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

Well, good morning, everyone. I'm Stacey Caravella, the Vice President of Investor Relations for Planet, and it's good to see everyone in person. I'm just meeting some of you for the first time even though I've been at Planet for almost 2 years now. So nice to see familiar faces that I've only seen over Zoom. This is our first Investor Day for Planet Fitness. We're pretty excited about having you all in person here. I get the really awesome job of presenting the reconciliations to our non-GAAP measures, which I'm sure you're all familiar with and then also the forward-looking statements, which will apply to any of the comments our presenters make today. Lastly, I'm going to hand it over to Chris Rondeau, the CEO of Planet Fitness.

Thank you, Stacey. And welcome, everyone, to our first ever investor conference, as Stacey said. It's probably overdue, but COVID had a 2- or 3-year lag in there that stopped us from doing it earlier. But today is going to be a really great day, I think, for all of us. And we haven't really had an opportunity to tell the full story of Planet Fitness since the IPO and a lot of you are somewhat new to the story or haven't been here since the IPO. And it really will help explain and understand the road to 4,000 units plus here in the U.S. What gave us the longevity of being here for 30 years now and the strength that got us through COVID. So I think it would be great for all us to hear the story and really understand what got us here in our road to 4,000. You're going to meet a bunch of the team today. You're going to meet Jen Simmons, who's formerly SVP of analytics and data. She's now the newly appointed President of Corporate Stores. She's going to go over some great data on Gen Zs and again the road to 4,000. Jamie, newly appointed as the Chief Brand Officer, have been here over 20 years. She worked for under me at one of the clubs a long time ago, she was [ usually ] in college at the time. She was formerly VP of National Marketing. So congratulations to Jamie. Sherrill is new here. She's now the Chief Digital Officer. It's hard to imagine here running this brand without an app. And believe it or not, the app was launched summer of 2019, unbeknownst that COVID was around the corner and luckily, she came on board to help drive the growth in the digital app and in the website for that matter, and help capitalize on the new norm, if you will. Bill Bode has been here for many years as well, he's Chief Operations Officer. He runs franchise, and now is actually taking over domestic growth here, domestic development here for Planet. And as we build out the international team, which has always [ sort of ] his part-time job at international, and we'll touch on that briefly. But he'll go over some of the market planning here. You'll see how we penetrate markets over the years and how we sell markets that we thought would hit maybe 10 or 20 units, and we fast forward now, we've got 30, 50 or 70 in these markets as we continue to penetrate and that marketing machine continues to work. And then Tom, the Chief Financial Officer, he had the beauty to come to us about 2 months before COVID hit. So now he is finally able to work shoulder to shoulder with me and help run this great company. And now we'll operate the business in a normal setting, which has been great. So a little bit about Planet here before I get into the timeline. So people think when you look at Planet, well, it's $10 a month, that's why it works. And honestly, it's the atmosphere component that makes us special. And I always say, even if Gold's Gym charged $10 a month, my mother still wouldn't join the gym. And the thing is, it's atmosphere, right? People are intimidated, but I've never done it before. You don't want to walk into a place that everybody is we're in a $200 work outfit and everybody is in great shape, right? So it's about breaking down the intimidation and that's really what we go after. 80% of the population of the U.S. doesn't have a gym membership. And in the '90s we developed this model, it was 15% had a gym membership. So it's only moved 5%, and you'll see in a little bit that's pretty much because of us. But it's really catering to that casual first-timer. And today, about 40% of our joins still today are first-time gym members. Never walked into a gym in their entire lives, who are truly making the pie bigger. This timeline here, me and my partners developed this business in the early '90s. And we first started off just like a typical Gold's Gym. We had the juice bars and the daycare. The dumbbells went to 120 pounds, we had an Olympic bench, the squat racks, you name it. And in a lot of ways, luckily, we started this business in New Hampshire, which is extremely rural, if you've never been. And in fact, the first 4 towns we opened in, these towns were populations of 25,000 to 30,000 people [ as is ] -- and we still had competition in these markets, and we were $35 a month roughly back then. And what we realized is we weren't going to make it because it was not enough people. And we were catering to the fit people getting fitter as opposed to getting people off the couch. And at first, we thought it was price, so we dropped the prices to $10 a month back in about '93-ish, '94, and we started to see people walk through our front doors we had just never seen before. They were truly first timers, but we didn't have the right model. And I always use the same saying, but it was like going to the zoo and all the animals were in the same cage. We really had to figure out how to make it nonintimidating and getting a lot of the big guys out of there that were dropping weights and using chalk and grunting. So we slowly started to refine the model, get rid of the heavy free weights, marketing to the masses. And in 1998, we opened our third location in Concord, New Hampshire. And that's when the Judgment Free Zone was born. The purple and yellow colors were born. And that club opened on day 1 with 2,200 members. And in that time was unheard of for a gym to open with 2,200 members. And we knew we were really onto something. And that was also the first time that the Lunk Alarm was invented, which if you don't know what that is, we have an alarm on the wall of every single gym in the country that says one who grunts, drop weights or judges is a Lunk. And that's a kind of a lighthearted way for the staff to keep everybody well behaved in the gym and not showboating around the club. And that club just went crazy. So needless to say, we went back and repainted the first 2 stores and rebranded all the others. But the issue was, is we still had the aerobics and the daycare, juice bars, saunas, Jacuzzis, you name it. We just got rid of heavy free weights. And in 2000, we opened our fourth store in Portsmouth, New Hampshire again, very small town. We opened that store with 1,700 members on day 1. And because the square footage wasn't available, it was only 13,000 square feet, so we decided to open this gym without the daycare, without the aerobics, without the spinning classes, without all that stuff and just designated all of the gym floor, aside from the locker rooms, to just cardio and circuit training. And what happened was is our unit economics were great, but the profit margins went through the roof because all of a sudden, we went from 40 to 50 employees per location to 12 to 15 per store. And what also happened, and I had a pager back then, and I was the COO of 4 stores. But what happened was is the first 3 stores my pager was going off every day right? The blender is broken, the bananas are bad, one kid bit another kid in the daycare. The spinning instructor didn't show up and you've got 50 screaming people that are mad. The 4th store, you couldn't disappoint. So even though we seemed like we had less service, the members were always happy because we couldn't let them down. And so we went back and took all the aerobics and the daycares, everything out of the first 3 stores, which wasn't fun at the beginning because you can imagine how the parents were. But then everything was just running like a top, you couldn't mess up, the unit economics went through the roof, and we just were selling memberships like crazy. And we began franchising in 2003, we opened our fifth location in Manchester, New Hampshire and people buying franchises and taking it out of New Hampshire and putting it in more populated areas throughout the country. And that's when we really knew we were onto something, because the model just worked that much better. We had more population, they use our means and methods in more populated areas, and our marketing know-how to drive people off the couch in more populated areas. And it just, kind of the rest is history in a lot of ways. You see from 2003, 2012, we opened up 500 locations just 9 years later and it took us 9 years to open our