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Operator
Good day and thank you for standing by. Welcome to the Planet Fitness, Inc. First Quarter 2021 Earnings Conference Call. At this time, all participants' lines are in the listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you'll need to press star 1 on your telephone. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your host, Stacey Caravalla, Vice President of Investor Relations. Thank you. Please go ahead.
Stacey Caravalla
Thank you, Operator, and good afternoon, everyone. Speaking on today's call will be Planet Fitness Chief Executive Officer Chris Rondo and Chief Financial Officer Tom Fitzgerald. We also have Dorvan Lively, President of Planet Fitness, on the line, who will be available for questions during the Q&A session following the prepared remarks. Today's call is being webcast live and recorded for replay. Before I turn the call over to Chris, I'd like to remind everyone that the language on forward-looking statements included in our earnings release also applies to our comments made during the call. Our release can be found on our website, investor.planetfitness.com, along with any reconciliation of non-GAAP financial measures mentioned on the call with their corresponding GAAP measures. Now I'll turn the call over to Chris.
Chris Rondo
Thank you, Stacey, and thank you everyone for joining us today for Planet Fitness' Q1 earnings call. Let me start by welcoming Stacey Caravella as our new VP of Investor Relations. We are very excited to have her join our team. We are very encouraged by the steady improvement in overall sentiment we witnessed in the U.S. during the first quarter and the corresponding impact it had on our business. Americans appeared cautiously optimistic early in the new year as COVID-19 vaccines began to slowly roll out to healthcare professionals, frontline workers, and the elderly. As the quarter progressed, National active case counts started to trending downward. States began to ease restrictions and the vaccine availability increased. At the same time, the momentum we experienced in January accelerated as Americans began to feel more comfortable returning to regular activities they enjoy pre-pandemic, including going back to our stores. Even in the early stages of emerging from COVID, it's clear that health and wellness are essential. We are pleased to announce that we experienced sequential net member growth in each month of the quarter. ending March with 14.1 million members up from 13.5 million members at the end of 2020. The positive headline news on COVID-19 vaccine availability seems to have driven a seasonality shift in our membership trend as March membership growth in mature stores exceeded March 2019, reinforcing our belief that people are eager to get back to our gyms, particularly with our continued emphasis on our cleaning and sanitization standards. In fact, in March, 30% of overall joins were prior planned fitness members versus 21% in March 2019. While our cancels remain at similar levels to 2019 on a monthly basis, we're seeing the percent of cancels related to COVID concerns decline significantly. In an effort to capitalize on the shift of seasonality, we added a flag sale in April and are currently running a May sale with an unprecedented offer of the first month free and then just $10 per month with no commitment. to inspire and encourage people to get off the couch and start their fitness journey. With 14.3 million members at the end of April, our target audience of casual first-time gym goers continues to respond favorably to our messaging and value proposition. To put it in perspective, year-to-date, we have regained nearly 100% of our full-year 2020 member loss and 40% from our highest membership levels in Q1 2020. Research continues to show the importance of fitness, Results from a recently published study by Kaiser Healthcare found that just 22 minutes of activity per day can reduce the risk of severe COVID outcomes and death. Additionally, a recent poll by the American Psychological Association showed that more than 50% of adults experience weight changes due to the pandemic, with the average American reporting that they gained approximately 30 pounds, and nearly 50% of parents saying that their stress levels have increased during the same time period. Americans are waking up to the facts. that their overall wellness needs to be a top priority, and we offer them a judgment-free fitness option at an incredible value. And I'm proud of how our franchisees, headquarters staff, and club staff have rallied together to provide a clean, safe fitness experience for our existing and new members seeking a non-intimidating environment. Today, we have nearly all our stores open, with approximately 30 clubs still closed in Canada. Regionally, the Midwest and South are leading the way in terms of performance metrics, having been reopened since May and June of last year. Usage in the stores in those regions is nearly 90% of 2019 levels, while naturally usage trending up during the quarter ending March at more than 80% of March 2019 levels. Usage for all age groups is trending upward with Gen Z leading the way. We believe that as more and more Americans receive the COVID vaccine, usage in the club will continue to climb. Now to our digital strategy. App adoption continues to accelerate with nearly 50% of our total membership base having the plant in its app. up from 40% last quarter. Our app is another channel to engage with, provide service to, and motivate our members inside or outside of our gyms. For example, it provides the ability to upgrade to the black card, a crowd meter to help plan your visit, and content videos on how to use the machines on the gym floor and do virtual workouts. We also continue to test PF Plus, our digital-only subscription for $5.99 per month. More than 30% of PF Plus members join Planet Fitness locations after subscribing, is demonstrating our digital as a gateway to bricks and mortar strategy. This is up from 20% in Q4. Additionally, 65% of our members who have subscribed have visited our core bricks and mortar offering since subscribing. Beyond just being a gateway, more than 80% of the total PF Plus subscriber base are members, an indication that members see the value and are willing to pay more to get more. This is where we believe we can offer real value to our members. Today, consumers can download a wide variety of individual apps at all different prices. for workouts, wellness, nutrition, and mental health. Our goal is to provide a holistic offering at an incredible value with a differentiating concept geared towards breaking down the barriers for casual first-time gym goers all in one app, along with the ability to visit our gyms. To this end, we plan to pilot PF Plus in a limited number of stores to test price elasticity with bundled offerings for both our Classic and Blackheart memberships. We expect to run these tests for the balance of 2021 and look forward to sharing more on possible offerings in early 2022. To underscore our commitment to our digital strategy, today we announced that we have deepened our current partnership with iFit Health and Fitness by taking a minority stake in the business. This enables us to accelerate our current digital content offerings to our members while also exploring complementary mind and body wellness categories. I believe that the future of the fitness industry is truly about bricks with clicks. The powerful combination of providing people with a high-quality in-person fitness experience coupled with the ability to engage and service them outside our four walls with differentiated premium content wherever they are. As I think about the future of Planet, I come back to the fact that we are a purpose-led brand with health at the heart of who we are. We are on a mission to change people's lives for the better. We're in the fitness business, but we are also about providing a supportive community to our members. And this is what people are seeking right now, connections with others. The membership and usage trends that we are experiencing make me optimistic for the long-term growth, and I truly believe we are on the verge of a fitness boom. According to the industry trade group ERSA, approximately 17% of U.S. gyms have closed due to the financial impact from COVID, and it projects that it could eventually be upwards of 25%. We believe that our value proposition, we can take more than our fair share of the people looking for a new gym. The role of fitness has never been clearer, with nearly 80% of people hospitalized for COVID being overweight or obese, according to the CDC. And 90% of the deaths from COVID were in countries with the highest obesity rates, according to the World Health Organization. People realize the value of fitness more than ever. As we look to the future, we believe our purpose of enhancing people's lives and creating a healthier world sets us and our franchisees up for long-term success. I'll now turn the call over to Tom.
