Planet Fitness, Inc. Announces Third Quarter 2019 Results
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Planet Fitness, Inc. Announces Third Quarter 2019 Results

  • System-Wide Same Store Sales Increased 7.9%
  • 41 New Planet Fitness Stores Opened
  • Raises Full Year Outlook

HAMPTON, N.H., Nov. 7, 2019 // PRNewswire // - Today, Planet Fitness, Inc. (NYSE: PLNT) reported financial results for its third quarter ended September 30, 2019.

Third Quarter Fiscal 2019 Highlights

  • Total revenue increased from the prior year period by 22.1% to $166.8 million.
  • System-wide same store sales increased 7.9%.
  • Net income attributable to Planet Fitness, Inc. was $25.8 million, or $0.31 per diluted share, compared to net income attributable to Planet Fitness, Inc. of $17.5 million, or $0.20 per diluted share in the prior year period.
  • Net income increased 45.0% to $29.7 million, compared to net income of $20.5 million in the prior year period.
  • Adjusted net income(1) increased 19.5% to $33.1 million, or $0.36 per diluted share, compared to $27.7 million, or $0.28 per diluted share in the prior year period.
  • Adjusted EBITDA(1) increased 22.2% to $65.7 million from $53.8 million in the prior year period.
  • 41 new Planet Fitness stores were opened during the period, bringing system-wide total stores to 1,899 as of September 30, 2019.

(1) Adjusted net income and Adjusted EBITDA are non-GAAP measures. For reconciliations of Adjusted EBITDA and Adjusted net income to U.S. GAAP ("GAAP") net income see "Non-GAAP Financial Measures" accompanying this press release.

"We delivered another quarter of very solid results," stated Chris Rondeau, Chief Executive Officer. "High-single digit system-wide same store sales, combined with accelerated new store openings and our franchisees' continued commitment to re-equip their existing clubs with new equipment, fueled a 22% increase in total revenue. The third quarter was also highlighted by our highest-attended franchisee conference to date with over 1,500 attendees from across the system coming together to share ideas on how to strengthen the Planet Fitness brand, enhance the member experience and drive new member sign ups. Based on several factors including our experienced franchisees and their ability to execute, the significant amount of projected store expansion still ahead, and our increasing marketing spend, I am confident that the business is well positioned to drive continued growth and increased profitability."

Operating Results for the Third Quarter Ended September 30, 2019

For the third quarter 2019, total revenue increased $30.2 million or 22.1% to $166.8 million from $136.7 million in the prior year period which included system-wide same store sales growth of 7.9%. By segment:

  • Franchise segment revenue increased $11.9 million or 21.7% to $66.7 million from $54.8 million in the prior year period, driven primarily by higher royalty revenue as a result of new stores opened since July 1, 2018, an 8.1% increase in same store sales, and a higher average royalty rate;
  • Corporate-owned stores segment revenue increased $5.3 million or 15.1% to $40.7 million from $35.4 million in the prior year period, $2.7 million of which is from corporate-owned stores opened or acquired since July 1, 2018, and another $1.4 million of which is from corporate-owned same store sales growth of 4.9%, and higher annual fee revenue of $1.1 million; and
  • Equipment segment revenue increased $12.9 million or 27.9% to $59.4 million from $46.4 million in the prior year period, driven by an increase in replacement equipment sales to existing franchisee-owned stores.

For the third quarter of 2019, net income attributable to Planet Fitness, Inc. was $25.8 million, or $0.31 per diluted share, compared to net income attributable to Planet Fitness, Inc. of $17.5 million, or $0.20 per diluted share in the prior year period. Net income was $29.7 million in the third quarter of 2019 compared to $20.5 million in the prior year period. Adjusted net income increased 19.5% to $33.1 million, or $0.36 per diluted share, from $27.7 million, or $0.28 per diluted share in the prior year period. Adjusted net income has been adjusted to reflect a normalized federal income tax rate of 26.6% for the current year period and 26.3% for the comparable prior year period and excludes certain non-cash and other items that we do not consider in the evaluation of ongoing operational performance (see "Non-GAAP Financial Measures").

Adjusted EBITDA, which is defined as net income before interest, taxes, depreciation and amortization, adjusted for the impact of certain non-cash and other items that we do not consider in the evaluation of ongoing operational performance (see "Non-GAAP Financial Measures"), increased 22.2% to $65.7 million from $53.8 million in the prior year period.

Segment EBITDA represents our Total Segment EBITDA broken down by the Company's reportable segments. Total Segment EBITDA is equal to EBITDA, which is defined as net income before interest, taxes, depreciation and amortization (see "Non-GAAP Financial Measures").

  • Franchise segment EBITDA increased $7.3 million or 19.6% to $44.3 million driven by royalties from franchised stores opened since July 1, 2018, a higher average royalty rate and higher same store sales of 8.1%;
  • Corporate-owned stores segment EBITDA increased $1.5 million or 9.9% to $16.8 million driven primarily by an increase in corporate-owned same store sales of 4.9%, higher annual fee revenue and from additional clubs opened or acquired since July 1, 2018; and
  • Equipment segment EBITDA increased by $4.1 million or 42.3% to $13.7 million driven by an increase in replacement equipment sales to existing franchisee-owned stores.

