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Operator
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 would like to remind everyone that the language on forward-looking statements included in our earnings release also applies to our comments made during this 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 will turn the call over to Chris.
Chris Rondo
Thank you, Stacey. And thank you everyone for joining us today for Planet Fitness' Q2 earnings call. It's a testament to the strength of our brand that more than 13 million people remain committed members of Planet Fitness in the depths of a global pandemic when most of our gyms were temporarily closed. Our membership momentum continues to defy our historical seasonal patterns. And through July, we had more than 15 million members. We have regained approximately 75% of the members we lost from our peak in Q1 2020 to our low in Q4 2020. I have never seen this type of unfeasible membership growth in my nearly 30 years at Bennett. And some of our larger franchisees who have been with us for a good portion of that time are also amazed at the positive trends that they're seeing across their portfolios. And today, with nearly all our stores reopened, existing members are reengaging with us, and new members are joining at unprecedented rates, as they all realize the importance of fitness to their overall wellness. We're in the business of helping people feel better and get healthy, and that's what they're seeking right now, a community-based support system in a gun-free environment combined with an incredible membership value proposition. COVID hit the U.S. hard. The country came into the pandemic with more than 70% of adults over the age of 20 considered overweight or obese. one of the top risk factors for severe illness from COVID. In fact, life expectancy in America fell by 1.5 years in 2020 due to the pandemic and other residual impacts, the largest single-year decline since World War II. A Kaiser Health study showed that people who regularly exercise had the best chance of beating COVID, while people who were inactive did much worse. And most importantly, physical activity makes people feel better, not only physically, but also mentally. We believe the unseasonal momentum and our membership gains is fueled by people recognizing the importance of self-care. Our messaging to consumers is about taking the first step by getting off the couch and getting into a fitness routine. Our national May sale of one month free and no commitment removed all the barriers to doing so. As a result, total net member growth in May was three times our growth in May 2019. In June, we ran a Blackheart Flash Sale, and for the month, net member growth was nearly 20 times what we saw in June 2019, during which we ran a similar offer. For the quarter, net member growth in Q2 not only exceeded Q1 net growth, it doubled what we saw in Q2 2019. We ended Q2 with more than 14.8 million members. Exceeding 15 million members with our July national sale is truly remarkable for our brand. When you consider the state of our business in the second quarter of 2020, we had approximately 30% of our stores temporarily closed and negative net membership growth. In just 12 months, our business has rebounded, and importantly, our franchisees are very excited about the trends in the future. It's hard to predict whether these unseasonable joins will continue for the rest of the year, but we believe that people are recognizing the importance of taking better care of themselves. The trends in our business attest to this. In addition to the strength of our joins in June, attrition and usage are normalizing, and in some cases, exceeding our 2019 level, both on a regional and age demographic basis. During June, we began to see certain key metrics in our business returning to nearly pre-COVID levels. National usage trending up during the quarter, ending June at nearly 90% of 2019 levels. Usage in June for all demographics was nearly back to a typical pre-COVID month, with only boomers trailing. However, it is still trending upward for that age group. Our last group of reopenings are returning to pre-pandemic performance levels faster than those that reopened back in 2020, as people begin to return to more normal activities. While COVID had a temporary impact on our business, there are areas that the pandemic accelerated, such as our digital strategy. When we shut down our stores last year, we quickly shifted to keeping our members engaged digitally with free workouts offered via the web and our mobile app. And as we announced last quarter, we strengthened our partnership with iFit to unlock future opportunities to further accelerate our digital content strategy. App adoption by our members is nearly 60%, having grown from 40% in Q4 2020. Here in Q3, we plan to roll out a referral-friendly incentive program through the app. During the second quarter, we hired Chief Digital Officer Cheryl Kaplan to lead our Bricks to Clicks strategy. We believe that the future of the fitness industry is about providing people with a high-quality in-person experience coupled with the ability to engage and service them outside our four walls. We're providing them with many other benefits as well as differentiated premium content to make it even easier to get the most of the membership. We believe that there may be an opportunity for us to aggregate other wellness categories into our app at a disruptive value, all geared towards casual first-timers. We continue to pilot PF Plus in a limited number of stores to test price elasticity, including as a bundled offering with our Blackheart membership. We expect to run this test for the rebalance of 2021 and look forward to sharing more on possible offerings in early 2022. In June, nearly 40% of PF Plus subscribers joined our bricks and mortar location, underscoring that consumers want a more omni-channel fitness experience. I'm proud of the efforts our franchisees, headquarters staff, and club staff who persevered during the pandemic to keep our system strong, and I'm very excited to now have nearly all our stores reopened. There's a dislocation in the fitness industry, with 22% of the gyms permanently closed due to the financial impact from COVID through the second quarter, while at the same time, more Americans are realizing that fitness is essential to physical, mental, and emotional well-being. After shutdowns, quarantines, and isolation, they are seeking a sense of community. We believe we are a place that fills that need with our affordable, non-fitting workout environment that gets people moving and confident as they go on vacations again, head back to the office, or see family and friends they haven't seen in a long time. Importantly, our franchisees believe this as well. As a result, we now expect to be at the high end of our 75 to 100 new store openings range for 2021, reflecting their growing confidence in the strength of our business and near-term growth prospects. Tom will get into more specifics on our outlook for the bounce of the year in his remarks. We also announced today that we signed an agreement to accelerate growth in Mexico with a joint venture made up of a prominent local retail services company and one of our largest U.S. developers. The agreement is for a minimum of 80 new stores over the next five years in addition to the five stores we currently have in Mexico. I am extremely pleased that we have added 1.5 million members in the first seven months of this year. With nearly one quarter of all gyms closed due to COVID, I believe that the opportunity in front of us is significant. With so much potential given to changing market dynamics and the tailwinds behind the health and wellness, the 4,000-plus long-term domestic store opportunity looks better and better. I always knew that we would come out of the pandemic even stronger, but the pace is even faster than I expected. I always come back to the fact that we are a purpose-led brand on a mission to change people's lives for the better, which is what the U.S. and the world need more than ever. I'll now turn the call over to Tom.
