the Indenture, including events tied to failure to maintain stated debt service coverage ratios, certain manager termination events, an event of default, and the failure to repay or refinance the Notes on the applicable scheduled Anticipated Repayment Dates. The outstanding Securitized Senior Notes are also subject to certain customary events of default, including events relating to non-payment of required interest, principal, or other amounts due on or with respect to the Securitized Senior Notes, failure to comply with covenants within certain time frames, certain bankruptcy events, breaches of specified representations and warranties, failure of security interests to be effective, and certain judgments.
In accordance with the Indenture, certain cash accounts have been established with the Indenture trustee (the “Trustee”) for the benefit of the trustee and the noteholders, and are restricted in their use. The Company holds restricted cash which primarily represents cash collections held by the Trustee, interest, principal, and commitment fee reserves held by the Trustee related to the Securitized Senior Notes. As of September 30, 2024, the Company had restricted cash held by the Trustee of $67,766.
Planet Fitness, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
(Amounts in thousands, except share and per share amounts)
(7) Leases
The right-of-use assets and lease liabilities for operating and finance leases, including their classification in the condensed consolidated balance sheets, were as follows:
| | | | | | | | | | | | | | | | | | | | |
| Leases | | Balance Sheet Classification | | September 30, 2024 | | December 31, 2023 |
| Assets | | | | | | |
| Operating | | Right of use asset, net | | $ | 400,246 | | | $ | 381,010 | |
| Finance | | Property and equipment, net | | 82 | | | 179 | |
| Total lease assets | | | | $ | 400,328 | | | $ | 381,189 | |
| | | | | | |
| Liabilities | | | | | | |
| Current: | | | | | | |
| Operating | | Other current liabilities | | $ | 35,230 | | | $ | 33,849 | |
| Finance | | Other current liabilities | | 71 | | | 125 | |
| Noncurrent: | | | | | | |
| Operating | | Lease liabilities, net of current portion | | 408,588 | | | 381,589 | |
| Finance | | Other liabilities | | 15 | | | 63 | |
| Total lease liabilities | | | | $ | 443,904 | | | $ | 415,626 | |
| | | | | | |
| Weighted-average remaining lease term - operating leases | | 7.9 years | | 8.0 years |
| Weighted-average discount rate - operating leases | | 5.6% | | 5.4% |
The components of lease cost were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2024 | | 2023 | | 2024 | | 2023 |
| Operating lease cost | | $ | 18,139 | | | $ | 16,467 | | | $ | 54,142 | | | $ | 47,154 | |
| Variable lease cost | | 6,828 | | | 5,917 | | | 18,980 | | | 16,936 | |
| Total lease cost | | $ | 24,967 | | | $ | 22,384 | | | $ | 73,122 | | | $ | 64,090 | |
The Company’s costs related to short-term leases, those with a duration between one and twelve months, were immaterial.
Supplemental disclosures of cash flow information related to leases were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2024 | | 2023 | | 2024 | | 2023 |
| Cash paid for lease liabilities | | $ | 14,319 | | | $ | 13,877 | | | $ | 44,829 | | | $ | 41,985 | |
| Operating lease ROU assets obtained in exchange for operating lease liabilities, excluding acquisitions | | $ | 18,964 | | | $ | 38,683 | | | $ | 55,494 | | | $ | 59,410 | |
| Operating lease ROU assets obtained in exchange for operating lease liabilities through acquisitions | | $ | — | | | $ | — | | | $ | — | | | $ | 4,204 | |
Planet Fitness, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
(Amounts in thousands, except share and per share amounts)
Maturities of lease liabilities as of September 30, 2024 were as follows:
| | | | | |
| Amount |
| Remainder of 2024 | $ | 6,164 | |
| 2025 | 71,242 | |
| 2026 | 77,446 | |
| 2027 | 77,054 | |
| 2028 | 74,136 | |
| Thereafter | 252,900 | |
| Total lease payments | $ | 558,942 | |
| Less: imputed interest | (115,038) | |
| Present value of lease liabilities | $ | 443,904 | |
As of September 30, 2024, future operating lease payments exclude approximately $36,861 of legally binding minimum lease payments for leases signed but not yet commenced.
(8) Revenue from contracts with customers
Contract liabilities consist primarily of deferred revenue resulting from initial and renewal franchise fees and area development agreement (“ADA”) fees paid by franchisees, as well as transfer fees, which are generally recognized on a straight-line basis over the term of the underlying franchise agreement, and national advertising fund (“NAF”) revenue collected in advance of satisfaction of the Company’s performance obligation. Also included are corporate-owned club enrollment fees, annual fees and monthly fees as well as deferred equipment rebates relating to its equipment business. The Company classifies these contract liabilities as deferred revenue in its condensed consolidated balance sheets.
The following table reflects the change in contract liabilities between December 31, 2023 and September 30, 2024:
| | | | | |
| Amount |
| Balance at December 31, 2023 | $ | 91,638 | |
| Revenue recognized that was included in the contract liability at the beginning of the year | (56,187) | |
| Increase, excluding amounts recognized as revenue during the period | 65,644 | |
| Balance at September 30, 2024 | $ | 101,095 | |
The following table illustrates estimated revenues expected to be recognized in the future related to performance obligations that are unsatisfied, or partially unsatisfied, as of September 30, 2024. The Company has elected to exclude short-term contracts, sales and usage-based royalties and any other variable consideration recognized on an “as invoiced” basis.
| | | | | | | | |
| Contract liabilities to be recognized in: | | Amount |
| Remainder of 2024 | | $ | 42,713 | |
| 2025 | | 26,168 | |
| 2026 | | 4,313 | |
| 2027 | | 3,612 | |
| 2028 | | 3,302 | |
| Thereafter | | 20,987 | |
| Total | | $ | 101,095 | |
Equipment deposits received in advance of delivery as of September 30, 2024 were $10,345 and are expected to be recognized as revenue within the next 12 months.
Planet Fitness, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
(Amounts in thousands, except share and per share amounts)
(9) Related party transactions
Activity with franchisees considered to be related parties is summarized below:
| | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2024 | | 2023 | | 2024 | | 2023 |
| Franchise revenue - former interim CEO | $ | 1,051 | | | $ | 958 | | | $ | 3,383 | | | $ | 2,882 | |
| Franchise revenue - other | 947 | | | 656 | | | 2,616 | | | 1,206 | |
| Equipment revenue - former interim CEO | 639 | | | 1,294 | | | 1,738 | | | 2,305 | |
| Equipment revenue - other | 3,014 | | | 1,641 | | | 7,358 | | | 1,641 | |
| Total revenue from related parties | $ | 5,651 | | | $ | 4,549 | | | $ | 15,095 | | | $ | 8,034 | |
The Company had $1,099 and $2,916 of accounts receivable attributable to related parties as of September 30, 2024 and December 31, 2023, respectively.
Additionally, the Company had deferred ADA and franchise agreement revenue from related parties of $627 and $719 as of September 30, 2024 and December 31, 2023, respectively, of which $129 and $142 is from a franchisee in which the Company’s former interim CEO has a financial interest.
As of September 30, 2024 and December 31, 2023, the Company had $87,111 and $98,494, respectively, payable to related parties pursuant to tax benefit arrangements. See Note 12 for further discussion of these arrangements.
The Company provides administrative services to the NAF and typically charges the NAF a fee for providing these services. The services provided, which include accounting, information technology, data processing, product development, legal and administrative support, and other operating expenses, amounted to $1,657 and $893 for the three months ended September 30, 2024 and 2023, respectively, and $4,455 and $2,679 for the nine months ended September 30, 2024 and 2023, respectively.
The Company incurred approximately $63 and $427 for the three and nine months ended September 30, 2023 for corporate travel to a third-party company which is affiliated with our former CEO, which is included within selling, general and administrative expense on the condensed consolidated statements of operations.
A member of the Company’s board of directors, who is also the Company’s former interim CEO and a franchisee, holds an approximate 10.5% ownership of a company that sells amenity tracking compliance software to Planet Fitness clubs to which the Company made payments of approximately $102 and $101 for the three months ended September 30, 2024 and 2023, respectively, and $273 and $270 for the nine months ended September 30, 2024 and 2023, respectively.
(10) Stockholders’ equity
Pursuant to the exchange agreement between the Company and the Continuing LLC Owners, the Continuing LLC Owners (or certain permitted transferees thereof) have the right, from time to time and subject to the terms of the exchange agreement, to exchange their Holdings Units, along with a corresponding number of shares of Class B common stock, for shares of Class A common stock (or cash at the option of the Company) on a one-for-one basis, subject to customary conversion rate adjustments for stock splits, stock dividends, reclassifications and similar transactions. In connection with any exchange of Holdings Units for shares of Class A common stock by a Continuing LLC Owner, the number of Holdings Units held by the Company is correspondingly increased as it acquires the exchanged Holdings Units, and a corresponding number of shares of Class B common stock are canceled.
During the three and nine months ended September 30, 2024, certain existing holders of Holdings Units exercised their exchange rights and exchanged 162,324 and 908,960 Holdings Units for 162,324 and 908,960 newly-issued shares of Class A common stock. Simultaneously, and in connection with these exchanges, 162,324 and 908,960 shares of Class B common stock were surrendered by the holders of Holdings Units that exercised their exchange rights and canceled. Additionally, in connection with these exchanges, Planet Fitness, Inc. received 162,324 and 908,960 Holdings Units, increasing its total ownership interest in Pla-Fit Holdings.
As a result of the above transactions and the share repurchases discussed below, as of September 30, 2024:
•Holders of Class A common stock owned 84,103,670 shares of Class A common stock, representing 99.4% of the voting power in the Company and, through the Company, 84,103,670 Holdings Units representing 99.4% of the economic interest in Pla-Fit Holdings; and
Planet Fitness, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
(Amounts in thousands, except share and per share amounts)
•the Continuing LLC Owners collectively owned 488,207 Holdings Units, representing 0.6% of the economic interest in Pla-Fit Holdings, and 488,207 shares of Class B common stock, representing 0.6% of the voting power in the Company.
Share repurchase program
2022 share repurchase program
On November 4, 2022, the Company’s board of directors approved a share repurchase program of up to $500,000, which replaced the 2019 share repurchase program.
On June 12, 2024, the Company entered into a $280,000 accelerated share repurchase agreement (the “ASR Agreement”) with Citibank, N.A. (the “Bank”). Pursuant to the terms of the ASR Agreement, on June 14, 2024, the Company paid the Bank $280,000 in cash and received 3,090,507 shares of the Company’s Class A common stock, which were retired, and the Company recorded an increase to accumulated deficit of $224,000, representing 80% of the total ASR Agreement value based on the closing price of the Company’s Class A common stock on the commencement date of the transaction. Final settlement of the ASR Agreement occurred on September 16, 2024. At final settlement, the Bank delivered 668,432 additional shares of the Company’s Class A common stock, which were retired by the Company. The final number of shares repurchased was determined based on the volume-weighted average stock price of the Company’s Class A common stock of $76.88 during the term of the transaction, less a discount and subject to adjustments pursuant to the terms and conditions of the ASR Agreement. The ASR Agreement had been evaluated as an unsettled forward contract indexed to our Class A common stock, with $56,000 classified as an increase to accumulated deficit at the original date of payment.
Additionally, prior to the ASR Agreement, during the nine months ended September 30, 2024, the Company repurchased and retired 313,834 shares of Class A common stock for a total cost of $20,005. A share repurchase excise tax of $2,618 was recorded in connection with the Company’s share repurchases during the nine months ended September 30, 2024.
2024 share repurchase program
On June 13, 2024, the Company’s board of directors approved a share repurchase program of up to $500,000 (the “2024 Share Repurchase Program”) to replace the 2022 share repurchase program contingent upon the completion of the ASR Agreement. The new share repurchase program became effective on September 16, 2024 upon the completion of the ASR Agreement. As of September 30, 2024, there is $500,000 remaining under the 2024 Share Repurchase Program.