fifth. You had 500 locations. We brought in private equity at that time, really fueled our growth, built some great infrastructure in-house, went from 500 stores in 2012 to 2015, we doubled again to 1,000 locations and went IPO. We went IPO with 7.4 million members. And then you see here, here we are today, 7 years later, and this is with 2.5, 3 years of COVID in the middle of that, 7 years later, we've doubled, once again more than doubled our store count to 2,300 stores and 16.6 million members. So you can see how all these years, going through COVID, a great franchise system, all multi-store operators. We don't bring in new franchisees anymore. We grow with the existing groups. Their sophistication and their financial horsepower got us through COVID without a single closure, the industry can't say the same. But it really shows you how we got to where we're at today. And what really differentiates us from the rest of the industry. Everybody is really focused on the -- getting fitter. This is always -- I always look at this slide here, kind of like our graveyard on the back of home fitness trends, and just brands that you've all seen come and go, or struggle along the way. And again, they're all catering to the fit people getting fitter. They're not really getting people off the couch and introducing the fitness for the first time. And that's really what Planet Fitness is about. And to this day, believe it or not, I have never shopped competition opening a store, not once. I'm feel like I am selling pizza, they are selling burgers. Totally different, and I don't pay attention. I do my thing and I play my game. So disruptive brand. Again, we cater to the 80% that don't belong to gyms, although we have some of the best equipment money can buy. It's the same thing you'll find at $150 a month clubs. So the 20% that do belong to clubs, we're still a good option for them and affordable for [ say ] recessionary times, judgment-free and unbelievable value. Some of our locker rooms and our equipment selections is what you see in a 4-star hotel. And disciplined franchise model. So the streamlined business that we created was [ lived ] by accident, right? Get rid of the daycare, the juice bars. But now as a franchise business, we didn't have to find a franchisee and teach them how to run daycare, teach them how to run juice bars, team them how to run aquatics and pools and basketball course and all that stuff. Find a franchisee that keeps it judgment-free, keeps it $10 a month and markets it like hell, right? And a very disciplined franchise model. If you've belonged to gyms in the past, as you have witnessed I'm sure, most gyms, if you go to a gym that's 15 years old, the equipment is 15 years old, and the locker rooms are 15 years old. The industry has been plagued with lack of CapEx. And I always have a saying, I never want to be out-newed. So we have very disciplined re-equip schedules, all the cardios replaced in year 5 in all our stores, and all the strength is replaced in year 7. And every club is fully remodeled on 10-year anniversary when they have to renew their franchise agreement. And one very unique royalty stream too that we have is how we collect our royalties, which is very unique to franchising for us. Because of 16 million members, our electronic funds transfer for the monthly dues, with our third-party POS company, we draft the 16 million members, and we take our royalties off the top and then give the balance back to the franchisees. So there's no receivables. There's no collections. There's no proof of revenue. We control that. So that's how we collect our royalties, and our ad dollars 2% comes right to Planet Fitness corporate, and that's how we spend the marketing machine. So again, back to the fuel and the growth of the industry. Look here, the 8 years leading up to COVID, the industry grew by 12.8 million members. Planet Fitness was 11.1 million members of that. So really Planet is making that pie that much larger and growing the rest of the industry. 87% of the member growth to the industry for those 8 years was Planet Fitness alone. And in fact, in 2018 and 2019 leading into COVID, we accounted for more than 100% of member growth, and the industry opened 2,800 locations, of which we were only about 500 of that. And again, it's because the fit are getting fitter, and that's what the industry is catering to, and not Planet. So all they're doing is playing tug of war with another customer. So the CrossFit guy left LA Fitness, the CrossFit guy now goes to Orangetheory. That person now goes to F45 until F46 comes out, then they go to that, right? And that's how that plays out. And that's the same person that went to Peloton that once bricks-and-mortar opened, they left it outside and they put it for sale on Craigslist. So again, the industry has kind of catered to the fit getting fitter and just playing tug of war. And that's probably why as we all heard horrible cancellation practices in the industry, is because they know that they're leaving you to go to competition. My competition is the couch. It's Chili's, it's Uno's, it's the movie theater. It's not the club across the street, because I'm getting people off the couch for the very first time, how do we make it fun and nonintimidating, how do we make it inexpensive and get people off the couch to give it a try the very first time. And then in our rejoin rates, which you've heard me talk about post-COVID, is 30% of our joins are rejoins, it's 30% higher than it's ever been. The people come with a great experience and even if they cancel when life gets busy, they [ know they'll ] be back. Just to put it in perspective on a graph. I was in, you can see if the industry would be relatively flat if it wasn't for us, right? We were accounting for all that growth. It's really catering to first-timers. And this here is the video. So I'm going to show you a video here, which shows you what we went through and how we came out the other side. [Presentation]

It's hard to believe that even happened, right? And here we are. So as I mentioned earlier, so 10,000 gyms in the country have closed, 25% of the industry is permanently shut down from COVID. And because of our unit economics, roughly 40% EBITDA margins in our stores pre-COVID and the strength of our franchise system and our team here at the office -- we didn't lose a single store because of COVID. And in fact, while the industry shrunk, we opened 260 stores in 2020 and 2021 combined. So again, this flywheel is spinning, and we're getting back on track for growth and [ making ] that marketing machine going in digital as well, pushing sales, pushing joins to get people off the couch again for the very first time. And the other thing you'll see [ is ] briefly hear from Jen is that the penetration of Gen Zs has really taken off and we keep seeing [ each ] newer generation, their propensity to join gyms and work out is higher than the previous generation. And we just saw this as you saw in the high school summer pass. We did that in 2019 for the very first time because of COVID, we had to take a couple of year hiatus. In 2019, we had 1 million high schoolers get off the couch and give Fitness a try for the very first time for free, no charge with no strings at all. And this past year, we did it, we relaunched a high school summer pass. We had 3.5 million kids in the U.S. that were high schoolers, decided to work out at Planet Fitness in 90 days. To put that in perspective, the 3.5 million is more free teens than the next closest competitor has as paying members, and we did it in 90 days. So their propensity to join gyms is even higher than any previous generation. And these are younger subset in Gen Zs, but we see the older Gen Zs that are in their early 20s, joining at great, great pace. And this is a great tailwind that this industry has, specifically Planet Fitness. And you'll see more of this in just a second. This is put it in perspective again, this is pre-COVID 2019. Gen Zs were our smallest membership -- part of our membership base. Gen Z is 5.1% penetration of all Gen Zs in the country over the age of 15 pre-COVID. So just since COVID, Gen Zs are now our second largest part of our member base, with 25% of our members are Gen Zs. And we have almost 9% penetration of every Gen Z over the age of 15, and there's still 5 more years of Gen Zs to age in. So it's about 70 million Gen Zs, and we're already at 9% penetration. And you see that the millennials are almost 9% as well, but they've been hearing our marketing for almost a decade and a half, 2 decades before Gen Zs out. So you can see how this is going to grow in the future as we continue to go. Also important to note that almost every generation is back to or above pre-COVID levels, except for the boomers, and they're almost back, and you'll see that from Jen's presentation as well. With that, I'll turn it over to Jen Simmons.