2019 Outlook

For the year ending December 31, 2019, the Company now expects:

  • Total revenue to increase approximately 19% as compared to the year ended December 31, 2018, up from prior guidance of approximately 18%;
  • Total new store equipment sales in the high end of the range of 250 to 260;
  • System-wide same store sales of approximately 8.6%, up from prior guidance of approximately 8%;
  • Adjusted net income to increase approximately 21% as compared to the year ended December 31, 2018, up from prior guidance of approximately 20%; and
  • Adjusted net income per diluted share to increase approximately 28% to $1.56 as compared to the year ended December 31, 2018, up from prior guidance of approximately 26%.

Presentation of Financial Measures

Planet Fitness, Inc. (the "Company") was formed in March 2015 for the purpose of facilitating the initial public offering (the "IPO") and related recapitalization transactions that occurred in August 2015, and in order to carry on the business of Pla-Fit Holdings, LLC ("Pla-Fit Holdings") and its subsidiaries. As the sole managing member of Pla-Fit Holdings, the Company operates and controls all of the business and affairs of Pla-Fit Holdings, and through Pla-Fit Holdings, conducts its business. As a result, the Company consolidates Pla-Fit Holdings' financial results and reports a non-controlling interest related to the portion of Pla-Fit Holdings not owned by the Company.

The financial information presented in this press release includes non-GAAP financial measures such as EBITDA, Segment EBITDA, Adjusted EBITDA, Adjusted net income and Adjusted net income per share, diluted, to provide measures that we believe are useful to investors in evaluating the Company's performance. These non-GAAP financial measures are supplemental measures of the Company's performance that are neither required by, nor presented in accordance with GAAP. These financial measures should not be considered in isolation or as substitutes for GAAP financial measures such as net income or any other performance measures derived in accordance with GAAP. In addition, in the future, the Company may incur expenses or charges such as those added back to calculate Adjusted EBITDA, Adjusted net income and Adjusted net income per share, diluted. The Company's presentation of Adjusted EBITDA, Adjusted net income and Adjusted net income per share, diluted, should not be construed as an inference that the Company's future results will be unaffected by similar amounts or other unusual or nonrecurring items. See the tables at the end of this press release for a reconciliation of EBITDA, Adjusted EBITDA, Total Segment EBITDA, Adjusted net income, and Adjusted net income per share, diluted, to their most directly comparable GAAP financial measure.

Same store sales refers to year-over-year sales comparisons for the same store sales base of both corporate-owned and franchisee-owned stores. We define the same store sales base to include those stores that have been open and for which monthly membership dues have been billed for longer than 12 months. We measure same store sales based solely upon monthly dues billed to members of our corporate-owned and franchisee-owned stores.

The non-GAAP financial measures used in our full-year outlook will differ from net income and net income per share, diluted, determined in accordance with GAAP in ways similar to those described in the reconciliations at the end of this press release. We do not provide guidance for net income or net income per share, diluted, determined in accordance with GAAP or a reconciliation of guidance for Adjusted net income and Adjusted net income per share, diluted, to the most directly comparable GAAP measure because we are not able to predict with reasonable certainty the amount or nature of all items that will be included in our net income and net income per share, diluted, for the year ending December 31, 2019. These items are uncertain, depend on many factors and could have a material impact on our net income and net income per share, diluted, for the year ending December 31, 2019.

Investor Conference Call

The Company will hold a conference call at 4:30 pm (ET) on November 7, 2019 to discuss the news announced in this press release. A live webcast of the conference call will be accessible at www.planetfitness.com via the "Investor Relations" link. The webcast will be archived on the website for one year.

About Planet Fitness

Founded in 1992 in Dover, NH, Planet Fitness is one of the largest and fastest-growing franchisors and operators of fitness centers in the United States by number of members and locations. As of September 30, 2019, Planet Fitness had more than 14.1 million members and 1,899 stores in 50 states, the District of Columbia, Puerto Rico, Canada, the Dominican Republic, Panama and Mexico. The Company's mission is to enhance people's lives by providing a high-quality fitness experience in a welcoming, non-intimidating environment, which we call the Judgement Free Zone®. More than 95% of Planet Fitness stores are owned and operated by independent business men and women.

