Planet Fitness, Inc. Announces Third Quarter 2017 Results

Planet Fitness, Inc. and subsidiaries

Condensed consolidated statements of operations

(Unaudited)

(Amounts in thousands, except per share amounts)

For the three months ended

September 30,

For the nine months ended

September 30,

2017

2016

2017

2016

Revenue:

Franchise

$

31,413

$

23,046

$

94,485

$

70,042

Commission income

4,149

4,179

15,668

14,338

Corporate-owned stores

28,560

26,675

83,886

78,756

Equipment

33,374

33,107

101,875

98,686

Total revenue

97,496

87,007

295,914

261,822

Operating costs and expenses:

Cost of revenue

25,819

25,925

78,395

77,365

Store operations

15,551

15,181

45,339

45,673

Selling, general and administrative

14,071

12,244

42,659

36,470

Depreciation and amortization

8,137

7,745

23,982

23,127

Other loss (gain)

(36)

(241)

280

(406)

Total operating costs and expenses

63,542

60,854

190,655

182,229

Income from operations

33,954

26,153

105,259

79,593

Other expense, net:

Interest expense, net

(8,920)

(6,291)

(26,711)

(18,819)

Other (expense) income

408

(204)

157

30

Total other expense, net

(8,512)

(6,495)

(26,554)

(18,789)

Income before income taxes

25,442

19,658

78,705

60,804

Provision for income taxes

6,540

4,795

23,933

11,504

Net income

18,902

14,863

54,772

49,300

Less net income attributable to non-controlling interests

3,557

11,438

18,173

38,374

Net income attributable to Planet Fitness, Inc.

$

15,345

$

3,425

$

36,599

$

10,926

Net income per share of Class A common stock:

Basic

$

0.18

$

0.08

$

0.48

$

0.28

Diluted

$

0.18

$

0.08

$

0.48

$

0.28

Weighted-average shares of Class A common stock outstanding:

Basic

85,663

44,669

76,391

39,394

Diluted

85,734

44,686

76,435

39,397

Planet Fitness, Inc. and subsidiaries

Condensed consolidated balance sheets

(Unaudited)

(Amounts in thousands, except per share amounts)

September 30,

December 31,

2017

2016

Assets

Current assets:

Cash and cash equivalents

$

93,267

$

40,393

Accounts receivable, net of allowance for bad debts of $95 and $687 at
   September 30, 2017 and December 31, 2016, respectively

16,358

26,873

Due from related parties

2,984

2,864

Inventory

550

1,802

Restricted assets – national advertising fund

3,014

3,074

Other receivables

10,768

7,935

Other current assets

8,623

8,284

Total current assets

135,564

91,225

Property and equipment, net of accumulated depreciation of $33,546 as of

   September 30, 2017 and $30,987 as of December 31, 2016

72,426

61,238

Intangible assets, net

239,741

253,862

Goodwill

176,981

176,981

Deferred income taxes

731,131

410,407

Other assets, net

10,177

7,729

Total assets

$

1,366,020

$

1,001,442

Liabilities and stockholders' equity (deficit)

Current liabilities:

Current maturities of long-term debt

$

7,185

$

7,185

Accounts payable

12,826

28,507

Accrued expenses

13,357

19,190

Equipment deposits

8,121

2,170

Restricted liabilities – national advertising fund

3,008

134

Deferred revenue, current

17,124

17,780

Payable to related parties pursuant to tax benefit arrangements, current

24,487

8,072

Other current liabilities

438

235

Total current liabilities

86,546

83,273

Long-term debt, net of current maturities

697,876

702,003

Deferred rent, net of current portion

5,289

5,108

Deferred revenue, net of current portion

8,180

8,351

Deferred tax liabilities

751

1,238

Payable to related parties pursuant to tax benefit arrangements, net of current portion

702,906

410,999

Other liabilities

4,111

5,225

Total noncurrent liabilities

1,419,113

1,132,924

Commitments and contingencies (note 11)

Stockholders' equity (deficit):

Class A common stock, $.0001 par value - 300,000 shares authorized, 85,682 and 61,314
   shares issued and outstanding as of September 30, 2017 and December 31, 2016, respectively

9

6

Class B common stock, $.0001 par value - 100,000 shares authorized, 12,682 and 37,185
   shares issued and outstanding as of September 30, 2017 and December 31, 2016, respectively

1

4

Accumulated other comprehensive loss

(1,013)

(1,174)

Additional paid in capital

11,693

34,467

Accumulated deficit

(127,513)

(164,062)

Total stockholders' deficit attributable to Planet Fitness Inc.