Stacey
Thanks, Chris, and good afternoon, everyone. Before I get into the review of our financials, I want to touch on a couple of key topics, starting with store expansion. During the quarter, we opened 24 new stores, bringing our total count to 2,170. As Chris said, we now expect to be at the top end of the 75 to 100 new store range for the year, reflecting the growing confidence of our franchisees to accelerate their development plans. It also reflects the strengthening of their balance sheets. Several franchisee groups are taking advantage of the increased supply of real estate. As a reminder, we don't typically go after the real estate from gyms that have closed. We look for big box retailers that occupy a 20,000 square foot space. We believe we're even more attractive to landlords given that no Planet Fitness locations permanently closed because of the pandemic, which strengthened our position as a tenant of choice. We're not necessarily seeing rents come down yet, but we are hearing from franchisees that landlords are sometimes offering more tenant improvement dollars. In general, we are seeing a more favorable real estate market and historically unseasonable membership trends, which have been the catalyst for some of our franchisees to accelerate their development pipelines. I would categorize franchisee sentiment as bullish as membership levels continue to climb. Next, I want to elaborate on Chris's comments about the state of our business last year in the second quarter. As previously mentioned on last quarter's call, we are not reporting a Q2 system-wide same store sales growth number due to the fact that the majority of our stores were not billing in the prior year period. We assume we will resume reporting system-wide same store sales in the third quarter. As a reminder, our same store sales results are a function of the change in membership trends over the trailing 12 months compared to the year-ago period. As of the end of Q2, we had six consecutive months of sequential net member growth, but our membership levels were still below prior year. Black card penetration increased to 62.6%, up 191 basis points to last year, contributing to continued growth in average monthly rate. Now I'll turn to our Q2 financial results. Total revenue increased $97 million or 241.1% to $137.3 million from $40.2 million in the prior year period. The increase was driven by revenue growth across all three segments. The increase in franchise segment revenue was primarily due to growth in royalties, NAF, and franchise and other fees primarily attributable to COVID-related temporary store closures in Q2 last year. The increase in revenue in the corporate store segment was also primarily due to COVID-related temporary store closures, as well as the impact of seven new corporate stores opened compared to Q2 2020. Equipment segment revenue increases were driven by higher equipment sales to new and existing franchise-owned stores due in part to temporary store closures related to COVID last year. Our cost of revenue, which primarily relates to the direct cost of equipment sales to new and existing franchise-owned stores, amounted to $18.5 million compared to $8.5 million a year ago. Store operation expenses, which relate to our corporate owned store segment, were $28.4 million compared to $14.7 million in Q2 last year. The increase was primarily attributable to lower operating and payroll expenses last year with the COVID-related temporary closures, along with higher expenses with the new stores we opened in the last 12 months. SG&A for the quarter was $21.8 million compared to $15.9 million a year ago. The increase was driven by higher incentive and stock-based compensation, travel expenses, and expenses associated with our mobile app compared with the prior year period. National advertising fund expense was $13.5 million compared to $10.9 million in the prior year period. Adjusted EBITDA was $55.6 million compared to a loss of $9.3 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 $51.8 million, corporate store adjusted EBITDA was $10.4 million, and equipment adjusted EBITDA was $5.6 million. Adjusted net income was $18.2 million, and adjusted net income per diluted share was $0.21. Now turning to the balance sheet. As of June 30th, 2021, we had total cash of $527.4 million compared to $515.8 million on December 31st, 2020. This was comprised of cash and cash equivalents of $469.1 million compared to $439.5 million. 58.2 million, and 76.3 million of restricted cash, respectively, in each period. Total long-term debt, excluding financing costs, was 1.78 billion as of June 30, consisting of our three tranches of securitized debt and $75 million of variable funding notes. Our securitized debt structure is covenant-like. We have two maintenance covenants, a debt service coverage ratio, and a total system-wide sales threshold. These are both tested quarterly, calculated on a trailing 12 month basis, and reported on a roughly two month lag. In our most recent debt covenant reporting period of June 5th, 2021, we had a 13% and an 81% 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 nearly all of our stores open. Additionally, I'd like to point out that this was the final reporting period with Q2 2020, included in our trailing 12-month calculation. This was our toughest quarter financially last year, and as a result, we believe it was a trough from a DSCR standpoint. Now to our outlook for the balance of 2021. With vaccines readily available across the nation, strong membership growth trends, and just under five months remaining in this year, we have better insight into what we believe our performance will be across key metrics. However, I'd like to note that our current view for 2021 assumes there is no major resurgence of COVID that causes member disruptions, whether via shutdowns or more stringent mask mandates, that result in a significant change in membership trends. particularly as the Delta variant is causing case counts to spike across the U.S. We have already discussed that we expect to be at the high end of our 75 to 100 new store opening range. As a reminder, last quarter we noted that we expect equipment replacement to be approximately 50% of our total equipment revenue this year.