Stacey
Thanks, Chris, and good afternoon, everyone. I'm going to cover three topics before I get into our first quarter financials. The first is the state of the franchisee's balance sheets and their desire to reinvest into their Planet Fitness Store portfolios. The second is our recurring revenue model and how it ties to our net membership growth. And third, our outlook for 2021 and beyond. On the first topic, we just completed business reviews with nearly all of our top 30 largest franchise groups that own the majority of our stores. The overall sentiment from the reviews was that our franchisees are very encouraged by the trends they are seeing across their stores and are eager to get back to our historical store growth levels. Almost all of the top 30 have debt, the majority of which tripped their debt covenants due to the temporary store closures last year. Those franchisees are all at different stages of paying deferred rent and building back their stores' profitability to the point where lenders make their development lines of credit available again. In some cases, that's already happened. In other cases, it will take more time because their stores were closed for a longer period of time. However, some of those franchisees are able to fund CapEx with cash from their balance sheet. The good news is franchisees and lenders are collectively becoming more bullish on expansion the longer the gyms are reopened and membership trends continue to move in the right direction. We expect franchisees to capitalize on the industry consolidation and more favorable real estate opportunities that are starting to emerge. With the pace of vaccine rollouts, we believe that the chances of a temporary shutdown on a national scale are less than when we reported our fourth quarter earnings in February, adding to our confidence in our projection of 75 to 100 openings In Q1 this year, 22 new stores were opened compared to 39 in Q1 last year. On to the second topic, our recurring revenue model. Beginning with our September sale last year, we have been focused on getting our marketing flywheel going again. As a reminder, our model and same-store sales results depend on the ability to continually grow net membership levels across our store base month over month, quarter over quarter, and year over year. And our recurring revenue model, our same-store sales performance at any point is a function of what happened to our membership levels over the trailing 12 months in our comparable stores. We capitalized on the tailwinds that Chris talked about earlier and ramped up our membership acquisition-driven marketing throughout the first quarter of 2021. We ended March with approximately 14.1 million members, up 600,000 from where we ended 2020. And as Chris noted, it was our third quarter consecutive month of sequential net membership growth. While an encouraging trend, it's hard to predict what the balance of the year will look like for membership growth, as this is the first time that we've experienced this type of seasonality shift. With the economy growing and more and more states and municipalities lifting restrictions, we believe that there is positive momentum behind people wanting to become more active. As I mentioned, our system-wide same-store sales growth is a function of membership levels over the trailing 12 months. So while we are seeing signs in the near term of month-over-month net membership growth, our membership levels in our comparable stores are still below where they were in Q1 of last year when we hit an all-time high. As a result, same-store sales in the first quarter were down 14.9%, with franchise down 14.7%, and corporate-owned down 18.2%. The decline was largely driven by the 1.4 million decline in membership levels year over year, slightly offset by an increase in average rate, which was driven by higher black card penetration. Black card penetration increased to 61.2% at the end of Q1. As a reminder, we will not be reporting same-store sales growth figure in Q2 due to the majority of our store base being closed during Q2 last year. Lastly, I'd like to update our thoughts on guidance. On our Q4 call, we conveyed that we were not providing the typical metrics we guide on due to the continued uncertainty caused by the pandemic and feel that is still appropriate today. We did provide our new store development projections of between 75 and 100 new stores for the year. And as we announced last May, we provided franchisees with a 12-month extension on all of their development requirements and equipment placement obligations. In December, we extended the re-equip commitments by an additional six months to a total of 18 months from the original due date. We want to give more insight into how we see those areas as a percentage of our total equipment revenue this year. Using the range of 75 to 100 new store openings this year, we expect that equipment replacement will be approximately 50% of our total equipment revenue this year. This is not a metric we will provide in the future, but we felt it was important during this period to try to provide additional insight into our equipment revenues and indirectly into our franchisees' ability to fund their CapEx commitments, which is strong. Additionally, during this time, we continue to provide membership update for the month following our most recent quarter. As the year progresses and the effects of the pandemic start to wane, we will likely discontinue this practice and revert to providing the prior quarter's results only. Now on to our financial results. For the first quarter, total revenue was $111.9 million compared to $127.2 million. in the prior year period. The $15.4 million decline was primarily driven by the lower equipment revenue, which was the result of the extensions that we provided to our franchisees. Additionally, we deferred $24.6 million of revenue out of Q1's results last year due to the temporary closure of all of our stores as of mid-March. Moving on to a review of our segment revenue results, franchise segment revenue was $64.1 million compared to $58.5 million in the prior year period, an increase of 9.5 percent. Let me break down the four components. First, royalty revenue, which consists of royalties on monthly membership dues and annual membership fees, was $46.6 million compared to $40.6 million in the same quarter of last year. The average royalty rate for the first quarter for stores that drafted was 6.3%, consistent with the same period last year. Note that the prior year period's royalty revenue was negatively impacted by a $14.1 million revenue deferral related to monthly membership dues collected in March, shortly before stores closed. Next, our franchise and other fees were $4.8 million compared to $6.2 million in the prior year period. These are fees received from online new member sign-ups, the recognition of fees paid to us