Planet Fitness, Inc. (PLNT) Earnings Call Transcript & Summary

Hi. So I'm Sharon Zackfia with William Blair & Company. I'm really happy to have with us today the team from Planet Fitness. I do need to remind everyone that there's a full list of research conflicts and potential disclosures on williamblair.com. And also, we are doing this interactively. So as you have questions, please feel free to put them in the chat, and I will ask them as the 30 minutes goes on.

So I guess to start out, I mean, it's obvious that membership is the lifeblood of Planet Fitness, and it was great to see that sequential growth that you had during the first quarter. Can you talk about the rate of membership recovery you've seen and the differences, maybe based on parameters such as geography or the amount of time the clubs have been reopened?

Sure. Yes. Sharon, thank you again for having us on. We had -- in the first quarter, we had some good growth. We had 14.1 million members end of March, and then we released our April results as well and we ended up with 14.3 million members. So the real positive news there was that the rate of growth in March and April. We definitely saw some unseasonable momentum there. January, we had net member growth was a fraction of what we normally see in January. But as the quarter progressed, as more vaccines, we believe, were rolled out and broadly distributed, we saw more momentum pick up later in the quarter. March was ahead of March of 2019 for mature stores as far as net member growth, and April was on par with April of 2019. In April of 2019, we had a 10-day national sale, which we did not have this year. So you'd argue it was actually a better April for the mature store. So definitely seeing some momentum. Normally, we had it in April sale, we actually pushed it into May because we felt as though the further we get into this year the more sense of normalcy, I guess, that the U.S. would feel and began to get more and more growth throughout the later part of the year. So we pushed the national sale of April into May, which I'm glad we did that. So I think we'll continue to see and capitalize on some good trends here in the future. We also then began also to see the Gen X and Boomer join rate begin to turn the corner. They had definitely been slower to come back, as you can expect, and we started to see that trend change now. Not back to what we normally see, but they're definitely going in the right direction now. So I think that's also another positive step in the right direction. Some other interesting trends we saw through April was that about 30% of our joins were rejoins. So they were a member of Planet Fitness in the past and they're coming back. That typically runs 20% to 22%. So they're coming back faster than we've seen in the past. And about 4% to 5% of our joins are coming to us from close competition. The industry reports that about 17% of the stores in the industry have permanently closed. Thankfully for Planet based on the unit economics of our model, we've had 0 store closings -- closures from COVID. That's great. And we've got nearly 100% of our stores open now. The only ones left to open, we've got a number of stores in Canada that have reclosed again. Hopefully, we'll reopen shortly here. But everything in the U.S. is now currently open.

That's super helpful. Can you talk about usage as well at the clubs and how you've seen that evolve during 2021?

Yes. We're at about -- throughout the system, we're about 80% of 2019 usage. And for the store, geographically to your questions, the stores that were opened first. So call it last May, they begin to reopen in states like Georgia and throughout the Midwest, those stores were accomplishing just north of 90% of 2019 usage. So they're definitely starting to pick up even more so. And the other thing, too, we've talked about in the past, in a typical pre-COVID month, about 50% of our members would use the store in a 30-day period. We were typically running about 30%, 35% we use in the store. In March, we saw about 40% of our members use it in the 30-day period. So we're seeing more and more of our member base begin to utilize the locations. And the average usage is about the same. The average member uses the store about 5 to 6 times a month, and that's still holding true about today.

And I know in 2020, as we went throughout the year, there was a lot of discussion amongst investors about cancellation. So can you talk about what you saw in 2020? And again, how those trends have ebbed and flowed in 2021?

Yes, sure. So one interesting thing that happened in 2020 is you would expect that there'd be incremental 1 million or 2 million cancels because of COVID. And if you look at the entire full year 2020, we had no more or less cancellations in 2020 than we do in a typical year. So it was more of a join problem. And for the first time in company history, we went 6 months with 0 marketing or acquisition marketing. So a lot of it was a join issue more so than a cancellation issue. So here, we have to kick our flywheel back on towards the tail end of last year, starting in September and began to start driving some acquisition marketing and began to start to see some positive results, especially in the states that were open the soonest. But in January was when we started our New Year's Eve in New York city and our national January sale, and that was the first month since COVID we began to have net member growth and have had sequential net member growth every month through April.

I mean it's a really good point, obviously, on kind of the relative quietness of Planet for part of 2020, which is highly unusual from a marketing standpoint. Have you changed your go-to-market strategy as it relates to marketing, either where you're marketing, kind of what media you're marketing on or the message?

I'd say probably the message is probably what's changed the most. As far as the marketing mix is really -- it's TV, it's network television as well as cable, a lot of digital and out-of-home, it's post cards, billboards locally with the franchisees and doing local radio even. So that's the same. But the message is definitely different. But the message is definitely around cleanliness and sanitization practices, how we've amped up that in the facilities. We have always been meticulously clean in our stores. We just never really highlighted that in our marketing. And I think really any public place here for the near future, for sure, cleanliness will be top of mind for consumers. So we'll continue to touch on that on top of the Judgment Free Zone in our $10 price point, which is hugely important. And I think coming out of COVID, and I'm sure we'll get to this even more so, but some of these reports coming on with mental health and weight gain throughout COVID is really substantial and sad in a lot of cases. And 60% of adults reported to gain an average of 29 pounds from COVID. It's an average of 29 pounds. And the fact is that 70% of adults were overweight going into COVID. So I just think it's going to be a huge tailwind for the industry. And with that $10 price point and with 17% of the industry permanently closed, I think we just have tons of tailwind here for our brand.