(116,823)

(130,759)

Non-controlling interests

(22,816)

(83,996)

Total stockholders' deficit

(139,639)

(214,755)

Total liabilities and stockholders' deficit

$

1,366,020

$

1,001,442

Planet Fitness, Inc. and subsidiaries

Condensed consolidated statements of cash flows

(Unaudited)

(Amounts in thousands)

For the nine months ended

September 30,

2017

2016

Cash flows from operating activities:

Net income

$

54,772

$

49,300

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization

23,982

23,127

Amortization of deferred financing costs

1,439

1,114

Amortization of favorable leases and asset retirement obligations

260

297

Amortization of interest rate caps

1,552

459

Deferred tax expense

21,344

11,062

Loss on extinguishment of debt

79

—

Third party debt refinancing expense

1,021

—

Gain on re-measurement of tax benefit arrangement

(541)

—

Provision for bad debts

44

44

Gain on disposal of property and equipment

(357)

(347)

Equity-based compensation

1,800

1,373

Changes in operating assets and liabilities, excluding effects of acquisitions:

Accounts receivable

11,099

4,898

Due to and due from related parties

(580)

8,494

Inventory

1,253

3,798

Other assets and other current assets

(2,413)

(1,635)

Accounts payable and accrued expenses

(16,985)

(10,172)

Other liabilities and other current liabilities

(724)

(30)

Income taxes

(1,462)

(7,543)

Payable to related parties pursuant to tax benefit arrangements

(7,909)

(6,007)

Equipment deposits

5,951

(1,609)

Deferred revenue

(958)

(1,264)

Deferred rent

361

379

Net cash provided by operating activities

93,028

75,738

Cash flows from investing activities:

Additions to property and equipment

(23,229)

(9,266)

Proceeds from sale of property and equipment

166

402

Net cash used in investing activities

(23,063)

(8,864)

Cash flows from financing activities:

Principal payments on capital lease obligations

—

(37)

Repayment of long-term debt

(5,388)

(3,825)

Payment of deferred financing and other debt-related costs

(1,278)

—

Premiums paid for interest rate caps

(366)

—

Proceeds from issuance of Class A common stock

172

79

Repurchase and retirement of Class B common stock

—

(1,583)

Dividend equivalent payments

(1,322)

—

Distributions to Continuing LLC Members

(9,308)

(27,071)

Net cash used in financing activities

(17,490)

(32,437)

Effects of exchange rate changes on cash and cash equivalents

399

87

Net increase in cash and cash equivalents

52,874

34,524

Cash and cash equivalents, beginning of period

40,393

31,430

Cash and cash equivalents, end of period

$

93,267

$

65,954

Supplemental cash flow information:

Net cash paid for income taxes

$

3,769

$

8,121

Cash paid for interest

$

23,637

$

17,187

Non-cash investing activities:

Non-cash additions to property and equipment

$

482

$

127

Three months ended
September 30,

Nine months ended
September 30,

2017

2016

2017

2016

Net income attributable to Planet Fitness, Inc.

$

15,345

$

3,425

$

36,599

$

10,926

Net income attributable to non-controlling interests

3,557

11,438

18,173

38,374

Net income

$

18,902

$

14,863

$

54,772

$

49,300

Interest expense, net

8,920

6,291

26,711

18,819

Provision for income taxes

6,540

4,795

23,933

11,504

Depreciation and amortization

8,137

7,745

23,982

23,127

EBITDA

42,499

33,694

129,398

102,750

Purchase accounting adjustments-revenue⁽¹⁾

336

450

1,116

458

Purchase accounting adjustments-rent⁽²⁾

174

202

561

664

Transaction fees⁽³⁾

-

-

1,021

-

Stock offering-related costs⁽⁴⁾

41

1,078

977

2,105

Severance costs⁽⁵⁾

-

-

-

423

Pre-opening costs⁽⁶⁾

421

-

421

-

Equipment discount⁽⁷⁾

(107)

