Planet Fitness, Inc. Announces First Quarter 2020 Results and Provides COVID-19 Update
Posted: May 5, 2020 in Chains
HAMPTON, N.H. – Planet Fitness, Inc. (NYSE: PLNT) has reported financial results for its first quarter ended March 31, 2020 and provided a further update on its response to COVID-19.
“We entered 2020 with very good momentum and the new fiscal year got off to a strong start,” said Chris Rondeau, Chief Executive Officer. “The outbreak of COVID-19 in the U.S. has significantly disrupted our business as well as everyday life. In an effort to protect our members, team members and communities, we and our franchisees made the decision to temporarily close all Planet Fitness stores mid-March. We also took several actions to further strengthen our financial liquidity and flexibility during these unprecedented times. We are working closely with our franchisees and assessing recommendations from state and local governments and health authorities on plans for safely reopening our stores. While there is still uncertainty about the ultimate impact COVID-19 will have on our industry and the overall economy, I am confident that Planet Fitness will emerge from this period well-positioned to further expand its leadership role in the fitness industry.”
The majority of stores remain temporarily closed and will reopen when local authorities issue guidelines authorizing the reopening of fitness centers, which has begun to happen in certain localities. Below is a summary of the current status of Planet Fitness and the actions taken to mitigate the financial impact of COVID-19 and preserve liquidity to-date.
- Board of Director and Executive Compensation: The Company’s Chief Executive Officer, President, Chief Financial and Chief Digital and Information Officers have significantly reduced their base salaries. In addition, the base salaries of other members of senior management were reduced in graduated amounts. The Board of Directors has suspended payment of the annual cash retainer to non-employee directors.
- Corporate-owned stores: We have temporarily furloughed all employees except the store manager at each corporate-owned store location while the store remains closed. These employees are able to continue receiving benefits from the Company.
- Corporate Office: Our corporate headquarters remains closed and our employees are working remotely to ensure their well-being.
- Credit Facility: We fully drew down our $75.0 million Variable Funding Notes to provide additional liquidity.
- Share Repurchase: We have suspended share repurchases to preserve liquidity and flexibility.
- Capital Expenditures: Capital expenditures have been deferred, including new corporate-owned store openings and investments in existing corporate-owned stores.
We have not recognized first quarter revenue related to monthly membership dues collected in March before stores closed due to COVID-19 because as previously announced, members will be credited for any membership dues paid for periods when our stores were closed. We expect to recognize franchise revenue and corporate-owned store revenue associated with those membership dues as stores reopen. Those deferrals have had a significant impact on our first quarter financial results. In addition to these first quarter impacts we expect decreased new store development and remodels, as well as decreased replacement equipment sales for 2020 as a result of the COVID-19 pandemic.
First Quarter Fiscal 2020 results
- Total revenue decreased from the prior year period by 14.5% to $127.2 million.
- System-wide same store sales increased 9.8%.
- Net income attributable to Planet Fitness, Inc. was $8.6 million, or $0.11 per diluted share, compared to net income attributable to Planet Fitness, Inc. of $27.4 million, or $0.32 per diluted share in the prior year period.
- Net income decreased 67.2% to $10.4 million, compared to net income of $31.6 million in the prior year period.
- Adjusted net income(1) decreased 56.0% to $14.4 million, or $0.16 per diluted share, compared to $32.7 million, or $0.35 per diluted share in the prior year period.
- Adjusted EBITDA(1) decreased 26.6% to $46.5 million from $63.4 million in the prior year period.
- 39 new Planet Fitness stores were opened during the period, bringing system-wide total stores to 2,039 as of March 31, 2020.
- Cash and cash equivalents as of March 31, 2020 was $547.5 million.
(1) Adjusted net income and Adjusted EBITDA are non-GAAP measures. For reconciliations of Adjusted EBITDA and Adjusted net income to U.S. GAAP (“GAAP”) net income see “Non-GAAP Financial Measures” accompanying this press release.