The timing of purchases and amount of stock repurchased are subject to the Company’s discretion and dependent upon market and business conditions, the Company’s general working capital needs, stock price, applicable legal requirements and other factors. The ability to repurchase shares at any particular time is also subject to the terms of the Indenture governing the Securitized Senior Notes. Purchases may be effected through one or more open market transactions, privately negotiated transactions, transactions structured through investment banking institutions, or a combination of the foregoing.
Preferred stock
The Company had 50,000,000 shares of preferred stock authorized and none issued or outstanding as of September 30, 2024 and December 31, 2023.
(11) Earnings per share
Basic earnings per share of Class A common stock is computed by dividing net income attributable to Planet Fitness, Inc. by the weighted-average number of shares of Class A common stock outstanding. Diluted earnings per share of Class A common stock is computed by dividing net income attributable to Planet Fitness, Inc. by the weighted-average number of shares of Class A common stock outstanding adjusted to give effect to potentially dilutive securities.
Shares of the Company’s Class B common stock do not share in the earnings attributable to Planet Fitness, Inc. and are therefore not participating securities. As such, separate presentation of basic and diluted earnings per share of Class B common stock under the two-class method has not been presented. Shares of the Company’s Class B common stock are, however, considered potentially dilutive shares of Class A common stock because shares of Class B common stock, together with the related Holdings Units, are exchangeable into shares of Class A common stock on a one-for-one basis.
Planet Fitness, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
(Amounts in thousands, except share and per share amounts)
The following table sets forth reconciliations of the numerators and denominators used to compute basic and diluted earnings per share of Class A common stock:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | | 2024 | | 2023 | | 2024 | | 2023 |
| Numerator | | | | | | | | |
| Net income | | $ | 42,395 | | | $ | 41,324 | | | $ | 126,680 | | | $ | 110,272 | |
| Less: net income attributable to non-controlling interests | | 386 | | | 2,190 | | | 1,722 | | | 7,299 | |
| Net income attributable to Planet Fitness, Inc. | | $ | 42,009 | | | $ | 39,134 | | | $ | 124,958 | | | $ | 102,973 | |
| Denominator | | | | | | | | |
| Weighted-average shares of Class A common stock outstanding - basic | | 84,569,504 | | | 84,609,522 | | | 86,090,290 | | | 84,557,902 | |
| Effect of dilutive securities: | | | | | | | | |
| Stock options | | 38,017 | | | 212,953 | | | 117,080 | | | 239,709 | |
| Restricted stock units | | 72,665 | | | 48,282 | | | 48,994 | | | 64,347 | |
| Performance stock units | | 47,639 | | | 15,562 | | | 32,720 | | | 8,354 | |
| Weighted-average shares of Class A common stock outstanding - diluted | | 84,727,825 | | | 84,886,319 | | | 86,289,084 | | | 84,870,312 | |
| Earnings per share of Class A common stock - basic | | $ | 0.50 | | | $ | 0.46 | | | $ | 1.45 | | | $ | 1.22 | |
| Earnings per share of Class A common stock - diluted | | $ | 0.50 | | | $ | 0.46 | | | $ | 1.45 | | | $ | 1.21 | |
The number of weighted-average common stock equivalents excluded from the computation of diluted net income per share because either the effect would have been anti-dilutive were as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2024 | | 2023 | | 2024 | | 2023 |
| Class B common stock | 532,058 | | | 3,533,885 | | | 811,748 | | | 4,236,271 | |
| Stock options | — | | | 307,606 | | | 3,503 | | | 250,595 | |
| Restricted stock units | — | | | 968 | | | 2,229 | | | 5,684 | |
| Performance stock units | 29 | | | 36,717 | | | 2,055 | | | 1,981 | |
| Total | 532,087 | | | 3,879,176 | | | 819,535 | | | 4,494,531 | |
(12) Income taxes
The Company is the sole managing member of Pla-Fit Holdings, which is treated as a partnership for U.S. federal and certain state and local income taxes. As a partnership, Pla-Fit Holdings is not subject to U.S. federal and certain state and local income taxes. Any taxable income or loss generated by Pla-Fit Holdings is passed through to and included in the taxable income or loss of its members, including the Company, on a pro-rata basis.
Planet Fitness, Inc. is subject to U.S. federal income taxes, in addition to state and local income taxes with respect to the allocable share of any taxable income of Pla-Fit Holdings. The Company’s effective tax rate was 27.7% and 24.5% for the three months ended September 30, 2024 and 2023, respectively, and 27.7% and 26.0% for the nine months ended September 30, 2024 and 2023, respectively, which differed from the U.S. federal statutory rate of 21% primarily due to state and local taxes and non-deductible expenses. The Company is also subject to taxes in foreign jurisdictions.
Net deferred tax assets of $479,890 and $502,544 as of September 30, 2024 and December 31, 2023, respectively, relate primarily to the tax effects of temporary differences in the book basis as compared to the tax basis of the investment in Pla-Fit Holdings as a result of the secondary offerings, other exchanges, recapitalization transactions and the IPO.
As of September 30, 2024 and December 31, 2023, the total liability related to uncertain tax positions was $278 and $273, respectively. The Company recognizes accrued interest and penalties, if applicable, related to unrecognized tax benefits in income tax expense. Interest and penalties for the three and nine months ended September 30, 2024 and 2023 were not material.
Planet Fitness, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
(Amounts in thousands, except share and per share amounts)
Tax benefit arrangements
The Company’s acquisition of Holdings Units in connection with the IPO and future and certain past exchanges of Holdings Units for shares of the Company’s Class A common stock (or cash at the option of the Company) are expected to produce and have produced favorable tax attributes. In connection with the IPO, the Company entered into two tax receivable agreements, pursuant to which, the Company is required to make payments to certain holders of equity interests or their successors-in-interest (“TRA Holders”). Under the first of those arrangements, the Company generally is required to pay certain existing and previous equity owners of Pla-Fit Holdings, LLC 85% of the applicable tax savings, if any, in U.S. federal and state income tax that the Company is deemed to realize as a result of certain tax attributes of their Holdings Units sold to the Company (or exchanged in a taxable sale) and that are created as a result of (i) the sales of their Holdings Units for shares of Class A common stock and (ii) tax benefits attributable to payments made under the tax receivable agreement (including imputed interest). Under the second tax receivable agreement, the Company generally is required to pay 85% of the amount of tax savings, if any, that the Company is deemed to realize as a result of the tax attributes of certain equity interests previously held by affiliates of TSG that resulted from TSG’s purchase of interests in Pla-Fit Holdings in 2012, and certain other tax benefits. Under both agreements, the Company generally retains the remaining 15% benefit of the applicable tax savings.
In connection with the exchanges that occurred during the three and nine months ended September 30, 2024 and 2023, 162,324, 1,417,603, 908,960 and 3,412,312 Holding Units, respectively, were redeemed by the Continuing LLC Owners for newly-issued shares of Class A common stock, resulting in an increase in the tax basis of the net assets of Pla-Fit Holdings. As a result of the change in the Company’s ownership percentage of Pla-Fit Holdings that occurred in conjunction with the exchanges and issuance of Holding Units, the Company recorded a decrease of $223, $1,704, $1,106 and $4,358 to net deferred tax assets, during the three and nine months ended September 30, 2024 and 2023, respectively. As a result of these exchanges and other activity, the Company recognized deferred tax assets in the amount of $4,137, $24,999, $18,675 and $77,730, during the three and nine months ended September 30, 2024 and 2023, respectively, and corresponding tax benefit arrangement liabilities of $3,548, $14,762, $11,310 and $17,077 during the three and nine months ended September 30, 2024 and 2023, respectively, representing approximately 85% of the tax benefits due to the TRA Holders for shares exchanged that were subject to tax benefit arrangements. The offset to the entries recorded in connection with exchanges was to additional paid in capital within stockholders’ deficit.
The Company had a liability of $477,411 and $495,662 as of September 30, 2024 and December 31, 2023, respectively, related to its projected obligations under the tax benefit arrangements.
Projected future payments under the tax benefit arrangements were as follows:
| | | | | |
| | Amount |
| Remainder of 2024 | $ | 13,392 | |
| 2025 | 50,231 | |
| 2026 | 52,314 | |
| 2027 | 48,588 | |
| 2028 | 42,149 | |
| Thereafter | 270,737 | |
| Total | $ | 477,411 | |
(13) Commitments and contingencies
From time to time, and in the ordinary course of business, the Company is subject to various claims, charges, and litigation, such as employment-related claims and slip and fall cases.
Mexico Acquisition
On March 19, 2020, a franchisee in Mexico exercised a put option that required the Company to acquire their franchisee-owned clubs in Mexico. In February 2023, the Company and the franchisee agreed on a summary of terms for a settlement agreement and a release of all claims by all parties. In connection with the settlement agreement, the Company recorded an update to its estimated liability for the legal settlement of $6,250, inclusive of legal fees paid, within other losses, net on the condensed consolidated statement of operations during the nine months ended September 30, 2023. On October 20, 2023, the Company finalized its settlement with the franchisee in Mexico for $31,619, which included the acquisition by the Company of five clubs in Mexico and the settlement of all claims.
Planet Fitness, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
(Amounts in thousands, except share and per share amounts)
The Company is not currently aware of any other legal proceedings or claims that the Company believes will have, individually or in the aggregate, a material adverse effect on the Company’s financial position or result of operations.
(14) Segments
The Company has three reportable segments: (i) Franchise; (ii) Corporate-owned clubs; and (iii) Equipment.
The Company’s operations are organized and managed by type of products and services and segment information is reported accordingly. The Company’s chief operating decision maker (the “CODM”) is its Chief Executive Officer. The CODM reviews financial performance and allocates resources by reportable segment. There have been no operating segments aggregated to arrive at the Company’s reportable segments.
The Franchise segment includes operations related to the Company’s franchising business in the United States, Puerto Rico, Canada, Panama, Mexico and Australia. The Company records all revenues and expenses of the NAF within the franchise segment. The Corporate-owned clubs segment includes operations with respect to all corporate-owned clubs throughout the United States, Canada and Spain. The Equipment segment includes the sale of equipment to franchisee-owned clubs in the United States, Canada and Mexico.
The accounting policies of the reportable segments are the same as those described in Note 2. The Company evaluates the performance of its segments and allocates resources to them based on revenue and earnings before interest, taxes, depreciation, and amortization, referred to as Segment EBITDA. Revenues for all operating segments include only transactions with unaffiliated customers and include no intersegment revenues.
The tables below summarize the financial information for the Company’s reportable segments.
| | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2024 | | 2023 | | 2024 | | 2023 |
| Revenue | | | | | | | |
| Franchise segment revenue - U.S. | $ | 98,902 | | | $ | 95,209 | | | $ | 303,971 | | | $ | 281,836 | |
| Franchise segment revenue - International | 3,513 | | | 2,956 | | | 10,254 | | | 7,855 | |
| Franchise segment total | 102,415 | | | 98,165 | | | 314,225 | | | 289,691 | |
| Corporate-owned clubs segment - U.S. | 126,716 | | | 112,080 | | | 372,061 | | | 329,505 | |
| Corporate-owned clubs segment - International | 1,416 | | | 1,165 | | | 3,915 | | | 3,380 | |
| Corporate-owned clubs segment total | 128,132 | | | 113,245 | | | 375,976 | | | 332,885 | |
| Equipment segment - U.S. | 58,081 | | | 62,605 | | | 140,824 | | | 158,335 | |
| Equipment segment - International | 3,618 | | | 3,536 | | | 10,179 | | | 5,329 | |
| Equipment segment total | 61,699 | | | 66,141 | | | 151,003 | | | 163,664 | |
| Total revenue | $ | 292,246 | | | $ | 277,551 | | | $ | 841,204 | | | $ | 786,240 | |
Franchise revenue includes revenue generated from placement services of $4,528 and $5,884 for the three months ended September 30, 2024 and 2023, respectively, and $11,780 and $13,760 for the nine months ended September 30, 2024 and 2023, respectively.
| | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2024 | | 2023 | | 2024 | | 2023 |
| Segment EBITDA | | | | | | | |
| Franchise | $ | 72,758 | | | $ | 67,583 | | | $ | 226,478 | | | $ | 198,418 | |
| Corporate-owned clubs | 50,107 | | | 44,264 | | | 141,507 | | | 126,499 | |
| Equipment | 18,487 | | | 16,434 | | | 41,822 | | | 39,134 | |
Corporate and other(1) | (20,408) | | | (18,547) | | | (57,191) | | | (52,238) | |
| Total Segment EBITDA | $ | 120,944 | | | $ | 109,734 | | | $ | 352,616 | | | $ | 311,813 | |
Planet Fitness, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
(Amounts in thousands, except share and per share amounts)
(1) Corporate and other primarily includes corporate overhead costs, such as payroll and related benefit costs and professional services which are not directly attributable to any individual segment.