Thanks, Chris, and good morning, everyone. As you can see from what Chris just shared with you, we have something most brands would kill for. Our average member just keeps getting younger. And that's not because we're losing the older demographics, we're not. They continue to grow, and I'll show you what that looks like. It's because each successive generation is prioritizing health and wellness more than the prior one. We saw this heightened through the pandemic as studies showed that working out regularly could help boost your immune system, but this wasn't just a COVID phenomenon. We saw these trends well before the pandemic. So I'll walk you through what that looks like. But before I do that, I want to talk to you about how we think about our total addressable market. It's everyone. Everyone who's old enough to join a gym. So otherwise not limited by age or gender or household income or geography, it's everyone. So when we talk about market penetration, it means the percent of the total population over 15 who's a member of Planet Fitness. This is our market penetration trend for boomers in the U.S. from 2016 to today. As you can see, our penetration of boomers was growing steadily prior to the pandemic and at its peak in 2020, we had 3.4% of all baby boomers were members of Planet Fitness. Not surprisingly, this dipped during the pandemic as the oldest people were considered most susceptible or at highest risk for illness. And while our boomer penetration has not yet fully recovered, it's pretty close at 3.2% and joins are on the rise. Now here's Gen X. Note it was growing at a faster rate than boomers pre-pandemic, reaching a peak of 6%. It's now nearly recovered at 5.9% and continuing to grow. And one thing to note about the trough that you see here in all 3 generations is, it wasn't caused by an increase in cancels. In fact, in 2020 through the pandemic, our attrition rate was the same as it was the year prior. It was because people stopped joining during the pandemic. So that's what creates that trough. Here's where we start to see more of a significant recovery and a steep climb out of the trough. Millennials were growing at an even faster rate than Gen X, even pre-pandemic, reaching a peak of 8%. Now we're already well past pre-pandemic peak at 8.7% of all Millennials in the country are currently a member of Planet Fitness. That's higher than Gen X was at their age. And here's where it gets really good. Here's Gen Z. Look at the slope of that line. They're joining at rates we've never seen before. These trends were clear well before the pandemic, which is what inspired us to pilot the Teen Summer Challenge in New Hampshire in 2018 and then launch it across the country in 2019, generating even more brand awareness across this youngest generation. While the other generations paused and you saw that trough, Gen Z just kept joining. They never dipped below the pre-pandemic levels. In fact, Gen Zs in 2020 and 2021, were joining at 2x the rate they were pre-pandemic. And today, they've already surpassed millennials at 8.8% penetration. Putting all that together today, our system-wide penetration is 6% of our total addressable market or 6% of the U.S. population, the age 50 and older is a member of Planet Fitness. So let's shift to the future and what drives our confidence in our ability to continue to not only grow but to continue to outpace our competitors. We're going to continue to go after joins of all generations through our national advertising promotions. We're also going to target Gen Zs as we did with the High School Summer Pass and have more targeted campaigns there as well. We've already converted 5% of the nearly 6 million teen participants and their parents from this past summer to paying members. And as Chris mentioned, today only 6% of the more than 70 million Gen Zs are even old enough to join Planet Fitness. They won't all be 15 until around 2027. In fact, we [ add ] -- if historical trends hold true, which we have every reason to believe they will, that 6% penetration could be just the beginning. We see no reason why that can't double especially as we continue to grow members in stores, which fuels the growth of our advertising funds, both national and local. But we're not just focused on Gen Z. The next generation is Gen Alpha, and they're seeing our brand across multiple channels today already, and the oldest Gen Alphas don't turn 15 until 2027. And we have a significant head start versus competition, not only in high value, low price, but across the total health and wellness industry. We're more than 60% bigger from a unit standpoint than all of our next 17 competitors combined. Even if we stood still, which you know we won't, it will take our next competitor decades to catch up to us. especially when you consider we're already spending nearly $250 million in advertising. Our welcoming environment, the Judgement Free Zone, is hard for anyone to replicate, and we've been ingraining it in our culture for nearly 30 years. And now I'll turn it over to Jamie Medeiros, our Chief Brand Officer.

Good morning, everyone. Can you hear me okay? So thrilled to be here today. As Chris mentioned, I've been with the brand a really long time. I was actually probably one of the people paging him back in the day that things were broken or the blender broke. But I am so proud of this brand and so passionate about what we do. It has been an incredible, incredible journey over the past 20-plus years to watch our growth and really be a part of that story. And I have the opportunity today to talk to you about 3 things that are really, really important to this marketing machine and this flywheel that we talk a lot about. So first, our size and scale and our competitive advantage that Chris and Jen have already talked about, our integrated approach to marketing, how we're really bringing national and local together. And then lastly, our evolving messaging. So how are we evolving our marketing to get more of the 80% off the couch, especially with some of the things that we've learned from the pandemic and how we're going to emerge post-pandemic. And so let's start with our size and scale. Chris and Jen talked a little bit about this, but we really have such a broad demographic appeal and that is proven by our membership base. Our membership base skews slightly female. We have a huge compelling value, which we've talked a lot about, but we really attract all income levels. And then all ages, as Jen just discussed, we really attract everyone and, in particular, are seeing some amazing growth from younger generations. And this scale allows us to have this huge competitive advantage. So if we look at advertising spend from our competitors combined. They're only at $22 million in spend compared to our spend at over $240 million. So just a massive difference there and really gives us that huge competitive advantage in the marketplace. And one of the things that we're really proud about as a brand is how we show up. How do we tell our story? How do we show the consumer judgment-free when we go to market with these big campaigns. We've spent almost $1 billion or over $1 billion, excuse me, since the IPO. And we've been able to activate some really amazing brand partnerships. Those are things like National [ CineMedia ] partnerships. We are the longest standing New Year's Eve partner. It is one of our marquee partnerships that we're really, really proud about. Our debut at the Super Bowl and not to mention how we're able to really make a difference with programs like high school summer pass, but then also collaborations with Amazon Halo that Sherrill is going to talk about in just a minute. So just a really amazing opportunity, and this flywheel just keeps going and we're able to show up in these unique places. So secondly, our integrated approach, really making sure we're going to the consumer with one voice and really making sure that, that consumer is at the center of everything we do, whether that is advertising on paid channels, or in our clubs or in our digital footprint. And looking at how we structure ourselves and our agencies to really enable that. And so in our new model, we have an integrated headquarters team, but we also have a reduced amount of agencies that we're working with, so we can really control the messaging and the cadence to the consumer. But one of the things that I want to lean into for just a second is this idea of how we're fueling that flywheel. And so when we look at how we're structured internally, really taking the insights and data that fuel our strategy to then go to market and activation. And so that allows us to continue to learn and get better and get more refined so that when we're going to market with these big advertising dollars, it's much more coordinated. And then lastly and probably the most exciting is our evolving messaging. We have stayed true to our brand for many, many years. Chris and Jen talked a bit about this. And that's not changing. We're always judgment-free. We're always low priced at our $10 a month membership, and we're always accessible to the masses. But how are we evolving to get the 80% off the couch. And through the pandemic, we've really seen that there are these intrinsic values that will motivate consumers and things that people really need in their life, especially post-pandemic. So how are we thinking about this? We're going to continue to highlight the benefits of fitness. And when I say that, I mean how fitness can make you feel and that post workout glow, we're going to highlight how movement can help you achieve better energy, more -- better sleep and less stress. And that's something that we have been highlighting throughout the past year, and we'll continue to do. And we've talked a lot about younger audiences today. And so as we think about our go-to-market strategy, we're going to continue with programs like High School Summer Pass. It's such an amazing way to bring people into our brand. But we're also going to look at emerging channels like TikTok. We know that's a huge platform where these younger generations are playing. And how are we going to serve up relevant content to really bring them into our brand. And then lastly, we are really doubling down on multicultural and how judgment-free zone means so much more today than it did a few years ago even, and how we're going to really make sure that everyone feels represented in the judgment-free zone, because that is really authentic to who we are as a brand. I've talked a little bit about how we're going to bring people into our brand and how we're going to bring people into the club. I'm going to hand it over to Sherrill Kaplan, who is going to talk to you about how we're going to engage them and how we're going to get them to stick with us.

