Planet Fitness, Inc. — Q3 2021 Form 10-Q Summary
Business context and reporting period
Planet Fitness is a franchisor and operator of fitness centers and a supplier of fitness equipment. The filing covers the unaudited three and nine months ended September 30, 2021, compared with the corresponding 2020 periods.
At September 30, 2021, the system had more than 15.0 million members and 2,193 stores, including 2,087 franchisee-owned and 106 corporate-owned locations. Of these, 2,189 stores had reopened following COVID-19-related closures. The company had commitments to open more than 1,000 additional stores under existing area development agreements.
Financial performance and key metrics
| Metric | Q3 2021 | Q3 2020 | Change |
|---|---|---|---|
| Total revenue | $154.3 million | $105.4 million | 46.4% |
| Income from operations | $44.5 million | $16.0 million | 177.7% |
| Operating margin | 28.9% | 15.2% | +13.7 pts |
| Net income | $18.6 million | $(3.3) million | Returned to profit |
| Net income attributable to Planet Fitness | $17.4 million | $(3.1) million | Returned to profit |
| Diluted EPS | $0.21 | $(0.04) | Improved |
| EBITDA | $61.5 million | $29.7 million | 107.3% |
| Adjusted EBITDA | $62.2 million | $32.0 million | 94.4% |
| Net margin | 12.1% | (3.1)% | Improved |
| Metric | 9M 2021 | 9M 2020 | Change |
|---|---|---|---|
| Total revenue | $403.4 million | $272.8 million | 47.8% |
| Income from operations | $114.2 million | $27.6 million | 314.0% |
| Operating margin | 28.3% | 10.2% | +18.1 pts |
| Net income | $39.8 million | $(24.9) million | Returned to profit |
| Net income attributable to Planet Fitness | $37.0 million | $(23.7) million | Returned to profit |
| Diluted EPS | $0.44 | $(0.30) | Improved |
| EBITDA | $161.7 million | $66.2 million | 144.1% |
| Adjusted EBITDA | $161.4 million | $69.2 million | 133.1% |
| Net margin | 9.9% | (9.1)% | Improved |
Q3 system-wide sales were $870 million versus $661 million in the prior-year quarter. Nine-month system-wide sales were $2.503 billion versus $1.663 billion. Q3 same-store sales increased 7.2% overall, including 7.4% for franchisee-owned stores and 3.1% for corporate-owned stores.
Q3 revenue growth reflected higher franchise revenue of $61.5 million, corporate-owned store revenue of $43.9 million, and equipment revenue of $35.0 million. Equipment revenue increased 101.7% year over year, primarily due to higher sales to existing franchisees and the absence of the prior-year 15% COVID-19 discount.
Cash flow, liquidity, debt, and balance sheet
- Cash and cash equivalents were $527.3 million at September 30, 2021, compared with $439.5 million at December 31, 2020. Cash, cash equivalents, and restricted cash totaled $585.5 million.
- Operating cash flow was $149.5 million for the first nine months of 2021, compared with $(2.1) million in the prior-year period.
- Investing cash outflow was $66.8 million, including $31.8 million of capital expenditures and $35.0 million of investments.
- Financing cash outflow was $13.0 million. The company repaid $13.1 million of long-term debt and made no additional borrowings under its Variable Funding Notes.
- Total debt, net of deferred financing costs, was $1.761 billion, including $75.0 million drawn under the Variable Funding Notes. The Variable Funding Notes carried a 2.15% borrowing rate at September 30, 2021.
- Anticipated repayment dates are September 2022 for the 2018 Class A-2-I Notes, September 2025 for the 2018 Class A-2-II Notes, December 2029 for the 2019 Notes, and September 2023 for the Variable Funding Notes, subject to extension options where applicable.
- The company reported total stockholders’ deficit of $658.4 million and a tax benefit arrangement liability of $498.4 million.
Material changes versus the prior comparable period
- Results improved materially because most stores were operating in 2021, whereas COVID-19 closures significantly reduced revenue and cash flow during the 2020 comparison periods.
- Franchise segment EBITDA rose to $52.0 million in Q3 from $31.1 million; corporate-owned stores EBITDA rose to $14.1 million from $5.7 million; and equipment EBITDA rose to $7.9 million from $2.3 million.
- Operating expenses increased in absolute dollars as stores reopened and the company operated additional corporate-owned locations, but operating expenses declined as a percentage of revenue.
- The company acquired a 21% interest in Planet Fitness Australia Holdings for $10.0 million and held $25.9 million of held-to-maturity preferred-share investments at quarter end.
- A $2.5 million insurance recovery related to legal claims was recognized in the first nine months of 2021. No goodwill or intangible-asset impairment charges were recorded.
- The share repurchase program remained suspended; no shares were repurchased during the quarter, and approximately $200 million remained authorized under the program.
Outlook, commentary, risks, and contingencies
Management did not provide formal quantitative financial guidance in the filing. Management stated that available cash, operating cash flow, and the drawn Variable Funding Notes should be sufficient for operating needs, capital expenditures, debt service, tax benefit arrangement obligations, and working capital requirements for at least the next twelve months, including under continued COVID-19 impacts.
- COVID-19 remains a material uncertainty. Additional temporary closures, reduced membership, changes in consumer behavior, lower store development, and lower equipment sales could adversely affect results and cash flow.
- The company is highly leveraged and must refinance or repay significant debt around the anticipated repayment dates. Debt agreements include financial covenants, reserve requirements, rapid-amortization triggers, and events of default.
- Variable-rate debt creates interest-rate exposure; a 100-basis-point increase in the applicable borrowing rate would increase annualized pretax interest expense by approximately $0.8 million.
- The company guarantees certain franchisee lease obligations with a maximum exposure of approximately $6.9 million at September 30, 2021.
- A Mexico franchisee exercised a put option requiring the company to acquire certain stores, but the transaction had not closed because the parties disputed final terms. Management estimated the purchase price would approximate the fair value of the acquired assets.
- The company recorded an estimated $2.2 million obligation related to a civil judgment and a fully reserved indemnification receivable for the same amount.
- Other risks include franchisee financial health, competition, member retention, cybersecurity and data privacy, labor and wage inflation, supply-chain dependence, regulatory requirements, long-term lease commitments, and the ability to secure suitable sites.
Most important facts for investors to verify
- Whether membership levels, system-wide sales, and same-store sales continue to recover after the COVID-19-disrupted comparison periods.
- The timing and sources of repayment or refinancing for the September 2022 and September 2025 anticipated debt maturities.
- Compliance with securitized-debt covenants, debt-service coverage requirements, and rapid-amortization conditions.
- The sustainability of operating cash flow after working-capital benefits associated with the 2020 closures normalize.
- The collectability and timing of the $498.4 million tax benefit arrangement liability.
- The outcome and financial implications of the unresolved Mexico acquisition put option and other litigation matters.
- The extent to which equipment revenue growth reflects sustainable replacement demand versus post-pandemic catch-up activity.