Operating Results for the First Quarter Ended March 31, 2020
For the first quarter 2020, total revenue decreased $21.6 million or 14.5% to $127.2 million from $148.8 million in the prior year period which included system-wide same store sales growth of 9.8%. By segment:
- Franchise segment revenue decreased $7.2 million or 11.0% to $58.5 million from $65.8 million in the prior year period, and franchise segment same store sales increased 10.0%. The $58.5 million of franchise segment revenue for the first quarter 2020 does not reflect $18.7 million of deferred royalty and national advertising fund revenue that was collected but not recognized as a result of temporary store closures related to COVID-19;
- Corporate-owned stores segment revenue increased $2.5 million or 6.5% to $40.5 million from $38.0 million in the prior year period, and corporate-owned store same store sales increased 7.3%. The $2.5 million increase was driven by higher revenue of $5.5 million from corporate-owned stores opened or acquired since January 1, 2019, partially offset by lower revenue of $3.0 million from corporate-owned stores included in the same store sales base. The $40.5 million corporate-owned stores revenue for the first quarter 2020 does not reflect $5.9 million of deferred revenue that was collected but not recognized as a result of temporary store closures related to COVID-19; and
- Equipment segment revenue decreased $16.8 million or 37.4% to $28.2 million from $45.0 million in the prior year period, due to lower equipment sales to new and existing franchisee-owned stores in the three months ended March 31, 2020 compared to the three months ended March 31, 2019. Included in the decrease is $10.0 million of lower revenue due to COVID-19.
For the first quarter of 2020, net income attributable to Planet Fitness, Inc. was $8.6 million, or $0.11 per diluted share, compared to net income attributable to Planet Fitness, Inc. of $27.4 million, or $0.32 per diluted share in the prior year period. Net income was $10.4 million in the first quarter of 2020 compared to $31.6 million in the prior year period. Adjusted net income decreased 56.0% to $14.4 million, or $0.16 per diluted share, from $32.7 million, or $0.35 per diluted share in the prior year period. Adjusted net income has been adjusted to reflect a normalized federal income tax rate of 26.8% for the current year period and 26.6% for the comparable prior year period and excludes certain non-cash and other items that we do not consider in the evaluation of ongoing operational performance (see “Non-GAAP Financial Measures”).
Adjusted EBITDA, which is defined as net income before interest, taxes, depreciation and amortization, adjusted for the impact of certain non-cash and other items that we do not consider in the evaluation of ongoing operational performance (see “Non-GAAP Financial Measures”), decreased 26.6% to $46.5 million from $63.4 million in the prior year period.
Segment EBITDA represents our Total Segment EBITDA broken down by the Company’s reportable segments. Total Segment EBITDA is equal to EBITDA, which is defined as net income before interest, taxes, depreciation and amortization (see “Non-GAAP Financial Measures”).
- Franchise segment EBITDA decreased $10.6 million or 22.4% to $36.7 million. Franchise segment EBITDA for the first quarter 2020 does not reflect $18.7 million of deferred royalty and national advertising fund revenue that was collected but not recognized as a result of temporary store closures related to COVID-19.
- Corporate-owned stores segment EBITDA decreased $3.6 million or 22.9% to $12.0 million. Corporate-owned stores segment EBITDA for the first quarter 2020 does not reflect $5.9 million of deferred revenue that was collected but not recognized as a result of temporary store closures related to COVID-19; and
- Equipment segment EBITDA decreased by $4.0 million or 38.8% to $6.4 million driven by lower equipment sales lower equipment sales to new and existing franchisee-owned stores. Included in the decrease was approximately $2.5 million due to COVID-19 related closures and travel restrictions.
For the year ending December 31, 2020, the Company previously withdrew guidance as a result of uncertainty due to the COVID-19 pandemic. The Company is not providing an update at this time.
Presentation of Financial Measures
Planet Fitness, Inc. (the “Company”) was formed in March 2015 for the purpose of facilitating the initial public offering (the “IPO”) and related recapitalization transactions that occurred in August 2015, and in order to carry on the business of Pla-Fit Holdings, LLC (“Pla-Fit Holdings”) and its subsidiaries. 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 Pla-Fit Holdings not owned by the Company.