Chris
We continue to believe this will be the case.
Stacey
With respect to our corporate store segment, it's important to note that our corporate clubs are primarily in markets that were most in for the longest, which, as we've said, is the biggest factor impacting a store's recovery to pre-COVID levels. Additionally, the vast majority of our corporate stores are mature stores. Therefore, we expect lower revenue and profit segment compared to 2019 levels. We still believe in the strategic importance and viability of our corporate store portfolio. It will just take a longer period of time for those stores to return to the previous financial performance levels versus 2019.
Chris
First, our investments into future growth and infrastructure and franchise marketing. For example,
Stacey
As Chris mentioned, on digital, we have a new chief digital officer who is leading our efforts for an omni-channel experience for our members. From a marketing perspective, we have invested to promote our app, support California store reopenings, and participate in lobbying efforts for the fitness industry. A second driver is compensation, including having additional leadership positions as well as typical compensation growth. So when you take all of this together, we believe that our full year revenue will be between 530 and 540 million.
Chris
We expect SG&A to be in the low $90 million range. We believe adjusted EBITDA will be between 200 and 210 million. And we expect that adjusted earnings per share will be between 65 cents
Stacey
Finally, our pace of recovery has been faster than we expected, and our membership growth is highly encouraging. As I mentioned earlier, our same-store sales results are a function of significant member declines in Q3. We expect that our same-store sales will become positive given our expectation that Q3 membership growth and membership levels will exceed that of last year. However, I want to reiterate that this outlook assumes there is not another prolonged operational setback, whether through mask mandates, temporary shutdowns, or other less tangible ways that COVID can affect the American psyche and, in turn, our business. But we know that our business model is resilient, and while the near term is somewhat difficult to predict, we believe that we are well positioned financially and strategically to fight the pandemic.
Chris
And with that, I'll turn it over to the operator for Q&A.
John
As a reminder, to ask a question, you may press star 1 on your telephone keypad. Again, that is star 1 on your telephone keypad. So let us stand by while we compile the Q&A roster. Your first question comes from the line from Guggenheim. Your line is now open.
Stacey
Chris, given what's happening with membership, what do you think about promotional activity that you're going to run between now and year end? Are you more inclined to be more promotional because members would respond, or can you be less?
Chris
Pretty similar to last year, years in the past. So regularly. But what's really interesting, and you kind of mentioned on your question, is that what's more intriguing actually is the kind of the natural organic demand we're seeing on off-promo days.
Chris Rondo
It's quite remarkable, something I wouldn't have seen before. Even off-promo days, the demand is just there regardless. So we're doing normal cadence of marketing, but the membership is extremely strong right now. in all generations.
Stacey
So you're going about that pretty deliberately, I think, compared to the last two increases, right? I think you tested it for a couple of months and then went with it. Or is that because you're trying to figure out whether people will pay for the digital content and whether you want to include it in the black card pricing or do it separately?
Chris
I'd say a little bit of both. I mean, it's in pilot, you know, for that reason, so we can test whether it's You know, is the $24.99 the right number?
Chris Rondo
Is it more? Is it less? Is digital driving some acquisition, you know, higher acquisition or not, or at least maintaining the same black card percentage through that?
Chris
But I think we'll always have the PF Plus digital separate and apart from the black card bundle. I think for a few reasons.
Chris Rondo
I think one we've seen that people are doing PF Plus and then migrating into bricks and mortar and about 40% of the non bricks and mortar members who have subscribed to the PF Plus have gone on to join bricks
Chris
bricks and mortar after.