-

(107)

-

Early lease termination costs⁽⁸⁾

-

-

719

-

Other⁽⁹⁾

-

-

(573)

72

Adjusted EBITDA

$

43,364

$

35,424

$

133,533

$

106,472

(1)

Represents the impact of revenue-related purchase accounting adjustments associated with the acquisition of Pla-Fit Holdings on November 8, 2012 by TSG (the "2012 Acquisition"). At the time of the 2012 Acquisition, the Company maintained a deferred revenue account, which consisted of deferred area development agreement fees, deferred franchise fees, and deferred enrollment fees that the Company billed and collected up front but recognizes for GAAP purposes at a later date. In connection with the 2012 Acquisition, it was determined that the carrying amount of deferred revenue was greater than the fair value assessed in accordance with ASC 805—Business Combinations, which resulted in a write-down of the carrying value of the deferred revenue balance upon application of acquisition push-down accounting under ASC 805. These amounts represent the additional revenue that would have been recognized in these periods if the write-down to deferred revenue had not occurred in connection with the application of acquisition pushdown accounting.

(2)

Represents the impact of rent-related purchase accounting adjustments. In accordance with guidance in ASC 805 – Business Combinations, in connection with the 2012 Acquisition, the Company's deferred rent liability was required to be written off as of the acquisition date and rent was recorded on a straight-line basis from the acquisition date through the end of the lease term. This resulted in higher overall recorded rent expense each period than would have otherwise been recorded had the deferred rent liability not been written off as a result of the acquisition push down accounting applied in accordance with ASC 805. Adjustments of $100, $105, $306, and $372 in the three and nine months ended September 30, 2017 and 2016, respectively, reflect the difference between the higher rent expense recorded in accordance with GAAP since the acquisition and the rent expense that would have been recorded had the 2012 Acquisition not occurred. Adjustments of $75, $97, $255, and $292 for the three and nine months ended September 30, 2017 and 2016, respectively, are due to the amortization of favorable and unfavorable lease intangible assets which were recorded in connection with the 2012 Acquisition and the acquisition of eight franchisee-owned stores on March 31, 2014. All of the rent related purchase accounting adjustments are adjustments to rent expense which is included in store operations on our consolidated statements of operations.

(3)

Represents transaction fees and expenses related to the amendment of our credit facility in May of 2017.

(4)

Represents legal, accounting and other costs incurred in connection with offerings of the Company's Class A common stock.

(5)

Represents severance expense recorded in connection with an equity award modification.

(6)

Represents costs associated with new corporate-owned stores incurred prior to the store opening, including payroll-related costs, rent and occupancy expenses, marketing and other store operating supply expenses.

(7)

Represents a gain recorded in connection with the write-off of a previously accrued deferred equipment discount that is no longer expected to be utilized. This amount was originally recognized through purchase accounting in connection with the acquisition of eight franchisee-owned stores on March 31, 2014.

(8)

Represents charges and expenses incurred in connection with the early termination of the lease for our previous headquarters.

(9)

Represents certain other charges and gains that we do not believe reflect our underlying business performance. In the nine months ended September 30, 2017, this amount includes a gain of $541 related to the adjustment of our tax benefit arrangements primarily due to changes in our effective tax rate.

Three months ended
September 30,

Nine months ended
September 30,

2017

2016

2017

2016

Segment EBITDA

Franchise

$

29,925

$

22,814

$

94,444

$

71,308

Corporate-owned stores

12,046

10,550

35,579

30,259

Equipment

7,683

7,153

23,587

21,330

Corporate and other

(7,155)

(6,823)

(24,212)

(20,147)

Total Segment EBITDA⁽¹⁾

$

42,499

$

33,694

$

129,398

$

102,750

(1) Total Segment EBITDA is equal to EBITDA.

Three months ended
September 30,

Nine months ended
September 30,

2017

2016

2017

2016

Net income attributable to Planet Fitness, Inc.