The following table reconciles total Segment EBITDA to income before taxes:
| | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2024 | | 2023 | | 2024 | | 2023 |
| Total Segment EBITDA | $ | 120,944 | | | $ | 109,734 | | | $ | 352,616 | | | $ | 311,813 | |
| Less: | | | | | | | |
| Depreciation and amortization | 41,033 | | | 37,477 | | | 120,230 | | | 110,254 | |
| Other (expense) income, net | (558) | | | 148 | | | 1,132 | | | 631 | |
| Losses from equity-method investments, net of tax | (782) | | | (242) | | | (3,198) | | | (580) | |
| Income from operations | 81,251 | | | 72,351 | | | 234,452 | | | 201,508 | |
| Interest income | 5,610 | | | 4,245 | | | 16,687 | | | 12,339 | |
| Interest expense | (26,603) | | | (21,704) | | | (72,569) | | | (64,771) | |
| Other (expense) income, net | (558) | | | 148 | | | 1,132 | | | 631 | |
| Income before income taxes | $ | 59,700 | | | $ | 55,040 | | | $ | 179,702 | | | $ | 149,707 | |
The following table summarizes the Company’s assets by reportable segment:
| | | | | | | | | | | | | | |
| | | September 30, 2024 | | December 31, 2023 |
| Franchise | | $ | 164,678 | | | $ | 169,836 | |
| Corporate-owned clubs | | 1,678,418 | | | 1,637,146 | |
| Equipment | | 196,198 | | | 176,249 | |
| Unallocated | | 1,008,887 | | | 986,462 | |
| Total consolidated assets | | $ | 3,048,181 | | | $ | 2,969,693 | |
The table above includes $12,127 and $3,609 of long-lived assets located in the Company’s international corporate-owned clubs as of September 30, 2024 and December 31, 2023, respectively. All other assets are located in the U.S.
The following table summarizes the Company’s goodwill by reportable segment:
| | | | | | | | | | | | | | |
| | | September 30, 2024 | | December 31, 2023 |
| Franchise | | $ | 16,938 | | | $ | 16,938 | |
| Corporate-owned clubs | | 609,523 | | | 607,898 | |
| Equipment | | 92,666 | | | 92,666 | |
| Consolidated goodwill | | $ | 719,127 | | | $ | 717,502 | |
Planet Fitness, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
(Amounts in thousands, except share and per share amounts)
(15) Corporate-owned and franchisee-owned clubs
The following table shows changes in corporate-owned and franchisee-owned clubs:
| | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2024 | | 2023 | | 2024 | | 2023 |
| Franchisee-owned clubs: | | | | | | | |
| Clubs operated at beginning of period | 2,358 | | | 2,230 | | | 2,319 | | | 2,176 | |
| New clubs opened | 12 | | | 24 | | | 52 | | | 82 | |
| | | | | | | |
Clubs debranded, sold, closed or consolidated(1) | (1) | | | — | | | (2) | | | (4) | |
| Clubs operated at end of period | 2,369 | | | 2,254 | | | 2,369 | | | 2,254 | |
| Corporate-owned clubs: | | | | | | | |
| Clubs operated at beginning of period | 259 | | | 242 | | | 256 | | | 234 | |
| New clubs opened | 9 | | | 2 | | | 12 | | | 6 | |
| | | | | | | |
| Clubs acquired from franchisees | — | | | — | | | — | | | 4 | |
| Clubs operated at end of period | 268 | | | 244 | | | 268 | | | 244 | |
| Total clubs: | | | | | | | |
| Clubs operated at beginning of period | 2,617 | | | 2,472 | | | 2,575 | | | 2,410 | |
| New clubs opened | 21 | | | 26 | | | 64 | | | 88 | |
Clubs debranded, sold, closed or consolidated(1) | (1) | | | — | | | (2) | | | — | |
| Clubs operated at end of period | 2,637 | | | 2,498 | | | 2,637 | | | 2,498 | |
(1) The term “debranded” refers to a franchisee-owned club whose right to use the Planet Fitness brand and marks has been terminated in accordance with the franchise agreement. We retain the right to prevent debranded clubs from continuing to operate as fitness clubs. The term “consolidated” refers to the combination of a franchisee’s club with another club located in close proximity with our prior approval. This often coincides with an enlargement, re-equipment and/or refurbishment of the remaining club.
ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the accompanying unaudited interim condensed consolidated financial statements as of and for the three and nine months ended September 30, 2024 and the related notes included in this Quarterly Report on Form 10-Q and our audited consolidated financial statements as of and for the year ended December 31, 2023 and the related notes contained in the Company’s Annual Report on Form 10-K filed with the SEC on February 29, 2024. Unless the context requires otherwise, references in this report to the “Company,” “we,” “us” and “our” refer to Planet Fitness, Inc. and its consolidated subsidiaries.
Overview
We are one of the largest and fastest-growing franchisors and operators of fitness clubs in the world by number of members and locations, with a highly recognized national brand. Our mission is to enhance people’s lives and democratize fitness by providing a high-quality fitness experience in a welcoming, non-intimidating environment, which we call the Judgement Free Zone, where anyone—and we mean anyone—can feel they belong. Our bright, clean clubs are typically 20,000 square feet, with a large selection of high-quality, purple and yellow Planet Fitness-branded cardio, circuit- and weight-training equipment and friendly staff trainers who offer unlimited free fitness instruction to all our members in small groups through our PE@PF program. We offer this differentiated fitness experience as low as $15 per month to new members for our standard Classic Card membership. This attractive value proposition is designed to appeal to a broad population, including occasional gym users over age 14 who are not gym members, particularly those who find the traditional fitness club setting intimidating and expensive. We and our franchisees fiercely protect Planet Fitness’ community atmosphere—a place where you do not need to be fit before joining and where progress toward achieving your fitness goals (big or small) is supported and applauded by our staff and fellow members.
As of September 30, 2024, we had approximately 19.6 million members and 2,637 clubs in all 50 states, the District of Columbia, Puerto Rico, Canada, Panama, Mexico, Australia and Spain. Of our 2,637 clubs, 2,369 are franchised and 268 are corporate-owned.
As of September 30, 2024, we had contractual commitments to open approximately 1,000 new clubs.
Our segments
We operate and manage our business in three business segments: Franchise, Corporate-owned clubs (historically referred to as Corporate-owned stores) and Equipment. Our Franchise segment includes operations related to our franchising business in the U.S., Puerto Rico, Canada, Panama, Mexico and Australia, as well as revenues and expenses of the NAF. Our Corporate-owned clubs segment includes operations with respect to all corporate-owned clubs throughout the U.S., Canada and Spain. The Equipment segment includes the sale of equipment to franchisee-owned clubs in the U.S., Canada and Mexico. We evaluate the performance of our segments and allocate resources to them based on revenue and earnings before interest, taxes, depreciation and amortization, referred to as Segment EBITDA. Revenue and Segment EBITDA for all operating segments include only transactions with unaffiliated customers and do not include intersegment transactions. The following tables summarize the financial information for our segments:
| | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| (in thousands) | 2024 | | 2023 | | 2024 | | 2023 |
| Revenue | | | | | | | |
| Franchise segment | $ | 102,415 | | | $ | 98,165 | | | $ | 314,225 | | | $ | 289,691 | |
| Corporate-owned clubs segment | 128,132 | | | 113,245 | | | 375,976 | | | 332,885 | |
| Equipment segment | 61,699 | | | 66,141 | | | 151,003 | | | 163,664 | |
| Total revenue | $ | 292,246 | | | $ | 277,551 | | | $ | 841,204 | | | $ | 786,240 | |
| Segment EBITDA | | | | | | | |
| Franchise segment | $ | 72,758 | | | $ | 67,583 | | | $ | 226,478 | | | $ | 198,418 | |
| Corporate-owned clubs segment | 50,107 | | | 44,264 | | | 141,507 | | | 126,499 | |
| Equipment segment | 18,487 | | | 16,434 | | | 41,822 | | | 39,134 | |
Corporate and other(1) | (20,408) | | | (18,547) | | | (57,191) | | | (52,238) | |
Total Segment EBITDA(2) | $ | 120,944 | | | $ | 109,734 | | | $ | 352,616 | | | $ | 311,813 | |
(1) “Corporate and other” primarily includes corporate overhead costs, such as payroll and related benefit costs and professional services that are not directly attributable to any individual segment.
(2) Total Segment EBITDA is equal to EBITDA, which is a metric that is not presented in accordance with GAAP. Refer to “—Non-GAAP Financial Measures” for a definition of EBITDA and a reconciliation to net income, the most directly comparable GAAP measure.
A reconciliation of income from operations to Segment EBITDA is set forth below:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (in thousands) | Franchise | | Corporate-owned clubs | | Equipment | | Corporate and other | | Total |
| Three Months Ended September 30, 2024 | | | | | | | | | |
| Income (loss) from operations | $ | 71,158 | | | $ | 17,848 | | | $ | 17,230 | | | $ | (24,985) | | | $ | 81,251 | |
| Depreciation and amortization | 1,842 | | | 32,395 | | | 1,257 | | | 5,539 | | | 41,033 | |
| Other expense | (242) | | | (136) | | | — | | | (180) | | | (558) | |
| Losses from equity-method investments, net of tax | — | | | — | | | — | | | (782) | | | (782) | |
Segment EBITDA(1) | $ | 72,758 | | | $ | 50,107 | | | $ | 18,487 | | | $ | (20,408) | | | $ | 120,944 | |
| Three Months Ended September 30, 2023 | | | | | | | | | |
| Income (loss) from operations | $ | 65,949 | | | $ | 14,811 | | | $ | 15,172 | | | $ | (23,581) | | | $ | 72,351 | |
| Depreciation and amortization | 1,845 | | | 29,484 | | | 1,262 | | | 4,886 | | | 37,477 | |
| Other (expense) income | (211) | | | (31) | | | — | | | 390 | | | 148 | |
| Losses from equity-method investments, net of tax | — | | | — | | | — | | | (242) | | | (242) | |
Segment EBITDA(1) | $ | 67,583 | | | $ | 44,264 | | | $ | 16,434 | | | $ | (18,547) | | | $ | 109,734 | |
| Nine Months Ended September 30, 2024 | | | | | | | | | |
| Income (loss) from operations | $ | 221,682 | | | $ | 46,495 | | | $ | 38,053 | | | $ | (71,778) | | | $ | 234,452 | |
| Depreciation and amortization | 5,531 | | | 94,908 | | | 3,775 | | | 16,016 | | | 120,230 | |
| Other (expense) income | (735) | | | 104 | | | (6) | | | 1,769 | | | 1,132 | |
| Losses from equity-method investments, net of tax | — | | | — | | | — | | | (3,198) | | | (3,198) | |
Segment EBITDA(1) | $ | 226,478 | | | $ | 141,507 | | | $ | 41,822 | | | $ | (57,191) | | | $ | 352,616 | |
| Nine Months Ended September 30, 2023 | | | | | | | | | |
| Income (loss) from operations | $ | 193,134 | | | $ | 39,406 | | | $ | 35,344 | | | $ | (66,376) | | | $ | 201,508 | |
| Depreciation and amortization | 5,534 | | | 87,179 | | | 3,788 | | | 13,753 | | | 110,254 | |
| Other (expense) income | (250) | | | (86) | | | 2 | | | 965 | | | 631 | |
| Losses from equity-method investments, net of tax | — | | | — | | | — | | | (580) | | | (580) | |
Segment EBITDA(1) | $ | 198,418 | | | $ | 126,499 | | | $ | 39,134 | | | $ | (52,238) | | | $ | 311,813 | |
(1) Total Segment EBITDA is equal to EBITDA, which is a metric that is not presented in accordance with GAAP. Refer to “—Non-GAAP Financial Measures” for a definition of EBITDA and a reconciliation to net income, the most directly comparable GAAP measure.
