Planet Fitness, Inc.

Hello and welcome to the Planet Fitness fourth quarter 2021 earnings call. My name is Alex and I'll be coordinating the call today. If you'd like to ask a question at the end of the presentation, you can press star 1 on your telephone keypad. If you'd like to withdraw your question, you may press star 2. I will now hand over to your host, Stacey Caravella, Head of Investor Relations for Planet Fitness. Over to you, Stacey.

Thank you, Operator, and good morning, everyone. Speaking on today's call will be Planet Fitness Chief Executive Officer Chris Rondeau and Chief Financial Officer Tom Fitzgerald. We also have Dorvan Lively, President of Planet Fitness here, 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 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 and their corresponding GAAP measures. Now we'll turn the call over to Chris.

Thank you, Stacey, and thank you, everyone, for joining us for the Planet Fitness Q4 earnings call. First, I'm going to cover our fourth quarter membership results as well as January trends. Then I'll discuss why I continue to be so bullish on our leadership position in the fitness industry as we emerge from the pandemic that has brought to the forefront the critical importance of health and wellness. I'm extremely proud of how our franchisees, headquarters staff, and club staff continue to be agile through this ever-changing environment, which has enabled us to grow our annual membership at nearly pre-pandemic pace in 2021. We added 1.7 million members, ending the year with 15.2 million. For the seventh consecutive year, we rang in 2022 as a presenting sponsor of Times Square's New Year's Eve celebration. It was great to see Times Square once again covered in purple and yellow and to be part of that iconic celebration, as this year marks Planet Fitness' 30th anniversary. However, the highly transmissible Omicron variant that began to surge in late December and throughout January led to a softness in our January joint trend. compared to pre-pandemic levels. A significant portion of Americans were directly or indirectly impacted by Omicron in January, which significantly disrupted their daily lives. According to the U.S. Census Bureau, it's estimated that approximately 14 million Americans did not work at some point during December 29th to January 10th because they had COVID or were caring for someone with COVID or they had to look after a child whose school or daycare was closed. That's a staggering number. We saw this disruption reflected in our membership behaviors. During January, usage slipped below the approximately 90% index to 2019, which was the same rate we observed during most of 2021. Higher member usage historically corresponds with higher joint activity. As quickly as the Omicron surge began, it started to wane as January progressed. Accordingly, member usage rebounded, and we hit our highest usage rate since the start of COVID at the end of January. While we believe that Omicron was primarily the biggest factor in causing the softness in January joints compared to pre-pandemic levels, we also believe that our agency consolidation had some minor impact as well. As we discussed at the end of 2021, we transitioned from 16 agencies handling our national and local marketing and advertising to one, Publicis Group. Not unexpectedly, with transformation of this size and scale, there have been some challenges. While we believe that consolidation was the right next step to evolve our marketing, drive efficiencies and gain greater visibility into system-wide spend and performance, we are expanding our local agency options to include publicists and a very small number of our top performing local agencies. This is similar to our equipment business as we offer our franchisees three vendors from which to choose. We believe this is the right approach as we work through the transition of publicists and that the long-term benefits from the consolidation of agencies outweigh some near-term disruptions. So while we had positive net member growth in January, it was not back to pre-pandemic levels. We added 400,000 plus net new members in January, which is over 100,000 more than we added January of last year. Although the consumer dynamic differed from last year, in 2021, people were awaiting vaccines. This year, people were home either quarantining or caring for sick family members. Despite this, we ended January 15.6 million members, surpassing our pre-pandemic first quarter 2020 membership peak in achieving an all-time membership high. We are not going to cover February membership growth, but we felt it was important to discuss January as most of the business seemed to have experienced some type of impact from the Macron variant. Now let me move on to our position as a leader in the fitness industry. There are three primary reasons that I am excited about the near-term and long-term future of Planet Fitness. First, we are investing and growing as the industry is contracting. Second, Gen Zs were the fastest growing demographic group in our 2021 membership. Who, along with millennials, prioritized an active lifestyle more so than their previous generations? Third, a silver lining of the pandemic is that it opened people's eyes to the importance of fitness in their overall health. On my first point, the fitness and health club industry trade group, IHRSA, recently reported that now 25% of all health and fitness facilities in the U.S. are permanently closed as a result of the pandemic at the end of 2021. I am proud that not a single Planet Fitness location closed permanently due to COVID. In fact, over the past two years, we have added more than 250 new locations, with 132 in 2021 alone. Not only are we growing, but we are also making strategic investments into the future. To that end, we acquired Sunshine Fitness, one of our largest and best performing franchisees, closing the transaction and our debt refinancing and upsizing on February 10th. In addition to our 112 corporate stores, we now have of the U.S. With this acquisition, we are doubling down on the emergency business boom, acquiring a top-tier operator in the system with very strong store-level full-wall margins, and diversifying our corporate store geographic footprint in markets with a long runway for future store development. We now own more than 200 corporate stores, or approximately 10% of the total system, which is our target ownership level. and it allows us to retain our asset-like business model, an important part of our shareholder value proposition. Another potential long-term positive for our business is encouraging trends in our membership base when looking at it by age cohort. Millennials continue to be the largest demographic segment of our total membership base. In fact, more than 8% of all millennials in the U.S. are planned business members. Even more encouraging is the recent growth we have seen in Gen Z members. In 2021, this generation demonstrated growth of nearly three times that of a millennial category, bringing our share of the Gen Zs over the age of 15 in the U.S. to nearly 8%, which is notable as only half that of that generation are old enough to join our gyms. And not only are we capturing more of the younger generations, but we're also bringing back an increasing number of former members as they recommit to a healthier lifestyle. Our rejoin rate in 2021 was approximately 30%, compared to 20% in the pre-pandemic. In fact, IHRSA recently reported that among those who cancel their memberships in big box gyms, half say they are planning to return in the next six to 12 months. Affordability and a welcoming, less intimidating atmosphere are key criteria for what they are seeking in a gym, exactly what we offer and what differentiates us from the rest of the industry. Finally, the pandemic accelerated a trend of increased interest in health and wellness that was already underway. Our consumer messaging in 2022 will focus on the feel-good feeling you get after a good workout and the mental health benefits that exercise provides that extends beyond just the physical benefits. The CDC reports that even one workout can reduce depression, anxiety, and improve your sleep. This messaging was in our first ever Super Bowl advertisement in our 30-year history, which highlighted that fitness is about more than just vanity in your waistline. It featured Lindsay Lillian along with other stars like William Shatner. Despite the near-term negative impact of Omicron, we believe there's tremendous untapped opportunity for our brand long-term to get people off the couch, with approximately 140 million non-gym members living within 10 miles of an existing plan of business. It's too early to tell if the unseasonable joint pattern that we experienced in 2021 will continue this year. We have learned to be nimble and agile as we operate in a volatile environment. It appears that we are slowly entering a new phase of the pandemic. All our stores are back open, COVID restrictions are lifting, mask mandates are ending, and most important to our business, our member usage is rebounding and membership levels have reached an all-time high. We revolutionized the gym industry nearly 30 years ago with three key points of differentiation. Our welcoming, friendly, judgment-free environment catering to first-time gym goers, our variety of high-quality brand name cardio strength, and our affordable membership options. We remain committed to delivering these to our members. This commitment fueled with our phenomenal growth over the past three decades, and it enabled us to grow even during a devastating pandemic. 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.