$

15,345

$

3,425

$

36,599

$

10,926

Net income attributable to non-controlling interests

3,557

11,438

18,173

38,374

Net income

$

18,902

$

14,863

$

54,772

$

49,300

Provision for income taxes, as reported

6,540

4,795

23,933

11,504

Purchase accounting adjustments-revenue⁽¹⁾

336

450

1,116

458

Purchase accounting adjustments-rent⁽²⁾

174

202

561

664

Transaction fees⁽³⁾

-

-

1,021

-

Stock offering-related costs⁽⁴⁾

41

1,078

977

2,105

Severance costs⁽⁵⁾

-

-

-

423

Pre-opening costs⁽⁶⁾

421

-

421

-

Equipment discount⁽⁷⁾

(107)

-

(107)

-

Early lease termination costs⁽⁸⁾

-

-

1,143

-

Other⁽⁹⁾

-

-

(573)

72

Purchase accounting amortization⁽¹⁰⁾

4,622

4,843

13,867

14,528

Adjusted income before income taxes

$

30,929

$

26,231

$

97,131

$

79,054

Adjusted income taxes⁽¹¹⁾

12,217

10,361

38,367

31,226

Adjusted net income

$

18,712

$

15,870

$

58,764

$

47,828

Adjusted net income per share, diluted

$

0.19

$

0.16

$

0.60

$

0.48

Adjusted weighted-average shares outstanding⁽¹²⁾

98,428

98,572

98,445

98,615

(1)

Represents the impact of revenue-related purchase accounting adjustments associated with the 2012 Acquisition. At the time of the 2012 Acquisition, the Company maintained a deferred revenue account, which consisted of deferred area development agreement fees, deferred franchise fees, and deferred enrollment fees that the Company billed and collected up front but recognizes for GAAP purposes at a later date. In connection with the 2012 Acquisition, it was determined that the carrying amount of deferred revenue was greater than the fair value assessed in accordance with ASC 805—Business Combinations, which resulted in a write-down of the carrying value of the deferred revenue balance upon application of acquisition push-down accounting under ASC 805. These amounts represent the additional revenue that would have been recognized in these periods if the write-down to deferred revenue had not occurred in connection with the application of acquisition pushdown accounting.

(2)

Represents the impact of rent-related purchase accounting adjustments. In accordance with guidance in ASC 805 – Business Combinations, in connection with the 2012 Acquisition, the Company's deferred rent liability was required to be written off as of the acquisition date and rent was recorded on a straight-line basis from the acquisition date through the end of the lease term. This resulted in higher overall recorded rent expense each period than would have otherwise been recorded had the deferred rent liability not been written off as a result of the acquisition push down accounting applied in accordance with ASC 805. Adjustments of $100, $105, $306, and $372 in the three and nine months ended September 30, 2017 and 2016, respectively, reflect the difference between the higher rent expense recorded in accordance with GAAP since the acquisition and the rent expense that would have been recorded had the 2012 Acquisition not occurred. Adjustments of $75, $97, $255, and $292 for the three and nine months ended September 30, 2017 and 2016, respectively, are due to the amortization of favorable and unfavorable lease intangible assets which were recorded in connection with the 2012 Acquisition and the acquisition of eight franchisee-owned stores on March 31, 2014. All of the rent related purchase accounting adjustments are adjustments to rent expense which is included in store operations on our consolidated statements of operations. 

(3)

Represents transaction fees and expenses related to the amendment of our credit facility in May of 2017.

(4)

Represents legal, accounting and other costs incurred in connection with offerings of the Company's Class A common stock.

(5)

Represents severance expense recorded in connection with an equity award modification.

(6)

Represents costs associated with new corporate-owned stores incurred prior to the store opening, including payroll-related costs, rent and occupancy expenses, marketing and other store operating supply expenses.

(7)

Represents a gain recorded in connection with the write-off of a previously accrued deferred equipment discount that is no longer expected to be utilized. This amount was originally recognized through purchase accounting in connection with the acquisition of eight franchisee-owned stores on March 31, 2014.

(8)

Represents charges and expenses incurred in connection with the early termination of the lease for our previous headquarters.