Chris Rondo
So it's definitely kind of they're dipping their toe in the water and then they convert into a bricks and mortar after the fact, which is encouraging. It's really only the marketing vehicle for us. But it also sets a bar of perceived value so that when you get the bundle, it looks like even a better deal when it's bundled because you see the off-the-street price. So I think we'll always have both. Okay. Thank you. Thank you.
John
Next question is from the line of Randy Connick from Jefferies. Your line is now open.
Randy Connick
Yeah, thanks a lot. So I have a question, one for Chris and one for Tom. I guess, Chris, in the press release, you talk about having confidence in meeting and possibly exceeding potential, especially as your competitors are closing. So just more color there would be super helpful. And I guess, Tom, When I look at the EBITDA dollar guidance at the high end for the year, it implies an EBITDA margin of about 39%, I believe. And your prior peak in EBITDA margin, I believe, was in 2017 at 43%. So just want to get some color on how we should be thinking about a little bit more into the medium term around where the EBITDA margins should really sit for the business and to know if the elevated SGA in 2021 will subside in growth rate in 2022, i.e., we should see some EBITDA margin expansion next year. Just curious on that. Thanks, guys.
Chris Rondo
Sure. Thanks, Randy. This is Chris. Yeah, that $4,000 potential, you probably heard of us talk in the past, even pre-COVID, where Most of our new unit sales for franchise development were in existing territories that we had already sold probably eight years ago. We might have sold it for 10 stores in a county, and we know a lot more now than we did back then. Franchisees are coming to us, and we thought it would hold 10, and now it holds 14 based on what we know today. We were already thinking that $4,000 might be on the lower side of what the potential is. Now, coming out of COVID, I think we've got quite a few things going on. On top of the 22% of the industry was shut down, which is amazing. Out of the 41,000 stores, I think 22% have shut down. And that does skew higher in the boutique arena as opposed to full-service gyms. It's about 14% of gyms have closed, but about 27% of boutiques have closed. So it does skew higher boutiques. But nonetheless, it's 22% of gyms are no longer in business. So you have that on top of, you know, I think what we're seeing here with the organic growth I mentioned is just, It's just the demand, I think, coming out of COVID of people realizing everything you see points to the fact through COVID that, you know, being overweight or out of shape or not taking care of your health is really contributing factors to hospitalization and unfortunate death. So I think people are really paying attention to their health and wellness more so coming out of this. So I think the industry has a huge tailwind coming out of this probably for many years ahead. I think we're going to see something probably the industry hasn't seen before. So I think to your question, I think there's no doubt that gyms closed down, the strength of our model, the fact that we're going after casual first-timers, and 40% of our joints still today have no blunt with gym in their life, and that holds true, too, for the second quarter. So we're really getting people off the couch for the first time, and it's the people who need the most help. And also, as we all know, And in less fortunate neighborhoods, they're also more affected by COVID. And 25% of our gyms are in neighborhoods that the government classifies as low income. So we're definitely feeling a need here. And I believe the 4,000 probably is on the light side. So I think once all this dust settles, it's probably something we're going to have to study up on to see where we think the potential is once the dust settles out of us.
Stacey
And, hey, Randy, on the P&L question, I think – You know, I think as we come through this with the different puts and takes by segment, you know, we talked about the corporate store segment being in the markets that were affected longer. So that certainly, you know, has an impact there. And also the franchise segment, you know, our membership levels while rebounding, you know, are still have been rebounding more recently, where in 2019 they were kind of pretty strong right from the start. So it's a bit of a timing based on the subscription model, but we don't see anything you know, in the near term, longer term, that structurally inhibits us from getting back to our 2019 EBITDA margin levels of 43. It is a little bit of kind of the depressed revenues in the near term and some of the changes across our three segments. I think when you think about SG&A, though, you know, we do – As Chris mentioned, you know, we have made some incremental investments both in terms of people, systems, and marketing to support our app back to our bricks-and-click strategy. I think in the main we run the business with a pretty frugal mindset, but where we think there's an opportunity to invest in, you know, we're going to do that. So I think it's a balance of being frugal where – uh you know where we should and also being thoughtful about the investments we need to make to really power up what we see is a big opportunity thanks guys thank you next question is from oliver chen from cowan your line is not open hi thank you um chris and tom it sounded like the membership trends were running better than you expected given your prepared remarks
Randy
And what drove that upside, you know, relative to your expectations? And then second, on the bricks and clicks strategy, what are you most excited about? Why was now the right time for a chief digital officer? And how might this impact the models and membership and or churn? Just what generally is on the roadmap? Thank you.
