Planet Fitness, Inc.

Good afternoon. My name is Suzanne, and I will be your conference operator at this time. At this time, we'd like to welcome everyone to the Planet Fitness third quarter 2020 earnings call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. In order to ask a question, simply press star, then the number one on your telephone keypad. If you would like to withdraw your question, please press the pound key. I would now like to turn the call over to Brandon Frank. You may begin.

Thank you for joining us today to discuss Planet Fitness' third quarter 2020 earnings results. On today's call are Chris Rondeau, Chief Executive Officer, Torben Lively, President, and Tom Fitzgerald, Chief Financial Officer. Following Chris and Tom's prepared remarks, we will open the call up for questions. I would like to remind you that certain statements we will make in this presentation are forward-looking statements. These forward-looking statements reflect Planet Fitness' judgment and analysis only as of today and actual results may differ materially from current expectations based on a number of factors affecting Planet Fitness' business. Accordingly, you should not place undue reliance on these forward looking statements. For a more thorough discussion of the risks and uncertainties associated with the forward looking statements to be made in this conference call and webcast, we refer you to the disclaimer regarding forward looking statements included in our third quarter 2020 earnings release, which was furnished to the SEC today on Form 8-K, as well as our filings with the SEC referenced in that disclaimer. We do not undertake any obligation to update or alter any forward-looking statements, whether as a result of new information, future events, or otherwise. In addition, the company may refer to certain adjusted non-GAAP metrics on this call. Explanation of these metrics can be found in the earnings release filed earlier today With that, I'll turn the call over to Chris Rondeau, Chief Executive Officer of Planet Fitness.

