Planet Fitness, Inc. 2023 Q1 Form 10-Q Summary
Business Context and Reporting Period
Planet Fitness is a franchisor and operator of fitness centers and a fitness-equipment seller. For the quarter ended March 31, 2023, the company reported more than 18.1 million members and 2,446 locations across the United States and selected international markets, including 2,211 franchised and 235 corporate-owned stores.
The interim financial statements are unaudited and should be read with the company’s 2022 Form 10-K. Results include the ongoing effects of the February 2022 Sunshine Fitness acquisition of 114 stores.
Key Financial Metrics
| Metric | Q1 2023 | Q1 2022 | Change |
|---|---|---|---|
| Total revenue | $222.2 million | $186.7 million | +19.0% |
| Income from operations | $52.2 million | $48.7 million | +7.2% |
| Operating margin | 23.5% | 26.1% | Down approximately 260 bps |
| Net income | $24.8 million | $18.4 million | +34.8% |
| Net income attributable to Planet Fitness | $22.7 million | $16.5 million | +37.9% |
| Net margin | 11.1% | 9.8% | Up approximately 130 bps |
| Diluted EPS | $0.27 | $0.19 | Increase |
| EBITDA | $88.0 million | $78.2 million | +12.6% |
| Adjusted EBITDA | $90.2 million | $76.7 million | +17.6% |
| Operating cash flow | $97.9 million | $58.0 million | +68.8% |
| Capital expenditures | $23.0 million | $23.9 million | Down $0.9 million |
Revenue growth was led by corporate-owned stores, which increased 39.0% to $105.9 million, including $23.5 million from the Sunshine stores, $3.2 million from same-store sales growth, and $3.0 million from newer stores. Franchise segment revenue increased 15.7% to $92.7 million. Equipment revenue declined 22.3% to $23.7 million.
Same-store sales increased 9.7% for franchisee-owned stores, 12.1% for corporate-owned stores, and 9.9% system-wide. System-wide sales increased to $1.108 billion from $961 million.
As of March 31, 2023, cash and cash equivalents were $460.4 million and restricted cash was $62.6 million. Total debt, before deferred financing costs, was $2.020 billion, with carrying value of $1.995 billion after deferred financing costs. The company reported total lease liabilities of $371.9 million and tax benefit arrangement liabilities of $496.8 million. Stockholders’ deficit was $158.6 million.
Material Changes Versus the Prior Comparable Period
- Total revenue increased $35.5 million, primarily from the Sunshine acquisition, same-store sales growth, new stores, and higher franchise fees.
- Franchise segment EBITDA increased 7.7% to $64.7 million, while corporate-owned store EBITDA increased 43.5% to $33.5 million.
- Equipment segment EBITDA declined 35.6% to $5.6 million because of lower equipment sales to new franchisee-owned stores.
- Operating costs increased 23.2% to $170.1 million. Store operations and depreciation and amortization rose primarily because of the acquired corporate-owned stores.
- Selling, general and administrative expense decreased 9.9%, largely because Q1 2022 included Sunshine acquisition transaction costs.
- Other losses, net were $3.9 million in Q1 2023 versus other gains of $2.9 million in Q1 2022. The current-period loss primarily reflected a $3.3 million increase in the estimated Mexico legal settlement liability.
- Operating cash flow increased $39.9 million. Q1 2022 investing cash flow included $425.8 million for the Sunshine acquisition; Q1 2023 investing cash flow was limited primarily to capital expenditures.
- The company repurchased 317,599 Class A shares for $25.0 million during the quarter, leaving approximately $475.0 million available under the $500.0 million repurchase authorization at March 31, 2023.
- Existing holders exchanged 1.9 million Holdings Units and corresponding Class B shares for newly issued Class A shares, increasing Planet Fitness’s economic interest in Pla-Fit Holdings to approximately 95.3%.
Guidance, Outlook, Risks, and Unusual Items
The filing does not provide a clear numerical quarterly or full-year financial guidance range. Management stated that cash, operating cash flow, and availability under the variable funding facility are expected to be adequate for at least the next 12 months to fund operations, debt service, tax benefit arrangements, capital expenditures, and working capital needs.
The company had commitments to open more than 1,000 new stores under existing area development agreements. On April 16, 2023, it completed the acquisition of four Florida franchise stores for approximately $26.3 million using cash on hand. From April 1 through May 5, 2023, it repurchased an additional 490,923 Class A shares for $37.6 million.
- Debt maturities include approximately $600.4 million of principal payments in 2025 and $419.3 million in 2026 based on the contractual schedule. The company anticipates repaying or refinancing certain notes by their earlier anticipated repayment dates.
- The securitized notes contain leverage, reserve, covenant, rapid-amortization, and refinancing provisions. The company reported compliance with its debt covenants at March 31, 2023.
- The Mexico franchisee dispute remains unresolved. The company increased its estimated legal settlement liability to $11.85 million, inclusive of legal fees.
- Inflation, wage increases, equipment and shipping costs, supply chain disruption, franchisee financial performance, competition, member retention, cybersecurity, data privacy, regulatory compliance, and the ability to secure suitable store locations remain important risks.
- Off-balance-sheet lease guarantees for certain franchisees had a maximum potential obligation of approximately $5.8 million; no material accrual was recorded.
- Management reported effective disclosure controls and no material changes to internal control over financial reporting during the quarter.
Most Important Facts for Investors to Verify
- Whether same-store sales and membership growth can remain strong as prior-period comparisons become more difficult.
- The sustainability of corporate-owned store margins after incorporating Sunshine acquisition costs, depreciation, amortization, and lease obligations.
- Liquidity and refinancing capacity ahead of the significant 2025 and 2026 debt repayment requirements.
- The eventual cost and closing date of the Mexico settlement and store acquisition arrangement.
- The impact of continued share repurchases and Holdings Unit exchanges on per-share results, ownership, and tax benefit arrangement obligations.
- Whether the company can execute its pipeline of more than 1,000 committed new stores while franchisees manage inflation, labor, construction, and equipment costs.
- The distinction between GAAP net income and management’s non-GAAP EBITDA, Adjusted EBITDA, and Adjusted net income measures.