Chris Rondo
Cool. Thanks, Oliver. On the growth in the membership, You know, what's really driving this today and what we typically see, you know, after the month of April, honestly, in mature stores, you know, a mature store would typically not grow at all pretty much the rest of the year after the winter growth months. And in a lot of cases, Oliver, mature stores would actually decline slightly throughout the rest of the year. So what we're seeing now, which is something we've never seen before, is that the mature stores are growing exponentially. in a time of year that they typically don't, really. So they add a lot of new members in the first quarter, call it even through April, and then they either maintain or retract some over the rest of the year. But for the year they're ahead, but, you know, they lose some throughout the rest of the year. We're not seeing that right now. We're actually seeing that even the mature stores continue to grow. in months that they typically don't grow. So that's where it was driving that. So that, that organic demand in the sale periods are extremely strong, which is something else to see. I mean, in a month of June or July to grow like that, it's just something we've never would have had. Usually this industry, we hold on for dear life in the summertime, honestly. And it's, it's, it's amazing to see something this time of year. I think with the bricks and clips, you know, and it's, And it's really still in its infancy stage here, but I think it's many years to follow. And I've said this in the previous calls, if you think about this industry, we open our doors and we turn the lights on, and unless somebody uses the facility, we don't offer them anything. They pay us every month, but we don't give them any service outside the four walls. So I think in any way we can provide them some level of service And engagement outside our four walls, as well as inside, but outside the four walls, can only help with customer satisfaction and ultimately only help with retention and stickiness. And that's why it's a great platform as it is now, but it's really just the beginning of a platform that's built to be able to add more and more to it. And now it's strictly just exercise, but there's nutrition I've always mentioned, and meditation is their self-help, is their help with sleeping, and it goes on and on with the platform. But even just the way people are engaging with us, the way they're joining now, it's 65% to 70% of our joins are digitally, either through the website or through the app. In 2019, that number was 30%, 35%. So even just the way people are joining is much, much higher than we've seen in years past by a level double. So people are just – the world's changed. I think this is something that's going to stick around with us. And now we're offering the upgrades in the app, and we're offering Refer Our Friends in the app, which is a nationwide promotion going with that. We're a formal way that a member can refer somebody through the app and get credit for that referral and reward them for that referral, which is something that never existed before until we had this app and launched this platform. So it's just a way, I think, for us to be able to engage our member and provide them more and get more. So it can only help, I think, with satisfaction as the customer goes and only drives stickiness longer term.
Randy
Thank you, Chris. And lastly, usage. How has usage trended, and what are your expectations there and what you're seeing nationally and or regionally? Thank you.
Chris Rondo
Yeah, we ended June with about 90% of 2019 levels, so almost back to normal. Many of the generations are back to pre-COVID. The boomers are still lagging some, but they're trending in the right direction now, which is great. So we're almost back to what we normally see. And usage is about the same, too. Yeah, usage is about the same, too. Average usage is about six times per month.
Randy
Okay, perfect. Thank you very much. Best regards. Thanks, all of you.
John
Next is from the line of Joe Altobello from Raymond James. You may ask your question.
Chris Rondo
Hey, guys. This is actually Adam on for Joe. I know you mentioned that the guidance assumes nothing unexpected in the form of shutdowns or mask mandates, etc., all that being quite unpredictable and dynamic. That said, have you seen any impact on membership so far? I know it's early from Delta in recent weeks, either the pace of new joins or cancels, and they may be too recent to even be able to pick up on those trends. But have you guys seen anything on that regard? Yeah, no, we haven't been watching it closely. We did see some of that reaction back, if you remember, if you recall last summer when some of the things were spiking in August and stuff, we saw some of the market react to that. But we're not seeing that with the Delta virus nationally or regionally. Okay, that's encouraging. And one more if I could.
Randy
I believe, you know, New York City imposed a rule requiring proof of vaccination to enter gyms. Do you think that prospect might slow membership or store growth in any way in the near term?
Chris Rondo
I mean, it could. We haven't seen it yet, but it's definitely a little bit of a hurdle here for people to work out. But the big question is how long it goes on for, you know. But we haven't seen it affect things yet. Out of the entire portfolio, we only have about 95 clubs that are masks all the time and about 31 clubs that are masks while – not while exercising, but while walking around. So it's not as broad as you might think, especially in the Northeast, as all you hear.
Randy
Got it. Thanks, Chris, and congrats on the encouraging membership trend.
Chris
Thank you.
John
Next is from Jonathan Komp. Please also state your company name. Your line is now open.
Jonathan Komp
Yeah, hi, thanks. It's John Komp from Baird. I want to follow up maybe a little bit of a bigger picture question, but as you look at the momentum and the membership you're seeing and the bullish tone that you cited, how do you think about whether you're doing enough to stay ahead of some of your competition? I know you've cited some of the metrics for gyms that have closed, but there's other of your peers that are seeing similar trends. So maybe just do you think you're doing enough to stay ahead? And as you think about plans to stay ahead, how should you share those costs or those investments between Planet and your franchisees?