Forward-Looking Statements

This press release contains "forward-looking statements" within the meaning of the federal securities laws, which involve risks and uncertainties. Forward-looking statements include the Company's statements with respect to expected future performance presented under the heading "2019 Outlook," those attributed to the Company's Chief Executive Officer in this press release and other statements, estimates and projections that do not relate solely to historical facts. Forward-looking statements can be identified by words such as "believe," "expect," "goal," "plan," "will," "prospects," "future," "ahead," "projected," "strategy" and similar references to future periods, although not all forward-looking statements include these identifying words. Forward-looking statements are not assurances of future performance. Instead, they are based only on the Company's current beliefs, expectations and assumptions regarding the future of the business, future plans and strategies, projections, anticipated events and trends, the economy and other future conditions. Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict and many of which are outside of the Company's control. Actual results and financial condition may differ materially from those indicated in the forward-looking statements. Important factors that could cause our actual results to differ materially include risks and uncertainties associated with competition in the fitness industry, the Company's and franchisees' ability to attract and retain new members, the Company's and franchisees' ability to identify and secure suitable sites for new franchise stores, changes in consumer demand, changes in equipment costs, the Company's ability to expand into new markets domestically and internationally, operating costs for the Company and franchisees generally, availability and cost of capital for franchisees, acquisition activity, developments and changes in laws and regulations, our substantial increased indebtedness as a result of our refinancing and securitization transactions and our ability to incur additional indebtedness or refinance that indebtedness in the future, our future financial performance and our ability to pay principal and interest on our indebtedness, our corporate structure and tax receivable agreements, failures, interruptions or security breaches of the Company's information systems or technology, general economic conditions and the other factors described in the Company's annual report on Form 10-K for the year ended December 31, 2018, and the Company's other filings with the Securities and Exchange Commission. In light of the significant risks and uncertainties inherent in forward-looking statements, investors should not place undue reliance on forward-looking statements, which reflect the Company's views only as of the date of this press release. Except as required by law, neither the Company nor any of its affiliates or representatives undertake any obligation to provide additional information or to correct or update any information set forth in this release, whether as a result of new information, future developments or otherwise.

Planet Fitness, Inc. and subsidiaries

Condensed Consolidated Statements of Operations

(Unaudited)

(Amounts in thousands, except per share amounts)

 
   

For the three months ended
September 30,

 

For the nine months ended
September 30,

   

2019

 

2018

 

2019

 

2018

Revenue:

               

Franchise

 

$

53,443

   

$

41,997

   

$

164,624

   

$

129,575

 

Commission income

 

614

   

1,448

   

2,673

   

5,012

 

National advertising fund revenue

 

12,652

   

11,377

   

36,986

   

32,997

 

Corporate-owned stores

 

40,742

   

35,406

   

118,481

   

102,365

 

Equipment

 

59,364

   

46,428

   

174,528

   

128,589

 

Total revenue

 

166,815

   

136,656

   

497,292

   

398,538

 

Operating costs and expenses:

               

Cost of revenue

 

46,194

   

36,871

   

135,071

   

100,114

 

Store operations

 

22,295

   

18,751

   

63,363

   

55,154

 

Selling, general and administrative

 

20,928

   

17,233

   

57,944

   

52,066

 

National advertising fund expense

 

12,652

   

11,377

   

36,986

   

32,997

 

Depreciation and amortization

 

11,832

   

8,863

   

32,316

   

25,947

 

Other (gain) loss

 

(147)

   

(12)

   

99

   

958

 

Total operating costs and expenses

 

113,754

   

93,083

   

325,779

   

267,236

 

Income from operations

 

53,061

   

43,573

   

171,513

   

131,302

 

Other expense, net:

               

Interest income

 

1,808

   

2,025

   

5,585

   

2,480

 

Interest expense

 

(14,807)

   

(17,909)

   

(44,192)

   

(35,725)

 

Other expense

 

(61)

   

(27)

   

(4,824)

   

(338)

 

Total other expense, net

 

(13,060)

   

(15,911)

   

(43,431)

   

(33,583)

 

Income before income taxes

 

40,001

   

27,662

   

128,082

   

97,719

 

Provision for income taxes

 

10,309

   

7,190

   

26,924

   

23,335

 

Net income

 

29,692

   

20,472

   

101,158

   

74,384

 

Less net income attributable to non-controlling interests

 

3,915

   

3,001

   

13,128

   

11,158

 

Net income attributable to Planet Fitness, Inc.

 

$

25,777

   

$

17,471

   

$

88,030

   

$

63,226

 

Net income per share of Class A common stock:

               

Basic

 

$

0.31

   

$

0.20

   

$

1.05

   

$

0.72

 

Diluted

 

$

0.31

   

$

0.20

   

$

1.04

   

$

0.72

 

Weighted-average shares of Class A common stock outstanding:

               

Basic

 

83,157

   

88,047

   

83,700

   

87,727

 

Diluted

 

83,807

   

88,458

   

84,354

   

88,064

 

Planet Fitness, Inc. and subsidiaries

Condensed Consolidated Balance Sheets

(Unaudited)

(Amounts in thousands, except per share amounts)

 
   

September 30, 2019

 

December 31, 2018

Assets

       

Current assets:

       

Cash and cash equivalents

 

$

219,752

   

$

289,431

 

Restricted cash

 

30,499

   

30,708

 

Accounts receivable, net of allowance for bad debts of $37 and $84 at September 30, 2019 and
   December 31, 2018, respectively