How we assess the performance of our business
In assessing the performance of our business, we consider a variety of performance and financial measures. The key measures for determining how our business is performing include total monthly dues and annual fees billed to members (which we refer to as system-wide sales), the number of new club openings, same club sales (historically referred to as same store sales) for both corporate-owned and franchisee-owned clubs, EBITDA, Adjusted EBITDA, Segment EBITDA, Adjusted net income and Adjusted net income per share, diluted. See “—Non-GAAP financial measures” below for our definition of EBITDA, Adjusted EBITDA, Adjusted net income, and Adjusted net income per share, diluted and why we present EBITDA, Adjusted EBITDA, Adjusted net income, and Adjusted net income per share, diluted, and for a reconciliation of our EBITDA, Adjusted EBITDA, and Adjusted net income to net income, the most directly comparable financial measure calculated and presented in accordance with GAAP, and a reconciliation of Adjusted net income per share, diluted to net income per share, diluted, the most directly comparable financial measure calculated and presented in accordance with GAAP.
Number of new club openings
The number of new club openings reflects clubs opened during a particular reporting period for both corporate-owned and franchisee-owned clubs. Opening new clubs is an important part of our growth strategy and we expect the majority of our future new clubs will be franchisee-owned. Before we obtain the certificate of occupancy or report any revenue for new corporate-owned clubs, we incur pre-opening costs, such as rent expense, labor expense, marketing expense and other operating expenses. Our clubs open with an initial start-up period of higher than normal marketing and operating expenses, particularly as a percentage of monthly revenue. New clubs may not be profitable and their revenue may not follow historical patterns. The following table shows the growth in our corporate-owned and franchisee-owned club base:
| | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2024 | | 2023 | | 2024 | | 2023 |
| Franchisee-owned clubs: | | | | | | | |
| Clubs operated at beginning of period | 2,358 | | | 2,230 | | | 2,319 | | | 2,176 | |
| New clubs opened | 12 | | | 24 | | | 52 | | | 82 | |
| | | | | | | |
Clubs debranded, sold, closed or consolidated(1) | (1) | | | — | | | (2) | | | (4) | |
| Clubs operated at end of period | 2,369 | | | 2,254 | | | 2,369 | | | 2,254 | |
| Corporate-owned clubs: | | | | | | | |
| Clubs operated at beginning of period | 259 | | | 242 | | | 256 | | | 234 | |
| New clubs opened | 9 | | | 2 | | | 12 | | | 6 | |
| | | | | | | |
| Clubs acquired from franchisees | — | | | — | | | — | | | 4 | |
| Clubs operated at end of period | 268 | | | 244 | | | 268 | | | 244 | |
| Total clubs: | | | | | | | |
| Clubs operated at beginning of period | 2,617 | | | 2,472 | | | 2,575 | | | 2,410 | |
| New clubs opened | 21 | | | 26 | | | 64 | | | 88 | |
Clubs debranded, sold, closed or consolidated(1) | (1) | | | — | | | (2) | | | — | |
| Clubs operated at end of period | 2,637 | | | 2,498 | | | 2,637 | | | 2,498 | |
(1) The term “debranded” refers to a franchisee-owned club whose right to use the Planet Fitness brand and marks has been terminated in accordance with the franchise agreement. We retain the right to prevent debranded clubs from continuing to operate as fitness clubs. The term “consolidated” refers to the combination of a franchisee’s club with another club located in close proximity with our prior approval. This often coincides with an enlargement, re-equipment and/or refurbishment of the remaining club.
Same club sales
Same club sales refers to year-over-year sales comparisons for the same club sales base of both corporate-owned and franchisee-owned clubs. We define the same club sales base to include those clubs that have been open and for which monthly membership dues have been billed for longer than 12 months. We measure same club sales based solely upon monthly dues billed to members of our corporate-owned and franchisee-owned clubs.
Several factors affect our same club sales in any given period, including the following:
•the number of clubs that have been in operation for more than 12 months;
•the percentage mix and pricing of PF Black Card and standard Classic Card memberships in any period;
•growth in total net memberships per club;
•consumer recognition of our brand and our ability to respond to changing consumer preferences;
•overall economic trends, particularly those related to consumer spending;
•our ability and our franchisees’ ability to operate clubs effectively and efficiently to meet consumer expectations;
•marketing and promotional efforts;
•local competition;
•trade area dynamics; and
•opening of new clubs in the vicinity of existing locations.
We present same club sales as compared to the same period in the prior year for all clubs that have been open and for which monthly membership dues have been billed for longer than 12 months, beginning with the 13th month and thereafter, as applicable. Same club sales of our international clubs are calculated on a constant currency basis, meaning that we translate the current year’s same club sales of our international clubs at the same exchange rates used in the prior year. Since opening new clubs is a significant component of our revenue growth, same club sales is only one measure of how we evaluate our performance.
Clubs acquired from or sold to franchisees are removed from the franchisee-owned or corporate-owned same club sales base, as applicable, upon the ownership change and for the 12 months following the date of the ownership change. These clubs are included in the corporate-owned or franchisee-owned same club sales base, as applicable, following the 12th month after the acquisition or sale. These clubs remain in the system-wide same club sales base in all periods. The following table shows our same club sales:
| | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2024 | | 2023 | | 2024 | | 2023 |
| Same club sales growth: | | | | | | | |
| Franchisee-owned clubs | 4.5 | % | | 8.2 | % | | 5.0 | % | | 8.8 | % |
| Corporate-owned clubs | 3.4 | % | | 10.1 | % | | 4.5 | % | | 10.7 | % |
| System-wide clubs | 4.3 | % | | 8.4 | % | | 4.9 | % | | 9.0 | % |
| Number of clubs in same club sales base: | | | | | | | |
| Franchisee-owned clubs | 2,369 | | | 2,116 | | | 2,369 | | | 2,116 | |
| Corporate-owned clubs | 265 | | | 230 | | | 265 | | | 231 | |
| System-wide clubs | 2,634 | | | 2,350 | | | 2,634 | | | 2,351 | |
Total monthly dues and annual fees from members (system-wide sales)
We review the total amount of dues we collect from our members on a monthly basis, which allows us to assess changes in the performance of our corporate-owned and franchisee-owned clubs from period to period, any competitive pressures, local or regional membership traffic patterns and general market conditions that might impact our club performance. System-wide sales is an operating measure that includes monthly membership dues and annual fee billings by franchisees that are not revenue realized by the Company in accordance with GAAP, as well as monthly membership dues and annual fee billings by our corporate-owned clubs. While we do not record sales by franchisees as revenue, and such sales are not included in our condensed consolidated financial statements, we believe that this operating measure aids in understanding how we derive royalty revenue and is important in evaluating our performance. We bill monthly dues on or around the 17th of every month and bill annual fees once per year to each member based upon when the member signed their membership agreement. System-wide sales were $1.2 billion and $1.1 billion during the three months ended September 30, 2024 and 2023, respectively, and $3.6 billion and $3.3 billion for the nine months ended September 30, 2024 and 2023, respectively.
Non-GAAP financial measures
We refer to EBITDA and Adjusted EBITDA as we use these measures to evaluate our operating performance and we believe these measures are useful to investors in evaluating our performance. EBITDA and Adjusted EBITDA as presented in this Quarterly Report on Form 10-Q are supplemental measures of our performance that are neither required by, nor presented in accordance with GAAP. EBITDA and Adjusted EBITDA should not be considered as substitutes for GAAP metrics such as net income or any other performance measures derived in accordance with GAAP.
Also, in the future we may incur expenses or charges such as those used to calculate Adjusted EBITDA. Our presentation of EBITDA and Adjusted EBITDA should not be construed as an inference that our future results will be unaffected by unusual or nonrecurring items. We have also disclosed Segment EBITDA as an important financial metric utilized by the Company to evaluate performance and allocate resources to segments in accordance with ASC 280, Segment Reporting. As part of such disclosure in “Our Segments” within Management’s Discussion and Analysis of Financial Condition and Results of Operations, the Company has provided a reconciliation from income from operations to Total Segment EBITDA, which is equal to the Non-GAAP financial metric EBITDA.
We define EBITDA as net income before interest, taxes, depreciation and amortization. We believe that EBITDA, which eliminates the impact of certain expenses that we do not believe reflect our underlying business performance, provides useful information to investors to assess the performance of our segments as well as the business as a whole. Our Board of Directors also uses EBITDA as a key metric to assess the performance of management. We define Adjusted EBITDA as EBITDA, adjusted for the impact of certain additional non-cash and other items that we do not consider in our evaluation of ongoing performance of the Company’s core operations. We believe that Adjusted EBITDA is an appropriate measure of operating performance in addition to EBITDA because it eliminates the impact of other items that we believe reduce the comparability of our underlying core business performance from period to period and is therefore useful to our investors.
A reconciliation of net income to EBITDA and Adjusted EBITDA is set forth below:
| | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| (in thousands) | 2024 | | 2023 | | 2024 | | 2023 |
| Net income | $ | 42,395 | | | $ | 41,324 | | | $ | 126,680 | | | $ | 110,272 | |
| Interest income | (5,610) | | | (4,245) | | | (16,687) | | | (12,339) | |
| Interest expense | 26,603 | | | 21,704 | | | 72,569 | | | 64,771 | |
| Provision for income taxes | 16,523 | | | 13,474 | | | 49,824 | | | 38,855 | |
| Depreciation and amortization | 41,033 | | | 37,477 | | | 120,230 | | | 110,254 | |
| EBITDA | 120,944 | | | 109,734 | | | 352,616 | | | 311,813 | |
Purchase accounting adjustments-revenue(1) | 29 | | | 45 | | | 91 | | | 378 | |
Purchase accounting adjustments-rent(2) | 170 | | | 173 | | | 512 | | | 461 | |
Loss on reacquired franchise rights(3) | — | | | — | | | — | | | 110 | |
Transaction fees and acquisition-related costs(4) | — | | | — | | | — | | | 394 | |
Severance costs(5) | — | | | — | | | 1,602 | | | 1,220 | |
Executive transition costs(6) | 1,342 | | | 2,502 | | | 2,973 | | | 2,502 | |
Legal matters(7) | — | | | — | | | — | | | 6,250 | |
Loss (gain) on adjustment of allowance for credit losses on held-to-maturity investment(8) | 292 | | | (101) | | | 849 | | | (6) | |
Dividend income on held-to-maturity investment(9) | (553) | | | (511) | | | (1,618) | | | (1,490) | |
Loss (gain) on remeasurement of tax benefit arrangement(10) | 575 | | | — | | | (774) | | | — | |
| | | | | | | |
Amortization of basis difference of equity-method investments(11) | 240 | | | — | | | 709 | | | — | |
Other(12) | 32 | | | 50 | | | (75) | | | (590) | |
| Adjusted EBITDA | $ | 123,071 | | | $ | 111,892 | | | $ | 356,885 | | | $ | 321,042 | |
(1) Represents the impact of revenue-related purchase accounting adjustments associated with the acquisition of Pla-Fit Holdings on November 8, 2012 by TSG (the “2012 Acquisition”). At the time of the 2012 Acquisition, the Company maintained a deferred revenue account, which consisted of deferred area development agreement fees, deferred franchise fees, and deferred enrollment fees that the Company billed and collected up front but recognizes for GAAP purposes at a later date. In connection with the 2012 Acquisition, it was determined that the carrying amount of deferred revenue was greater than the fair value assessed in accordance with ASC 805—Business Combinations, which resulted in a write-down of the carrying value of the deferred revenue balance upon application of acquisition push-down accounting under ASC 805. These amounts represent the additional revenue that would have been recognized if the write-down to deferred revenue had not occurred in connection with the application of acquisition pushdown accounting.
