Planet Fitness, Inc. — 2020 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2020. Although the request metadata references “2020 Q4,” the source is an annual Form 10-K covering the full fiscal year; quarterly data are unaudited.
Business Context
Planet Fitness is a franchisor and operator of fitness centers with three reportable segments: Franchise, Corporate-owned stores, and Equipment. At year-end, the system had approximately 13.5 million members and 2,124 stores, including 2,021 franchised and 103 corporate-owned locations, across the United States and selected international markets. Franchisees had signed area development agreements for more than 1,000 additional stores.
COVID-19 materially disrupted operations. All stores closed in March 2020, reopening at different times subject to local restrictions. At December 31, 2020, 1,760 stores were open, including 1,682 franchised and 78 corporate-owned stores.
Financial Performance and Key Metrics
| Metric | 2020 | 2019 | Change |
|---|---|---|---|
| Total revenue | $406.6 million | $688.8 million | Down 41.0% |
| Franchise segment revenue | $206.2 million | $277.6 million | Down 25.7% |
| Corporate-owned stores revenue | $117.1 million | $159.7 million | Down 26.6% |
| Equipment revenue | $83.3 million | $251.5 million | Down 66.9% |
| Income from operations | $59.8 million | $233.1 million | Down 74.4% |
| Operating margin | 14.7% | 33.8% | Down 19.1 percentage points |
| Net income attributable to Planet Fitness | $(15.0) million | $117.7 million | Declined to a loss |
| Diluted EPS | $(0.19) | $1.41 | Declined |
| Adjusted EBITDA | $120.4 million | $282.2 million | Down 57.3% |
| Net cash from operating activities | $31.1 million | $204.3 million | Down 84.8% |
System-wide sales were $2.4 billion, compared with $3.2 billion in 2019. Segment EBITDA was $118.5 million, compared with $271.3 million in 2019. Corporate-owned store segment EBITDA margin was 20.2%; the company did not present 2020 four-wall EBITDA metrics because pandemic-related closures made them not meaningful. Same-store sales were not reported for 2020 because stores did not bill membership dues throughout the comparable period.
Capital expenditures were $52.6 million, including $14.6 million for new corporate-owned stores, $25.0 million for existing corporate-owned stores, and $12.5 million for information systems. Net cash used in investing activities was $52.3 million, while financing activities provided $57.9 million.
Liquidity, Debt, and Balance Sheet
- Cash and cash equivalents were $439.5 million at year-end, compared with $436.3 million in 2019.
- Restricted cash was $76.3 million, including approximately $60.3 million held by the securitization trustee.
- Total debt and capital lease obligations, excluding deferred financing costs, were $1.79 billion; debt, net of deferred financing costs, was $1.77 billion.
- The company fully drew its $75.0 million Variable Funding Notes facility on March 20, 2020; the stated interest rate was 2.28% at year-end.
- Interest expense increased to $82.1 million from $60.9 million, primarily because of the $550 million 2019 Notes issued in December 2019.
- Fixed-rate securitized notes have anticipated repayment dates in September 2022, September 2025, and December 2029, although their legal final maturities extend to 2048–2049.
- Contractual obligations totaled $2.91 billion, including $1.79 billion of principal debt, $354.6 million of interest, $488.2 million of tax benefit arrangement obligations, and $234.4 million of operating leases.
- Management stated that available cash, operating cash flow, and the drawn Variable Funding Notes were expected to cover operating needs, capital expenditures, debt service, and tax benefit arrangement obligations for at least the next 12 months.
Material Changes Versus 2019
- COVID-19 closures and capacity restrictions reduced membership revenue, royalties, corporate-store revenue, equipment sales, and cash generation.
- Franchise segment EBITDA decreased 40.2%, corporate-owned stores EBITDA decreased 63.9%, and Equipment segment EBITDA decreased 78.0%.
- New store openings declined to 130 system-wide, including 125 franchised stores, compared with 261 total openings in 2019.
- The company extended franchisee deadlines by 12 months for new-store development and 18 months for re-equipment obligations and offered a 15% equipment discount during 2020.
- Operating expenses were affected by furloughs, reduced travel and variable compensation, but store operations, advertising expenses, and depreciation increased in certain areas.
- Share repurchases were suspended in March 2020. The company made no repurchases during the fourth quarter, and $200 million remained available under the publicly announced program.
- The company exchanged approximately 4.84 million Holdings Units for newly issued Class A shares, increasing its economic ownership of Pla-Fit Holdings to approximately 95.7%.
Guidance, Outlook, Risks, and Unusual Items
The company withdrew its 2020 full-year guidance and did not provide 2021 guidance because of uncertainty regarding the duration and effects of COVID-19. Management expected the pandemic to continue negatively affecting operations, membership, store openings, remodels, equipment sales, and cash flow.
- Major risks include renewed closures or capacity limits, membership declines, franchisee financial distress or bankruptcy, inability to refinance or service significant debt, and failure to execute planned store growth.
- The securitized financing structure pledges substantially all domestic revenue-generating assets and includes financial covenants, leverage restrictions, reserve requirements, and rapid-amortization events.
- Tax receivable agreement obligations totaled $488.2 million at year-end. Payments generally equal 85% of specified tax savings and may accelerate upon certain breaches, change-of-control transactions, or early termination.
- The company recorded $3.8 million of expense for settlement of legal claims and a $2.0 million reserve against an indemnification receivable. It also recorded a $1.4 million CARES Act employee-retention payroll tax credit gain.
- A Mexico franchisee exercised a put option requiring the company to acquire certain stores; the transaction had not closed at year-end because the parties disputed final terms.
- Off-balance-sheet lease guarantees for franchisees had a maximum exposure of approximately $7.8 million, with no material liability accrued.
- Two equipment vendors represented 48% and 40% of 2020 equipment purchases, and one advertising vendor represented 71% of advertising purchases, creating supplier concentration risk.
- KPMG issued unqualified opinions on the financial statements and internal control over financial reporting. The critical audit matter concerned deferred tax assets associated with tax benefit arrangements.
Important Facts for Investors to Verify
- Whether store reopenings, capacity restrictions, membership levels, and system-wide sales recover to pre-pandemic trends.
- The timing and funding sources for the September 2022 and September 2025 anticipated repayments of the 2018 Notes.
- Whether operating cash flow can support debt service, lease obligations, capital expenditures, and approximately $488.2 million of tax benefit arrangement obligations.
- The performance and financial health of franchisees, including their ability to open more than 1,000 committed stores and meet deferred equipment obligations.
- The effect of continued equipment-vendor and advertising-vendor concentration on margins and business continuity.
- The outcome and potential cost of the disputed Mexico acquisition and other legal matters.
- The company’s ability to return to positive same-store sales, profitability, and cash-flow conversion without relying on additional borrowing.