Good morning, everyone. I am Sherrill Kaplan. Thanks, Jamie. So as Jamie said, and you've heard many times already this morning, our mission has always been to get the 80% off the couch to start their fitness journey. But we're investing now more than ever to also get members to stick to fitness with an improved member experience. This has always been important. Member experience used to be, however, about a clean club and friendly staff, but now consumer expectations have increased. So to meet this demand, we offer our members a robust digital experience, complementing the already great brick-and-mortar experience. And like what Jamie described about our media spend dwarfing that of our competitors, we also firmly believe that no other fitness club can provide the same digital member experience. And why is that? Well, we have been investing in our app all through COVID, unlike our competitors who are simply focused on keeping their doors open, and it's working. Pre-pandemic, approximately 30% of new joins came in via the website or our mobile app, and today, that number is north of 75%, and nearly 90% of our members use the app. So you can see we've created a true flywheel: the more members that we have, the more opportunity we have to wow them, driving higher dues and longer tenure. There's a number of ways my team also partners with Jamie to get folks off the couch and into our gym. So to start, we are very excited to announce -- drum roll, please -- we are releasing a newly designed app next week. So why did we focus on updating the app first. Younger generations grew up with a device in hand, and all PF members use the app to check into the gym. As you might recall, we don't hand out the key tags anymore. So due to our high app engagement, we were compelled to modernize and improve our app experience, really ensuring we have a seamless journey from prospect all the way through to member. So I'd like to share a peek at our club training video from our own head trainer, Teddy Savage. [Presentation]

So look out for that next week. So you can easily see through the video how our new app is going to enhance the member experience. But we are particularly excited about the changes we've made to welcome new prospects. So today, if you download the PF app, you will land on this beautiful purple screen, where we make prospects create an account even before they know what's in the app. And unsurprisingly, this caused many prospects to drop off. With the new app, we introduce prospects to the judgment free zone. As you can see here, we invite them to explore gym with a virtual tour. We invite them to try a few workouts. We clearly display the membership plans and we showcase our Perks program. So back to the members, their satisfaction, as I mentioned earlier, is critical to our flywheel. The more convenient and valuable we make a PF membership, the more brand advocates we can create. So to ensure we were building the right features in the app, we talk to members about what they wanted to see. And we heard 3 common themes, from both prospects and members, actually. And they are, one, I want guidance. I don't know where to start or go next, which makes sense if you think about our target, the 80% on the couch. Two, I want motivation. I'm bored or I'm disengaged. Three, I want fitness to be easy. It's a lot to keep track of, and it is true there is a lot out there. So let's start with guidance. As you saw in the video, we have workouts for all. From the couch to the gym, we are here for the first-time gym goer. They can use the PF app to build up their confidence with workouts at home. For their first trip to the gym, we offer tutorials on every single piece of equipment that we have. And as they come back, we showcase workouts they can follow along with at the gym. Moving on to motivation. In the new app, we're building fitness profiles of all of our members, so we can get to know them better. We'll ask questions that allow us to learn even more about our members like what you see here, what inspires you to work out. We can use these insights to connect further and deeper with our members along their fitness journey. Now members love our Perks program because they can rack up their savings, whether they're using the gym or not. Another benefit to Planet is that we can begin to generate partner revenue. So we like that as well. Today, members who engage in Perks save around $7, but very soon, their savings will top $10 as we bring in more relevant and popular partners like you've seen this year, Amazon Halo, Crocs, Grubhub, et cetera. So when member savings hit $10, classic members will have saved enough to cover a month of membership dues, and we will be sure to reinforce that message. So speaking of partnerships, many of you asked about this on the earnings call, and it is an exciting partnership that we are -- today is the last day of this promotion, actually. And I'll give you a little sneak peek. The collaboration with Amazon has been quite successful, and we have some interesting tidbits. So not only do we see great Black Card joins, but for the first time, we saw many classic card members updating -- upgrading, sorry, from a $10 membership in order to get the halo. So having successful collaborations with like-minded partners like Amazon Halo is going to be a focus for us in the future. And hopefully, soon, a new type of flywheel will emerge: more successful partnerships lead to more partners interested in working with us, which leads to even more value for our members. So really, it's a win-win-win for our members, our partners and for Planet. And lastly, providing an easy, seamless interaction for our members. In terms of making things easy, the new My Journey tab will become the hub of all member data, as you saw in the video. It will showcase activity by showing check-ins, which we don't have, that's a new feature, and fitness activities, while encouraging members' progress. And today, we have data integrations with Apple Health and potentially in the future, we'll expand to others such as Amazon Halo. So as you've heard, the flywheel is spinning. We are increasing membership, driving upgrades, improving member satisfaction and much, much more to come. We'll continue to unlock more value for our members, more tracking, more motivation, more personalized recommendations and more savings. So with many more happy members in our clubs, we are going to need more clubs. So to cover development, I will pass it off to Bill Bode, our Chief Operations Officer.

