Planet Fitness, Inc. — Q2 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. For the quarter ended June 30, 2021, the system had more than 14.8 million members and 2,170 locations across the United States and selected international markets. Of these locations, 2,064 were franchised and 106 were corporate-owned. A total of 2,130 stores had reopened following COVID-19-related closures.
The filing presents unaudited results for the three and six months ended June 30, 2021, compared with the corresponding 2020 periods. Comparisons are significantly affected by widespread store closures in the second quarter of 2020.
Financial performance and key metrics
| Metric | Three months ended June 30, 2021 | Three months ended June 30, 2020 | Six months ended June 30, 2021 | Six months ended June 30, 2020 |
|---|---|---|---|---|
| Total revenue | $137.3 million | $40.2 million | $249.1 million | $167.5 million |
| Income from operations | $40.3 million | $(22.7) million | $69.7 million | $11.5 million |
| Net income | $15.0 million | $(32.0) million | $21.2 million | $(21.6) million |
| Net income attributable to Planet Fitness | $14.0 million | $(29.2) million | $19.6 million | $(20.6) million |
| Diluted EPS | $0.17 | $(0.36) | $0.23 | $(0.26) |
| EBITDA | $55.1 million | $(9.8) million | $100.2 million | $36.6 million |
| Adjusted EBITDA | $55.6 million | $(9.3) million | $99.3 million | $37.3 million |
| Net cash provided by operating activities | Not separately provided | Not separately provided | $74.3 million | $(13.0) million |
Second-quarter revenue increased 241.1% year over year, while six-month revenue increased 48.8%. Second-quarter operating margin was 29.2% versus negative 56.4% in the prior-year period; six-month operating margin was 28.1% versus 6.9%. Second-quarter net margin was 10.7%, compared with negative 79.5%, and six-month net margin was 8.7%, compared with negative 12.9%.
- Second-quarter franchise segment revenue was $72.8 million, up from $21.0 million; corporate-owned store revenue was $40.6 million, up from $9.4 million; and equipment revenue was $23.8 million, up from $9.8 million.
- Six-month franchise segment revenue was $136.9 million, up 72.1%, and corporate-owned store revenue was $78.5 million, up 57.1%. Equipment revenue declined 11.1% to $33.8 million.
- Total system-wide sales were $868 million in the second quarter and $1.634 billion for the six months, compared with $86 million and $1.002 billion, respectively, in the prior-year periods.
- Same-store sales comparisons were not provided because fewer than 50% of stores in the comparable base had membership billings during all months of the 2020 periods.
Liquidity, cash flow, debt and capital resources
- Cash and cash equivalents were $469.1 million at June 30, 2021. Restricted cash was $58.2 million, including $42.2 million held by the securitization trustee.
- Total debt was $1.763 billion, consisting primarily of fixed-rate securitized senior notes and $75.0 million drawn under the Variable Funding Notes. Long-term debt, net of current maturities, was $1.746 billion.
- Operating cash flow was $74.3 million for the first six months of 2021, compared with an operating cash outflow of $13.0 million in the prior-year period.
- Investing cash outflows were $54.4 million, including $19.4 million of capital expenditures and $35.0 million of investments. Financing cash outflows were $8.4 million.
- The Company made $8.8 million of principal repayments during the six months. Interest paid was $37.5 million.
- Management believes available cash, operating cash flow and the drawn Variable Funding Notes will be sufficient for operating needs, capital expenditures, debt service and tax benefit arrangement obligations for at least the next 12 months, including under continued COVID-19-related pressure.
Material changes versus the prior comparable period
- Results rebounded substantially from the second quarter of 2020, when stores were broadly closed. Management attributes the improvement principally to store reopenings and resumed membership billings.
- Franchise Segment EBITDA increased to $51.8 million from $3.5 million, and corporate-owned store Segment EBITDA improved to $10.4 million from a $6.3 million loss.
- Six-month equipment revenue decreased because COVID-19-related development extensions reduced sales to new franchisee-owned stores, partially offset by replacement equipment sales.
- Cash flow from operations improved by $87.3 million year over year, driven by higher earnings and favorable working-capital changes associated with the prior-year closures.
- The Company acquired a 20% interest in Planet Fitness Australia Holdings for $10.0 million on April 9, 2021 and held $25.0 million of held-to-maturity preferred-share investments at quarter-end.
- During the six months, 358,979 Class B shares and corresponding Holdings Units were exchanged for newly issued Class A shares. The Company’s economic interest in Pla-Fit Holdings increased to 96.1%.
Outlook, risks, contingencies and unusual items
The filing does not provide a formal full-year revenue or earnings guidance range. Management expects COVID-19 may continue to negatively affect operations, cash flows, membership levels, new-store development, remodels and equipment sales. Stores could be required to close or re-close under local requirements, and the duration and ultimate impact of the pandemic cannot be reasonably estimated.
- The Company had commitments to open more than 1,000 new stores under existing area development agreements.
- Principal debt repayment expectations include 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. Failure to repay or refinance by anticipated dates could result in additional interest.
- Debt agreements contain reserve, leverage, indebtedness, rapid-amortization and default provisions. The Company’s stated leverage-ratio incurrence cap is 7.0x, subject to the indenture terms.
- Six-month results included a $2.5 million insurance recovery related to legal claims, a $0.3 million gain from tax benefit arrangement remeasurement, and $0.8 million of other adjustments. Adjusted EBITDA is a non-GAAP measure.
- Tax benefit arrangement liabilities totaled $496.1 million at June 30, 2021, with projected future payments primarily occurring after 2021.
- The Company estimated a $7.1 million maximum obligation under guarantees of certain franchisee lease agreements. A Mexico franchisee put-option transaction remained unresolved because the parties disputed final terms.
- Other key risks include competition, member retention, franchisee financial condition, store development and construction costs, long-term lease obligations, cybersecurity and data protection, supplier concentration, labor costs, regulation and interest-rate exposure.
Most important facts for investors to verify
- Whether membership levels, billings and store reopenings have returned to, or exceeded, pre-pandemic trends.
- The sustainability of the large year-over-year revenue and EBITDA rebound after normalization of the COVID-19 comparison period.
- Debt refinancing or repayment capacity ahead of the 2022 and 2025 anticipated repayment dates and the 2023 Variable Funding Notes date.
- Compliance with securitized debt covenants, reserve requirements and rapid-amortization triggers.
- The timing and cash impact of the $496.1 million tax benefit arrangement liability.
- Progress toward the more than 1,000 committed new stores and the effect of development delays or franchisee liquidity constraints.
- Resolution and financial consequences of the Mexico put-option dispute and other legal contingencies.
- Whether the suspended $500 million share repurchase authorization will be reinstated; no shares were repurchased during the quarter.