Planet Fitness, Inc.

Ladies and gentlemen, thank you for standing by. My name is Bhavesh and I will be your conference operator today. At this time, I would like to welcome everyone to the Q3 2023 Planet Fitness Earnings Conference Call. At this time, all lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you'd like to ask a teleconference question during this time, simply press the star followed by the number one on your telephone keypad. To withdraw your question, please press the star followed by the one once again. Thank you. I will now hand the call over to Stacey Caravella, VP of Investor Relations. You may begin your conference.

Thank you, Operator, and good morning, everyone. Speaking on today's call will be Interim Planet Fitness Chief Executive Officer Craig Benson and Chief Financial Officer Tom Fitzgerald. Both 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 Craig, I'd like to note that we posted slides on our investor relations website this morning that summarize the updates that we will be discussing during our call. I'd also 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 investor website 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 Craig.

Thank you, Stacey, and thanks, everyone, for joining us for the Planet Fitness Q3 earnings call. I'm honored to serve as interim CEO of such a truly unique brand with a strong track record of growth as we enter the next chapter of the Planet Fitness journey. As a board member and a Planet Fitness franchisee, I know firsthand the power of this brand. strength of our team and our commitment to a welcoming non-intimidating culture all of which uniquely position us to continue to lead the industry my priorities are to lead the team as we execute on the current strategy with a focus on enhancing store returns look forward to finding an outstanding ceo candidate to lead us in capturing the growth opportunities ahead of us let's move on to our results We ended the third quarter with more than 18.5 million numbers. System-wide same-store sales growth was 8.4%, primarily driven by new member growth, and more than 19% adjusted EBITDA growth. As a result of our performance and given our outlook for the fourth quarter, we're raising our full-year financial guidance targets for revenue and adjusted EBITDA for 2023. Tom will go through that later on. We feel really good about our membership trends. We added nearly 110,000 new members in Q3, outperforming net growth for the same period last year as well as 2019. We continue to see our strongest net member growth for Gen Zs, who now make up a quarter of our membership base. We believe we are unique among most multi-unit brands in that the average age of our member continues to decrease. This was further enhanced by another successful high school summer pass program. We had more than 3 million teens and 2 million parents and guardians sign up for this year's program. At the end of October, our conversion rate of teen participants to paying members is 5.5% versus 5% last year. More than 30% of our new joins in Q3 were previous members compared to about 20% pre-COVID. We also continue to see higher overall visits per member, as well as all age groups visiting more frequently year over year. We again experience year over year improvement in our cancel rate as it continues its decline for the ninth straight quarter. Lastly, we opened 26 new stores this quarter, bringing our global store count to nearly 2,500. We've added 145 new locations since Q3 of last year, which is nearly three times the growth of the top 17 of our competitors combined. It was against this backdrop of industry-leading performance that we met with all of our franchisees last month to review the updates we are making as part of what we call our new growth model. We all left the meeting even more excited for the long-term opportunities that we have as a brand. We are addressing the biggest opportunities to further improve the attractiveness of our returns for our franchisees as they manage their capital deployment and timing of their investments, while maintaining our strong focus on a great member experience. We believe it's a win for the franchisees and for us as the franchisor. First on pricing. We're proud that we haven't raised the $10 classic card price in 30 years. However, consumer expectations on price have changed in a highly inflationary world. We are exploring whether we have an opportunity to take price on our classic card without sacrificing member growth. To that end, we've been testing different price structures, messaging, and price points in several markets around the country for more than a couple of months now. As we are a recurring revenue model, we plan to continue running these tests to understand the impact that increasing price has on membership growth. Now to our membership levels. Our membership recovery coming out of the pandemic closures has resulted in all-time high system-wide membership levels. Additionally, the stores that were mature as of March 2020 are back to pre-COVID membership levels on average. And importantly, our 2023 cohort of new clubs is indexing very close to pre-pandemic new store ramp levels. However, the cohort of nearly 700 stores that opened from 2019 to 2022 have experienced much slower ramps to maturity, given that their early critical years of member growth were interrupted by COVID. This is nearly 30% of our system. These stores have not yet benefited from consecutive years of typical first quarters. As a reminder, 60% of our net member growth for the year historically occurs in Q1. We expect these stores to eventually grow to membership levels consistent with the rest of the system, but they will take longer and will likely weigh on the returns across a given franchisee's portfolio. The cost to build a new store continues to be approximately 30% higher than in 2019. The total CapEx cost today, which includes total cost to build, re-equipment, and remodel a plan of fitness, are up nearly 70% over the 10-year life of a franchise agreement versus a decade ago. And while the pressures are primarily from external factors, such as inflation, higher interest rates, we are addressing the things that are within our control and further enhance store returns and lessen the increased CapEx burden for existing stores. Our management team has been working on the new growth model for a good portion of the year, trying to balance improving new store returns without significantly impacting our P&L. Our plan is focused on reducing the capital requirements for opening and operating a Planet Fitness franchise. This includes making changes to the franchise agreement, adjusting the timing for cardio and strength re-equips based on use and committing to reduce CapEx for new build and remodel while also looking for ways to reduce operating expenses. We believe that the changes we're making will free up a significant amount of capital for our franchisees in the near term, providing them with additional flexibility and resources to build their store portfolios for the long term. Tom is going to walk us through the details momentarily. The new structure is standard for all agreements. moving forward and our franchisees can also take advantage of it for their existing stores. In closing, our management team has taken responsible and data-driven approaches to adjusting our franchisee return model, which we believe set us up for sustainable growth. We recognize that the operating landscape has changed and therefore we are evolving for the long-term sustainability of the model without compromising the member experience. We believe we are pulling the correct levers to drive the right long-term outcomes and to ultimately increase returns for all of our stakeholders, both internal and externals. Now I will turn it over to Tom.