Planet Fitness, Inc.

Hello and welcome to today's Planet Fitness Q2 2022 quarterly earnings call. My name is Jordan and I'll be coordinating your call today. If you'd like to register a question, you may do so by pressing star followed by one on your telephone keypad. I'm now going to hand over to Stacey Caravella, VP of Investor Relations to begin. Stacey, please go ahead.

Thank you, Operator, and good morning, 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, 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 with their corresponding GAAP measures. Now I'll turn the call over to Chris.

Thank you, Stacey, and thank you, everyone, for joining us for the Planet Fitness Q2 earnings call. We continue to be well-positioned for disruptive growth. We're adding new members and new stories even with the near-term challenges from lingering COVID impacts due to the broader economy and the current climate around recession and inflation. During the second quarter, we added 300,000 net new members, ending the quarter with 16.5 million, and we grew our store base to more than 2,300 locations with the addition of 34 new stores. We believe our high-quality, affordable fitness experience will resonate now more than ever as Americans are seeking value and feeling the rising cost of everyday items such as food and gas. We also believe that people will continue to prioritize their health and wellness while being more cost-conscious, even trading down to plan it from high-priced gyms if they're not using the basketball court, the pool, daycare, et cetera. During the most recent financial crisis from 2007 to 2009, we added 1.1 million members from the same source sales by double digits and nearly doubled our store count. Even though we were a much smaller brand at that time, this gives us confidence that should the economy worsen, we are well-positioned to continue to grow. COVID created a very challenging time in the health club industry. The majority of health and fitness locations globally experienced some type of temporary closure due to COVID, but 25% of U.S. gyms permanently closed as a result. Given the resiliency of our franchisees, along with our low-cost economic model, we did not permanently close a single store due to COVID. We surpassed our all-time member record in Q1 this year. During the second quarter, 34% of our mature stores were at or above pre-COVID membership levels. We continue to see consistent momentum toward full recovery the longer our stores have been open since the temporary COVID closures. System-wide, our stores are only 6% below pre-COVID membership levels, and we've added more than 330 new locations since the beginning of 2020. We anticipate more normalized joint trends and seasonality to continue for the balance of this year. We expect the percent of our mature stores that have recovered to previous membership levels to stabilize given that mature store membership growth is typically flat in the second half of the year. Our brand continues to resonate with younger generations at rates that surpass prior generations as awareness of health and wellness continuously increases. Gen Z's continue to be the fastest growing demographic group of our membership. Our share of that generation over the age of 15 is 9%, which is much greater than it was for millennials at that same age. In Q2, we launched high school summer path program It's a rebranded version of the Teen Summer Challenge program we ran in 2019 where high school-age teens can work out for free in all our stores all summer long. We believe high school summer pass is extremely timely and incredibly important given the alarming teen mental health crisis coming out of the pandemic. At the end of July, we had more than 3 million teens enroll in the program versus just 1 million in 2019. This is more than the total paid membership of any of our high-value, low-priced competitors. It also represents more than 15% penetration of all high school-age teens in the U.S. between our Summer Pass participants and paying teenage members. And not only have they enrolled, teens have logged more than 14 million workouts. We made the sign-up process even more seamless this year, allowing teens to register online and enabling us to capture contact info for both the teen and the parent. In fact, our app topped the most downloaded list of all apps in the Apple Store during those initial days following the launch, even above TikTok and Instagram. In June, we filled out a survey of some of the participants and their parents and learned that for two-thirds of the high schoolers, this summer represents the first time they've stepped into any fitness club. This is absolutely what our brand is about, getting people off the couch to start and to lead a healthier life. And we're getting this to happen even earlier in their lives. More than 80% of respondents' parents reported that seeing their teen exercise has inspired other family members to get more physically active. More than half of them said that they had worked out with their teens at some point this summer. Personally, I'm moved by some of the notes that we received from both parents and teens. One teen participant wrote, this experience has transformed not only my mental health, but my physical health. And this gym membership has really helped me stay on track with my fitness and health journey. I will absolutely be purchasing