 

29,398

   

38,960

 

Inventory

 

2,612

   

5,122

 

Restricted assets – national advertising fund

 

657

   

 

Prepaid expenses

 

8,649

   

4,947

 

Other receivables

 

9,232

   

12,548

 

Other current assets

 

5,471

   

6,824

 

Total current assets

 

306,270

   

388,540

 

Property and equipment, net of accumulated depreciation of $70,083 as of September 30, 2019
   and $53,086 as of December 31, 2018

 

131,454

   

114,367

 

Right of use assets, net

 

127,746

   

 

Intangible assets, net

 

227,575

   

234,330

 

Goodwill

 

206,752

   

199,513

 

Deferred income taxes

 

418,745

   

414,841

 

Other assets, net

 

1,690

   

1,825

 

Total assets

 

$

1,420,232

   

$

1,353,416

 

Liabilities and stockholders' deficit

       

Current liabilities:

       

Current maturities of long-term debt

 

$

12,000

   

$

12,000

 

Accounts payable

 

23,037

   

30,428

 

Accrued expenses

 

25,737

   

32,384

 

Equipment deposits

 

8,566

   

7,908

 

Restricted liabilities – national advertising fund

 

657

   

 

Deferred revenue, current

 

24,638

   

23,488

 

Payable pursuant to tax benefit arrangements, current

 

25,506

   

24,765

 

Other current liabilities

 

15,780

   

430

 

Total current liabilities

 

135,921

   

131,403

 

Long-term debt, net of current maturities

 

1,155,049

   

1,160,127

 

Deferred rent, net of current portion

 

   

10,083

 

Lease liabilities, net of current portion

 

127,646

   

 

Deferred revenue, net of current portion

 

31,532

   

26,374

 

Deferred tax liabilities

 

2,067

   

2,303

 

Payable pursuant to tax benefit arrangements, net of current portion

 

407,884

   

404,468

 

Other liabilities

 

2,250

   

1,447

 

Total noncurrent liabilities

 

1,726,428

   

1,604,802

 

Stockholders' equity (deficit):

       

Class A common stock, $.0001 par value - 300,000 authorized, 81,773 and 83,584 shares
issued and outstanding as of September 30, 2019 and December 31, 2018, respectively

 

8

   

9

 

Class B common stock, $.0001 par value - 100,000 authorized, 8,562 and 9,448 shares issued
and outstanding as of September 30, 2019 and December 31, 2018, respectively

 

1

   

1

 

Accumulated other comprehensive income

 

189

   

94

 

Additional paid in capital

 

27,240

   

19,732

 

Accumulated deficit

 

(466,032)

   

(394,410)

 

Total stockholders' deficit attributable to Planet Fitness, Inc.

 

(438,594)

   

(374,574)

 

Non-controlling interests

 

(3,523)

   

(8,215)

 

Total stockholders' deficit

 

(442,117)

   

(382,789)

 

Total liabilities and stockholders' deficit

 

$

1,420,232

   

$

1,353,416

 

Planet Fitness, Inc. and subsidiaries

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(Amounts in thousands, except per share amounts)

 
   

For the nine months ended September 30,

   

2019

 

2018

Cash flows from operating activities:

       

Net income

 

$

101,158

   

$

74,384

 

Adjustments to reconcile net income to net cash provided by operating activities:

       

Depreciation and amortization

 

32,316

   

25,947

 

Amortization of deferred financing costs

 

4,014

   

2,041

 

Amortization of favorable leases

 

   

280

 

Amortization of asset retirement obligations

 

178

   

 

Amortization of interest rate caps

 

   

1,170

 

Deferred tax expense

 

15,666

   

19,654

 

Loss on extinguishment of debt

 

   

4,570

 

Loss (gain) on re-measurement of tax benefit arrangement

 

4,638

   

(354)

 

Provision for bad debts

 

13

   

8

 

Loss on reacquired franchise rights

 

   

360

 

(Gain) loss on disposal of property and equipment

 

(84)

   

542

 

Equity-based compensation

 

3,565

   

4,137

 

Changes in operating assets and liabilities, excluding effects of acquisitions:

       

Accounts receivable

 

12,779

   

10,922

 

Due to and due from related parties

 

(344)

   

3,174

 

Inventory

 

2,509

   

(3,450)

 

Other assets and other current assets

 

(4,628)

   

4,972

 

Accounts payable and accrued expenses

 

(12,939)

   

2,426

 

Other liabilities and other current liabilities

 

1,510

   

(2,869)

 

Income taxes

 

3,047

   

1,028

 

Payable pursuant to tax benefit arrangements

 

(17,476)

   

(21,706)

 

Equipment deposits

 

658

   

4,950

 

Deferred revenue

 

6,103

   

7,544

 

Leases and deferred rent

 

54

   

4,156

 

Net cash provided by operating activities

 

152,737

   

143,886

 

Cash flows from investing activities:

       

Additions to property and equipment

 

(37,138)

   

(18,601)