for franchise agreements, area development agreements, and the transfer of existing stores, and fees received from processing dues. The decrease was primarily driven by lower total online join fees in the quarter. Also within the franchise segment revenue is our placement revenue, which was $0.8 million in the first quarter compared to $2.0 million a year ago. These are fees we received for the assembly and placement of equipment sales to our franchisee-owned stores within the U.S. The decrease reflects the lower net store and re-equipped placements we executed in the quarter compared with a year ago. I will further discuss the number of new equipment placements later when I discuss equipment revenues. And finally, national advertising fund revenue was $11.6 million compared to $9.2 million last year. Similar to royalty revenue, the prior year period's NAF revenue was negatively impacted by $4.6 million deferral related to monthly membership dues collected in March shortly before stores closed. Our corporate-owned store segment revenue was $37.9 million compared with $40.5 million in the prior year period. The $2.6 million decrease was due to lower membership fees driven by lower membership levels and closure of some of our corporate stores for a portion of the period, partially offset by a $5.9 million of deferred revenue that was collected but not recognized in the three months ended March 31, 2020, as a result of COVID-19 store closures and the opening of five new corporate-owned stores since January 1, 2020. Turning to our equipment segment, revenue decreased $18.2 million, or 64.7%, to $9.9 million from $28.2 million. The decrease was driven by both lower new store equipment along with lower replacement equipment sales to existing franchisee-owned stores. Replacement equipment sales in Q1 were 1.1 million compared to 10.6 million in Q1 last year. In the first quarter, we had 18 new store equipment placements, which was down 12 from the prior year period. Our cost of revenue, which primarily relates to direct cost of equipment sales to new and existing franchise-owned stores, amounted to $8.0 million compared to $21.8 million a year ago, a decrease of 63.4%, in line with the equipment revenue decrease previously discussed. Store operation expenses, which are associated with our corporate-owned stores, decreased to $25.9 million compared to $26.2 million a year ago. The slight decrease was primarily driven by lower payroll and operating expenses, partially offset by higher rent and occupancy costs associated with the higher store count and marketing expense. ST&A for the quarter was $22.5 million compared to $17.0 million a year ago. The increase was primarily driven by higher incentive and stock-based compensation compared with prior year periods. local marketing support in California to accelerate the reopening of gyms, and expenses to promote our mobile app. The California and mobile app expense were investments that we believe set us up for continued growth in both an important market as well as in our Bricks with Clicks digital strategy. National advertising fund expense was $12.8 million compared to $15.2 million in the prior year period. Adjusted EBITDA was $43.7 million compared to $46.5 million in the prior year period. A reconciliation of adjusted EBITDA to GAAP net income or loss can be found in the earnings release. By segment, franchise adjusted EBITDA was $41.3 million, corporate store adjusted EBITDA was $11.2 million, and equipment adjusted EBITDA was $1.8 million. Adjusted net income was $9.1 million, and adjusted net income for diluted share was $0.10, or a decrease of $0.06 per diluted share. Now turning to the balance sheet. As of March 31, 2021, we had total cash and cash equivalents of $503.9 million compared to $515.8 million on December 31, 2020. This was comprised of cash and cash equivalents of $445.6 million compared to $439.5 million, with $58.3 million and $76.3 million of restricted cash respectively in each period. Total long-term debt, excluding deferred financing costs, was $1.79 billion as of March 31, 2021, consisting of our three tranches of securitized debt and $75 million of variable funding debt. Our securitized debt structure is covenant-like. We have two maintenance covenants, a debt service coverage ratio, and a total system-wide sales threshold. Both are tested quarterly, calculated on a trailing 12-month basis, and reported roughly on a two-month lag. In our most recent debt covenant reporting period of March 5th, 2021, we had a 17% and a 93% cushion to the first triggering event for our debt service coverage ratio and system-wide sales covenant, respectively. We believe we have sufficient headroom for our two maintenance covenants, especially now with the majority of our stores open. The unprecedented pandemic situation in 2020 proves the durability of our business model. Our stores were closed between two and nine months last year, and we did not have a single permanent closure due to COVID. Additionally, during our franchise business reviews, franchisees have reported that while their store EBITDA levels have decreased, many of them still have EBITDA percent margins in the 30s for their mature stores. I believe that as we emerge from the pandemic, our investment thesis has only been strengthened with the critical importance of health and wellness on the rise. where we are a differentiated and disruptive fitness concept that appeals to a broad demographic with a national scale advantage built on strong store-level unit economics. And we believe our competitive moat will continue to widen as we begin to come out of and get to the other side of this awful pandemic. I'll now turn the call back to the operator to open it up for Q&A.
Operator
As a reminder, to ask a question, you will need to press star one on your telephone. To answer your question, press the pound or hash key. Please stand by while we compile the Q&A roster. Your first question is from the line of Randy Koenig from Jefferies. Your line is open.
Randy Koenig
Hey, great. I want to ask a couple questions, but my first question, Chris, for you. Can you give us some perspective on The impact on Cali churn impact on weighing down, the nice member growth you saw in the quarter, it seems as if that would have held back the numbers a little bit that inflected in the quarter. And then the other thing is, can you give us maybe some perspective? While you said I think all workouts were up by all age cohorts, Is there something where the millennials were leading the way in terms of new joins, but you could have had some still hesitation from the older age cohorts that were still waiting for vaccines and what have you that could be an area of new member join opportunity going forward? I just want to get your perspective on that Cali impact and how you think about age cohorts going forward. Thanks.