Chris Rondo
Yeah, good question. You might recall the last year we actually put in about $10 million of corporate marketing dollars just to reinforce the map and to kind of supercharge it to get it going. We don't see the need to do that just yet or right now. Not that we wouldn't. I'd definitely keep the optionality open there, but I don't see right now with the way the membership trend is is heading and how fast it's growing. And as you know, John, the NAF and the LAF spend, the National Advertising Fund, the local advertising, is 9% of the membership dollars. So the faster that the membership increases, the quicker those dollars replenish and get larger. So right now we see no reason to do that just yet. And there's no doubt that our excitement about the membership growth is definitely shared with the franchisees in the amount of text messages I get and emails about people saying they couldn't believe what they're seeing in the month of July or June. So that's really what we've said this all along. That's really what the franchisees need to see to get You know, replace their balance sheets, but also feel confident enough that it's time to stop moving here and start to start negotiating leases and get clubs open. So, which, you know, hence why we went to the top high range of our 75 to 100, which, you know, as this goes through, you know, put the Delta virus aside of us for a minute because who knows what happens. And I don't feel that it will go. go crazy on us. But as long as it holds true, there's no reason why we shouldn't see some really good growth here unit-wise in the next few years here now that parentheses are out looking at real estate.
Jonathan Komp
Yeah, that's great. Maybe one follow-up then as we think about trying to model out the equipment revenue in the years ahead. Just thinking, you know, 2019, I think it was close to $250 million. Any broad stroke thoughts about how we should think about next year for that?
Stacey
Yeah, John, it's Tom. We're really not commenting on 2022 at this point. You know, we'll do that on our year end call. But I think, you know, once all these extensions have kind of run their course, you know, we expect that at some time in 2022, we'll be back on kind of a normal rhythm, assuming there's no disruption with COVID. but sometime in 2022 back on a normal rhythm in terms of both store development and re-equip cycles.
Jonathan Komp
Okay. Thank you very much. You bet. Thanks, John.
John
Next is from John Ivanko from J.P. Morgan. Your line is now open.
John Ivanko
Hi, thank you. Maybe the increase or to the top end of the unit development range to some extent is the answer. But can you comment on how year one volumes are doing? I mean, if you were to look at, you know, for example, you know, the stores that are open, you know, in the last 12 months, how they've been doing, you know, relative to previous years, you know, and I'm especially interested on the 2021 openings, you know, specifically how those, you know, those have come relative to years past.
Stacey
Yeah. Hey, John, it's Tom. I'll start and maybe others will add. So I think in terms of, if we wind the clock back, you know, the stores that opened last year were clearly soft to any historical norms. The stores that opened more in Q4 started to get closer to what we would normally expect. And the stores that we opened this year are above expectations when it comes to the first year, first months in the first year of ramping. So, you know, very encouraging. And again, it's it's yet another kind of green signal that our franchisees are seeing that gets them very bullish.
John Ivanko
And above expectations, I mean, would that mean that you're, for example, higher than your 2019 class or, you know, there's still some drag in the new unit volume? Higher. Okay. That's fantastic. Thank you.
John
Next is from Simeon Siegel from BMO Capital Markets. Your line is now open.
Simeon Siegel
Thanks. Hey, everyone. Congrats on the ongoing progress. Chris, sorry if I missed. I think you touched on it, but can you speak to the composition of the new members as a change versus pre-COVID? I think you mentioned the 40% first-timers, but can you maybe speak to the percent coming from competitor closures or reactivations from maybe your own COVID-lapsed customers? And then... Tom, did you guys give the average royalty rate? I think you normally give that, so sorry if I missed that. Thanks.
Chris Rondo
Yeah, our rejoins are still running. They were in first quarter. About 30% of our joins are rejoins. The members of us in the past have come back, and that typically runs about 20%, so it's quite a bit higher than what we've seen in the years past. About 3% of the joins are coming from closed competition today. And you're right, about 40% are first-timers coming to us from the couch, essentially. And the Gen Z population is definitely still joining at a rate that we haven't seen ever in the past. Part of it elevated. The Gen X and millennials are about the same. Boomers are slightly behind.
Stacey
And, yes, I mean, the royalty rate for the quarter was 6.3% versus 6.4% last year, and that's really just a mix of stores that were open and billing last year compared to this year. No fundamental structural change or anything.
Simeon Siegel
Perfect. Thank you. And then just any notable difference in economics for Mexico versus the U.S. as you roll that out?
Chris Rondo
No, not really. No, the royalty rates and all that, the development, the 80 stores over five years, it's a big group out of Mexico, and they partnered with one of our largest here, U.S. franchisees, who has almost 100 locations. You might have heard the press release, but the group there has brought Forever 21 and Old Navy as well to Mexico. So I think it would be a great partnership that has a lay of the land there.
Simeon Siegel
Great. Best of luck for the rest of the year, guys. Thanks.
Chris Rondo
Thank you.
Simeon Siegel
Thanks.
John
Next question is from Peter Keith from Piper Sandler. Your line is now open.