 

Acquisition of franchises

 

(14,801)

   

(45,752)

 

Proceeds from sale of property and equipment

 

84

   

196

 

Purchase of intellectual property

 

(300)

   

 

Net cash used in investing activities

 

(52,155)

   

(64,157)

 

Cash flows from financing activities:

       

Principal payments on capital lease obligations

 

(59)

   

(35)

 

Proceeds from issuance of long-term debt

 

   

1,200,000

 

Repayment of long-term debt

 

(9,000)

   

(709,469)

 

Payment of deferred financing and other debt-related costs

 

   

(27,191)

 

Exercise of stock options and ESPP proceeds

 

1,892

   

1,106

 

Repurchase and retirement of Class A common stock

 

(157,945)

   

(42,090)

 

Dividend equivalent payments

 

(229)

   

(881)

 

Distributions to Continuing LLC Members

 

(5,499)

   

(5,369)

 

Net cash (used in) provided by financing activities

 

(170,840)

   

416,071

 

Effects of exchange rate changes on cash and cash equivalents

 

370

   

(234)

 

Net (decrease) increase in cash, cash equivalents and restricted cash

 

(69,888)

   

495,566

 

Cash, cash equivalents and restricted cash, beginning of period

 

320,139

   

113,080

 

Cash, cash equivalents and restricted cash, end of period

 

$

250,251

   

$

608,646

 

Supplemental cash flow information:

       

Net cash paid for income taxes

 

$

9,061

   

$

3,777

 

Cash paid for interest

 

$

40,335

   

$

20,015

 

Non-cash investing activities:

       

Non-cash additions to property and equipment

 

$

4,837

   

$

2,217

 

Planet Fitness, Inc. and subsidiaries
Non-GAAP Financial Measures
(Unaudited)

(Amounts in thousands, except per share amounts)

To supplement its consolidated financial statements, which are prepared and presented in accordance with GAAP, the Company uses the following non-GAAP financial measures: EBITDA, Total Segment EBITDA, Adjusted EBITDA, Adjusted net income and Adjusted net income per share, diluted (collectively, the "non-GAAP financial measures"). The Company believes that these non-GAAP financial measures, when used in conjunction with GAAP financial measures, are useful to investors in evaluating our operating performance. These non-GAAP financial measures presented in this release are supplemental measures of the Company's performance that are neither required by, nor presented in accordance with GAAP. These financial measures should not be considered in isolation or as substitutes for GAAP financial measures such as net income or any other performance measures derived in accordance with GAAP. In addition, in the future, the Company may incur expenses or charges such as those added back to calculate Adjusted EBITDA, Adjusted net income and Adjusted net income per share, diluted. The Company's presentation of Adjusted EBITDA, Adjusted net income, and Adjusted net income per share, diluted, should not be construed as an inference that the Company's future results will be unaffected by unusual or nonrecurring items.

EBITDA, Segment EBITDA and Adjusted EBITDA

We refer to EBITDA and Adjusted EBITDA as we use these measures to evaluate our operating performance and we believe these measures provide useful information to investors in evaluating our performance. We have also disclosed Segment EBITDA as an important financial metric utilized by the Company to evaluate performance and allocate resources to segments in accordance with ASC 280, Segment Reporting. We define EBITDA as net income before interest, taxes, depreciation and amortization. Segment EBITDA sums to Total Segment EBITDA which is equal to the Non-GAAP financial metric EBITDA. We believe that EBITDA, which eliminates the impact of certain expenses that we do not believe reflect our underlying business performance, provides useful information to investors to assess the performance of our segments as well as the business as a whole. Our board of directors also uses EBITDA as a key metric to assess the performance of management. We define Adjusted EBITDA as net income before interest, taxes, depreciation and amortization, adjusted for the impact of certain additional non-cash and other items that we do not consider in our evaluation of ongoing performance of the Company's core operations. These items include certain purchase accounting adjustments, stock offering-related costs, and certain other charges and gains. We believe that Adjusted EBITDA is an appropriate measure of operating performance in addition to EBITDA because it eliminates the impact of other items that we believe reduce the comparability of our underlying core business performance from period to period and is therefore useful to our investors in comparing the core performance of our business from period to period.

A reconciliation of Adjusted EBITDA to net income, the most directly comparable GAAP measure, is set forth below.