Thank you, Sherrill. Hello, everyone. Nice for you to come today. It's my pleasure to be here. I have to thank Chris 6 years ago, he gave me the opportunity to join this brand, and it's been a great 6 year ride. So thank you, Chris. I am going to talk a little bit about how we're going to grow the brand. I think if you go back to probably -- when I came in 2015 [Audio Gap] franchise [ base ] and how we will change the brand and supporting the brand over the next several years. So we've learned a lot, I think. We've learned a lot about the brand and how the brand can grow and how [ that ] can penetrate the market and where we can place clubs. We have a unique advantage over many other businesses. We know who every single member is. So we know their address, we know who they are. So that's a big advantage when we think about how deep we can go in penetration or saturation of a market, because we know where to place the next club knowing where members are and aren't. And we know when the clubs get more populated, how we can place clubs to create some of the spill effort of where maybe there's too many members in the club, so we can put another club close by. So there's a lot of learning and a lot of knowledge that we gain through market penetration analysis, saturation analysis, understanding our current store level economics and results, the demographics that we have for the marketplace, competitive analysis that we use to understand where we site and also the mature market results that we have. And today, I'll walk you through some of that. So not only today do we believe when we set out in the IPO, I think -- I know we said it'd be 4,000 units in the U.S. We think that number is achievable and beyond, because of what we've learned over time and how we've remapped ADAs and how we've learned as we've grown. As pointed out earlier, there are less options today, right? So fitness has changed through COVID, 25% of facilities have closed. So there's less options today. I think I said more, right? There's less options for people. So we become a better option and an opportunity to grow. I think also, as Jen discussed, the millennial population and then Gen Z and then Gen Alpha, as they're coming into our clubs and that population continues to grow, we'll get full clubs again, and then we'll need to build clubs surrounding those clubs to support the population as it grows. So great opportunity. The other piece that growth keeps doing is generating that marketing flywheel, so with every new store we open and every 7,500 or so members we get in those stores, we continue to generate that 2% that comes to national, and that 7% that goes to local funds. So big opportunity for us to continue to learn and grow. So I'm going to talk a little bit about a couple of things. So one, how we support franchisees to drive that growth. I'm going to show you a couple of examples of marketplaces and how we've mapped them over time and how that mapping has changed and supports that 4,000-plus number as we continue to grow the brand. So I came, I said 2015 is when I talked to him, 2016 I actually joined the brand. In 2016. we had about 160 franchise groups. We had 1,150-or-so stores in the U.S. and Canada at that time and only 2 PE-backed groups in our system. That was then. Today, that number is 2,350 plus in store count. It's 120 franchisees today. A lot of the smaller franchisees are being acquired by the larger franchisees. Some big benefits in that are about market penetration again. So where there's boundary lines of ADAs, boundary lines go away as one owner buys another owner out. Boundary lines are critical areas or more difficult areas to penetrate. When they go away, somebody else can put a club there and there's no competing or potentially encroachment-related issues between 2 franchisees, because one franchisee owns now both sides of the boundary. So with that, again, a different opportunity for us as we continue to grow. Those 120 franchisees today have a large portion of the growth in the system is with private equity today. So they've done as Chris talked about earlier, the simplicity of the model and really making the model at the operations part very simple is great, but they're a sophisticated group on the other side. So with their development organization, their marketing organizations and the other things that support the brand. So we needed to evolve our team to support that sophisticated franchisee. So we've changed the model to be 5 regions in the U.S. Those 5 regions all have a single point of contact lead for the region and a cross-functional group of team members that are involved in marketing, construction, real estate selection and operations. So there that key point is really a more sophisticated person that now can work with those more sophisticated franchisees to help drive the outcomes we want to drive in the business, around site selection, around the best site in the trade area, around the best marketing plan for the business, around the best presales as you see. So they're going to work all the way from what site do we select with that franchisee all the way through 10 years later, how do we remodel? Should we move it? Should it be in a different site because the trade area has changed over time? Is there an opportunity? We did it in Erie, Pennsylvania, where there was one club and could that club now be 2 clubs because the one club was sited somewhere where the population was 10 years ago. And today, the population may move, and there's 2 clubs. In Erie, actually, just a little anecdote, we had 1 club in Erie that was in the center of Erie. And when we went to remodel that club, we were looking to build a second club. And then we found a third site. So we were going to close that middle one and open the other 2. When we opened the other 2, we still had a year left on the lease on the site one. So in that year, that business didn't go down. The other 2 businesses are thriving, and we kept that open, today all 3 are open. So that's an example of how market penetration can happen over time. That's one example, not the ones I'll show you, but one example of how we can continue to evolve the brand. So I'm going to talk a little bit about the bigger opportunity, as I talked about with 4,000 plus. So you probably know we started in New Hampshire, in New Hampshire today, we have 9.8% of the population as a member of our gym. My population is going to be a little different than Jen's population. So my population includes everybody. So from born to old. I'll leave it at that. But everybody in the middle, right? So when I talk about penetration in the slides I'm going to show, I'm going to talk about everybody in the population, not just the addressable population. In Massachusetts, where we went second, we're at -- well, where we are, we're at 7.2% penetration there. And we're still opening clubs. So we opened 7 clubs in the last 2 years in Massachusetts. So through COVID coming out of COVID, we've opened even 7 more clubs there. So just examples of how -- where the brand started and where we can go. So I'm going to take it to probably one about as far as we could go from where we started, maybe California is further, but Houston is pretty far. So Houston. So in Houston, we have one franchisee. It is the franchisee that we originally sold Houston to in 2007. When we originally sold it, we sold them 12 clubs as the potential to grow out in Houston. If you look on the slide, in 2015, we came back to them. They had 10 clubs open, and we said, "We found 26 more targets. Now how do we find 26 more? That goes back to the work I talked about, about market saturation, planning, what could it look like, knowing where our members are, knowing where opportunities were, understanding the demographics. Those 10 clubs at that time had $1.3 million of annual revenue, and we were at 6000 -- 6100 members a club, and we're at 3.8% market penetration is what we could grow to. So the 3.8% that last column is the 26. So if we had 26 clubs, we'd be at 3.8%. Just a couple of facts, because I know you guys love numbers. This is a couple of things. Population is the population of the ADAs. This happens to be 8 counties in and around Houston. It's the population of those 8 counties and the saturation is calculated on 7,500 members a store, times 26 stores divided by the population gets you the market penetration. So that's just how we're calculating by example in these slides. And as I walk you through the next couple, it's that same math. So we came back in 2019 in Houston. And now there are 23 open stores. So they opened 13 of the 26 that were under those obligations in that mapping of 2015, but we found 22 more. So okay, there's 22 more opportunities. So now there's a 45-store opportunity in Houston. Interestingly enough, the AUVs of those clubs almost