Randy
Hey, thanks, everyone, and my congratulations as well on the continued progress. Quick question, I guess, for the revenue guide that you provided at 530 to 540, what would you have roughly for a year-end member count to get to that range?
Stacey
Hey, Peter, it's Tom. We actually don't provide guidance on the member outlook, and as you know, you know, things are still kind of fluid. But in a typical year, we've seen very unseasonable trends in membership this year, as Chris alluded to. And, you know, on our last call, it was a couple data points. Now it's more data points as we've gone through the quarter and into July. And typically a store would lose some members in the back half of the year. So we try to put our best thinking in taking an atypical year versus what typically happens in stir all that together to come up with how we guided revenue. But unfortunately, we don't provide membership outlooks.
Chris Rondo
Okay, fair enough. And my follow-up question is just on the pace of new gym openings.
Randy
You've guided us behind the range for 2021. I know you're not guiding for 2022, but I guess I'm interested in how the conversations with franchisees are evolving and
Chris Rondo
I think in the past you've talked about franchisees maybe wanting to get through that January selling season before making go or no-go decisions on 22 openings. Is that changing based on this faster member recovery path that you're seeing? Could we see gyms open up sooner in 22 based on the comments you're getting?
spk08
Yeah, Peter, I think the way we look at it is, When things shut down back early last year and when it became apparent this was going to last for a while, as we've mentioned on some previous calls, the franchisees really shut down all their development activities, furloughing even some of the real estate folks on the team because they didn't know when they'd get back into building new stores. And as you, you know, as we progress throughout 2021 and quite frankly coming into 2020 and then coming into 2021 with all the concerns around what would happen after the holidays with respect to COVID-19 and then the vaccination rates, you know, we're just starting, the vaccines were just becoming available. And, you know, it's obviously still continuing to increase some states better than others in terms of the vaccination rates and people more likely to kind of get out and try to get about their daily lives. And quite frankly, as Chris said earlier, I think it's the reasons we're seeing some of the trends we're having today. So when you take all that into consideration, obviously franchisees, with their own portfolio of stores, they see what's going on with their business. And we obviously give them updates in terms of the system and the encouragement that, you know, not only we have at corporate, but they have in their own individual market or markets. They see these trends, you know, real time as well. And that's why, as Tom indicated in our guidance, that we believe we'll be at the high end of that range that we had previously put out. So franchisees are clearly out there starting to do their deals again. The issue, obviously, is the timeframe. Beginning to end in kind of a normal timeline circumstance, it's about nine months. from the time that you say, okay, I want to try to find a location in this particular market, and you start, you know, working with your real estate team internally, your commercial real estate brokers with our team, our corporate team that we have, to try to put a number of sites out there for consideration and then start negotiating, you know, LOIs and how much tenant improvement allowances they'll give you, et cetera. It's not a nine-month process to ultimately get it opened. And so here we are now, you know, in the back half of the year, franchisees clearly are out in the markets now and, you know, starting to do deals, certainly starting to get LOIs going. At this point, you know, we're clearly not back at that run rate we were when, you know, when this all kind of came down last year in March. And, you know, a lot of that is just frankly the timeline to get there. I think you've heard us say before, and we certainly are saying it again, is that we've got a ton of confidence in the model and what has happened in terms of the recovery to this point. And it gives us a lot of confidence that we can get back into the kind of growth that we had before. It's just a matter of, you know, when and not if. And so at this point, you know, as Tom said, we're not commenting on 2022, but we can say that clearly the franchisee's willingness to get out there and start surfacing sites is certainly better than it was even, you know, 60, 90 days ago.
Randy
All right. That's great. Very helpful. Thanks so much, guys. Thank you. Thanks, Peter. Thanks.
John
Next question is from Paul Golding from Macquarie. Your line is now open.
Stacey
Yeah, thanks for taking the question. My first question is if you have any update on Australia and the rollout there given the prolonged snap lockdowns that we've seen over the last several weeks. Yeah, sure. So I think we just have a few stores there, but we get an update from our franchisees and It is sort of on again, off again. It's tough. But I think overall, when they're open, the trends that they see are still encouraging them, and they're forging ahead with their development plans for the future.
spk08
So that 35-unit estimate over the next several years is still the target for now?
Chris Rondo
Yes. Great. I think four of the five is closed right now. It should be opening maybe by the end of the month, but it's a moving target.
Stacey
Got it.
Chris
And then on PF Plus, were there any other engagement stats you could give with respect to
Stacey
number of workouts in a particular month that a unique might be doing, just to get a sense of the uptake there and any sense, I guess, as a follow-on to Oliver's question around, is this intended to be top of funnel? Do you see it evolving into more of a standalone, maybe with its own branding and marketing?
spk08
How should we think about that in the model?
