Planet Fitness, Inc. Announces Second Quarter 2019 Results

Planet Fitness, Inc. and subsidiaries

Consolidated Statements of Operations

(Unaudited)

(Amounts in thousands, except per share amounts)

For the three months ended

June 30,

For the six months ended

June 30,

2019

2018

2019

2018

Revenue:

Franchise

$

58,225

$

45,417

$

111,181

$

87,579

Commission income

1,065

1,575

2,059

3,563

National advertising fund revenue

12,522

11,158

24,334

21,620

Corporate-owned stores

39,695

34,252

77,739

66,959

Equipment

70,154

48,148

115,165

82,161

Total revenue

181,661

140,550

330,478

261,882

Operating costs and expenses:

Cost of revenue

54,391

36,744

88,877

63,244

Store operations

20,163

18,047

41,068

36,403

Selling, general and administrative

18,864

17,210

37,018

34,831

National advertising fund expense

12,522

11,158

24,334

21,620

Depreciation and amortization

10,577

8,619

20,484

17,084

Other (gain) loss

(122)

(39)

246

971

Total operating costs and expenses

116,395

91,739

212,027

174,153

Income from operations

65,266

48,811

118,451

87,729

Other expense, net:

Interest income

1,979

418

3,777

455

Interest expense

(14,636)

(9,046)

(29,385)

(17,816)

Other expense

(1,444)

(502)

(4,762)

(310)

Total other expense, net

(14,101)

(9,130)

(30,370)

(17,671)

Income before income taxes

51,165

39,681

88,081

70,058

Provision for income taxes

11,338

9,263

16,615

16,146

Net income

39,827

30,418

71,466

53,912

Less net income attributable to non-controlling interests

4,983

4,544

9,213

8,157

Net income attributable to Planet Fitness, Inc.

$

34,844

$

25,874

$

62,253

$

45,755

Net income per share of Class A common stock:

Basic

$

0.41

$

0.30

$

0.74

$

0.52

Diluted

$

0.41

$

0.29

$

0.74

$

0.52

Weighted-average shares of Class A common stock outstanding:

Basic

84,143

87,693

83,975

87,565

Diluted

84,835

88,105

84,639

87,931

Planet Fitness, Inc. and subsidiaries

Consolidated Balance Sheets

(Unaudited)

(Amounts in thousands, except per share amounts)

June 30, 2019

December 31, 2018

Assets

Current assets:

Cash and cash equivalents

$

330,550

$

289,431

Restricted cash

30,576

30,708

Accounts receivable, net of allowance for bad debts of $54 and $84 at June 30, 2019 and

   December 31, 2018, respectively

26,566

38,960

Inventory

2,513

5,122

Restricted assets – national advertising fund

5,208

—

Prepaid expenses

10,068

4,947

Other receivables

12,866

12,548

Other current assets

5,776

6,824

   Total current assets

424,123

388,540

Property and equipment, net of accumulated depreciation of $64,839 as of June 30, 2019 and

   $53,086 as of December 31, 2018

118,517

114,367

Right of use assets, net

115,390

—

Intangible assets, net

231,425

234,330

Goodwill

206,752

199,513

Deferred income taxes

425,647

414,841

Other assets, net

1,613

1,825

Total assets

$

1,523,467

$

1,353,416

Liabilities and stockholders' deficit

Current liabilities:

Current maturities of long-term debt

$

12,000

$

12,000

Accounts payable

16,277

30,428

Accrued expenses

22,558

32,384

Equipment deposits

7,376

7,908

Restricted liabilities – national advertising fund

112

—

Deferred revenue, current

27,076

23,488

Payable pursuant to tax benefit arrangements, current

25,506

24,765

Other current liabilities

14,519

430

   Total current liabilities

125,424

131,403

Long-term debt, net of current maturities

1,156,792

1,160,127

Deferred rent, net of current portion

—

10,083

Lease liabilities, net of current portion

113,748

—

Deferred revenue, net of current portion

29,648

26,374

Deferred tax liabilities

1,874

2,303

Payable pursuant to tax benefit arrangements, net of current portion

408,099

404,468

Other liabilities

2,254

1,447

Total noncurrent liabilities

1,712,415

1,604,802

Stockholders' equity (deficit):

