Planet Fitness, Inc. — Q3 2023 Form 10-Q Summary
Business Context and Reporting Period
Planet Fitness is a franchisor and operator of fitness centers and a supplier of equipment to franchisees. For the quarter ended September 30, 2023, the system had more than 18.5 million members and 2,498 locations across the United States and several international markets, including 2,254 franchised and 244 corporate-owned stores. The filing presents unaudited results for the three and nine months ended September 30, 2023, compared with the corresponding 2022 periods.
Key Financial Metrics
| Metric | Q3 2023 | Q3 2022 | Year-over-Year |
|---|---|---|---|
| Revenue | $277.6 million | $244.4 million | 13.6% increase |
| Income from operations | $72.4 million | $61.9 million | 16.8% increase |
| Operating margin | 26.1% | 25.3% | Expanded 80 bps |
| Net income | $41.3 million | $30.7 million | 34.7% increase |
| Net income attributable to Planet Fitness | $39.1 million | $26.9 million | 45.3% increase |
| Diluted EPS | $0.46 | $0.32 | 43.8% increase |
| EBITDA | $109.7 million | $99.3 million | 10.5% increase |
| Adjusted EBITDA | $111.9 million | $93.9 million | 19.2% increase |
| Adjusted diluted EPS | $0.59 | $0.42 | 40.5% increase |
| Metric | Nine Months 2023 | Nine Months 2022 | Year-over-Year |
|---|---|---|---|
| Revenue | $786.2 million | $655.5 million | 19.9% increase |
| Income from operations | $201.5 million | $165.7 million | 21.6% increase |
| Operating margin | 25.6% | 25.3% | Expanded 30 bps |
| Net income | $110.3 million | $74.1 million | 48.8% increase |
| Net income attributable to Planet Fitness | $103.0 million | $65.7 million | 56.6% increase |
| Diluted EPS | $1.21 | $0.78 | 55.1% increase |
| EBITDA | $311.8 million | $264.8 million | 17.8% increase |
| Adjusted EBITDA | $321.0 million | $259.7 million | 23.6% increase |
Q3 revenue growth reflected higher franchise revenue, corporate-owned store sales and equipment revenue. Same-store sales increased 8.4% system-wide, including 8.2% for franchisee-owned stores and 10.1% for corporate-owned stores. System-wide sales increased to $1.09 billion from $968.1 million.
For the first nine months, net cash provided by operating activities was $266.9 million, compared with $190.4 million in the prior-year period. Capital expenditures were $84.6 million, compared with $65.1 million. Net cash used in investing activities was $247.9 million, including $117.0 million of net purchases of marketable securities, $26.3 million for the Florida acquisition and a $20.0 million equity-method investment. Net cash used in financing activities was $136.4 million, principally due to $125.0 million of share repurchases and $15.6 million of debt repayment.
At September 30, 2023, the Company held $309.0 million of cash and cash equivalents, $118.7 million of marketable securities and $46.4 million of restricted cash. Total debt was $1.99 billion, excluding the undrawn variable funding facility, and estimated fair value of long-term debt was $1.76 billion. Total stockholders’ deficit was $164.9 million. Management stated that available liquidity, operating cash flow and amounts available under the variable funding facility should be adequate for at least the next 12 months.
Material Changes Versus the Prior Comparable Period
- Revenue growth was driven by higher same-store sales, new store openings, annual fees, online join fees, equipment placements and the contribution from acquired corporate-owned stores.
- Franchise segment revenue increased 21.6% in Q3 and 19.0% for the nine-month period; franchise Segment EBITDA increased 26.4% in Q3 and 18.2% year to date.
- Corporate-owned store revenue increased 11.8% in Q3 and 19.3% year to date, supported by same-store sales, new stores and the April 2023 acquisition of four Florida stores.
- Equipment revenue increased 6.1% in Q3 and 22.9% year to date, primarily from sales to existing franchisee-owned stores.
- SG&A increased 22.6% in Q3, including higher severance, information technology, professional services and compensation costs. Executive transition costs were $2.5 million in Q3 and $3.7 million year to date.
- Other losses totaled $7.7 million year to date, primarily reflecting a $6.3 million increase in the estimated reserve for a Mexico legal settlement. The settlement was finalized after quarter end for $31.6 million and included the acquisition of five stores in Mexico.
- The Company repurchased 1.7 million Class A shares for $125.0 million during the first nine months, leaving approximately $375.0 million available under the $500.0 million repurchase authorization.
- Cash and restricted cash declined by $117.1 million during the first nine months, mainly because of marketable securities purchases, capital expenditures, the Florida acquisition, share repurchases and debt repayment.
Guidance, Outlook, Commentary and Risks
The filing does not provide a clear quantitative revenue, EBITDA or EPS guidance update. Management reported commitments to open more than 1,000 additional stores under existing area development agreements and continued to identify new store development as a major growth strategy.
Management believes liquidity is sufficient for anticipated debt service, tax benefit arrangement payments, capital expenditures and working capital needs for at least the next 12 months, but cautioned that future cash generation and debt refinancing capacity depend on economic, financial and business conditions beyond the Company’s control. The Company was in compliance with its debt covenants at September 30, 2023.
- Key business risks include competition, member retention, franchisee financial performance and franchisee bankruptcies.
- Inflation, wage increases, construction costs, equipment costs and supply-chain disruptions may pressure the Company and its franchisees.
- The Company relies on information systems and member payment data and remains exposed to cybersecurity, privacy and operational interruption risks.
- Debt includes substantial scheduled principal payments, including approximately $600.4 million in 2025 and $419.3 million in 2026. Failure to refinance notes by anticipated repayment dates could result in additional interest.
- The Company has approximately $489.8 million of projected obligations under tax benefit arrangements and $413.6 million of lease liabilities.
- Off-balance-sheet lease guarantees for certain franchisees had a maximum potential obligation of approximately $5.6 million; no material accrual was recorded.
- The Company disclosed leadership transition risk following the departure of the former CEO and the appointment of an interim CEO during the period.
- Marketable securities are subject to credit, liquidity, market and interest-rate risks. The portfolio had $253,000 of unrealized losses at September 30, 2023, with no credit-loss allowance recorded.
Investor Verification Checklist
- Verify the sustainability of 8%–10% same-store sales growth and its contribution to royalty and corporate-store revenue.
- Assess the pace and economics of new store openings relative to the more than 1,000 outstanding development commitments.
- Review debt amortization, anticipated repayment dates, refinancing requirements and compliance with securitized-financing covenants.
- Reconcile reported net income and EPS with EBITDA, Adjusted EBITDA and Adjusted EPS, including executive transition, legal, tax and purchase-accounting adjustments.
- Monitor the final financial impact of the $31.6 million Mexico settlement and the acquired five stores.
- Evaluate cash deployment among share repurchases, acquisitions, marketable securities, capital expenditures, debt reduction and tax benefit arrangement payments.
- Review the CEO transition, related-party transactions and the Company’s ability to retain key personnel.
- Confirm the magnitude and timing of future tax benefit arrangement payments, lease obligations and other contractual commitments.