(9)

Represents certain other charges and gains that we do not believe reflect our underlying business performance. In the nine months ended September 30, 2017, this amount includes a gain of $541 related to the adjustment of our tax benefit arrangements primarily due to changes in our effective tax rate.

(10)

Includes $4,086, $4,218, $12,258 and $12,655 of amortization of intangible assets, other than favorable leases, for the three and nine months ended September 30, 2017 and 2016, respectively, recorded in connection with the 2012 Acquisition, and $536, $624, $1,609 and $1,873 of amortization of intangible assets for the three and nine months ended September 30, 2017 and 2016, respectively, recorded in connection with the acquisition of eight franchisee-owned stores on March 31, 2014. The adjustment represents the amount of actual non-cash amortization expense recorded, in accordance with GAAP, in each period.

(11)

Represents corporate income taxes at an assumed effective tax rate of 39.5% for the three and nine months ended September 30, 2017 and 2016 applied to adjusted income before income taxes.

(12)

Assumes the full exchange of all outstanding Holdings Units and corresponding shares of Class B common stock for shares of Class A common stock of Planet Fitness, Inc.

For the three months ended

September 30, 2017

For the three months ended

September 30, 2016

Net
income

Weighted
Average
Shares

Net
income
per share,
diluted

Net
income

Weighted
Average
Shares

Net
income
per share,
diluted

Net income attributable to Planet Fitness, Inc.⁽¹⁾

$

15,345

85,734

$

0.18

$

3,425

44,669

$

0.08

Assumed exchange of shares⁽²⁾

3,557

12,694

11,438

53,903

Net Income

18,902

14,863

Adjustments to arrive at adjusted income 
   before income taxes⁽³⁾

12,027

11,368

Adjusted income before income taxes

30,929

26,231

Adjusted income taxes⁽⁴⁾

12,217

10,361

Adjusted Net Income

$

18,712

98,428

$

0.19

$

15,870

98,572

$

0.16

(1)

Represents net income attributable to Planet Fitness, Inc. and the associated weighted average shares, diluted of Class A common stock outstanding.

(2)

Assumes the full exchange of all outstanding Holdings Units and corresponding shares of Class B common stock for shares of Class A common stock of Planet Fitness, Inc. Also assumes the addition of net income attributable to non-controlling interests corresponding with the assumed exchange of Holdings Units and Class B common shares for shares of Class A common stock.

(3)

Represents the total impact of all adjustments identified in the adjusted net income table above to arrive at adjusted income before income taxes.

(4)

Represents corporate income taxes at an assumed effective tax rate of 39.5% for the three months ended September 30, 2017 and 2016, applied to adjusted income before income taxes.

For the nine months ended

September 30, 2017

For the nine months ended

September 30, 2016

Net
income

Weighted
Average
Shares

Net
income
per share,
diluted

Net
income

Weighted
Average
Shares

Net
income
per share,
diluted

Net income attributable to Planet Fitness, Inc.⁽¹⁾

$

36,599

76,435

$

0.48

$

10,926

39,394

$

0.28

Assumed exchange of shares⁽²⁾

18,173

22,010

38,374

59,221

Net Income

54,772

49,300

Adjustments to arrive at adjusted income
   before income taxes⁽³⁾

42,359

29,754

Adjusted income before income taxes

97,131

79,054

Adjusted income taxes⁽⁴⁾

38,367

31,226

Adjusted Net Income

$

58,764

98,445

$

0.60

$

47,828

98,615

$

0.48

(1)

Represents net income attributable to Planet Fitness, Inc. and the associated weighted average shares, diluted of Class A common stock outstanding.

(2)

Assumes the full exchange of all outstanding Holdings Units and corresponding shares of Class B common stock for shares of Class A common stock of Planet Fitness, Inc. Also assumes the addition of net income attributable to non-controlling interests corresponding with the assumed exchange of Holdings Units and Class B common shares for shares of Class A common stock.

(3)

Represents the total impact of all adjustments identified in the adjusted net income table above to arrive at adjusted income before income taxes.

(4)

Represents corporate income taxes at an assumed effective tax rate of 39.5% for the nine months ended September 30, 2017 and 2016, applied to adjusted income before income taxes.