Class A common stock, $.0001 par value - 300,000 authorized, 83,995 and 83,584 shares issued

and outstanding as of June 30, 2019 and December 31, 2018, respectively

8

9

Class B common stock, $.0001 par value - 100,000 authorized, 8,582 and 9,448 shares issued

and outstanding as of June 30, 2019 and December 31, 2018, respectively

1

1

Accumulated other comprehensive income

251

94

Additional paid in capital

24,495

19,732

Accumulated deficit

(333,870)

(394,410)

   Total stockholders' deficit attributable to Planet Fitness Inc.

(309,115)

(374,574)

Non-controlling interests

(5,257)

(8,215)

   Total stockholders' deficit

(314,372)

(382,789)

   Total liabilities and stockholders' deficit

$

1,523,467

$

1,353,416

Planet Fitness, Inc. and subsidiaries

Consolidated Statements of Cash Flows

(Unaudited)

(Amounts in thousands, except per share amounts)

For the six months ended June 30,

2019

2018

Cash flows from operating activities:

Net income

$

71,466

$

53,912

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

Depreciation and amortization

20,484

17,084

Amortization of deferred financing costs

2,664

973

Amortization of favorable leases

—

186

Amortization of asset retirement obligations

168

—

Amortization of interest rate caps

—

446

Deferred tax expense

8,854

13,300

Gain on re-measurement of tax benefit arrangement

4,852

(354)

Provision for bad debts

(10)

(8)

Loss on reacquired franchise rights

—

350

(Gain) loss on disposal of property and equipment

(54)

547

Equity-based compensation

2,279

2,687

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

Accounts receivable

12,465

22,281

Due to and due from related parties

(461)

3,375

Inventory

2,608

(501)

Other assets and other current assets

(9,288)

(3,109)

National advertising fund

(5,096)

(1,634)

Accounts payable and accrued expenses

(20,831)

(16,884)

Other liabilities and other current liabilities

1,777

(2,908)

Income taxes

1,987

131

Payable pursuant to tax benefit arrangements

(17,476)

(21,706)

Equipment deposits

(532)

2,503

Deferred revenue

6,631

6,229

Leases and deferred rent

17

1,594

   Net cash provided by operating activities

82,504

78,494

Cash flows from investing activities:

Additions to property and equipment

(18,925)

(8,136)

Acquisition of franchises

(14,801)

(28,503)

Proceeds from sale of property and equipment

54

134

Net cash used in investing activities

(33,672)

(36,505)

Cash flows from financing activities:

Principal payments on capital lease obligations

(27)

(23)

Repayment of long-term debt

(6,000)

(3,592)

Proceeds from issuance of Class A common stock

1,520

400

Dividend equivalent payments

(138)

(138)

Distributions to Continuing LLC Members

(3,742)

(3,503)

Net cash used in financing activities

(8,387)

(6,856)

Effects of exchange rate changes on cash and cash equivalents

542

(429)

Net increase in cash, cash equivalents and restricted cash

40,987

34,704

Cash, cash equivalents and restricted cash, beginning of period

320,139

113,080

Cash, cash equivalents and restricted cash, end of period

$

361,126

$

147,784

Supplemental cash flow information:

Net cash paid for income taxes

$

6,530

$

2,929

Cash paid for interest

$

26,923

$

16,795

Non-cash investing activities:

Non-cash additions to property and equipment

$

1,896

$

2,072

Three months ended June 30,

Six months ended June 30,

2019

2018

2019

2018

(in thousands)

Net income

$

39,827

$

30,418

$

71,466

$

53,912

Interest income

(1,979)