Chris Rondo
Yeah, thanks, Freddie. Hi, this is Chris. Yeah, the county impact would be some, but pretty minimal. There's only 150 or so stores in that market compared to the entire base. So it would have some impact, but not that substantial. And at this point in the game here with, you know, all U.S. stores open now and the only stores really closed now are Canada. about half of those roughly. The pent-up cancels that we saw all of last year that we talked about are pretty much weeded through now. So our cancellations now were normalized. And what we saw in January from the joint volume was not quite the snuff like we normally see in January, although positive. But as my opening remarks, what we saw in March of this year was on mature stores marked over index 2019 of March, and April was basically on par to April 2019 as well. And in April of 2019, we actually had a 10-day national sale, which we did not have this year, just a three-day flagship. So you can see now that although January was lower than we normally see, as we've talked about what we kind of assumed would happen as the vaccines got rolled out is we're having an unseasonable change in volume. And to your question on the cohorts, Zs, even during COVID, were over-indexing all along. They were coming in faster than we had ever seen in the past. Millennials were on par, slightly less, and Gen X and boomers were certainly down, especially boomers, as you'd expect. What we're seeing now is they're all starting to go the right direction. Zs are still over-indexing what we've seen in the past, but the boomers now, which is a good point to point out, is now going the right direction. Although not the last year's or 2019's levels, they're now going the right direction, I think, because the vaccines are now out there and they're feeling comfortable.
Randy Koenig
Understood. And then, you know, with the investment announced this afternoon, It's clear that you're kind of moving and thinking through the company in an Omni way. Maybe just give us some perspective on what is your longer-term vision for the business and how you think about addressing Omni both in people's pockets on their phone with the app, but in the gym as well. And just give us some perspective of what you think is the future for this company from an Omni perspective.
Chris Rondo
Yeah, that's a great question. So when you look at this industry and up until, you know, the world of technology, now the apps, you know, this industry had no way to service our members outside of our four walls. So, you know, they pay us month in and month out, and whether they walk through the front door or not, we had no way to service them unless they walked through. To think about that now for a minute, how do we provide service outside our four walls, whether it's the workouts that we're currently providing and continue to increase that library? Do we get into meditation and diet, nutrition, for example? So how do we need to offer service, whether or not using the four walls, which at the end of the day can only drive retention, I would assume, right? I mean, if you're giving something to our members, whether they're using the store or not, and they're able to stay serviced, hopefully it drives retention longer term. And And for our members, as you know, Randy, these are casual first-timers, and 40% of our members never belong to a gym in their entire life. And that still holds true today. So they're still choosing bricks and mortar at the same rate they ever have, even post-COVID. These people don't even know where to start, right? So they're having to go find their workout app or find their nutrition app or find another app and know where to go or what's the right source or what's the right. avenues to go to. So why not handhold them and just close that circle and just not make it a la carte. Let's just give it all to them so they don't have to go find it on their own and try to piecemeal it together and really just make it easy and seamless for them to hopefully guide them on their wellness journey, which will drive results, right? And do they have to get results? That, too, will drive stickiness longer term. So I think it's how do we handhold our customers so that they get a better service and better experience and better results.
Randy
Thanks, guys.
Chris Rondo
Thank you, Randy.
Operator
Your next question is from John Heikenbacher from Fuggenheim. Your line is open.
John Heikenbacher
Hey, Chris, let me start with how do you think about the cadence of marketing this year, right, if seasonality is going to be a bit different than before, right, in terms of staging your sales, not just your sales, but also your electronic marketing? And then also as part of that transition, Team Summer Challenge, haven't seen much on that. Is there any kind of hybrid or modest approach to that this year? That's going to be a 22 issue.
Chris Rondo
Yeah, the Team Summer Challenge, unfortunately we did postpone it and probably relaunch it next year, mostly to the fact that under occupancy limitations with the clubs, We didn't want to fill a seat with a free member as opposed to a paying member if they couldn't get in. At this point, luckily, about 50% of our stores have zero occupancy levels, so they're wide open, which is great, but still at 50% that do. So we wanted to postpone that until next year. On the sale cadence, so as I just mentioned, the March and the April numbers, the mature stores were ahead in March of 2019 and also on par to April of 2019. So what we did do so far, the rest of the year is right now pretty normal. But what we did do, to your point, is the normal April national sale was just a three-day flash sale. And we pushed that big national sale into May, which we're right in the middle of right now. Because we felt, we do feel that the longer this year goes in and the more vaccines get rolled out, that the unseasonable volume that I think that we'll see is there. So we're going to hopefully test and see that through this May national sale, which was normally in April.
John Heikenbacher
And then maybe secondly, right, you know, back to what you're doing with iFit. So, you know, when you think about bundled pricing, right, you know, obviously I don't think you want to tack $5.99 onto a black card. So is the idea really apply that to, you know, it's a black card benefit. You know, the per month pricing goes up, you know, a buck or two or three, something like that. Because I know you've also noodled with the idea that, you know, I assume it will not apply to the white card, and do you really want to, I guess, when you think about getting people there solely at $599, there'll be some of those, but I think you really want to convert them to black card members, correct?