The financial information presented in this press release includes non-GAAP financial measures such as EBITDA, Segment EBITDA, Adjusted EBITDA, Adjusted net income and Adjusted net income per share, diluted, to provide measures that we believe are useful to investors in evaluating the Company’s performance. These non-GAAP financial measures are supplemental measures of the Company’s performance that are neither required by, nor presented in accordance with GAAP. These financial measures should not be considered in isolation or as substitutes for GAAP financial measures such as net income or any other performance measures derived in accordance with GAAP. In addition, in the future, the Company may incur expenses or charges such as those added back to calculate Adjusted EBITDA, Adjusted net income and Adjusted net income per share, diluted. The Company’s presentation of Adjusted EBITDA, Adjusted net income and Adjusted net income per share, diluted, should not be construed as an inference that the Company’s future results will be unaffected by similar amounts or other unusual or nonrecurring items. See the tables at the end of this press release for a reconciliation of EBITDA, Adjusted EBITDA, Total Segment EBITDA, Adjusted net income, and Adjusted net income per share, diluted, to their most directly comparable GAAP financial measure.
Same store sales refers to year-over-year sales comparisons for the same store sales base of both corporate-owned and franchisee-owned stores, which is calculated for a given period by including only sales from stores that had sales in the comparable months of both years. We define the same store sales base to include those stores that have been open and for which monthly membership dues have been billed for longer than 12 months. We measure same store sales based solely upon monthly dues billed to members of our corporate-owned and franchisee-owned stores. As a result of COVID-19, 130 franchisee-owned stores and nine corporate-owned stores that would have been in the same store sales base closed prior to the March draft and did not draft in March. These stores were excluded from the same store sales base for March in the same store sales calculation for the three months ended March 31, 2020.
The non-GAAP financial measures used in our full-year outlook will differ from net income and net income per share, diluted, determined in accordance with GAAP in ways similar to those described in the reconciliations at the end of this press release. We do not provide guidance for net income or net income per share, diluted, determined in accordance with GAAP or a reconciliation of guidance for Adjusted net income and Adjusted net income per share, diluted, to the most directly comparable GAAP measure because we are not able to predict with reasonable certainty the amount or nature of all items that will be included in our net income and net income per share, diluted, for the year ending December 31, 2020. These items are uncertain, depend on many factors and could have a material impact on our net income and net income per share, diluted, for the year ending December 31, 2020.
This press release contains “forward-looking statements” within the meaning of the federal securities laws, which involve risks and uncertainties. Forward-looking statements include the Company’s statements with respect to expected future performance presented under the heading “2020 Outlook,” those attributed to the Company’s Chief Executive Officer in this press release, the Company’s statements about its share repurchase program and its actions to mitigate the effects of COVID-19, and other statements, estimates and projections that do not relate solely to historical facts. Forward-looking statements can be identified by words such as “believe,” “expect,” “goal,” plan,” “will,” “prospects,” “future,” “strategy” and similar references to future periods, although not all forward-looking statements include these identifying words. Forward-looking statements are not assurances of future performance. Instead, they are based only on the Company’s current beliefs, expectations and assumptions regarding the future of the business, future plans and strategies, projections, anticipated events and trends, the economy and other future conditions. Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict and many of which are outside of the Company’s control. Actual results and financial condition may differ materially from those indicated in the forward-looking statements. Important factors that could cause our actual results to differ materially include risks and uncertainties associated with the duration and impact of COVID-19, which has resulted in store closures and may give rise to or heighten one or more of the other risks and uncertainties described herein, competition in the fitness industry, the Company’s and franchisees’ ability to attract and retain new members, the Company’s and franchisees’ ability to identify and secure suitable sites for new franchise stores, changes in consumer demand, changes in equipment costs, the Company’s ability to expand into new markets domestically and internationally, operating costs for the Company and franchisees generally, availability and cost of capital for franchisees, acquisition activity, developments and changes in laws and regulations, our substantial increased indebtedness as a result of our refinancing and securitization transactions and our ability to incur additional indebtedness or refinance that indebtedness in the future, our future financial performance and our ability to pay principal and interest on our indebtedness, our corporate structure and tax receivable agreements, failures, interruptions or security breaches of the Company’s information systems or technology, general economic conditions and the other factors described in the Company’s annual report on Form 10-K for the year ended December 31, 2019, and the Company’s other filings with the Securities and Exchange Commission. In light of the significant risks and uncertainties inherent in forward-looking statements, investors should not place undue reliance on forward-looking statements, which reflect the Company’s views only as of the date of this press release. Except as required by law, neither the Company nor any of its affiliates or representatives undertake any obligation to provide additional information or to correct or update any information set forth in this release, whether as a result of new information, future developments or otherwise.