(418)

(3,777)

(455)

Interest expense

14,636

9,046

29,385

17,816

Provision for income taxes

11,338

9,263

16,615

16,146

Depreciation and amortization

10,577

8,619

20,484

17,084

EBITDA

$

74,399

$

56,928

$

134,173

$

104,503

Purchase accounting adjustments-revenue⁽¹⁾

176

(30)

249

414

Purchase accounting adjustments-rent⁽²⁾

117

168

240

350

Loss on reacquired franchise rights⁽³⁾

—

—

—

350

Severance costs⁽⁴⁾

—

352

—

352

Pre-opening costs⁽⁵⁾

194

461

195

483

Tax benefit arrangement remeasurement⁽⁶⁾

1,479

42

4,852

(354)

Other⁽⁷⁾

145

460

159

1,056

Adjusted EBITDA

$

76,510

$

58,381

$

139,868

$

107,154

(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 ADA fees, deferred franchise fees, and deferred enrollment fees that the Company billed and collected upfront but recognizes for U.S. 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 $44, $77, $88 and $167 in the three and six months ended June 30, 2019 and 2018, respectively, reflect the difference between the higher rent expense recorded in accordance with U.S. GAAP since the acquisition and the rent expense that would have been recorded had the 2012 Acquisition not occurred. Adjustments of $73, $92, $152 and $183 in the three and six months ended June 30, 2019 and 2018, respectively, are due to the amortization of favorable and unfavorable leases. 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 the impact of a non-cash loss recorded in accordance with ASC 805 - Business Combinations related to our acquisition of six franchisee-owned stores on January 1, 2018. The loss recorded under GAAP represents the difference between the fair value of the reacquired franchise rights and the contractual terms of the reacquired franchise rights and is included in other (gain) loss on our consolidated statements of operations.

(4)

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

(5)

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.

(6)

Represents gains and losses related to the adjustment of our tax benefit arrangements primarily due to changes in our effective tax rate.

(7)

Represents certain other charges and gains that we do not believe reflect our underlying business performance. In the three and six months ended June 30, 2018, this amount includes $342 related to the reversal of a tax indemnification receivable. Additionally, in the six months ended June 30, 2018, this amount includes expense of $590 related to the write off of certain assets that were being tested for potential use across the system.

Three months ended June 30,

Six months ended June 30,

2019

2018

2019

2018

Segment EBITDA

Franchise

$

49,860

$

40,041

$

97,220

$

76,719

Corporate-owned stores

18,137

14,666

33,706

26,837

Equipment

16,772

11,457

27,179

18,925

Corporate and other

(10,370)

(9,236)

(23,932)

(17,978)

Total Segment EBITDA⁽¹⁾

$

74,399

$

56,928

$

134,173

$

104,503

(1)

Total Segment EBITDA is equal to EBITDA.

Three months ended June 30,

Six months ended June 30,

(in thousands, except per share amounts)

2019

2018

2019

2018

Net income

$

39,827

$

30,418

$

71,466

$

53,912

Provision for income taxes, as reported

11,338

9,263

16,615

16,146

Purchase accounting adjustments-revenue⁽¹⁾

176

(30)

249

414

Purchase accounting adjustments-rent⁽²⁾

117

168

240

350

Loss on reacquired franchise rights⁽³⁾

—

—

—

350

Severance costs⁽⁴⁾

—

352

—

352

Pre-opening costs⁽⁵⁾

194

461

195

483

Tax benefit arrangement remeasurement⁽⁶⁾

1,479

42

4,852

(354)