(2) Represents the impact of rent related purchase accounting adjustments. In accordance with guidance in ASC 805—Business Combinations, in connection with the 2012 Acquisition, the Company’s deferred rent liability was required to be written off as of the acquisition date and rent was recorded on a straight-line basis from the acquisition date through the end of the lease term. This resulted in higher overall rent expense each period than would have otherwise been recorded had the deferred rent liability not been written off as a result of the acquisition push down accounting applied in accordance with ASC 805. The rent related purchase accounting adjustments are adjustments to rent expense recorded in club operations on our condensed consolidated statements of operations, which reflect the difference between the higher rent expense recorded in accordance with GAAP since the acquisition and the rent expense that would have been recorded had the 2012 Acquisition not occurred, as well as the amortization of favorable and unfavorable lease intangible assets.
(3) Represents the impact of a non-cash loss recorded in accordance with ASC 805 – Business Combinations related to our acquisition of franchisee-owned clubs. The loss recorded under U.S. GAAP represents the difference between the fair value and the contractual terms of the reacquired franchise rights and is included in other (gains) losses, net on our condensed consolidated statement of operations.
(4) Represents transaction fees and acquisition-related costs incurred in connection with our acquisition of franchisee-owned clubs.
(5) Represents severance related expenses recorded in connection with a reduction in force during the nine months ended September 30, 2024 and the elimination of the President and Chief Operating Officer position during the nine months ended September 30, 2023.
(6) Represents certain expenses recorded in connection with the departure of the former Chief Executive Officer, including costs associated with the search for and stock based compensation associated with certain equity awards granted to the Company’s new Chief Executive Officer and retention payments for certain key employees through the Chief Executive Officer transition.
(7) Represents costs associated with legal matters in which the Company was a defendant. In 2023, this represents an increase in the legal reserve related to preliminary terms of a settlement agreement (the “Preliminary Settlement Agreement”). The legal reserve liability was subsequently paid in 2023.
(8) Represents a loss (gain) on the adjustment of the allowance for credit losses on the Company’s held-to-maturity investment.
(9) Represents dividend income recognized on the Company’s held-to-maturity investment.
(10) Represents a loss (gain) related to the adjustment of our tax benefit arrangements primarily due to changes in our deferred state tax rate.
(11) Represents the Company’s pro-rata portion of the basis difference related to intangible asset amortization expense in its equity method investees, which is included within losses from equity-method investments, net of tax on our condensed consolidated statements of operations.
(12) Represents certain other gains and charges that we do not believe reflect our underlying business performance.
Adjusted net income assumes that all net income is attributable to Planet Fitness, Inc., which assumes the full exchange of all outstanding Holdings Units for shares of Class A common stock of Planet Fitness, Inc., adjusted for certain non-cash and other items that we do not believe directly reflect our core operations. Adjusted net income per share, diluted, is calculated by dividing Adjusted net income by the total weighted-average shares of Class A common stock outstanding plus any dilutive awards granted under the 2015 Omnibus Incentive Plan as calculated in accordance with GAAP and assuming the full exchange of all outstanding Holdings Units and corresponding Class B common stock as of the beginning of each period presented. Adjusted net income and Adjusted net income per share, diluted, are supplemental measures of operating performance that do not represent, and should not be considered, alternatives to net income and earnings per share, as calculated in accordance with GAAP. We believe Adjusted net income and Adjusted net income per share, diluted, supplement GAAP measures and enable us to more effectively evaluate our performance period-over-period. A reconciliation of net income, the most directly comparable GAAP measure, to Adjusted net income, and the computation of Adjusted net income per share, diluted, is set forth below.
| | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| (in thousands, except per share amounts) | 2024 | | 2023 | | 2024 | | 2023 |
| Net income | $ | 42,395 | | | $ | 41,324 | | | $ | 126,680 | | | $ | 110,272 | |
| Provision for income taxes | 16,523 | | | 13,474 | | | 49,824 | | | 38,855 | |
Purchase accounting adjustments-revenue(1) | 29 | | | 45 | | | 91 | | | 378 | |
Purchase accounting adjustments-rent(2) | 170 | | | 173 | | | 512 | | | 461 | |
Loss on reacquired franchise rights(3) | — | | | — | | | — | | | 110 | |
Transaction fees and acquisition-related costs(4) | — | | | — | | | — | | | 394 | |
Severance costs(5) | — | | | — | | | 1,602 | | | 1,220 | |
Executive transition costs(6) | 1,342 | | | 2,502 | | | 2,973 | | | 2,502 | |
Legal matters(7) | — | | | — | | | — | | | 6,250 | |
Loss (gain) on adjustment of allowance for credit losses on held-to-maturity investment(8) | 292 | | | (101) | | | 849 | | | (6) | |
Dividend income on held-to-maturity investment(9) | (553) | | | (511) | | | (1,618) | | | (1,490) | |
Loss (gain) on remeasurement of tax benefit arrangement(10) | 575 | | | — | | | (774) | | | — | |
| | | | | | | |
Amortization of basis difference of equity-method investments(11) | 240 | | | — | | | 709 | | | — | |
Loss on extinguishment of debt(12) | — | | | — | | | 2,285 | | | — | |
Other(13) | 32 | | | 50 | | | (75) | | | (590) | |
Purchase accounting amortization(14) | 12,757 | | | 12,954 | | | 38,272 | | | 38,485 | |
| Adjusted income before income taxes | 73,802 | | | 69,910 | | | 221,330 | | | 196,841 | |
Adjusted income taxes(15) | 19,060 | | | 18,107 | | | 57,161 | | | 50,982 | |
| Adjusted net income | $ | 54,742 | | | $ | 51,803 | | | $ | 164,169 | | | $ | 145,859 | |
| Adjusted net income per share, diluted | $ | 0.64 | | | $ | 0.59 | | | $ | 1.88 | | | $ | 1.64 | |
Adjusted weighted-average shares outstanding, diluted(16) | 85,260 | | | 88,420 | | | 87,101 | | | 89,107 | |
(1) Represents the impact of revenue-related purchase accounting adjustments associated with the 2012 Acquisition. At the time of the 2012 Acquisition, the Company maintained a deferred revenue account, which consisted of deferred area development agreement fees, deferred franchise fees, and deferred enrollment fees that the Company billed and collected up front but recognizes for GAAP purposes at a later date. In connection with the 2012 Acquisition, it was determined that the carrying amount of deferred revenue was greater than the fair value assessed in accordance with ASC 805—Business Combinations, which resulted in a write-down of the carrying value of the deferred revenue balance upon application of acquisition push-down accounting under ASC 805. These amounts represent the additional revenue that would have been recognized if the write-down to deferred revenue had not occurred in connection with the application of acquisition pushdown accounting.
(2) Represents the impact of rent related purchase accounting adjustments. In accordance with guidance in ASC 805—Business Combinations, in connection with the 2012 Acquisition, the Company’s deferred rent liability was required to be written off as of the acquisition date and rent was recorded on a straight-line basis from the acquisition date through the end of the lease term. This resulted in higher overall rent expense each period than would have otherwise been recorded had the deferred rent liability not been written off as a result of the acquisition push down accounting applied in accordance with ASC 805. The rent related purchase accounting adjustments are adjustments to rent
expense recorded in club operations on our condensed consolidated statements of operations, which reflect the difference between the higher rent expense recorded in accordance with GAAP since the acquisition and the rent expense that would have been recorded had the 2012 Acquisition not occurred, as well as the amortization of favorable and unfavorable lease intangible assets.
(3) Represents the impact of a non-cash loss recorded in accordance with ASC 805 – Business Combinations related to our acquisition of franchisee-owned clubs. The loss recorded under U.S. GAAP represents the difference between the fair value and the contractual terms of the reacquired franchise rights and is included in other (gains) losses, net on our condensed consolidated statement of operations.
(4) Represents transaction fees and acquisition-related costs incurred in connection with our acquisition of franchisee-owned clubs.
(5) Represents severance related expenses recorded in connection with a reduction in force during the nine months ended September 30, 2024 and the elimination of the President and Chief Operating Officer position during the nine months ended September 30, 2023.
(6) Represents certain expenses recorded in connection with the departure of the former Chief Executive Officer, including costs associated with the search for and stock based compensation associated with certain equity awards granted to the Company’s new Chief Executive Officer and retention payments for certain key employees through the Chief Executive Officer transition.
(7) Represents costs associated with legal matters in which the Company was a defendant. In 2023, this represents an increase in the legal reserve related to preliminary terms of the Preliminary Settlement Agreement. The legal reserve liability was subsequently paid in 2023.
(8) Represents a loss (gain) on the adjustment of the allowance for credit losses on the Company’s held-to-maturity investment.
(9) Represents dividend income recognized on the Company’s held-to-maturity investment.
(10) Represents a loss (gain) related to the adjustment of our tax benefit arrangements primarily due to changes in our deferred state tax rate.
(11) Represents the Company’s pro-rata portion of the basis difference related to intangible asset amortization expense in its equity method investees, which is included within losses from equity-method investments, net of tax on our condensed consolidated statements of operations.
(12) Represents the write-off of deferred financing costs associated with the repayment of the 2018-1 Class A-2-II notes prior to the anticipated repayment date.
(13) Represents certain other gains and charges that we do not believe reflect our underlying business performance.
(14) Represents the amount of non-cash amortization expense recorded in each period, in accordance with GAAP, which includes $3.1 million for both the three months ended September 30, 2024 and 2023 and $9.3 million for both the nine months ended September 30, 2024 and 2023 of amortization of intangible assets recorded in connection with the 2012 Acquisition, other than favorable leases. This adjustment also includes $9.7 million and $9.9 million for the three months ended September 30, 2024 and 2023, respectively, and $29.0 million and $29.2 million for the nine months ended September 30, 2024 and 2023, respectively, of amortization of intangible assets created in connection with historical acquisitions of franchisee-owned clubs.
(15) Represents corporate income taxes at an assumed effective tax rate of 25.8% for both the three and nine months ended September 30, 2024 and 25.9% for both the three and nine months ended September 30, 2023 applied to adjusted income before income taxes.
(16) Assumes the full exchange of all outstanding Holdings Units and corresponding shares of Class B common stock for shares of Class A common stock of Planet Fitness, Inc.
A reconciliation of net income per share, diluted, to Adjusted net income per share, diluted is set forth below:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, 2024 | | Three Months Ended September 30, 2023 |
| (in thousands, except per share amounts) | Net income | | Weighted Average Shares | | Net income per share, diluted | | Net income | | Weighted Average Shares | | Net income per share, diluted |
Net income attributable to Planet Fitness, Inc.(1) | $ | 42,009 | | | 84,728 | | | $ | 0.50 | | | $ | 39,134 | | | 84,886 | | | $ | 0.46 | |
Net income attributable to non-controlling interests(2) | 386 | | | 532 | | | | | 2,190 | | | 3,534 | | | |
| Net income | 42,395 | | | | | | | 41,324 | | | | | |
Adjustments to arrive at adjusted income before income taxes(3) | 31,407 | | | | | | | 28,586 | | | | | |
| Adjusted income before income taxes | 73,802 | | | | | | | 69,910 | | | | | |
Adjusted income taxes(4) | 19,060 | | | | | | | 18,107 | | | | | |
| Adjusted net income | $ | 54,742 | | | 85,260 | | | $ | 0.64 | | | $ | 51,803 | | | 88,420 | | | $ | 0.59 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended September 30, 2024 | | Nine Months Ended September 30, 2023 |
| (in thousands, except per share amounts) | Net income | | Weighted Average Shares | | Net income per share, diluted | | Net income | | Weighted Average Shares | | Net income per share, diluted |
Net income attributable to Planet Fitness, Inc.(1) | $ | 124,958 | | | 86,289 | | | $ | 1.45 | | | $ | 102,973 | | | 84,870 | | | $ | 1.21 | |
Net income attributable to non-controlling interests(2) | 1,722 | | | 812 | | | | | 7,299 | | | 4,237 | | | |
| Net income | 126,680 | | | | | | | 110,272 | | | | | |
Adjustments to arrive at adjusted income before income taxes(3) | 94,650 | | | | | | | 86,569 | | | | | |
| Adjusted income before income taxes | 221,330 | | | | | | | 196,841 | | | | | |
Adjusted income taxes(4) | 57,161 | | | | | | | 50,982 | | | | | |
| Adjusted net income | $ | 164,169 | | | 87,101 | | | $ | 1.88 | | | $ | 145,859 | | | 89,107 | | | $ | 1.64 | |
(1) Represents net income attributable to Planet Fitness, Inc. and the associated weighted average shares of Class A common stock outstanding (see Note 10 to our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q).
