Planet Fitness, Inc. 2023 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2023. The filing is an annual report, not a standalone fourth-quarter filing; fourth-quarter results are included within the full-year disclosures.
Business context
Planet Fitness is a franchisor and operator of low-cost fitness centers, with additional revenue from fitness-equipment sales to franchisees. At year-end, the system had approximately 18.7 million members and 2,575 stores across the United States, Canada, Puerto Rico, Panama, Mexico and Australia. Of the stores, 2,319 were franchised and 256 were corporate-owned. Franchisees had contractual commitments to open approximately 1,000 additional stores, including more than 500 over the following three years.
System-wide sales, consisting of monthly dues and annual fees billed by the Company and franchisees, were approximately $4.5 billion. Approximately $4.0 billion came from franchisee-owned stores and $475.8 million from corporate-owned stores.
Financial performance and key metrics
| Metric | 2023 | 2022 | Change |
|---|---|---|---|
| Total revenue | $1,071.3 million | $936.8 million | 14.4% increase |
| Income from operations | $272.9 million | $230.1 million | 18.6% increase |
| Operating margin | 25.5% | 24.6% | 90 basis-point expansion |
| Net income | $147.0 million | $110.5 million | 33.1% increase |
| Net income attributable to Planet Fitness, Inc. | $138.3 million | $99.4 million | 39.2% increase |
| Diluted GAAP EPS | $1.62 | $1.18 | Increase |
| Adjusted EBITDA | $435.4 million | $365.8 million | 19.0% increase |
| Adjusted net income | $199.0 million | $148.5 million | 34.0% increase |
| Adjusted diluted EPS | $2.24 | $1.64 | Increase |
| Net cash provided by operating activities | $330.3 million | $240.2 million | 37.5% increase |
Revenue mix: Franchise segment revenue was $387.9 million, or 36.2% of total revenue; corporate-owned stores generated $449.3 million, or 41.9%; and equipment generated $234.1 million, or 21.9%.
Margins: Total Segment EBITDA was $423.8 million, compared with $368.6 million in 2022. The corporate-owned stores segment EBITDA margin was 38.2%; four-wall EBITDA margin was approximately 42.7%, and royalty-adjusted four-wall EBITDA margin was approximately 35.4%.
Operating growth: System-wide same-store sales increased 8.7%, including 8.5% at franchisee-owned stores and 10.1% at corporate-owned stores. The PF Black Card represented 62% of members at year-end, compared with 61% in 2019. Average monthly dues per member increased to $18.29 from $16.91 in 2019.
Liquidity, cash flow and capital structure
- Cash and cash equivalents were $275.8 million; restricted cash was $46.3 million; short- and long-term marketable securities totaled $125.8 million.
- Operating cash flow was $330.3 million. Capital expenditures were $136.0 million, including $52.6 million for new corporate-owned stores, $59.6 million for existing stores and $23.6 million for information systems.
- Net cash used in investing activities was $340.0 million, including $43.3 million for acquisitions, $122.8 million for net purchases of marketable securities and $35.6 million of additional investments.
- Outstanding long-term debt was $2.004 billion before deferred financing costs, or $1.984 billion net. The 2022 variable funding facility permits up to $75 million of borrowings and was undrawn at year-end.
- Contractual obligations totaled $3.508 billion, including $2.004 billion of debt principal, $350.4 million of debt interest, $495.7 million under tax benefit arrangements and $567.6 million of operating leases.
- Management stated that available cash, operating cash flow and available variable funding capacity should be adequate for anticipated needs for at least the next 12 months, subject to the risks disclosed in the filing.
Material changes versus 2022
- Revenue increased 14.4%, supported by higher franchise royalties, same-store sales, new stores, corporate-owned store growth and higher replacement-equipment sales.
- Franchise revenue increased 17.1%, with royalty revenue rising to $260.7 million from $228.7 million. Franchise segment EBITDA increased 23.0%.
- Corporate-owned store revenue increased 18.4%, partly reflecting the 2022 Sunshine acquisition, the 2023 Florida acquisition, new stores and same-store sales growth. Corporate-owned stores segment EBITDA increased 20.7%.
- Equipment revenue increased only 2.8%; equipment segment EBITDA declined 5.1%, primarily due to franchisee discounts and lower vendor volume rebates.
- Net cash from operations increased by $90.0 million, while capital expenditures increased by $35.9 million.
- The Company repurchased 1,698,753 Class A shares for $125.0 million, including excise tax. Approximately $375.0 million remained under the $500 million repurchase authorization at year-end.
- The Company acquired four Florida stores for approximately $26.3 million in cash and increased its ownership in Planet Fitmex, LLC to 33.2%, with a total investment of $52.6 million.
- The Company recorded $4.9 million of executive transition costs following the departure of the Chief Executive Officer and elimination of the President and Chief Operating Officer position. Craig Benson was interim Chief Executive Officer at filing date.
- A Mexico franchisee settlement resulted in a $6.3 million increase to the legal reserve during 2023. The final settlement totaled $31.6 million and included the acquisition and subsequent sale of five Mexican stores in exchange for a $17.0 million equity interest in Planet Fitmex.
Guidance, outlook, commentary and risks
The filing does not provide specific 2024 revenue, EBITDA, store-opening or same-store-sales guidance. Management’s stated growth priorities are expanding the store base, increasing membership and PF Black Card penetration, investing in brand marketing, increasing average royalty rates, and growing equipment sales. The new franchise growth model, effective January 1, 2024 for participating franchisees, provides franchise agreements of up to 12 years, shifts remodel timing to year 12, extends equipment replacement intervals to five to nine years and changes join-fee economics.
Key risks include high competition, consumer discretionary spending and membership retention, franchisee financial condition and access to financing, construction and labor inflation, supply-chain and equipment dependence, long-term lease commitments, substantial securitized debt, refinancing and rapid-amortization events, tax receivable agreement payments, evolving membership-cancellation and electronic-payment regulations, indoor-tanning regulation, cybersecurity and data privacy, international operations, and brand or franchisee conduct.
The Company reported no cybersecurity incident that had a material effect on its strategy, results of operations or financial condition as of the filing date. Legal proceedings are described as arising in the ordinary course, and management does not believe their ultimate resolution will materially adversely affect financial position, results, liquidity or capital resources. KPMG issued unqualified opinions on the financial statements and internal control over financial reporting.
Important facts for investors to verify
- Reconcile full-year results with the requested fourth-quarter period; the filing does not separately present a complete Q4 income statement in the supplied text.
- Assess debt maturities and anticipated repayment dates, particularly the approximately $2.0 billion securitized debt balance and the 2025-2031 anticipated repayment schedule.
- Evaluate the $495.7 million tax benefit arrangement liability and the potential for accelerated or higher-than-expected payments.
- Monitor franchisee financing, store-opening execution and the approximately 1,000-store development pipeline.
- Review the sustainability of 8.7% system-wide same-store sales growth and the effect of competition, pricing, labor and occupancy costs.
- Consider the effect of $136.0 million of capital expenditures, acquisitions, investments and share repurchases on leverage and liquidity.
- Review executive transition arrangements, related-party transactions and the Mexico settlement and Planet Fitmex investment.
- Confirm the status and permitted use of the remaining approximately $375.0 million share repurchase authorization and the absence of cash dividends.