   

Three months ended September 30,

 

Nine months ended September 30,

   

2019

 

2018

 

2019

 

2018

(in thousands)

               

Net income

 

$

29,692

   

$

20,472

   

$

101,158

   

$

74,384

 

Interest income

 

(1,808)

   

(2,025)

   

(5,585)

   

(2,480)

 

Interest expense

 

14,807

   

17,909

   

44,192

   

35,725

 

Provision for income taxes

 

10,309

   

7,190

   

26,924

   

23,335

 

Depreciation and amortization

 

11,832

   

8,863

   

32,316

   

25,947

 

EBITDA

 

$

64,832

   

$

52,409

   

$

199,005

   

$

156,911

 

Purchase accounting adjustments-revenue(1)

 

275

   

527

   

524

   

941

 

Purchase accounting adjustments-rent(2)

 

108

   

198

   

348

   

548

 

Loss on reacquired franchise rights(3)

 

   

10

   

   

360

 

Transaction fees(4)

 

   

254

   

   

290

 

Severance costs(5)

 

   

   

   

352

 

Pre-opening costs(6)

 

826

   

370

   

1,021

   

853

 

Tax benefit arrangement remeasurement(7)

 

(214)

   

   

4,638

   

(354)

 

Other(8)

 

(104)

   

19

   

55

   

1,039

 

Adjusted EBITDA

 

$

65,723

   

$

53,787

   

$

205,591

   

$

160,940

 
   

(1)

Represents the impact of revenue-related purchase accounting adjustments associated with the acquisition of Pla-Fit Holdings on November 8, 2012 by TSG (the "2012 Acquisition"). At the time of the 2012 Acquisition, the Company maintained a deferred revenue account, which consisted of deferred ADA fees, deferred franchise fees, and deferred enrollment fees that the Company billed and collected upfront but recognizes for U.S. GAAP purposes at a later date. In connection with the 2012 Acquisition, it was determined that the carrying amount of deferred revenue was greater than the fair value assessed in accordance with ASC 805—Business Combinations, which resulted in a write-down of the carrying value of the deferred revenue balance upon application of acquisition push-down accounting under ASC 805. These amounts represent the additional revenue that would have been recognized in these periods if the write-down to deferred revenue had not occurred in connection with the application of acquisition pushdown accounting.

(2)

Represents the impact of rent-related purchase accounting adjustments. In accordance with guidance in ASC 805 – Business Combinations, in connection with the 2012 Acquisition, the Company's deferred rent liability was required to be written off as of the acquisition date and rent was recorded on a straight-line basis from the acquisition date through the end of the lease term. This resulted in higher overall recorded rent expense each period than would have otherwise been recorded had the deferred rent liability not been written off as a result of the acquisition push down accounting applied in accordance with ASC 805. Adjustments of $44, $105, $173 and $272 in the three and nine months ended September 30, 2019 and 2018, respectively, reflect the difference between the higher rent expense recorded in accordance with U.S. GAAP since the acquisition and the rent expense that would have been recorded had the 2012 Acquisition not occurred. Adjustments of $64, $93, $216 and $276 in the three and nine months ended September 30, 2019 and 2018, respectively, are due to the amortization of favorable and unfavorable leases. All of the rent related purchase accounting adjustments are adjustments to rent expense which is included in store operations on our consolidated statements of operations.

(3)

Represents the impact of a non-cash loss recorded in accordance with ASC 805 - Business Combinations related to our acquisition of six franchisee-owned stores on January 1, 2018. The loss recorded under GAAP represents the difference between the fair value of the reacquired franchise rights and the contractual terms of the reacquired franchise rights and is included in other (gain) loss on our consolidated statements of operations.

(4)

Represents transaction fees and expenses that could not be capitalized related to the issuance of our Series 2018-1 Senior Notes in the three and nine months ended September 30, 2018.

(5)

Represents severance expense recorded in connection with an equity award modification.

(6)

Represents costs associated with new corporate-owned stores incurred prior to the store opening, including payroll-related costs, rent and occupancy expenses, marketing and other store operating supply expenses.

(7)

Represents gains and losses related to the adjustment of our tax benefit arrangements primarily due to changes in our effective tax rate.

(8)

Represents certain other charges and gains that we do not believe reflect our underlying business performance. In the nine months ended September 30, 2018, this amount includes expense of $590 related to the write off of certain assets that were being tested for potential use across the system.

A reconciliation of Segment EBITDA to Total Segment EBITDA is set forth below.

   

Three months ended September
30,

 

Nine months ended September
30,

(in thousands)

 

2019

 

2018

 

2019

 

2018

Segment EBITDA

               

Franchise

 

$

44,328

   

$

37,075

   

$

141,548

   

$

113,793

 

Corporate-owned stores

 

16,799

   

15,279

   

50,505

   

42,115

 

Equipment

 

13,741

   

9,654

   

40,920

   

28,579

 

Corporate and other

 

(10,036)

   

(9,599)

   

(33,968)

   

(27,576)

 

Total Segment EBITDA(1)

 

$

64,832

   

$

52,409

   

$

199,005

   

$

156,911

 
   

(1)

Total Segment EBITDA is equal to EBITDA.