Chris? Thanks, Brendan, and thank you, everyone, for joining us today. It's been nearly eight months since we temporarily closed all our stores in March due to the COVID-19 pandemic. And while the operating environment continues to be volatile, more than 95% of our stores are currently open and providing a safe and healthy in-store environment for our members. I want to start off by talking about our membership levels and how they've changed over the past few months. Looking back, we ended Q2 with 15.2 million members, down approximately 1% from the end of Q1. For the clubs that reopened in May and June, membership levels remained relatively steady through the end of Q2. As Q3 got underway in July, there was a surge in the virus in several states, which appeared to shift consumer sentiment. This has also coincided with the normal billing resuming for the clubs that reopened in May, and some members being billed their annual fee on July 1st. As a result, we saw an acceleration in the attrition rate. New joint trends also slowed, which we attribute to the virus surge and the fact that we didn't repeat our typical national sale in July, since the majority of our clubs were not open. As we previously said, by the end of July, membership stood at 14.8 million. Per today's earnings release, we ended the third quarter with approximately 14.1 million members, down approximately 5% since the end of July and flat compared to last year. The biggest change in membership between the end of July and the end of September occurred in the roughly 1,100 clubs that reopened in May and June and resumed their billing monthly dues and collected annual fees. We have seen a clear pattern of pent-up cancels upon reopening and the resumption of billing. However, on a positive note, we are starting to see this trend begin to normalize the longer clubs are open, with a total year-to-day cancellation flat to prior year in the system. Also encouraging, we are seeing a similar pattern with the usage rates as the early clubs were 74% of a year ago levels in September and the system average was up to 67%. In September, we were excited to turn on our national marketing engine back on for an eight-day national sale, our first national acquisition driven marketing since before COVID. The results were very encouraging as consumers responded positively to our messaging which reinforce the importance of exercise and the toll the pandemic is taking on people's physical and mental health, combined with our commitment to keeping members safe. The sale helped accelerate our marketing flywheel and meaningfully slowly declined in membership with a number of the stores experiencing positive member growth in September. For the approximately 500 clubs that reopen in July, August, and September, we are seeing similar attrition trends as annual billing resumes, usually in the second month post reopening before beginning to stabilize after the third month. The good news is we expect this to be somewhat offset by the higher gross new joins driven by our national advertising resuming. Based on the encouraging results of the September sale reinforcing consumer demand, the management team and the board of directors made a decision to invest incremental national marketing funds throughout the remainder of the year, starting with another national sale in October. These results were also very encouraging, with even more stores in October experiencing positive member growth compared to September. At the end of October, overall membership totaled 14 million. Speaking of marketing, our United We Move initiative, providing free workouts on Facebook since we temporarily closed our stores in March, also continues to see strong results, with 45 million viewers in 36 countries since the pandemic began. This has proven to be a great opportunity to keep people engaged and motivated outside the gym. Looking ahead, Planet Finish will once again be the title sponsor of Times Square's New Year's Eve celebrations. While the celebration in New York will be largely virtual given COVID-19, the Planet Fitness brand will be front and center as the world says goodbye to 2020 and rings in 2021. New this year, we're excited that Planet Fitness will be the presenting sponsor for the first time during the 11.30 to 1 a.m. time slot, which will increase our brand's visibility at a critical time during the night celebration, including the coveted midnight countdown. With social distancing and limitations on gatherings around the world, viewership could be at an all-time high level. Turning to our digital initiatives, adoption of our mobile app remains at an all-time high, with the new join app adoption rates more than 60% in Q3. Currently, nearly 30% of total membership base has adopted the mobile app, which allows us to engage with them while they're at home or in the gym with new features like in-app messaging, a QR code reader for instructions on how to use the equipment, and the crowd meter checks the capacity of their club in advance of going to the gym. We believe the crowd meter has played a role in helping to balance visits during the week as have changing consumer habits given the increase with remote work schedules. This will be even more beneficial during peak usage months. We also continue to be encouraged by the mobile app Black Card upgrades and member referrals. Providing members with an ability to quickly upgrade to our Black Card membership and refer a friend to join have proven to be beneficial, particularly as app adoption continues to increase, and we see a lot of opportunity in the future. Our digital content journey continues to accelerate. We're seeing strong engagement with our business content via the app, with meaningful percentage of users representing non-members. This creates a large opportunity for future conversion and further validates Plenty Business' brand recognition as a trusted source in health and wellness. As a result, we are currently in the process of testing a digital-only subscription membership for $5.99 a month via the mobile app called PF+. Thank you. Thank you. We view our standalone digital membership as a gateway to our traditional bricks-and-mortar membership, not a replacement for it, and this provides us with an opportunity to further engage inside and outside the gym. The ability to provide even more content for an additional fee introduced prospective members to the brand. During the testing phase, we will assess consumer feedback on content and usability to perform any broader rollout plans. Longer-term digital content could potentially strengthen our value proposition to members throughout expanded or bundled offerings potentially in adjacent categories. On the store development front, 29 stores opened during Q3, with 2,086 stores at the end of the quarter. Based on the current visibility, we expect 2020 new store openings to be down roughly 50% or more compared to 2019 record levels of 260. Our franchisees emerged from their store closure period and have continued to gain strength as operations approach more normalized conditions. Across the system, the focus remains on keeping our staff and members safe, our stores open to service members, and now more recently rebuild membership levels. Relative to the rest of the fitness industry, we believe we are a much stronger financial and strategic position, evidenced by the bankruptcies and reported store closures and a number of national change, as well as feedback we've received from many franchisees about locally owned gyms and their markets that aren't reopening. We expect this trend will continue and over time potentially result in millions of gym goers looking for a new place to work out, and we believe our unrivaled value proposition will ensure we continue our trend of gaining market share. While the near-term operating environment is likely to remain volatile and pressure our near-term revenue and profitability, I am confident that in the long run, once this pandemic is behind us, PlanetFinch will be able to significantly widen our competitive moat for several reasons. First, the strength of our franchisees, which has been underscored by how well they have navigated through this unprecedented situation. Second, we are well-positioned to capitalize on the industry consolidation that has already taken place and likely to continue. The real estate market will be even more attractive in terms of available primary locations and lower rent costs and enhanced landlord incentives for our system because not many brands will be adding hundreds of locations in the coming years. And fourth, the encouraging early results and the opportunity we're seeing as a result of the accelerated digital content strategy, focusing on the needs of first-time and casual gym goers. And finally, the demand and uptick in usage we're seeing as a result of the marketing efforts reinforcing the overall increased focus on health and wellness This will further enhance the tailwinds of the category, and we feel our value proposition is second to none. I'll now turn the call over to Tom.