Chris Rondo
Yeah, absolutely, and you're right. So now that we've had the pilot with the PF Plus $599 digital subscription, and we've talked about this for a couple years now, that my envision was to have a bundled digital offering with a black card to hopefully drive some price or acquisition. So Now with the $5.99 price out there for just digital only, it sets that perceived value. So you're exactly right. So now with the black card, you know, we add a couple bucks to it. You know, the member thinks they get the black card for $24.99, and they're getting really quite a good deal because the $5.99 would be by itself, you know. So now the black card price is in the 19s again, you know. So that's exactly the idea. With the white card, as we've always talked about, that $10 price point is sacred. It's our advertising go-to price, gets you to come in, gets you off the couch, and we're still getting upwards of 60% acquisition on black cards. That's really where we try to get you when you come in and see all the perks you get with a black card. Although we'll probably test some sort of white card add-on to get digital on top of that if you so choose. So we'll definitely try a few things out this year and definitely report more next year. You know, the beauty with the digital component as an add-on or as a bundle of the black card in the clubs now is that, you know, in the past, the franchisees would have to, you know, build tanning rooms and CapEx would have to, you know, go renovate 2,100 locations. You know, the beauty with this is a flip of a switch. You know, so after we test it in a bunch of stores here and see how it works, if we decide to roll it out in a bundle, you know, overnight, all 21 plus 100 stores will have the ability to start selling the option.
John Heikenbacher
Okay, thank you.
Chris Rondo
Thanks, John.
Operator
Next question, we have Jonathan Katz from Barrick. Your line is open.
Jonathan Katz
Yeah, thank you. Just I want to follow up on the membership trends you're seeing, which seem quite encouraging. But I know you mentioned some of the markets where usage is coming back faster. I don't know if you've taken a look at membership trends in those same markets and if you're seeing any difference there. And then also, you know, when you look forward, kind of the better than normal seasonality you've seen, I mean, how are you thinking about the chance that that continues? I don't know if you thought through the puts and takes or, you know, following up on the marketing, any proactive tactics you're taking to help encourage that going forward?
Chris Rondo
Yes, sure, John. The usage, as I mentioned in my opening remarks, the South and the Midwest, where they were open longer back from May and June, their usage now is over 90% for member workouts. And their cancellations normalized earlier on than the newer, say, California openings. So as we've talked for ever since this all started happening, the ones that opened Clubs that are open the longest since reopening are acting the most normal. There's no reason why the rest of the country, as they get further into this reopening resurgence, they shouldn't see the same kind of results going forward. The seasonality side of things, it's hard to say. March was a great example, and so was April, but I don't think two months we can bet on a trend just yet, but if we get through May and June and we start to see the same sort of abnormal seasonality trend and we start being on par over indexing April of 2019 in those months, that would definitely lead to me to believe that the seasonality change is probably going to be the rest of the year, which then begs the change of the marketing schedule that's set today, which time will tell. There's no way to guarantee that yet, but we'll have to wait and see.
Stacey
Hey, John, it's Tom. Maybe one thing just to build on Chris's first answer there. I think to tie it to your membership question, the stores that reopened the earliest in Q1 had the strongest membership growth, which goes back to the longer they reopen, the more normal and stronger they perform.
Jonathan Katz
Great. And then a follow-up. I don't know if you have an updated view on when you could see the system get back to pre-COVID membership per club. I know you've talked at a high level before. But related to that, assuming the trend continues, and you mentioned strong franchisee profitability, how do you think the operators are balancing, you know, repairing the balance sheet still in 2021, but not falling behind from a competitive standpoint looking out to 22 in terms of unit growth and going back on offense?
Chris Rondo
Yeah. It's hard to predict exactly when we get back to pre-COVID levels, but I think it's pretty astonishing that we've gotten back just here in four months, 40% of our peak last year. In just four months, we've made it back. So it's a great trajectory. Let's just keep working on that and keep it going in that direction. When and if we get to the point where we're back to pre-COVID, I don't think it'll be this year, but definitely we're heading in the right direction, which is promising.
Stacey
Yeah, John, and on the franchisee side, I mean, as I said in my opening remarks, you know, they're all at different places, but, you know, talking to the largest ones here in the franchise business reviews, you know, they are bullish and they certainly bolstered our confidence in the range that we provided of 75 to 100 new store openings this year, plus doing the re-equip. So if you think about to your question about competition, You know, anecdotally, we don't see any competitors marketing beyond some social media. So the franchisees in their markets, and certainly we're seeing it in our markets, they're not taking any real positions in traditional mass media. We certainly don't expect, and I've heard anecdotally again, that they're not re-equipping their stores where our franchisees are, which is another sign of their financial wherewithal and strength. you know, not only do we want to open new stores, we want to make sure that the current stores we have and the current members we have in those stores have the best experience possible. So our franchisees are aligned with us that it's not only about the new capital for new stores, it's also about capital for the existing stores. So, you know, again, anecdotally, we've heard that some of the high-value, low-priced players who were going to enter markets or broaden their – increased their presence in existing markets, have largely pulled back on their store development plan. So we believe our store growth from last year and this year combined, and more importantly, net store growth, since we've closed zero as a result of COVID, unlike others, you know, will trump and dwarf any other high-value and low-price competitor individually and likely collectively.
John
All right. Best of luck. Thank you. Okay, go ahead.
Operator
Next question is from Joe from Raymond James. Line is open.
Randy
Thanks. Hey, guys. Good afternoon. So first question on the store build. You mentioned you opened 22 new stores in Q1. Would you still expect Q4 to be the heaviest in terms of new store openings as it has been historically? You know, given the six to nine months lead time, it would seem like you guys would have pretty good visibility into that cadence throughout the year.
spk11
As Tom said in his prepared remarks, we feel confidence in our range of that 75 to 100. You're right in the sense that historically a lot of the new store bills have tended to have been weighted in Q4, the back half of the year. But we have franchisees, you know, looking for locations kind of going out of the end of 2020, knowing that if some things are opening up, certainly some of the states that we referred to that opened up earlier and less risk of those closing down. Obviously, other states like California and some others where either we weren't open or there's certainly a lot of risk of potentially closing down a lot less activity out there in the market to try to build a pipeline for that. But, you know, we've opened some stores in Q1, as we reported, and we expect to open some stores throughout the year as well.
Randy
Okay.
spk11
That's helpful.