Adjusted Net Income and Adjusted Net Income per Diluted Share

Our presentation of adjusted net income assumes that all net income is attributable to Planet Fitness, Inc., which assumes the full exchange of all outstanding Holdings Units for shares of Class A common stock of Planet Fitness, Inc., adjusted for certain non-recurring items that we do not believe directly reflect our core operations. Adjusted net income per share, diluted, is calculated by dividing Adjusted net income by the total shares of Class A common stock outstanding plus any dilutive options and restricted stock units as calculated in accordance with GAAP and assuming the full exchange of all outstanding Holdings Units and corresponding Class B common stock as of the beginning of each period presented. Adjusted net income and Adjusted net income per share, diluted, are supplemental measures of operating performance that do not represent, and should not be considered, alternatives to net income and earnings per share, as calculated in accordance with GAAP. We believe Adjusted net income and Adjusted net income per share, diluted, supplement GAAP measures and enable us to more effectively evaluate our performance period-over-period. A reconciliation of Adjusted net income to net income, the most directly comparable GAAP measure, and the computation of Adjusted net income per share, diluted, are set forth below.

   

Three months ended September 30,

 

Nine months ended September 30,

(in thousands, except per share amounts)

 

2019

 

2018

 

2019

 

2018

Net income

 

$

29,692

   

$

20,472

   

$

101,158

   

$

74,384

 

Provision for income taxes, as reported

 

10,309

   

7,190

   

26,924

   

23,335

 

Purchase accounting adjustments-revenue(1)

 

275

   

527

   

524

   

941

 

Purchase accounting adjustments-rent(2)

 

108

   

198

   

348

   

548

 

Loss on reacquired franchise rights(3)

 

   

10

   

   

360

 

Transaction fees(4)

 

   

254

   

   

290

 

Loss on extinguishment of debt(5)

 

   

4,570

   

   

4,570

 

Severance costs(6)

 

   

   

   

352

 

Pre-opening costs(7)

 

826

   

370

   

1,021

   

853

 

Tax benefit arrangement remeasurement(8)

 

(214)

   

   

4,638

   

(354)

 

Other(9)

 

(104)

   

19

   

55

   

1,039

 

Purchase accounting amortization(10)

 

4,146

   

3,934

   

12,429

   

11,776

 

Adjusted income before income taxes

 

$

45,038

   

$

37,544

   

$

147,097

   

$

118,094

 

Adjusted income taxes(11)

 

11,980

   

9,874

   

39,128

   

31,059

 

Adjusted net income

 

$

33,058

   

$

27,670

   

$

107,969

   

$

87,035

 
                 

Adjusted net income per share, diluted

 

$

0.36

   

$

0.28

   

$

1.16

   

$

0.88

 
                 

Adjusted weighted-average shares outstanding(12)

 

92,386

   

98,462

   

93,153

   

98,615

 
   

(1)

Represents the impact of revenue-related purchase accounting adjustments associated with the 2012 Acquisition. At the time of the 2012 Acquisition, the Company maintained a deferred revenue account, which consisted of deferred ADA fees, deferred franchise fees, and deferred enrollment fees that the Company billed and collected upfront but recognizes for U.S. GAAP purposes at a later date. In connection with the 2012 Acquisition, it was determined that the carrying amount of deferred revenue was greater than the fair value assessed in accordance with ASC 805—Business Combinations, which resulted in a write-down of the carrying value of the deferred revenue balance upon application of acquisition push-down accounting under ASC 805. These amounts represent the additional revenue that would have been recognized in these periods if the write-down to deferred revenue had not occurred in connection with the application of acquisition pushdown accounting.

(2)

Represents the impact of rent-related purchase accounting adjustments. In accordance with guidance in ASC 805 – Business Combinations, in connection with the 2012 Acquisition, the Company's deferred rent liability was required to be written off as of the acquisition date and rent was recorded on a straight-line basis from the acquisition date through the end of the lease term. This resulted in higher overall recorded rent expense each period than would have otherwise been recorded had the deferred rent liability not been written off as a result of the acquisition push down accounting applied in accordance with ASC 805. Adjustments of $44, $105, $173 and $272 in the three and nine months ended September 30, 2019 and 2018, respectively, reflect the difference between the higher rent expense recorded in accordance with U.S. GAAP since the acquisition and the rent expense that would have been recorded had the 2012 Acquisition not occurred. Adjustments of $64, $93, $216 and $276 in the three and nine months ended September 30, 2019 and 2018, respectively, are due to the amortization of favorable and unfavorable leases. All of the rent related purchase accounting adjustments are adjustments to rent expense which is included in store operations on our consolidated statements of operations.

(3)

Represents the impact of a non-cash loss recorded in accordance with ASC 805 - Business Combinations related to our acquisition of six franchisee-owned stores on January 1, 2018. The loss recorded under GAAP represents the difference between the fair value of the reacquired franchise rights and the contractual terms of the reacquired franchise rights and is included in other (gain) loss on our consolidated statements of operations.

(4)

Represents transaction fees and expenses that could not be capitalized related to the issuance of our Series 2018-1 Senior Notes in the three and nine months ended September 30, 2018.

(5)

Represents a loss on extinguishment of debt related to the write-off of deferred financing costs associated with the Term Loan B that the Company repaid in August 2018.

(6)

Represents severance expense recorded in connection with an equity award modification.

(7)

Represents costs associated with new corporate-owned stores incurred prior to the store opening, including payroll-related costs, rent and occupancy expenses, marketing and other store operating supply expenses.