And one of the -- you touched on this a little bit, but one of the really interesting evolutions of Planet during 2020 was kind of that the pivot to digital as a way they continue to talk to your members at a point when they could not go to the clubs. Can you talk about a genesis of PF+ and how that's helped you with member engagement as well as member acquisition?

Sure. Yes, Sharon. So we were luckily going down this digital road even pre-COVID. And it started off with the fact that we would see people -- members in our stores working out following their phone on a workout, but they weren't getting the workout from us. They were finding a third-party to supply them exercise routines in our clubs. So it makes sense that Planet Fitness should be supplying our members with the content. So that started that road a couple of years ago. And luckily we were because then COVID hit, not knowing what's happening. So then we accelerated that focus and strategy, partnered with iFIT, who's -- they've been in the industry as long as we have, but in the home fitness content world. So we want to partner with best-in-class to produce premium content. So we have basically free content in the app, about 500 workout videos and instruction. And then premium content, which is a $5.99 subscription that you pay for Digital unlocking of the premium content. We launched that side, testing that in November. We see some really interesting trends there. We really think that the Digital in our app could be a gateway to bricks-and-mortar membership, and it's really proved to be, in a lot of ways, a whole another channel in our marketing mix. About 70% of our joins are joining digitally. It's almost double from what we saw in 2019. So people are really downloading the app and joined through the app. So the old days of going to the website and finding out about Planet through the website, they're actually going to the app, downloading it and joining through the app, which is really intriguing, never thought that would happen. But then with the premium content side of things, it allows us to hopefully give people a taste of Planet Fitness before joining our facilities. And what we're seeing is about 30% of the subscribers to Digital that weren't bricks-and-mortar members have gone on to join bricks-and-mortar after. So people are tasting a little bit of Planet and then joining bricks-and-mortar after the [indiscernible]. And that was 20% in the fourth quarter. So we're seeing an acceleration there, which now lead us to the next test we're doing, which is a bundled membership in the Black Card. So the $5.99 PF+ Digital subscription. If you're a Black Card member paying $24.99, just $2 more, you unlock the entire digital experience as a $5.99 digital customers. So a bundled offering to see if we can drive some Black Card acquisition or Black Card pricing through that mix. So that's still in test phase. We'll test that the rest of this year, Sharon, and then probably have more data for some first quarter. But I guess the overarching 30,000 foot view that I really look at digital for us is that in this industry, and unless somebody walked through our front door, and even though they pay us every month, right, unless they walk through the front door, we can't service the number, right? We can't provide them any benefit of being a member of our gym. With the digital strategy today with Planet, putting focus on it like this, we can actually service our member, give them some benefit of being member, whether they use the facility or not use a facility, which at the end of the day, can only drive retention, right? Keep your stickiness. Platform is there. It is now just fitness oriented. But now the Platform is built, it begs the question we get into nutrition and diet, we get into medication. Just gives us ways to talk and engage our customers if they don't happen to use a facility this month. And if people's lives are busy, they get tied up at kids soccer or whatever -- whatever goes on with life and to provide some level of benefit as being a member is hugely important for us.

Yes, every time something we talk about, Chris, for I think, years, has been the ability to unlock data. I mean, at first, when we would have those conversations, it was about knowing what machines and for how long people use them in the clubs. But I'm wondering now with the digital interface, how much of a kind of holistic data pattern you'll be able to achieve for your members, both at home, at the clubs and how that might influence how you can help your members kind of achieve their fitness goals, which then would lead to, yes, obviously, better retention? How long of a journey? Or is it even possible to have kind of that frictionless interlock between the app and the clubs themselves?

Yes. I think if you look at the wellness journey that people take today is you've got to kind of figure out yourself, right? You've got to -- you figure out what bricks-and-mortar gym you're going to join and then figure out where you're going to get your nutrition or diet help. And if you want a meditation or you want Yoga, I mean certain things you want to do, you've got to go download 4 different apps to accomplish that and hopefully figure out the right way to do it, where -- and as you know, it's 40% of our members never gone to gym in their entire life. They're newbies to the wellness world. They don't even know how to put it together. So I look at us is how can we close the circle and kind of serve it up on a platter exactly, your entire wellness journey is a one-stop shop and for a fraction of the price of what you would find it otherwise, right? So I think you can just -- we can dumb it down and dummy proof it so that it just makes it simple, right, and bring them through their journey. And if you can't make it to the club, then maybe you're doing some nutrition or diet at home or maybe using some yoga or some meditation at home through Planet, and we're providing that service to you so that you keep the membership longer term. The vast majority of our cancels are just not in use. They went 6 months or 9 months, they haven't used the facility and just enough is enough. So I think any level of service we can provide them outside the 4 walls can only drive or only help retention longer term.

Is there anything as well that you can tell from the PF+ members that do not join the clubs? I mean is there some intimidation factor there? Are they out of reach convenience wise from a club? Is there any kind of takeaway there?