doubled. They went from $1.3 million to $2.2 million over that period of time. So great growth, if you look at the membership, $6.1, $8.5, that shows you a little bit about how we drive AUV. It's not just pure membership. It could be in the pricing of Black Card is where we've moved. It could have been in our annual fee structure, it could be in join fees. So there are other dollars that enter that AUV beyond just $10 a month. But the growth has not doubled in people, but it almost doubled in AUV. And with 45 total clubs, we'd be at 4.8%. Advance one more. 2021, we resold it again, remapped. Now keep in mind, it's still the same franchise group. We haven't changed franchise groups here. We're just remapping it and they're not at the end of their development agreement. We're remapping it because we understand there's more opportunity. So at this point, they've got 28 stores open. So they only opened 5 more of the 22 that were in the last mapping. But we then found 39 more. It's 2 years later, 39 more. We're now at a 67-club opportunity and at this point, they're still doing $2.2 million in sales in those mature clubs. These are mature club sales. They're now at 8,000 members. The membership came down a little, but that's probably COVID, very candidly, and -- but their future saturation would be 7.1%. And then take it to today. So today, there's 34 open clubs, a 45-store more opportunity for a total of 79 units. Today, they're doing $2.3 million in AUV. They have 8.5 thousand members -- 8,500 members, sorry, and the future potential that 79 clubs would be 8.4% in market penetration. So that's one example, pretty far south, away from home base as we sold the marketplace and how the marketplace can grow. So I'm going to take you 2 more examples of that around the U.S., and I will tell you I could take you through multiple marketplace examples of this that aren't here. Philadelphia, Pennsylvania. So we opened our first club in Philly in 2006. So in 2006, we open a club. In 2008, we sell an ADA. That ADA has 3 clubs open, and we find 39 targets, a total of 42 units in the Philadelphia market. And it would be at 8.5% if we opened all 42 of those units. In 2017, nearly 10 years later, we come back. There's 27 open clubs at that point. 16 more targets are found. Again, now the AUVs have mature clubs because they weren't mature in 2008, those first couple, it's $1.9 million, 8,800 members and 8.7% is now the saturation. So that's the 42 to 43 total units. So if you look at that, there's only one more total unit, that's why not much change. We come back in 2019, we map it again, there's 28 current open, 27 more opportunities. So that number grows quite a bit to 55 from the 43. Again, AUVs continue to grow to $2.1 million, they have 9 point -- 9,400 members in their clubs. The decimal point is going to mess me up the whole day. But they have 9,400 members in their clubs. So that's a lot of members for us at that point, right? So that's the opportunity I talked about earlier about you build that next club because you're starting to get to big numbers in clubs. And today, there's 40 open and 19 more opportunities for 59 total. So you'll see that member number come down. That's part of that membership number come down is that we're building clubs around clubs to drive market saturation. But we've now got a market penetration projection of 12%, which is a very significant penetration number. Again that's against the total population, not just 15 plus. Last example is Miami. So we opened our first club in Miami in 2010, and we mapped the ADA again in 2017. So in 2017, there's 12 open between 2010 and '17. There's 26 targets at that time for a total of 38 units. We're doing $1.8 million in those clubs. So again, great numbers with 8,400 members. So again, over that 7,500 target that we like to be at, at 8,400 with 7.3% market pen. 2021, we come back and map it again, the 12 went to 21. So we've opened 9 more clubs. There's 22 additional targets for 43. So that grows by 5 targets over that period of time, and the penetration gets up to 8.3%. And then lastly, in 2022, there's now 23 clubs open. We have 27 more targets for a total of 50. The clubs are now doing $2 million in AUV, there's 7,700 members at that point with almost a 10% market saturation. So again, you can see how the brand can go very deep in saturation. And my -- I'm telling you, we'll model every single one of these again and you'll see those numbers grow the next time we do it. It won't be that we're done because we'll continue to learn more about where our members are. We'll continue to learn more about how that membership can grow through younger populations, and where we're not serving them and where we need to meet them. And we'll also learn where we're -- the club volume is busy. So it needs another club to help offset some of that. So how are we looking at the inside of the building and what can we do there? And how do we change how the building, the equipment in there and the flow and the use to meet that ever-changing consumer, particularly the younger demographic. So we hear from our franchisees, we hear from members themselves. We hear from our teams that they're starting to use the club differently. Chris talked about it earlier, pulled out everything and put a bunch of cardio in place of it, instead of having pools, instead of having the aquatics, instead of having daycare, we dedicated a good part of that floor to cardio equipment and then we had strength and free weights also in the building. We're now looking at that mix a little differently, so that we make sure that we're building out the club to meet the consumers' needs. And I say that without addressing a fad, right? So we're going to be very careful about slowly evolving what that could look like. You won't see us change the footprint and making it up from 50-50 on cardio and everything else to 70-20 or 70-30, which is not going to happen. We're going to slowly look at that and figure out how we evolve the model and make sure we're meeting it. In High School Summer Pass, we watched how people move through there and saw how a younger generation uses our facilities. So we're still going to continue to monitor that. We work with a couple of different outside vendors that help us look at this. So Magid is a vendor that we use, there's a lot of quantitative and qualitative work for us to understand what the consumers' needs and wants are, through equipment and through the facility. Ecofit is a company that actually puts sensors on equipment. So it's -- strength is hard. It's easy with cardio, right? You can tell how long somebody has been on a treadmill, all that data comes back to us. We know exactly how people use cardio equipment. We don't know exactly how they use strength equipment, now we do. We're learning more about that by putting sensors on equipment, so we can see how long they're there, what they do, and we can understand that. We also have heat sensors in a few of our locations. And that's a heat mapping, so we can see where consumers or members congregate in the club. So we can see they're by this piece of equipment or by that piece of equipment, so that we're watching the member move through the club and understand what they're using that way, and it will help us evolve the model. That's particularly good in like the free weights area, where there's no sensor you could put on dumbbells to understand how -- but we can see that they're there, how long they're there, and we can understand more about it. We're also working with a couple of universities. So we've actually went to universities. The team went to actually UNH just a couple of weeks ago to watch how a younger generation is using those facilities -- not our facilities, those facilities -- to understand how they use the facility, how does somebody in a stretching area want to be by themselves. Maybe they want a space where they can be more private, right? So we're learning more about that by looking at some universities and really understanding how to build out the club perhaps differently than we do today. So I think to close it, we're going to continue to grow. We're going to build clubs where consumers want us to be. We're going to provide an environment in those clubs that the consumer wants. From an equipment perspective, from a judgment-free perspective, we're going to make sure we meet that. And we're going to continue to grow the brand that way carefully and exceeding that 4,000 with the knowledge we have today, we feel very comfortable. In 2023, we will reevaluate that more broadly and come back to you guys with a better number on that. But between now and then, we're doing that work. So with that, I'm going to turn it over to Tom Fitzgerald. He's going to walk us through kind of how all this ties together on the finances side. Thank you, all.