Randy
And maybe on to membership, you mentioned that 17% of gyms have closed permanently, and that number probably goes up. How are franchisees marketing to those members whose gyms have closed? Okay. Are they buying member lists, for example, from those closed gyms?
Chris Rondo
Yeah, in some instances they are, Joe. This is Chris. You know, if they get known ahead of time that there's a struggle there or that owner's not open, they will reach out and try to buy the member list from them, and it's a pretty seamless deal. Generally how they work from a high level is they basically take the members and they service them, and there's no financing involved. They just basically pay. They'll pay the club owner a portion of what they collect for a period of time, and that's their payout, and then they get the membership, 100% of it going forward. So it's a pretty seamless integrated takeover in that sense. But in most cases, I'd say probably, you know, 80% of the time it's really just a matter of marketing in and around that closing club, whether it's billboards and postcards and so on, driving them to the planet location. So that's pretty much how they capitalize on that. You know, in a lot of the national chains, like a 24-hour fitness, for example, in most of those cases, those members weren't abandoned like a mom-and-pop would be. Most of the time in those situations, a big national chain or even like a UFIT, they would just dump their members from the closed clubs into their open clubs. So it would be a slower cancellation transition as people say, I don't want to drive that far to the next available club to use. So it's more the mom-and-pops, which, as you know, we've talked about, is highly fragmented. You have to take us and all the big chains together. There's still 36,000, 37,000 mom-and-pops out there.
Randy
Got it. OK. Thanks, guys.
Chris Rondo
Thank you, Jason.
Operator
Next question is from John Avankel from J.P. Morgan. Your line is open.
John Avankel
Hi, thank you. A couple of questions, if I may. I'm sorry, I'm multitasking with another company also reported, so I apologize if I'm going to ask something that's already been answered. First, I think I heard something about this that I wanted you to clarify. The clubs that have been most recently opened, California, for example, how have the trends been in those markets, for example, after the annual fee was charged? I know that was an issue that we dealt with in
Chris Rondo
2020 that people didn't cancel immediately is that an issue in california or any other markets that you guys have yeah so the california stores um so the cancellations in essence weren't as bad and this is the reason why is because in california because they were closed essentially until 2021 um we didn't want to build their annual fees upon reopening because then they would essentially have two annual fees in the same calendar year that that makes sense john so it's We thought it was the right thing to do for the lost revenue for the franchisees, but they agreed and we wouldn't want to hit them in January or February once they open and then hit them again in June when they would do. So we decided to waive them, which I think has probably helped a little bit on the cancellation side in California.
John Avankel
Is there a waive of annual fees in California that we should be sensitive to, or is it going to be evenly distributed throughout the year based on whatever their initial contract was?
Chris Rondo
Yeah, just the initial contract. There's not going to be a big balloon there because it wasn't just waiving them because it was the full period.
John Avankel
Okay, I understand. Thank you for that. Covering restaurants, I've seen a lot of companies that have pulled advertising, reduced their promotions, not done as much on the discounting side, much like grocery stores, in other words. If you think you have the demand, why advertise like crazy to bring people in? They're going to come anyway. It's interesting to juxtapose what is very obviously an aggressive made promotion, one month free, $10 a month, no commitment, with your belief that there's going to be a wave of fitness because people have gained weight or don't feel good mentally or physically, what have you. Can you kind of explain the thought of having one of your most aggressive promotions ever with your belief of, hey, this is going to be a wave of fitness of people kind of coming back to the gyms and being together?
Chris Rondo
Yeah, so I think I'd say probably three different things. One is market share grab, right? As 17% of the industry is currently closed and is more closed, we want to make sure that we are front and center. And even though we're number one in brand awareness, you know, we didn't advertise most of last year, so our brand awareness slipped from, you know, first time in many, many years. It actually went backwards, although we're still number one. So it's important for us to be top of mind so, you know, when they feel comfortable without working out again, they come to plan it, don't choose a competitor, or a current member is leaving, you know, looking for a new gym because their club closed. So I think those are probably two big points. And I think it's really, too, when you think about the – You know, the media has tarnished the industry a little bit, I say, with just how they kind of put us in this corner of gyms are dirty and their petri dishes over the last year, you know. So I think the cleanliness message of what we've been saying, you know, in the commercial with the sanitization stations that we have and the social distancing, I think it's important for people to see real time, you know, that it's safe to come in and break down those barriers so that, you know, there's basically no reason not to try fitness. We're $10 a month. The first month is free. There is no commitment canceling time. We basically took every excuse token out of their pocket to use, and we looked at this is the time to be bold, and we decided to go that way.
John Avankel
You know, I saw the commercial yesterday for the first time, you know, by accident, quite frankly, on TV. It's awesome. So congratulations on that spot. It definitely gets a lot of attention. And the final question, you know, you mentioned, you know, kind of a commitment to your 2021 development. Is there a thought on 22, I mean, how the pipeline is building, how your franchisees are, you know, are feeling? I mean, even if it's just you know, how many people are in the field looking for sites, maybe how many, you know, LOIs, for example, you know, that have, you know, that have been signed. It's obviously, you know, an essential part of your story, you know, kind of longer term, if you can kind of think about, you know, we still have, you know, enough time to really make a decision on 22, but, you know, in the conversations that you're having with your bigger, well-capitalized franchisees, how they're feeling about, you know, getting stores in the ground to 22.