(2) Represents net income attributable to non-controlling interests and the assumed exchange of all outstanding Holdings Units and corresponding shares of Class B common stock for shares of Class A common stock of Planet Fitness, Inc. as of the beginning of the period presented.
(3) Represents the total impact of all adjustments identified in the adjusted net income table above to arrive at adjusted income before income taxes.
(4) Represents corporate income taxes at an assumed effective tax rate of 25.8% for both the three and nine months ended September 30, 2024 and 25.9% for both the three and nine months ended September 30, 2023 applied to adjusted income before income taxes.
Results of operations
Comparison of the three months ended September 30, 2024 and three months ended September 30, 2023
The following table sets forth a comparison of our condensed consolidated statements of operations in dollars and as a percentage of total revenue:
| | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, |
| 2024 | | 2023 |
| (in thousands) | Amount | | % of Total Revenue | | Amount | | % of Total Revenue |
| Revenue: | | | | | | | |
| Franchise | $ | 82,873 | | | 28.4 | % | | $ | 80,587 | | | 29.0 | % |
| National advertising fund revenue | 19,542 | | | 6.7 | % | | 17,578 | | | 6.3 | % |
| Franchise segment | 102,415 | | | 35.1 | % | | 98,165 | | | 35.4 | % |
| Corporate-owned clubs | 128,132 | | | 43.8 | % | | 113,245 | | | 40.8 | % |
| Equipment | 61,699 | | | 21.1 | % | | 66,141 | | | 23.8 | % |
| Total revenue | 292,246 | | | 100.0 | % | | 277,551 | | | 100.0 | % |
| Operating costs and expenses: | | | | | | | |
| Cost of revenue | 45,701 | | | 15.6 | % | | 53,751 | | | 19.4 | % |
| Club operations | 71,614 | | | 24.5 | % | | 63,120 | | | 22.7 | % |
| Selling, general and administrative | 32,647 | | | 11.2 | % | | 33,290 | | | 12.0 | % |
| National advertising fund expense | 19,720 | | | 6.8 | % | | 17,618 | | | 6.4 | % |
| Depreciation and amortization | 41,033 | | | 14.0 | % | | 37,477 | | | 13.5 | % |
| Other losses (gains), net | 280 | | | 0.1 | % | | (56) | | | — | % |
| Total operating costs and expenses | 210,995 | | | 72.2 | % | | 205,200 | | | 73.9 | % |
| Income from operations | 81,251 | | | 27.8 | % | | 72,351 | | | 26.1 | % |
| Other income (expense), net: | | | | | | | |
| Interest income | 5,610 | | | 1.9 | % | | 4,245 | | | 1.5 | % |
| Interest expense | (26,603) | | | (9.1) | % | | (21,704) | | | (7.8) | % |
| Other (expense) income, net | (558) | | | (0.2) | % | | 148 | | | 0.1 | % |
| Total other expense, net | (21,551) | | | (7.4) | % | | (17,311) | | | (6.2) | % |
| Income before income taxes | 59,700 | | | 20.4 | % | | 55,040 | | | 19.8 | % |
| Provision for income taxes | 16,523 | | | 5.7 | % | | 13,474 | | | 4.9 | % |
| Losses from equity-method investments, net of tax | (782) | | | (0.3) | % | | (242) | | | (0.1) | % |
| Net income | 42,395 | | | 14.5 | % | | 41,324 | | | 14.9 | % |
| Less net income attributable to non-controlling interests | 386 | | | 0.1 | % | | 2,190 | | | 0.8 | % |
| Net income attributable to Planet Fitness, Inc. | $ | 42,009 | | | 14.4 | % | | $ | 39,134 | | | 14.1 | % |
Revenue
Total revenue was $292.2 million for the three months ended September 30, 2024, compared to $277.6 million for three months ended September 30, 2023, an increase of $14.7 million, or 5.3%.
Franchise segment revenue was $102.4 million for the three months ended September 30, 2024, compared to $98.2 million for three months ended September 30, 2023, an increase of $4.3 million, or 4.3%.
Franchise revenue was $82.9 million for the three months ended September 30, 2024, compared to $80.6 million for the three months ended September 30, 2023, an increase of $2.3 million, or 2.8%. Included in franchise revenue is royalty revenue of $69.9 million, franchise and other fees of $7.9 million, and placement revenue of $4.5 million for the three months ended September 30, 2024, respectively, compared to royalty revenue of $64.0 million, franchise and other fees of $9.4 million, and placement revenue of $5.9 million for the three months ended September 30, 2023, respectively. Of the $6.0 million increase in royalty revenue, $3.2 million was attributable to a franchise same club sales increase of 4.5%, $1.6 million was attributable to new clubs opened since July 1, 2023 and $1.2 million was from higher royalties on annual fees. Partially offsetting the increase in franchise revenue was a $1.5 million decrease in franchise and other fees, a $1.4 million decrease in placement revenue primarily driven by lower equipment placements, and a $0.9 million decrease in revenue associated with the sale of HVAC units to franchisees.
National advertising fund revenue was $19.5 million for the three months ended September 30, 2024, compared to $17.6 million for the three months ended September 30, 2023, an increase of $2.0 million, or 11.2%. This increase was primarily attributable to $1.1 million from higher same club sales and new clubs opened since July 1, 2023 and $0.7 million from the collection of national advertising fund revenue on annual fees.
Revenue from our corporate-owned clubs segment was $128.1 million for the three months ended September 30, 2024, compared to $113.2 million for the three months ended September 30, 2023, an increase of $14.9 million, or 13.1%. This increase was primarily attributable to $9.6 million from corporate-owned clubs included in the same club sales base, of which $4.6 million was attributable to a same club sales increase of 3.4%, $1.1 million was attributable to higher annual fee revenue and $3.9 million was attributable to other fees. Additionally, $5.3 million was from new clubs opened since July 1, 2023.
Equipment segment revenue was $61.7 million for the three months ended September 30, 2024, compared to $66.1 million for the three months ended September 30, 2023, a decrease of $4.4 million, or 6.7%. This decrease was primarily attributable to lower revenue from equipment sales to new franchisee-owned clubs. In the three months ended September 30, 2024, we had equipment sales to 15 new franchisee-owned clubs compared to 22 in the same period last year.
Cost of revenue
Cost of revenue, which primarily relates to our equipment segment, was $45.7 million for the three months ended September 30, 2024, compared to $53.8 million for the three months ended September 30, 2023, a decrease of $8.1 million, or 15.0%. Of the decrease, $6.5 million was attributable to the equipment segment, primarily due to lower equipment sales to new franchisee-owned clubs, as described above, as well as lower equipment costs from an updated equipment mix as a result of the adoption of the new growth model. The remaining decrease was primarily due to lower cost of HVAC units sold to franchisees.
Club operations
Club operations expense, which relates to our corporate-owned clubs segment, was $71.6 million for the three months ended September 30, 2024, compared to $63.1 million for the three months ended September 30, 2023, an increase of $8.5 million, or 13.5%. This increase was primarily attributable to $5.7 million from new clubs opened since July 1, 2023 and $2.8 million from corporate-owned clubs included in the same club sales base as a result of higher payroll, operational and rent and occupancy expenses.
Selling, general and administrative
Selling, general and administrative expenses was $32.6 million for the three months ended September 30, 2024, compared to $33.3 million for the three months ended September 30, 2023, a decrease of $0.6 million, or 1.9%. This decrease was primarily attributable to lower marketing expenses and severance related costs partially offset by higher consulting costs and higher expenses related to the franchisee conference held in the current year period.
National advertising fund expense
National advertising fund expense was $19.7 million for the three months ended September 30, 2024, compared to $17.6 million for the three months ended September 30, 2023, an increase of $2.1 million, or 11.9%. This increase was primarily a result of higher advertising and marketing expenditures due to higher national advertising revenue as described above.
Depreciation and amortization
Depreciation and amortization expense was $41.0 million for the three months ended September 30, 2024, compared to $37.5 million for the three months ended September 30, 2023, an increase of $3.6 million, or 9.5%. This increase was primarily attributable to the new clubs opened since July 1, 2023.
Other losses (gains), net
Other losses (gains), net was a $0.3 million loss for the three months ended September 30, 2024, compared to a $0.1 million gain for the three months ended September 30, 2023, an increase in other losses of $0.3 million.
Interest income
Interest income was $5.6 million for the three months ended September 30, 2024, compared to $4.2 million for the three months ended September 30, 2023, an increase of $1.4 million, or 32.2%. This increase was primarily due to a higher balance of cash and cash equivalents and investments in marketable securities with higher yielding interest rates in the current period compared to the same period last year.
Interest expense
Interest expense primarily consists of interest on long-term debt as well as the amortization of deferred financing costs.
Interest expense was $26.6 million for the three months ended September 30, 2024, compared to $21.7 million for the three months ended September 30, 2023, an increase of $4.9 million, or 22.6%. This increase was primarily from higher interest expense related to the issuance of the 2024 Notes in June 2024.
Other (expense) income, net
Other (expense) income, net was a $0.6 million expense for the three months ended September 30, 2024, compared to a $0.1 million income for the three months ended September 30, 2023, a decrease in other income of $0.7 million. This decrease was primarily attributable to $0.6 million on the remeasurement of our tax benefit arrangements due to changes in our deferred state tax rate.
Provision for income taxes
Income tax expense was $16.5 million for the three months ended September 30, 2024, compared to $13.5 million for the three months ended September 30, 2023, an increase of $3.0 million, or 22.6%. This increase is primarily attributable to our higher income before taxes in the three months ended September 30, 2024 as compared to the three months ended September 30, 2023.
The Company’s effective tax rate was 27.7% for the three months ended September 30, 2024, compared to 24.5% in the prior year period. The increase in the effective income tax rate was primarily due to non-deductible expenses and remeasurement of deferred tax assets.
Segment results
Franchise
Franchise segment EBITDA was $72.8 million for the three months ended September 30, 2024, compared to $67.6 million for the three months ended September 30, 2023, an increase of $5.2 million, or 7.7%. This increase was primarily due to higher franchise and NAF revenue of $2.3 million and $2.0 million, respectively, as described above, $1.6 million of lower selling, general and administrative expense, and $1.4 million of lower cost of revenue primarily from lower cost of HVAC units sold to franchisees, as described above, partially offset by $2.1 million of higher NAF expense.
Corporate-owned clubs
Corporate-owned clubs segment EBITDA was $50.1 million for the three months ended September 30, 2024, compared to $44.3 million for the three months ended September 30, 2023, an increase of $5.8 million, or 13.2%. This increase was primarily attributable to $7.0 million from corporate-owned clubs included in the same club sales base, partially offset by lower EBITDA of $0.6 million from new clubs opened since July 1, 2023 and $0.6 million of higher selling, general and administrative expense. Depreciation and amortization increased $2.9 million for the three months ended September 30, 2024, compared to the three months ended September 30, 2023, and was primarily attributable to new clubs opened since July 1, 2023.