Chris Rondo
Yeah, sure. Yeah. So it's still, you know, still a lot of testing to be had here. We haven't released any subscription numbers yet. But I think there's a couple ways to look at it, too, is that there's also a lot of app holders that aren't even PF Plus subscribers. So to your comment about being top of funnel, you're exactly right. So there's a lot of people that engage with the app. as unpaying members that convert to bricks and mortar and sometimes convert to PF Plus first. So it's kind of a top of the funnel, and it really is a whole other marketing vehicle for us. But we have seen, out of the people that were subscribers to PF Plus that were non-bricks and mortar members, it was 40% now have converted to bricks and mortar. First quarter was 30%, and the fourth quarter was 20%. So you'll see how people are engaging with PF Plus and then becoming bricks and mortar members after the fact. And also 70% of the members who have PF Plus have also used bricks and mortar at the same time. So they're definitely engaged. And about 80% of the subscribers are actually current Planet Fitness members who have gone on to pay more for more. And the majority of those are Black Card members, which is hence why we're doing the test with the bundle as well to see if we can get more price out of just all Black Card members, not just people who opt in for it. So a lot of learnings to be had. But I think it's just how we look at the top of the funnel. Out of all the app holders, about 12 million downloads, 9 million of them are members. The other 3 million are non-members or lapsed members that still have the app that we're able to engage with or engage with the app. So a lot more to be had there and be learned from. But we do have a lot of people that just have the app that are not even paid subscribers that we can convert as well. So just a lot more engagement to be had and to learn from.
Randy
Great. Thanks so much for that, Chris.
Chris Rondo
Appreciate it.
John
Next question is from Chris O'Call from Spiegel. Your line is now open.
Chris Rondo
Thanks. Good afternoon, guys. Tom, I apologize if I missed this, but how much of the equipment revenue this quarter was re-equipped, and how should we think about the ramp and replacement equipment revenue for the balance of the year?
Stacey
Yeah, hey, Chris, sure thing. So in Q2, it was 60% of revenue, brings the first half to about 45% of total equipment revenue. And so we said that for the full year, we're staying with what we said on the last call, which is the re-equips would constitute about 50% of our full year equipment revenue.
Randy
That's helpful. And then is the net off-season growth You're seeing from either, is it from higher gross signups or lower cancellations or both? And I'm just curious if you've seen retention change at all from the May, June promos after the initial month compared to maybe similar type of promos that you ran prior to COVID.
Chris Rondo
Yeah, it's both, actually, and we're just seeing, you know, it's almost like the year is almost upside down. You know, our May, you know, June was 20 times June of 2019, and, you know, our May expiration on our sale was the highest net member growth day even outside of January this year. So definitely demand is upside down, and people are coming in higher now than they did in the first quarter.
Chris
Certainly last year, that's for sure.
Chris Rondo
So, yeah, I think it's just people are out and about and resurging. The business is just totally different than what we've ever seen before. So I think there's a lot of factors between closings, people paying more attention to their health and wellness. And I think, you know, time will tell when anything happens crazy in the world with the Delta variant. But, you know, I think it could be a long-term trend that we see for the years ahead. Okay. Thanks, guys. Thanks, guys.
John
Last question is from Alex Perry from Bank of America. Your line is now open.
Alex Perry
Hi. Thanks for taking my question. You know, hard to see whether those unseasonal joins will continue. Maybe could you talk through the cancellation rate of new joins within the first few months versus normalized levels, you know, especially with some of the no commitment promos you guys have been running? Thanks.
Chris Rondo
Yeah, we haven't seen any change in any kind of retention or increased attrition without any kind of commitments or anything like that. So nothing there has changed. So that's all good news. And one of the things we've seen in a lot of consumer studies is the no commitment messaging is almost more important than the actual enrollment fee discount. People just want to know that, you know, if they can get out, they can. And a lot of our members, you know, 40% have a longer gym in their life. they're already thinking about how do I cancel this thing before I join, you know, and it's unfortunate, but that's kind of the – this industry has kind of been notoriously bad for cancellation policies, and we want to make it – break down all those barriers.
Chris
So the good news is we haven't seen any increased attrition with those sort of offers.
Randy
Perfect. That's really helpful. Best of luck going forward.
Chris
Thank you. Appreciate it. Thanks, Alex.
John
That ends our question and answer session. I'll turn the call back over to the presenters for closing remarks.
Chris Rondo
We could be more excited with the momentum the business has, something that I've never seen in my almost 30 years here.
Chris
And excited as well that not only our staff here, but our franchisees feel the same sentiment. And I think this is...
Chris Rondo
but we were all hoping that was going to happen and, quite frankly, higher than we expected it would be, even though we knew it was going to come back, that the psyche of the customer, they just want to get back and get back to health and fitness, and now more than ever. So all good news, and I look forward to the bulletins of the franchisees and getting back to development and growth and getting more people off the couch. So thank you all.
John
That concludes this conference call. Thank you all for participating. You may now disconnect.
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