Hey, everybody. Nice to see you all. Welcome to again, our first Investor Day, certainly look forward to more of these in the future. It's great to see -- you've heard us talk about how the more stores we build, the more stores we realize we can build and to see a few of those examples play out in real life. We haven't shared that kind of information before in depth and hopefully you found that useful. I'm going to cover 4 things today. The first is how we fared historically, particularly in the last recession, a lot of talk about whether we're in one, not in one, how long it will be who knows, but at least we can hearken back to the great financial crisis. The second piece will be how our model differs from other multiunit brands, in this case, QSR at a 4-wall basis. Our model is really unique and want to make sure folks understand that. The third piece will be our own 3 segments as the franchisor, the franchise segment, the corporate stores and equipment and the opportunities we see in all of those segments. And lastly, I'll spend a little time on capital allocation, how we're thinking about that as well as our 3-year algorithm. So with that, you all have seen this before. It is still amazing to think about that prior to COVID, there were 53 straight quarters of positive comps, the vast majority driven by member growth. And the simple average of 12%, having spent a little bit of time in different multiunit concepts, 12% was a crazy number to have for a year, let alone for that period of time. It's amazing. It was disrupted during COVID, as we know, and the meter has started back up again. So we've got five quarters again with positive comps. We don't see anything preventing us from getting back to the kind of track record that we've had before. And this year, we're projecting a low double digit for the full year. And this is a couple of stats back to the great financial crisis. The brand was clearly a different size, as you saw on Chris's timeline earlier, but back in '07, we had 168 stores. A couple of years later, we almost doubled it to 302. Membership during that time more than doubled. Now the records aren't super great going back that far, but we do have a very knowledgeable person that we can refer to. A couple of them actually, in Jamie and Chris -- and a lot -- there were some -- clearly some trade-down from folks coming from higher-priced gyms as they got pinched economically. But likely, the majority of the growth was from us getting people off the couch, as we continue to do. And you can see the same-store sales growth there. It's also interesting in the '20s. It's also interesting to note that back in '09 at 300 stores, you look to, fast forward to today, Crunch has 400, so a little bit bigger than we were back then. And we've added 2,000 stores since 2009, pretty remarkable. So the model clearly does well in good times and in tougher times. So now I'll turn to our model and how it compares on a 4-wall basis to an illustrative QSR concept here, that we had some bankers do this for us. So this is pre-COVID for a mature store 3 years plus. And you can see this is for us -- we would say historically that pre-COVID, a mature store 4-wall EBITDA for a franchisee would be in the high 30, low 40 percentile. So we just kind of split it here for 40%. We clearly have some stores that do well above that. The big thing it's starting off with adjusted EBITDA, we're at 40%. The typical QSR, you can pick your brand. Typically, high teens is pretty good. So we're roughly 2.5x that margin. But what's really interesting is the difference in the cost structure. Our business is largely fixed cost. So whether -- just to use a kind of a crazy example, if there was a store that had 6,000 members in June and got to 7,000 members in July or August, the costs don't change. Maybe have to buy a little bit more rolls of paper towel to clean the equipment, more members are using it, but labor doesn't change, nothing else changes, quite different than a QSR where you get more traffic, you have to add more people because they make the product in the store, you've got to buy more burgers, fries, whatever you're selling. It's a very different model. So the only variable cost the franchisee has for our -- in our business is the royalty they pay us, which is about 7% -- our stated rate is 7%, the average is about 6.5%. But say 7% -- and then they're required to spend a minimum of 9% of monthly member dues on marketing. So as a percentage of sales, that's actually 7%. So you add them 2 together -- add them together, you get 14%. Everything else is fixed. So every new member that comes in, their incremental dues, what you've heard us say, $0.85 plus on the dollar drops to the bottom line. And that's how that works. So as the brand was growing with those same-store sales -- that same-store sales history you saw, the franchisees in our own corporate clubs' EBITDA margin was growing as well. So when you look at what does it mean dollars and cents for a given level of EBITDA dollar improvement on a 4-wall basis, which is the vertical axis, a QSR has to grow twice as fast as we grow -- as a Planet would grow in order to get the same dollar improvement in EBITDA. It's just a very different model. The flow-through is incredible. And having spent time in retail and restaurants, [ who ] would kill for this kind of model. And that's why I think back to Chris's point, we've been able to disrupt the industry. We spend a lot of money in marketing. This is -- these are margins after people are spending this 9% on marketing, which is -- and 7% on royalty, able to really disrupt things and drive that sort of growth with our flywheel. And also franchisees to have the money and the wherewithal to sustain a 2-plus-year period that we never imagined. Now one other thing that we've heard a lot about while we're looking at this slide is wage inflation. Clearly, it's up. In our legacy clubs, plus or minus, if you look at 2019 compared to midyear this year, our average wage is up about 20%. Not great. Thankfully, that's moderating. Our franchisees experience the same thing in different markets at different levels. But if you think about wages, labor is typically high teen -- mid-high teens at most low 20%-ish range percent of sales. So not a big component. So if you apply that kind of wage inflation, that affects margins. But a mature store would only need about a year of 6% AUV growth, which is not uncommon in a mature store, to more than offset those wages and bring the EBITDA margin back to where it was before that wage inflation. So hopefully that makes sense. It's just another indicator of low cost, low labor model and the benefit of the flow-through from the incremental growth. Okay, we had a little fun with this one. We went back to the IPO and said, what did things cost back then and what do they cost now? Now it's not a comprehensive list. We tried to pick a few things that were somewhat relevant to what people buy and -- or buy frequently. And as you all know, our $10 price hasn't changed in forever. Oddly enough, there's a couple of things -- I know some of you in the back may not be able to see this -- but there are a couple of things that also haven't changed their price. It's the Costco Hot Dog/drink combination, still $1.50, not the greatest thing to buy, but they're still $1.50. And Spotify is still $9.99. And as we work our way up, I'm not going to read them all off, but you can see that whether it's eggs or movie tickets or a gallon of milk or a Big Mac or coffee at Dunkin' Donuts, prices have definitely escalated. And you look at some fairly well-penetrated subscription models. Netflix used to be $9.99. That was a while ago. It's up 55% from that. And Amazon Prime, arguably one of the best deals in retail, used to be $99, it's not anymore, and it's up 40%. So people -- and our own Black Card has gone up for sure, as we've talked about. But the -- I think when you array different things that people are spending money on, we clearly come out ahead. And the $10 price that we're really known for, not changing all these years, still befuddles people. They don't know how we do what we do for $10 and how we make money and the fact that it hasn't changed. And whether you're right down the street in New York City or you're in Des Moines, Iowa, it's still $10. We don't vary our pricing. But what we have done is collected more dollars from our members over time. So what this lays out here on the left side is starting in 2000, the white card -- the classic membership on the bottom, the $10 at the time was $10. So your annual dues to us was $120. We didn't have any annual fees. The Black Card -- it wasn't called the Black Card yet, but a few years later it was, but we had a membership level at $19.99. Again, no annual fee, so you roughly paid us $240. And through a progression of increases in annual fees -- well, implementation of annual fees and then an increase to them as well as some Black Card price changes first in 2017 when we went up $2 from $19.99 to $21.99. And then more recently here in May, up to $24.99. You can see that the actual price that we're -- or the amount