a membership once it ends. And from a parent, I've seen some extremely positive growth in my son. I know it comes from that quality time with friends, from being physically active, and the independence he gets from taking charge of his health. We believe this program is the right thing to do. We are helping teens establish healthy habits they can build upon in the future. We estimate that there has been slight negative impact on our paid membership during the quarter, as some teenagers likely participated in high schools in the past who otherwise would have paid for a membership. But we are focused on building lifelong brand loyalty with that generation. In New Hampshire, where we tested this program back in 2018, we now have 20% penetration versus 15% nationwide. This demonstrates that the more years of running this program, the greater brand awareness we're building with Gen Zs. And we're just getting started with our efforts to capture Gen Z members. Pre-pandemic, we had 8% penetration of millennials, and today that is 9%. Pre-pandemic, we had 5.5% of Gen Zs that were over the age of 15, and today that is also 9%. We are gaining an even greater share of each successive generation. It's also encouraging that after we ran 2019's Teen Summer Challenge, 25% of participants became members at one point. 11% of them are still members, along with 5% of their parents. In May, we increased the Black Card membership to $24.99 from $22.99 for all new joints. The system-wide rollout of the increase has so far outperformed the test results across key metrics such as acquisition rates, retention, average monthly dues per member, and margin. In fact, we haven't seen an initial dip in our Black Card percentage rate as we did with the past price increases. During Q2, the black card membership penetration was 63.5% from 62.2% in the second quarter last year. Working with our franchisees, we continue to make progress with our national and local marketing agency consolidation effort. Despite challenges along the way, we have been looking for a new marketing leader for the past few months. As our business has scaled over several years, we decided to use this opportunity to restructure our marketing organization to better align with how our system operates. We announced this morning that we named a chief brand officer, Jimmy Medeiros, who has been with Planet Fitness for 22 years, most recently serving as our VP of national marketing. He will lead marketing, drive our national and local marketing strategy, oversee our national agency of record, and work collaboratively across the organization to bring our brand to visions of life. Like me, Jamie started at the front desk and joined the brand working at our third location. She has extensive knowledge of our brand and, importantly, our member and has played a major role in defining our unique successful marketing positioning. She also has strong relationships with our franchisees. Additionally, after careful evaluation of our marketing agency structure, we believe the best path forward to meet the needs of our system is to transition back to our prior agency, Barclay, to manage our national ad fund. We have a long-standing relationship with Barclay team and are confident in their proven track record. And on the local side, our franchisees still have three agencies to choose from at this time to handle their local advertising. We believe few agencies provide greater consistency across our markets and increase data visibility while still giving franchisees choice. We are a brand whose growth is fueled by the strength of our collective marketing efforts. We believe that this marketing structure And the agency transition enable us to most effectively go after the 80% of Americans who do not currently belong to a gym. To summarize, the trends in our business are positive. Our usage is back above the 90% index 2019. We continue to see that people who are working out are doing so more frequently. The younger generations prioritizing fitness is driving down the average age of our member. And there are strong tailwinds behind the focus of overall health and wellness coming out of the pandemic. We are confident, based on past performance, that we can not only survive, but thrive in a high inflation or possibly recessionary environment. Looking to the future, I'm confident that we will continue to be a differentiator and disruptive force in the health and wellness industry. And we believe that fitness is essential and that our industry is a key part to today's healthcare delivery system. And finally, before I hand it over to Tom, I'd like to address our announcement this morning that Dorgan Lively, President, has decided to retire and will transition through the next couple months. Dorban joined Planet Fitness in 2013 as our CFO and was instrumental in developing our finance organization, preparing us to go public, and then leading our IPO in 2015, and more broadly, expanding our brand both domestically and globally. We are grateful for Dorban's leadership, friendship, passion for our members and franchisees, and significant contributions to the brand over the past nine years. We have begun a search for a new president, but we know these are big shoes to fill. Personally, I'd like to thank Dorban for helping me lead the company and I'm forever grateful for his guidance and support. I'll now turn the call over to Tom.