spk11
Yeah, John Estorban. Obviously, we're not prepared to talk about 22 yet, but You know, I think that from your point about conversations with franchisees, you know, a lot of them are different stages. You know, some have been open, you know, a good chunk of 20 and now 21, whereas, you know, like the guys in California that just reopened recently. So they're all different stages from franchisees rebuilding their balance sheet back to seeing some growth here in the first four months of the year that we've talked about. But I would say that the general sentiment is that they really like the trends they're seeing. They're very bullish on the opportunity ahead. The combination of just the trends or capitalizing upon where we're at within the industry or mode vis-a-vis the competition, knowing that, you know, as opposed to maybe at QSR when you've got to get somebody to come in and buy the burger, you know, we didn't, you know, it's not like we lost all the members and we had to get everybody back, you know, that first month we started billing. And so, you know, the store's cash flow is positive the minute it opens back up. The margins are still good that, you know, as Tom talked about earlier. But there is that timeline to the point I made earlier, you know, six to nine months really to get something going. So at this point, here we are, you know, we haven't gotten to the midway point yet of 21. You know, by the time we get into late summer, early fall, we're certainly going to have, you know, a clear picture into the balance of this year. And quite frankly, I think we'll see, you know, what kinds of activities out there. The last factor I'd say is is that we still don't have a real good feel where real estate land is going to be. In some markets, there's quite a bit of availability. In other markets, there's not as much availability yet. Landlords are trying to hold on to rents as much as they can generally from what we're hearing. In some cases, they're putting more TI money on the table up front than they maybe did pre-COVID. There's a little bit of wait and see on that. because if you think you can sign a 10-year lease with a couple of five-year options and it might be just a little bit cheaper because something comes available here in another month or so, I think there's been some hesitation because of that, too. But I guess the net, John, it's still a little too early at this point, but all the franchisees are very bullish about the future.
John Avankel
That's great, guys. Thanks for all the time. Thank you, John. Thanks, John. Thanks, John.
Operator
Next question is from Simeon Sigal from BMO Capital Markets. Line is open.
Jim
Thanks. Hey, guys. Hope you're all doing well. Sorry if I missed this. Chris, nice job inflecting members. How do you think about the timing of the market share grab opportunity that you mentioned from Shutter Jims, just as we think further out? And do you have a view on what percentage of the members that you recaptured through the recent trough that are new members versus reactivated? Thank you.
Chris Rondo
Yeah, about 4% of our joins right now are coming from their clubs that are permanently closed. So, again, about 4% right now of our current joins are from that. And my guess is it will continue to grow in the future. And I think the other important piece is, I mean, the average club in the U.S. only has about 1,200 locations. So, you know, although there's market share grab, it's not like we've got a 7,000. Remember Jim across the street that's going to close that we capture a bunch of them, you know. So there's definitely some upside there. But I think also longer term when you think about a market, and we've had this even pre-COVID world for 20 years where, you know, we're in a market and there's two or three competitors and, you know, 10 years later we're the last guy standing. You know, it's really that month over month over month of just increased joins because there's just no other place to shop, right? And that's really where a lot of the benefit does come from in the future. But, you know, this was pre-COVID. There's about 60 million members in the U.S., So if 17% is closed, it could go as high as 25%. I mean, there's definitely some members to be had that have been looking for a new gym. You know, we're essentially now in pretty much every neighborhood, every DMA you can think of. With that price point, it's pretty hard to beat.
Jim
Great. Thanks. And then the furthering of the eye fit, I mean, that's obviously very exciting. Congrats. You guys have done a really nice job going digital. Just as you think about what that ultimately looks like, does the relationship with eye fit stretch further? Any color there would be helpful.
Chris Rondo
Yeah, I mean, I think they've been in their industry in fitness as long as we have, right? They've been around for almost 30 years at this point. So I think it comes back to home fitness. They're definitely, you know, pioneers in that space. And, you know, I think it was a great partnership to make and to deepen it just to help us to capitalize on our expertise to drive the business forward. And I think, you know, outside of the content, they do a lot of other things. You know, they do have home gym equipment. They do have supplements. They do have, you know, meditation and cooking classes. They have a lot of stuff that they do that, as we broaden our involvement with them, just has a lot more opportunity than just strictly a digital company. So time will tell, but it's definitely, I think, a good partnership. They're two of the biggest leaders, right? Biggest in the health club, virtually more space, and they're the biggest essentially in the home fitness space. So it's a great partnership.
Jim
That's right. Well, congrats on that. Best of luck for the rest of the year. Thank you.
Operator
Next question, we have Sharon Saxia from William Blair. The line is open.
Sharon Saxia
Hi, good afternoon. I guess two questions. So on the equipment sales, obviously, you know, the franchisees are rebuilding their balance sheets, as you alluded to, and you've got that kind of moratorium or extended leeway on the equipment replacement. I'm just curious, in 2022, as we think that through, is there some sort of pig in the python when it comes to equipment replacement sales at that point or is it just everything was deferred so we get back to kind of like a 100 million plus in replacement but it's not kind of above that if that makes sense and then secondarily the sgna line is you guys referred to was pretty big this quarter for a couple of reasons. Do you have an underlying SG&A number, kind of what the quarterly run rate would be, X stock comp, and what you were doing in California with the app?
Stacey
Yes, Sharon, it's Tom. So on the equipment piece, there is no catch-up or picking the Python thing. It's really more all dates for both strength and cardio re-equips were pushed out 18 months. Now, in some cases, franchisees have done it ahead of that time because either, you know, they thought it was the right thing to do for their customer based on the shape of their equipment or there might have been a competitor who was coming in town and they wanted to have fresh equipment to compete head-to-head. But, yeah, so there's no catch-up. I think maybe to your question, 22 starts to look like a pretty normal year in terms of those obligations, because all dates have moved back from when we originally gave the extension in May of last year. On the SG&A side, so 2020, there was no incentive comp. There was just a lot of things in there. We took some pay reductions. more in Q2, but that's coming up that we're going to anniversary. So it is hard to compare, which is why we've said, you know, 2019 is a better indicator where, you know, some of that noise wasn't happening. So if you take 2019 and factor in, you know, some appropriate investments in digital, you know, you come pretty close to where we were. We also had some one-time investments in marketing, as I mentioned in my opening remarks, both for California and to support our mobile app. So But, you know, we think those are the right things. They were the right things to do strategically in California in an effort to get the local authorities to think about gyms, you know, differently. So it was really kind of a very different campaign than our typical joins messaging. And then if and when gyms reopened, that they could at least get to a higher status so that the maximum occupancy could be could be higher than it would be otherwise. So that was kind of the impact behind it.