Other⁽⁷⁾

145

460

159

1,056

Purchase accounting amortization⁽⁸⁾

4,009

3,920

8,008

7,841

Adjusted income before income taxes

$

57,285

$

45,054

$

101,784

$

80,550

Adjusted income taxes⁽⁹⁾

15,238

11,849

27,075

21,185

Adjusted net income

$

42,047

$

33,205

$

74,709

$

59,365

Adjusted net income per share, diluted

$

0.45

$

0.34

$

0.80

$

0.60

Adjusted weighted-average shares outstanding⁽¹⁰⁾

93,420

98,810

93,549

98,760

(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 ADA fees, deferred franchise fees, and deferred enrollment fees that the Company billed and collected upfront but recognizes for U.S. 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 $44, $77, $88 and $167 in the three and six months ended June 30, 2019 and 2018, respectively, reflect the difference between the higher rent expense recorded in accordance with U.S. GAAP since the acquisition and the rent expense that would have been recorded had the 2012 Acquisition not occurred. Adjustments of $73, $92, $152 and $183 in the three and six months ended June 30, 2019 and 2018, respectively, are due to the amortization of favorable and unfavorable leases. 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 the impact of a non-cash loss recorded in accordance with ASC 805 - Business Combinations related to our acquisition of six franchisee-owned stores on January 1, 2018. The loss recorded under GAAP represents the difference between the fair value of the reacquired franchise rights and the contractual terms of the reacquired franchise rights and is included in other (gain) loss on our consolidated statements of operations.

(4)

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

(5)

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.

(6)

Represents gains and losses related to the adjustment of our tax benefit arrangements primarily due to changes in our effective tax rate.

(7)

Represents certain other charges and gains that we do not believe reflect our underlying business performance. In the three and six months ended June 30, 2018, this amount includes $342 related to the reversal of a tax indemnification receivable. Additionally, in the six months ended June 30, 2018, this amount includes expense of $590 related to the write off of certain assets that were being tested for potential use across the system.

(8)

Includes $3,096, $3,096, $6,192 and $6,192 of amortization of intangible assets, other than favorable leases, for the three and six months ended June 30, 2019 and 2018, respectively, recorded in connection with the 2012 Acquisition, and $913, $825, $1,816 and $1,650 of amortization of intangible assets for the three months ended June 30, 2019 and 2018, respectively, recorded in connection with historical acquisitions of franchisee-owned stores. The adjustment represents the amount of actual non-cash amortization expense recorded, in accordance with U.S. GAAP, in each period.

(9)

Represents corporate income taxes at an assumed effective tax rate of 26.6% and 26.3% for the three and six months ended June 30, 2019 and 2018, respectively, applied to adjusted income before income taxes.

(10)

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

June 30, 2019

For the three months ended

June 30, 2018

(in thousands, except per share amounts)

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⁾

$

34,844

84,835

$

0.41

$

25,874

88,105

$

0.29

Assumed exchange of shares⁽²⁾

4,983

8,585

4,544

10,705

Net Income

39,827

30,418

Adjustments to arrive at adjusted income

  before income taxes⁽³⁾

17,458

14,636

Adjusted income before income taxes

57,285

45,054

Adjusted income taxes⁽⁴⁾

15,238

11,849

Adjusted Net Income

$

42,047

93,420

$

0.45

$

33,205

98,810

$

0.34

(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 26.6% and 26.3% for the three months ended June 30, 2019 and 2018, respectively, applied to adjusted income before income taxes.

For the six months ended

June 30, 2019

For the six months ended

June 30, 2018

(in thousands, except per share amounts)

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⁾

$

62,253

84,639

$

0.74

$

45,755

87,931

$

0.52

Assumed exchange of shares⁽²⁾

9,213

8,910

8,157

10,829

Net Income

71,466

53,912

Adjustments to arrive at adjusted income

  before income taxes⁽³⁾

30,318

26,638

Adjusted income before income taxes

101,784

80,550

Adjusted income taxes⁽⁴⁾

27,075

21,185

Adjusted Net Income

$

74,709

93,549

$

0.80

$

59,365

98,760

$

0.60

(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 26.6% and 26.3% for the three and six months ended June 30, 2019 and 2018, respectively, applied to adjusted income before income taxes.