Equipment
Equipment segment EBITDA was $18.5 million for the three months ended September 30, 2024, compared to $16.4 million for the three months ended September 30, 2023, an increase of $2.1 million, or 12.5%. This increase was primarily driven by higher margin equipment sales related to an updated equipment mix as a result of the adoption of the new growth model, partially offset by lower equipment sales to new franchisee-owned clubs, as described above.
Comparison of the nine months ended September 30, 2024 and nine months ended September 30, 2023
The following table sets forth a comparison of our condensed consolidated statements of operations in dollars and as a percentage of total revenue:
| | | | | | | | | | | | | | | | | | | | | | | |
| | Nine Months Ended September 30, |
| 2024 | | 2023 |
| (in thousands) | Amount | | % of Total Revenue | | Amount | | % of Total Revenue |
| Revenue: | | | | | | | |
| Franchise | $ | 254,783 | | | 30.3 | % | | $ | 237,313 | | | 30.2 | % |
| National advertising fund revenue | 59,442 | | | 7.1 | % | | 52,378 | | | 6.7 | % |
| Franchise segment | 314,225 | | | 37.4 | % | | 289,691 | | | 36.8 | % |
| Corporate-owned clubs | 375,976 | | | 44.7 | % | | 332,885 | | | 42.3 | % |
| Equipment | 151,003 | | | 18.0 | % | | 163,664 | | | 20.8 | % |
| Total revenue | 841,204 | | | 100.0 | % | | 786,240 | | | 100.0 | % |
| Operating costs and expenses: | | | | | | | |
| Cost of revenue | 116,628 | | | 13.9 | % | | 132,561 | | | 16.9 | % |
| Club operations | 216,119 | | | 25.7 | % | | 188,011 | | | 23.9 | % |
| Selling, general and administrative | 93,453 | | | 11.1 | % | | 93,705 | | | 11.9 | % |
| National advertising fund expense | 59,624 | | | 7.1 | % | | 52,496 | | | 6.7 | % |
| Depreciation and amortization | 120,230 | | | 14.3 | % | | 110,254 | | | 14.0 | % |
| Other losses, net | 698 | | | 0.1 | % | | 7,705 | | | 1.0 | % |
| Total operating costs and expenses | 606,752 | | | 72.1 | % | | 584,732 | | | 74.4 | % |
| Income from operations | 234,452 | | | 27.9 | % | | 201,508 | | | 25.6 | % |
| Other income (expense), net: | | | | | | | |
| Interest income | 16,687 | | | 2.0 | % | | 12,339 | | | 1.6 | % |
| Interest expense | (72,569) | | | (8.6) | % | | (64,771) | | | (8.2) | % |
| Other income, net | 1,132 | | | 0.1 | % | | 631 | | | 0.1 | % |
| Total other expense, net | (54,750) | | | (6.5) | % | | (51,801) | | | (6.6) | % |
| Income before income taxes | 179,702 | | | 21.4 | % | | 149,707 | | | 19.0 | % |
| Provision for income taxes | 49,824 | | | 5.9 | % | | 38,855 | | | 4.9 | % |
| Losses from equity-method investments, net of tax | (3,198) | | | (0.4) | % | | (580) | | | (0.1) | % |
| Net income | 126,680 | | | 15.1 | % | | 110,272 | | | 14.0 | % |
| Less net income attributable to non-controlling interests | 1,722 | | | 0.2 | % | | 7,299 | | | 0.9 | % |
| Net income attributable to Planet Fitness, Inc. | $ | 124,958 | | | 14.9 | % | | $ | 102,973 | | | 13.1 | % |
Revenue
Total revenue was $841.2 million for the nine months ended September 30, 2024, compared to $786.2 million for nine months ended September 30, 2023, an increase of $55.0 million, or 7.0%.
Franchise segment revenue was $314.2 million for the nine months ended September 30, 2024, compared to $289.7 million for nine months ended September 30, 2023, an increase of $24.5 million, or 8.5%.
Franchise revenue was $254.8 million for the nine months ended September 30, 2024, compared to $237.3 million for the nine months ended September 30, 2023, an increase of $17.5 million, or 7.4%. Included in franchise revenue is royalty revenue of $215.3 million, franchise and other fees of $25.6 million, and placement revenue of $11.8 million for the nine months ended September 30, 2024, respectively, compared to royalty revenue of $195.3 million, franchise and other fees of $26.1 million, and placement revenue of $13.8 million for the nine months ended September 30, 2023, respectively. Of the $20.0 million increase in royalty revenue, $10.3 million was attributable to a franchise same club sales increase of 5.0%, $5.0 million was attributable to new clubs opened since January 1, 2023 and $4.7 million was from higher royalties on annual fees. The $2.0 million decrease in placement revenue was primarily driven by lower new and existing equipment placements.
National advertising fund revenue was $59.4 million for the nine months ended September 30, 2024, compared to $52.4 million for the nine months ended September 30, 2023, an increase of $7.1 million, or 13.5%. This increase was primarily attributable
to $3.4 million from higher same club sales and new clubs opened since January 1, 2023 and $3.1 million from the collection of national advertising fund revenue on annual fees.
Revenue from our corporate-owned clubs segment was $376.0 million for the nine months ended September 30, 2024, compared to $332.9 million for the nine months ended September 30, 2023, an increase of $43.1 million, or 12.9%. This increase was primarily attributable to $26.8 million from corporate-owned clubs included in the same club sales base, of which $11.9 million was attributable to a same club sales increase of 4.5%, $5.8 million was attributable to higher annual fee revenue and $9.1 million was attributable to other fees. Additionally, $16.3 million was from new clubs opened and acquired since January 1, 2023.
Equipment segment revenue was $151.0 million for the nine months ended September 30, 2024, compared to $163.7 million for the nine months ended September 30, 2023, a decrease of $12.7 million, or 7.7%. This decrease was primarily attributable to $10.6 million of lower revenue from equipment sales to new franchisee-owned clubs and $2.1 million of lower revenue from equipment sales to existing franchisee-owned clubs. In the nine months ended September 30, 2024, we had equipment sales to 47 new franchisee-owned clubs compared to 64 in the same period last year.
Cost of revenue
Cost of revenue, which primarily relates to our equipment segment, was $116.6 million for the nine months ended September 30, 2024, compared to $132.6 million for the nine months ended September 30, 2023, a decrease of $15.9 million, or 12.0%. Of the decrease, $14.6 million was attributable to the equipment segment, primarily due to lower equipment sales to new and existing franchisee-owned clubs, as described above, as well as lower equipment costs from an updated equipment mix as a result of the adoption of the new growth model. The remaining decrease was primarily due to lower cost of placement services compared to the prior year period.
Club operations
Club operations expense, which relates to our corporate-owned clubs segment, was $216.1 million for the nine months ended September 30, 2024, compared to $188.0 million for the nine months ended September 30, 2023, an increase of $28.1 million, or 15.0%. This increase was primarily attributable to $16.3 million from new clubs opened and acquired since January 1, 2023 and $11.8 million from corporate-owned clubs included in the same club sales base as a result of higher payroll, operational, rent and occupancy and marketing expenses.
Selling, general and administrative
Selling, general and administrative expenses were $93.5 million for the nine months ended September 30, 2024, compared to $93.7 million for the nine months ended September 30, 2023, a decrease of $0.3 million, or 0.3%. This decrease was primarily attributable to lower marketing expenses and severance related costs partially offset by higher consulting costs and higher expenses related to the franchisee conference held in the current year period.
National advertising fund expense
National advertising fund expense was $59.6 million for the nine months ended September 30, 2024, compared to $52.5 million for the nine months ended September 30, 2023, an increase of $7.1 million, or 13.6%. This increase was primarily a result of higher advertising and marketing expenditures due to higher national advertising revenue as described above.
Depreciation and amortization
Depreciation and amortization expense was $120.2 million for the nine months ended September 30, 2024, compared to $110.3 million for the nine months ended September 30, 2023, an increase of $10.0 million, or 9.0%. This increase was primarily attributable to new clubs opened and acquired since January 1, 2023.
Other losses, net
Other losses, net was $0.7 million for the nine months ended September 30, 2024, compared to $7.7 million for the nine months ended September 30, 2023, a decrease of $7.0 million, or 90.9%. The decrease was primarily the result of a legal reserve recorded in the prior year period.
Interest income
Interest income was $16.7 million for the nine months ended September 30, 2024, compared to $12.3 million for the nine months ended September 30, 2023, an increase of $4.3 million, or 35.2%. This increase was primarily due to a higher balance of cash and cash equivalents and investments in marketable securities with higher yielding interest rates in the current period compared to the same period last year.
Interest expense
Interest expense primarily consists of interest on long-term debt as well as the amortization of deferred financing costs.
Interest expense was $72.6 million for the nine months ended September 30, 2024, compared to $64.8 million for the nine months ended September 30, 2023, an increase of $7.8 million, or 12.0%. This increase was primarily from higher interest expense related to the issuance of the 2024 Notes in June 2024 and the write-off of deferred financing costs associated with the prepayment of the 2018 Notes.
Other income, net
Other income, net was $1.1 million for the nine months ended September 30, 2024, compared to $0.6 million for the nine months ended September 30, 2023, an increase of $0.5 million, or 79.4%. This increase was primarily attributable to a $0.8 million gain on the remeasurement of our tax benefit arrangements due to changes in our deferred state tax rate in the nine months ended September 30, 2024.
Provision for income taxes
Income tax expense was $49.8 million for the nine months ended September 30, 2024, compared to $38.9 million for the nine months ended September 30, 2023, an increase of $11.0 million, or 28.2%. This increase is primarily attributable to our higher income before taxes in the nine months ended September 30, 2024 as compared to the nine months ended September 30, 2023.
The Company’s effective tax rate was 27.7% for the nine months ended September 30, 2024, compared to 26.0% in the prior year period. The increase in the effective income tax rate was primarily due to non-deductible compensation and remeasurement of deferred tax assets.
Segment results
Franchise
Franchise segment EBITDA was $226.5 million for the nine months ended September 30, 2024, compared to $198.4 million for the nine months ended September 30, 2023, an increase of $28.1 million, or 14.1%. This increase was primarily due to higher franchise and NAF revenue of $17.5 million and $7.1 million, respectively, as described above, a $6.1 million decrease in other losses, net due to a legal reserve recorded in the prior year period, as described above, and $3.8 million of lower selling, general and administrative expense, partially offset by $7.1 million of higher NAF expense.
Corporate-owned clubs
Corporate-owned clubs segment EBITDA was $141.5 million for the nine months ended September 30, 2024, compared to $126.5 million for the nine months ended September 30, 2023, an increase of $15.0 million, or 11.9%. This increase was primarily attributable to $15.8 million from corporate-owned clubs included in the same club sales base and $1.3 million from the acquisition of four clubs in Florida in the prior year, partially offset by lower EBITDA of $1.7 million from new clubs opened since January 1, 2023 and $1.5 million of higher selling, general and administrative expense. Depreciation and amortization increased $7.7 million for the nine months ended September 30, 2024, compared to the nine months ended September 30, 2023, and was primarily attributable to new clubs opened and acquired since January 1, 2023.
Equipment
Equipment segment EBITDA was $41.8 million for the nine months ended September 30, 2024, compared to $39.1 million for the nine months ended September 30, 2023, an increase of $2.7 million, or 6.9%. This increase was primarily driven by higher margin equipment sales related to an updated equipment mix as a result of the adoption of the new growth model, partially offset by lower equipment sales to new franchisee-owned clubs, as noted above.
Liquidity and capital resources
As of September 30, 2024, we had $298.8 million of cash and cash equivalents, $108.6 million of short-term marketable securities, $55.5 million of long-term marketable securities and $67.8 million of restricted cash.