(8)

Represents gains and losses related to the adjustment of our tax benefit arrangements primarily due to changes in our effective tax rate.

(9)

Represents certain other charges and gains that we do not believe reflect our underlying business performance. In the nine months ended September 30, 2018, this amount includes expense of $590 related to the write off of certain assets that were being tested for potential use across the system.

(10)

Includes $3,096, $3,096, $9,288 and $9,288 of amortization of intangible assets, other than favorable leases, for the three and nine months ended September 30, 2019 and 2018, respectively, recorded in connection with the 2012 Acquisition, and $1,052, $838, $2,867 and $2,488 of amortization of intangible assets for the three months ended September 30, 2019 and 2018, respectively, recorded in connection with historical acquisitions of franchisee-owned stores. The adjustment represents the amount of actual non-cash amortization expense recorded, in accordance with U.S. GAAP, in each period.

(11)

Represents corporate income taxes at an assumed effective tax rate of 26.6% and 26.3% for the three and nine months ended September 30, 2019 and 2018, respectively, applied to adjusted income before income taxes.

(12)

Assumes the full exchange of all outstanding Holdings Units and corresponding shares of Class B common stock for shares of Class A common stock of Planet Fitness, Inc.

A reconciliation of net income per share, diluted, to Adjusted net income per share, diluted is set forth below for the three and nine months ended September 30, 2019 and 2018:

   

For the three months ended
September 30, 2019

 

For the three months ended
September 30, 2018

(in thousands, except per share amounts)

 

Net income

 

Weighted
Average
Shares

 

Net income
per share,
diluted

 

Net income

 

Weighted
Average
Shares

 

Net income
per share,
diluted

Net income attributable to Planet Fitness, Inc.(1)

 

$

25,777

   

83,807

   

$

0.31

   

$

17,471

   

88,458

   

$

0.20

 

Assumed exchange of shares(2)

 

3,915

   

8,579

       

3,001

   

10,004

     

Net Income

 

29,692

           

20,472

         

Adjustments to arrive at adjusted income
  
before income taxes(3)

 

15,346

           

17,072

         

Adjusted income before income taxes

 

45,038

           

37,544

         

Adjusted income taxes(4)

 

11,980

           

9,874

         

Adjusted Net Income

 

$

33,058

   

92,386

   

$

0.36

   

$

27,670

   

98,462

   

$

0.28

 
   

(1)

Represents net income attributable to Planet Fitness, Inc. and the associated weighted average shares, diluted of Class A common stock outstanding.

(2)

Assumes the full exchange of all outstanding Holdings Units and corresponding shares of Class B common stock for shares of Class A common stock of Planet Fitness, Inc. Also assumes the addition of net income attributable to non-controlling interests corresponding with the assumed exchange of Holdings Units and Class B common shares for shares of Class A common stock.

(3)

Represents the total impact of all adjustments identified in the adjusted net income table above to arrive at adjusted income before income taxes.

(4)

Represents corporate income taxes at an assumed effective tax rate of 26.6% and 26.3% for the three months ended September 30, 2019 and 2018, respectively, applied to adjusted income before income taxes.

   

For the nine months ended
September 30, 2019

 

For the nine months ended
September 30, 2018

(in thousands, except per share amounts)

 

Net income

 

Weighted
Average
Shares

 

Net income
per share,
diluted

 

Net income

 

Weighted
Average
Shares

 

Net income
per share,
diluted

Net income attributable to Planet Fitness, Inc.(1)

 

$

88,030

   

84,354

   

$

1.04

   

$

63,226

   

88,064

   

$

0.72

 

Assumed exchange of shares(2)

 

13,128

   

8,799

       

11,158

   

10,551

     

Net Income

 

101,158

           

74,384

         

Adjustments to arrive at adjusted income
  before income taxes(3)

 

45,939

           

43,710

         

Adjusted income before income taxes

 

147,097

           

118,094

         

Adjusted income taxes(4)

 

39,128

           

31,059

         

Adjusted Net Income

 

$

107,969

   

93,153

   

$

1.16

   

$

87,035

   

98,615

   

$

0.88

 
   

(1)

Represents net income attributable to Planet Fitness, Inc. and the associated weighted average shares, diluted of Class A common stock outstanding.

(2)

Assumes the full exchange of all outstanding Holdings Units and corresponding shares of Class B common stock for shares of Class A common stock of Planet Fitness, Inc. Also assumes the addition of net income attributable to non-controlling interests corresponding with the assumed exchange of Holdings Units and Class B common shares for shares of Class A common stock.

(3)

Represents the total impact of all adjustments identified in the adjusted net income table above to arrive at adjusted income before income taxes.

(4)

Represents corporate income taxes at an assumed effective tax rate of 26.6% and 26.3% for the nine months ended September 30, 2019 and 2018, respectively, applied to adjusted income before income taxes.

SOURCE Planet Fitness, Inc.

###

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