Planet Fitness, Inc. annual report, FY2022

Planet Fitness, Inc. — FY2022 Form 10-K Summary

Business context and reporting period

Planet Fitness, Inc. is a franchisor and operator of fitness centers and a seller of fitness equipment. This Form 10-K covers the fiscal year ended December 31, 2022; the filing does not provide a separate fourth-quarter income statement or cash flow statement. The company operated through franchise, corporate-owned stores and equipment segments.

Approximately 17.0 million members and 2,410 stores at year-end, including 2,176 franchised and 234 corporate-owned stores.
Stores operated across all 50 states, the District of Columbia, Puerto Rico, Canada, Panama, Mexico and Australia.
System-wide sales were approximately $3.9 billion, including $3.5 billion from franchisee-owned stores and $395.1 million from corporate-owned stores.
Franchisees had commitments under area development agreements to open more than 1,000 additional stores, including more than 500 over the following three years.

Financial performance and key metrics

Metric	2022	2021	Change
Total revenue	$936.8 million	$587.0 million	+59.6%
Income from operations	$230.1 million	$143.4 million	+60.4%
Operating margin	24.6%	24.4%	+0.2 percentage points
Net income	$110.5 million	$46.1 million	+139.5%
Net income attributable to Planet Fitness, Inc.	$99.4 million	$42.8 million	+132.4%
Diluted EPS	$1.18	$0.51	+131.4%
EBITDA	$368.6 million	$194.9 million	+89.1%
Adjusted EBITDA	$365.8 million	$222.3 million	-1.0%*
Operating cash flow	$240.2 million	$189.3 million	+26.9%

*Adjusted EBITDA reflects the filing’s restated methodology and excludes or includes certain unusual items; the reported decline differs from GAAP EBITDA growth.

Franchise segment revenue increased 13.4% to $329.6 million; franchise segment EBITDA increased 11.6% to $216.8 million.
Corporate-owned stores revenue increased 126.9% to $379.4 million, substantially due to the Sunshine Fitness acquisition; segment EBITDA increased 188.8% to $142.1 million.
Equipment revenue increased 76.4% to $227.7 million, driven by higher new-store and replacement-equipment sales; equipment segment EBITDA increased 99.1% to $59.1 million.
System-wide same-store sales increased 11.4%, with franchisee-owned stores up 11.2% and corporate-owned stores up 13.1%.
Corporate-owned stores had a 37.5% segment EBITDA margin and approximately 42.0% four-wall EBITDA margin; royalty-adjusted four-wall EBITDA margin was approximately 34.8%.

Cash flow, liquidity, debt and capital allocation

Cash and cash equivalents were $409.8 million and restricted cash was $62.7 million at December 31, 2022.
Net cash used in investing activities was $506.6 million, including $424.9 million for acquisitions and $100.1 million of capital expenditures.
Capital expenditures increased from $54.1 million to $100.1 million, including $40.8 million for new corporate-owned stores, $43.3 million for existing stores and $15.8 million for information systems.
Total debt principal outstanding was approximately $2.025 billion, with $1.999 billion reported net of deferred financing costs. Interest expense was $88.6 million.
The February 2022 refinancing issued $900 million of Series 2022-1 fixed-rate notes. The $75 million variable funding facility was fully repaid on May 9, 2022 and was undrawn at year-end.
Management stated that available cash, operating cash flow and variable funding capacity were expected to cover anticipated debt service, tax-benefit arrangement payments, capital expenditures and working capital needs for at least the next 12 months.
The company repurchased 1.53 million Class A shares for $94.3 million during 2022. A new authorization permits up to $500 million of repurchases; no shares were repurchased during the fourth quarter.
No cash dividends were declared or paid.

Material changes versus the prior comparable period

The Sunshine Fitness acquisition closed on February 10, 2022 for $824.6 million, consisting of $430.9 million in cash and $393.7 million in equity consideration. It added 114 stores and materially increased corporate-owned store revenue, expenses, assets and depreciation.
Goodwill increased from $228.6 million to $702.7 million, primarily due to $488.5 million of goodwill recorded for Sunshine Fitness.
Corporate-owned stores increased from 112 to 234, while total stores increased from 2,254 to 2,410.
Revenue mix shifted toward corporate-owned stores and equipment, while the franchise segment’s share of revenue declined from 49.5% to 35.2%.
Income tax expense increased to $50.5 million from $5.7 million, and the effective tax rate increased to 31.3% from 10.9%, primarily due to deferred-tax remeasurement and higher pretax income.
Interest expense increased 9.1% due to the refinancing and higher debt principal; the company also recorded a $1.6 million loss on extinguishment of debt.
All 2,410 stores were open and operating at December 31, 2022, and membership exceeded the prior March 2020 peak.

Guidance, outlook, commentary, risks and unusual items

Management did not provide specific numerical revenue, EBITDA or earnings guidance in the provided filing text.
Management’s growth strategy emphasizes new franchised stores, same-store sales, increased PF Black Card penetration, higher royalty rates, marketing investment and equipment sales. PF Black Card penetration was 62.5% at year-end, versus 60.0% in 2018; average monthly dues increased to $18.01 from $16.52 over that period.
Unusual 2022 items included Sunshine-related transaction costs of $5.5 million, an $8.6 million legal reserve related to a preliminary Mexico settlement, a $2.5 million reversal of an investment credit-loss allowance, a $1.3 million gain on the sale of six Colorado stores and a $13.8 million tax-benefit-arrangement remeasurement gain.
The company recorded a $50.5 million net tax provision and had $494.5 million of liabilities under tax-benefit arrangements, generally requiring payment of 85% of certain realized or deemed tax savings.
Key risks include substantial leverage, refinancing and rapid-amortization provisions, franchisee financial performance and renewals, store development and construction costs, inflation and supply-chain disruption, competition, consumer demand, cyber and data-privacy incidents, payment-system dependence, indoor-tanning regulation, legal claims and regulatory requirements affecting recurring memberships and cancellations.
The company had approximately $3.5 billion of contractual obligations, including $2.025 billion of debt principal, $431.2 million of debt interest, $494.5 million of tax-benefit obligations and $456.6 million of operating lease payments.
Off-balance-sheet lease guarantees for certain franchisees had a maximum commitment of approximately $5.9 million; no material liability was accrued.
Management and KPMG reported effective disclosure controls and internal control over financial reporting, with unqualified audit opinions.

Important facts for investors to verify

Reconcile reported growth with the Sunshine acquisition’s partial-year contribution and determine the underlying organic revenue and EBITDA growth.
Assess the sustainability of 11.4% system-wide same-store sales growth, membership growth and PF Black Card penetration.
Review debt amortization and anticipated repayment dates, including significant principal payments in 2025 and 2026 and the potential effect of refinancing conditions.
Evaluate cash requirements for debt service, lease obligations, tax-benefit arrangements, capital expenditures and share repurchases.
Review the valuation assumptions supporting $233.1 million of reacquired franchise rights and $488.5 million of Sunshine-related goodwill, including revenue growth, EBITDA and discount-rate assumptions.
Monitor the Mexico litigation settlement and associated store acquisition, franchisee disputes and other legal contingencies.
Confirm the impact of the new $500 million share repurchase authorization and the absence of a dividend policy.