We require cash principally to fund day-to-day operations, to finance capital investments, to service our outstanding debt and tax benefit arrangements and to address our working capital needs. Based on our current level of operations, we believe that with our available cash balance, the cash generated from our operations, and amounts available under our 2022 Variable Funding Notes will be adequate to meet our anticipated debt service requirements and obligations under our tax benefit arrangements, capital expenditures and working capital needs for at least the next 12 months. Our ability to continue to fund these items could be adversely affected by the occurrence of any of the events described under “Risk Factors” in the Annual Report on Form 10-K for the year ended December 31, 2023. There can be no assurance that our business will generate sufficient cash flows from operations or otherwise to enable us to service our indebtedness, including our Securitized Senior Notes, or to make anticipated capital expenditures. Our future operating performance and our ability to service, extend or refinance our indebtedness will be subject to future economic conditions and to financial, business and other factors, many of which are beyond our control.
Summary of Cash Flows
| | | | | | | | | | | |
| | Nine Months Ended September 30, |
| (in thousands) | 2024 | | 2023 |
| Net cash provided by (used in): | | | |
| Operating activities | $ | 294,742 | | | $ | 266,920 | |
| Investing activities | (148,311) | | | (247,915) | |
| Financing activities | (101,547) | | | (136,386) | |
| Effect of foreign exchange rates on cash | (456) | | | 233 | |
| Net increase (decrease) in cash, cash equivalents and restricted cash | $ | 44,428 | | | $ | (117,148) | |
Operating activities
For the nine months ended September 30, 2024, net cash provided by operating activities was $294.7 million compared to $266.9 million in the nine months ended September 30, 2023, an increase of $27.8 million, or 10.4%. Of the increase, $35.8 million was due to higher net income after adjustments to reconcile net income to net cash provided by operating activities. This increase was partially offset by $8.0 million of unfavorable changes in working capital primarily attributable to an increase in accounts receivable, a decrease in other liabilities and other current liabilities and higher payments made under tax benefit arrangements compared to the prior year period. These changes in working capital were partially offset by an increase in accounts payable and accrued expenses, a decrease in other assets and other current assets, and a higher cash outflow related to leases compared to the prior year period.
Investing activities
For the nine months ended September 30, 2024, net cash used in investing activities was $148.3 million compared to $247.9 million in the nine months ended September 30, 2023, a decrease of $99.6 million. The primary drivers of the decrease in cash used were $81.1 million of lower net investments in marketable securities, $26.3 million from cash used in the acquisition of corporate-owned clubs in the prior year period, and $20.0 million from cash used for an equity method investment in the prior year period, partially offset by $28.3 million of higher capital expenditures in the current year period.
Capital expenditures were as follows:
| | | | | | | | | | | |
| | Nine Months Ended September 30, |
| (in thousands) | 2024 | | 2023 |
| New corporate-owned clubs | $ | 47,337 | | | $ | 29,540 | |
| Existing corporate-owned clubs | 49,778 | | | 38,044 | |
| Information systems | 14,761 | | | 16,953 | |
| Corporate and all other | 1,092 | | | 99 | |
| Total capital expenditures | $ | 112,968 | | | $ | 84,636 | |
Financing activities
For the nine months ended September 30, 2024, net cash used in financing activities was $101.5 million compared to $136.4 million in the nine months ended September 30, 2023, a decrease of $34.8 million. The primary drivers of the decrease were a $200.4 million increase in net cash provided from long-term debt, consisting of $800.0 million of borrowings, $587.5 million of principal payments and $12.1 million of deferred financing costs incurred, and an $8.6 million increase in cash provided primarily from option exercise proceeds, partially offset by a $175.2 million increase in cash used for share repurchases in in the current year period.
Securitized Financing Facility
Planet Fitness Master Issuer LLC (the “Master Issuer”), a limited-purpose, bankruptcy remote, wholly-owned indirect subsidiary of Pla-Fit Holdings, LLC, is the master issuer of outstanding senior secured notes under a securitized financing facility that was entered into in August 2018. In June 2024, the Master Issuer completed a refinancing transaction with respect to this facility under which the Master Issuer issued the Series 2024-1 Class A-2 Notes with initial principal amounts totaling $800 million. The net proceeds from the sale of the Series 2024-1 Class A-2 Notes were used to repay in full the Master Issuer’s outstanding Series 2018-1 Class A-2-II Notes, including the payment of transaction costs. The remaining funds were used, together with cash on hand, to fund a $280 million accelerated share repurchase agreement.
In February 2022, the Master Issuer issued the Series 2022-1 Class A-1 Notes, which allow for the drawing of up to $75 million of 2022 Variable Funding Notes, including a letter of credit facility. The 2022 Variable Funding Notes are undrawn as of September 30, 2024.
Except as noted above, there were no material changes to the terms of any debt obligations in the nine months ended September 30, 2024. The Company was in compliance with its debt covenants as of September 30, 2024. See Note 6 to the Condensed Consolidated Financial Statements contained in Item 1 herein for further information related to our long-term debt obligations.
Off-balance sheet arrangements
As of September 30, 2024, our off-balance sheet arrangements consisted of guarantees of lease agreements for certain franchisees up to a maximum period of ten years with earlier expiration dates possible if certain conditions are met. Our maximum total obligation under these lease guarantee agreements is approximately $4.7 million and would require payment only upon default by the primary obligor. The estimated fair value of these guarantees as of September 30, 2024 was not material, and no accrual has been recorded for our potential obligation under these arrangements.
Critical accounting policies and use of estimates
There have been no material changes to our critical accounting policies and use of estimates from those described under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our Annual Report on Form 10-K for the year ended December 31, 2023.
ITEM 3. Quantitative and Qualitative Disclosure about Market Risk
There have been no significant changes to the Company’s market risk during the three months ended September 30, 2024. Refer to “Part II. Item 7A. Quantitative and Qualitative Disclosures About Market Risk” in our Annual Report on Form 10-K for the year ended December 31, 2023 for a discussion of the Company’s exposure to market risk.
ITEM 4. Controls and Procedures
Evaluation of disclosure controls and procedures
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures, as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, as of the end of the period covered by this Quarterly Report on Form 10-Q.
There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures. Our disclosure controls and procedures are designed to provide reasonable assurance of achieving their control objectives.
Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that as of September 30, 2024, our disclosure controls and procedures were effective to provide reasonable assurance that the information required to be disclosed by the Company in the reports it files or submits with the Securities and Exchange Commission is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms and is accumulated and communicated to our management, including the principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
Changes in internal control over financial reporting
There have been no changes in our internal control over financial reporting that occurred during our most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II-OTHER INFORMATION
ITEM 1. Legal Proceedings
We are currently involved in various claims and legal actions that arise in the ordinary course of business, most of which are covered by insurance. We do not believe that the ultimate resolution of these actions will have a material adverse effect on our business, financial condition, results of operations, liquidity or capital resources nor do we believe that there is a reasonable possibility that we will incur material loss as a result of such actions. However, a significant increase in the number of these claims or an increase in amounts owing under successful claims could have a material adverse effect on our business, financial condition and results of operations.
ITEM 1A. Risk Factors
Refer to the “Risks Factors” section in our Annual Report on Form 10-K for the year ended December 31, 2023 for a discussion of risks to which our business, financial condition, results of operations and cash flows are subject. There have been no material changes to the risk factors disclosed in the aforementioned Annual Report.
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds
The following table provides information regarding purchases of shares of our Class A common stock by us and our “affiliated purchasers” (as defined in Rule 10b-18(a)(3) under the Exchange Act) during the three months ended September 30, 2024.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Issuer Purchases of Equity Securities |
| Month Ending | | Total Number of Shares Purchased | | Average Price Paid Per Share | | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs(1)(2) | | Approximate Dollar Value of Shares that May Yet be Purchased Under the Plans or Programs(1) |
| 7/31/2024 | | — | | | — | | | — | | | $ | 74,964,974 | |
| 8/31/2024 | | — | | | — | | | — | | | $ | 74,964,974 | |
| 9/30/2024 | | 668,432 | | | 76.88 | | | 668,432 | | | $ | 500,000,000 | |
| Total | | 668,432 | | | $ | 76.88 | | | 668,432 | | | |
(1) On November 4, 2022, our board of directors approved a share repurchase program of up to $500,000,000, which replaced the previously approved November 5, 2019 share repurchase program. On June 13, 2024, the Company’s board of directors approved a share repurchase program of up to $500,000,000 to replace the previously approved November 4, 2022 share repurchase program, which became effective on September 16, 2024 upon the completion of the ASR Agreement (defined below). Purchases may be effected through one or more open market transactions, privately negotiated transactions, transactions structured through investment banking institutions, or a combination of the foregoing. The Company may terminate the program at any time.
(2) On June 12, 2024, the Company entered into a $280,000,000 accelerated share repurchase agreement (the “ASR Agreement”) with Citibank, N.A. (the “Bank”). Pursuant to the terms of the ASR Agreement, on June 14, 2024, the Company paid the Bank $280,000,000 in cash and received 3,090,507 shares of the Company’s Class A common stock, which were retired, representing 80% of the total ASR Agreement value based on the closing price of the Company’s Class A common stock on the commencement date of the transaction. The ASR Agreement contains provisions customary for agreements of this type, including provisions for adjustments to the transaction terms, the circumstances generally under which the ASR Agreement may be accelerated, extended or terminated early by the Bank and various acknowledgments, representations and warranties made by the parties to one another. Final settlement of the ASR Agreement occurred on September 16, 2024. At final settlement, the Bank delivered 668,432 additional shares of the Company’s Class A common stock, which were retired by the Company. The final number of shares repurchased was determined based on the volume-weighted average stock price of the Company’s Class A common stock of $76.88 during the term of the transaction, less a discount and subject to adjustments pursuant to the terms and conditions of the ASR Agreement.
In connection with our IPO, we and the existing holders of Holdings Units entered into an exchange agreement under which they (or certain permitted transferees) have the right, from time to time and subject to the terms of the exchange agreement, to exchange their Holdings Units, together with a corresponding number of shares of Class B common stock, for shares of our Class A common stock on a one-for-one basis, subject to customary conversion rate adjustments for stock splits, stock dividends, reclassifications and other similar transactions. As an existing holder of Holdings Units exchanges Holdings Units for shares of Class A common stock, the number of Holdings Units held by Planet Fitness, Inc. is correspondingly increased, and a corresponding number of shares of Class B common stock are canceled.
ITEM 3. Defaults Upon Senior Securities
None.
ITEM 4. Mine Safety Disclosures
Not applicable.
ITEM 5. Other Information
None.
ITEM 6. Exhibits
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | Incorporated by Reference |
| Exhibit number | | Exhibit Description | | Filed herewith | | Form | | File No. | | Exhibit | | Filing date |
| | | | | | | | | | | | |
| 31.1 | | | | X | | | | | | | | |
| | | | | | | | | | | | | |
| 31.2 | | | | X | | | | | | | | |
| | | | | | | | | | | | | |
| 32.1 | | | | X | | | | | | | | |
| | | | | | | | | | | | | |
| 32.2 | | | | X | | | | | | | | |
| | | | | | | | | | | | | |
| 101 | | The following financial statements from the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 2024 formatted in iXBRL (Inline eXtensible Business Reporting Language) tagged as blocks of text and including detailed tags, as follows: (i) Condensed Consolidated Balance Sheets (Unaudited) (ii) Condensed Consolidated Statements of Operations (Unaudited) (iii) Condensed Consolidated Statements of Comprehensive Income (Loss) (Unaudited) (iv) Condensed Consolidated Statements of Cash Flows (Unaudited) (v) Condensed Consolidated Statements of Changes in Equity (Deficit) (Unaudited) (vi) Condensed Notes (Unaudited) to Condensed Consolidated Financial Statements | | X | | | | | | | | |
| | | | | | | | | | | | |
| 104 | | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)
| | X | | | | | | | | |
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| | | | | | | | | | | | | | |
| | | | | Planet Fitness, Inc. |
| | | | | (Registrant) |
| | | |
| Date: November 7, 2024 | | | | /s/ Thomas Fitzgerald |
| | | | | Thomas Fitzgerald |
| | | | | Chief Financial Officer
(On behalf of the Registrant and as Principal Financial Officer) |