Sharon Saxia
Can I ask a follow-up? So the first quarter SG&A was like $4 million higher than the first quarter of 2019. Is that the one-time investment, Chuck?
Stacey
Some of that is the marketing investment, and some of that is the incentive comp that didn't exist last year.
Sharon Saxia
Okay.
Operator
Great. Thank you.
Chris Rondo
You bet. Thanks, Sharon.
Operator
Next question, we have from Piper Sandler. Your line is open.
John
Hey, thanks for taking the question, and nice work on navigating a difficult environment. I have another follow-up question on the re-equip. So understanding there's an 18-month push-out, also hearing an argument out there that it may not be proper to have a one-size-fits-all approach. Maybe thinking about gyms like in California that just opened, haven't been operated for a year, are you thinking about staggering some of the re-equips based on the timing of when the gyms opened and therefore pushing out a little further?
Stacey
Hey, Peter, it's Tom. Yeah, it's a good question, and the short answer is no. The 18-month was meant to capture, you know, closure periods, reduced usage, et cetera. And, frankly, some of the stores in California are among the highest membership levels we have, so they get a lot of usage. So you could argue, you know, almost for an accelerated re-equipped cycle under normal circumstances. So, you know, but the good news is our franchisees are completely aligned with what we're doing. You know, I think maybe some concepts that we've heard anecdotally are pushing more for new store growth and completely walking away from re-equips, and that's just not what we want to do.
John
Okay. Yeah, so maybe kind of to follow on that, if a franchisee pushed back and said, I can re-equip or I could build, but I've got capital to kind of do one or the other, is your choice now to push with the re-equip and keep those older gyms looking new?
Chris Rondo
Yeah, I mean, I'm pretty clear that the fact I'd rather have 2,000 palaces out there than 4,000 pieces of junk, so I'm pretty... I'm pretty, we're pretty set on that. And the franchisees agree, you know, we don't want to be out nude and we want to protect our, you know, our home turf before we go find new turf, you know. But you think about the other side of it, too, is, you know, these area development agreements that they have that they have to build under, you know, eventually they will have to build out, you know. So they do have to do that. They don't want to lose their area development agreements. So it'll all shake out and they'll all grow together. And they're, you know, they're happy with the way the business is performing. They share our excitement with how this, you know, March and April went. So I think we're in a good spot.
Stacey
Yeah, and Peter, maybe just one last thing to build on Chris's. So implicit in your question is, is it an or, and our franchise needs, and we believe it's an and, that they're doing both.
John
Okay. Great stuff. Thanks so much. Okay. Thanks, Peter.
Operator
And our last question is from Oliver Chen from Cowan. Your line is open.
John
Hi. Thank you. The usage – Data has been quite encouraging. Do you expect that to be volatile going forward and to regionally continue to be different or converge? And then, Chris, on advertising and marketing, in the past you had some creative changes. Are you feeling good about where you are with positioning in terms of who you're partnering with there? And the last question is on the mobile app. Other investments ahead, just would love your thoughts on the key opportunities to continue to improve that. You've done a good job innovating the app quickly. Thank you.
Chris Rondo
Sure, thanks. Yeah, I believe the usage, I don't think it will be volatile. I think we will continue, you know, week to week and month to month improving for the better. I think the longer opening stores will always probably be ahead of the older, but eventually I think they'll all be back at 100% once we get there. um so i don't see any reason why it should be volatile i think it should all go go the right direction as the vaccines are more more distributed um yeah i think the advertising yeah i think you know the creative messaging especially around the cleanliness standards which i think for for any industry going forward or any public place will be probably important um for the near future years um but people will want to make sure they're they're sure that they're um they're in a safe place at a dependent place and that they can feel okay so i think that's something that will probably keep in ours forever. You know, even though we've been meticulously clean for decades, I don't, we never really featured that issue. We always thought it kind of goes without saying, but we're really highlighting those now in the creative, and I believe it's working. I think that's even driving current members that have seen the commercials that haven't yet to use the stores, see the sanitization stations and the increased signage that we put in clubs and the social distancing and stuff, and I think that's probably driving some of the workouts along with the vaccine. So we'll continue that, and I think it's John Ivanko's, he's on the commercial, I think it's a really catchy commercial. I think breaking down the barriers that we have in that commercial will definitely do well for us. Yeah, the mobile world, it's exciting. It's hard to believe that we ran this business without mobile, you know, three years ago, four years ago. It's kind of hard to believe we didn't service the members or give them ways to contact them or really engage them outside our full wall. So as we continue to build out our library of content and, you know, look to meditation possibly and nutrition and diet and other things that we can use that platform for, it's really now the platform is built off where we continue to test and can drive drive more engagement with our members. So that's the thing with the partnership with iFIT allow us to speed that process up as opposed to trying to pull it off ourselves and run studios and so on.
John
Thank you very much. Best regards. Thank you.
Operator
There are no further questions at this time. Now I'll turn the call back over to Mr. Chris Rondeau, CEO.
Chris Rondo
Well, thank you, everybody, for joining the call today. We're really, really happy with our first quarter and the acceleration that we've talked about from March and April and look forward to this May sale and to see how the trends hopefully continue. I think I couldn't be more bullish on the brand and the business and the industry. I think we couldn't be in a better spot coming out of COVID and this post-COVID world. As hard as this was to go through, I think we're going to experience some serious tailwinds that we can capitalize on here as a brand. and look forward to reporting Q2. So have a good afternoon. Thank you.
Operator
This concludes today's conference call. Thank you again for participating. You may now disconnect.
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