of dollars we're collecting from membership has changed a lot, even though the vast majority of the $250-plus million that we'll spend in any given 12-month period that Jamie referenced earlier, is going to advertise the $10. And it's still just an amazing feat in retail or any multiunit consumer-facing brand that we advertise $10 and 6 out of 10 people who walk in thinking they're going to buy a $10 membership walk out spending now, almost 2.5x that, it's incredible. So over time, this -- and by the way, the Black Card membership or the $19.99 membership level back on the left side here was about 20% of the mix, and now we're approaching 65% of the mix. So the overall pricing mechanism and the dues that we collect is really quite different than how we're sort of perceived at this crazy value. And we know we have more opportunity as we move forward with increasing the Black Card mix, ultimately continuing to look at that price. You've heard us say we're probably never going to change the $10, never say never, but probably never on that one. Given there's still 140 million people who live within 10 miles of a Planet and don't belong to any gym, why raising that is not going to help that penetration. And you may know that we're currently testing, raising the annual fees to $49. So we'll see how that goes, but that will definitely benefit both our corporate clubs and our franchisees. So more to come on that. We're still reading it. Now the third area are our 3 segments. And I think what's interesting with a disruptive model, everybody kind of wins. The member wins because the value is incredible. As Chris said, you get basically the same equipment-- I used to work out at Life Time Fitness before I joined Planet-- for a hell of a lot less. So the member clearly wins. Franchisees win because, as you saw, they make a lot of money. The 4-wall economics are incredible. And the franchisor, thankfully, can also make some pretty good margins. So I want to walk through the 3 segments here that we have and where those -- where we see those opportunities in the coming years. So and you can see at the bottom, the Q3 year-to-date revenue mix and EBITDA margins. So on franchise and corporate stores, clearly, member growth is going to continue to be the driving force of our brand. We talk about the -- we've doubled the membership base multiple times. We'll do it again. It's just a question of how long it takes. So that will continue to drive the growth, both in franchises for royalties but also corporate stores on the top line and increasing the EBITDA margin. Black Card pricing and mix I talked about, we know that's a driver and continues to increase. And even as we've raised the prices, as many of you know, when we raised the prices that I showed back on the previous chart, the Black Card mix of membership continued to increase, which just really is proof of what a great value that is. On franchise, we know we'll come back to royalty rate. You've heard us talk about that. If COVID never happened, we probably still wouldn't be at 7%, but we've got to wait until our franchisees' mature stores, membership margins come back to pre-COVID levels, and I think we can revisit it. And we also may play with the marketing required spend just to toggle those a little bit, that's in our future. Web join fees. You probably know we collect $5 for every new member that joins either through the app or online, and that continues to be an increasing part of the mix of membership joins. And international, I'll touch on that in a second here. Back over to corporate stores, I mentioned the annual fees we'll continue to tinker. And one of the great things about having 10% ownership of our system is we can test different things before we ask franchisees to do that. So annual fees being one of those. And I talked about the flow-through. And then in equipment, we have kept the margin pretty constantly. We don't have any plans to change that, but know it may be an opportunity to revisit down the road. But importantly, it's an incredible -- the franchise obligation and requirement for their agreements to re-equip all of their cardio, replace all of their cardio every 5 years and their strength every 7 years, creates an incredible annuity that if you add up the next 5 years, it's over $1 billion of our revenue. So they're all very different, but they all have tremendous opportunities. I mentioned International, I want to come back to that. So as you know, we're in a few countries, some bigger, some smaller. But importantly, we think it's an incredible opportunity. And as Chris touched on, the U.S. at 20% of the population belonging to a gym, that's the high-water mark. Most other countries are below that and in some cases, well below that. So Canada, where we have 60 stores, got started there a few years ago. They have 17% membership penetration. You look at places like Australia at 15%, Mexico, Panama, low single digits. It's not because they don't want to belong to a gym necessarily. It's just there's no access to it unless you're super wealthy. So in Canada, we've got 60 stores. The membership got hit pretty hard by COVID. They had a series of shutdowns and closures, temporary but extended closures. But the -- so the membership there will rebound. Black Card is 62% there. Black Card's 76% in Australia, which is incredible and also quite high in Mexico and Panama, where with Mexico, we're quite pleased with our new franchisee there. We have 12 stores, 82,000 members combined, pretty amazing. So importantly, we haven't seen a place where the brand doesn't work internationally. And we think the notion that people are people, whether you're in the U.S. or abroad, the same things appeal to folks here will appeal to folks there. And we've done all this work with a very small team. We've got a couple of people working with our franchisees on some tactical things, and it's a little bit of everybody else's job. So in 2023, we're going to invest in a relatively small dedicated team to focus on international and really start to drive our growth, not only in the existing countries where we are but to start to increase our pace of development from what has been roughly 1 or 2 new countries a year to 3 or 4. Now that's not going to happen overnight, but it will spool up to that. But we see this as a tremendous opportunity. I want to spend one more minute on international and just look at Europe, which we've described as one of the more developed markets in the world. And we're just calling out a few of the big key competitors here, many of you know them, Basic-Fit with over 1,000 locations, McFit, PureGym and The Gym. Interestingly, we're showing the lowest price they offer to their members. And as we look at it, nobody is really offering that get off the couch price. The one exception, these are in euros and pounds. The one exception is PureGym at £9.99, but that's only in like a couple of their 500 locations. They do very dynamic pricing. They price to the market in the locale, even within England. What we could find there's only a couple at that price. So no one is really offering the $10, you got to be kidding me, how can I not try it, sort of get off the couch price. Nobody. As importantly, as Chris touched upon earlier, $10 is part of the equation, it's not the full equation. As best we can tell from visiting those clubs, those brands, nobody is offering the nonintimidating, judgment-free environment. They've got the heavy weights, the heavy dumbbells, they've got the Olympic benches. They've got tires you flip, a lot of grunting and groaning going on in those facilities, and in some cases, even a boxing ring. So we believe whether you're in Birmingham, Alabama or Barcelona or Berlin, if you've never belonged to a gym, all those things are intimidating. People are people. And so we're quite excited about the opportunity to explore these areas and bring what we do because no one is doing what we do, the way we do it on those 2 important dimensions. So more to come on that, but as we're thinking forward, that's a big opportunity. Let me move to the fourth area now to talk about how we've been thinking about capital allocation and our 3-year algorithm. So first, capital allocation. This is a relatively short period of time. Q3 of '18 to just before the pandemic, and the bars are our leverage ratio. And we -- as you know, we sort of would lever up to 6 and quickly delever just because of the growth of the model. And then we did it again just before things shut down in 2020. But over this time, we repurchased $800 million worth of shares. And so as we think about it, given what happened, we're glad we did it. We're glad we had the cash that we had to make it through any sort of liquidity crunch or extended period of closures, and I think that provided great comfort. We tend to manage the balance sheet even though some would say the leverage is -- at 6 isn't really conservative. We tend to manage the balance sheet fairly conservatively, and we'll continue to do so. But we know as this is moving now hopefully more into our rearview mirror, this being the pandemic and the effects of it -- that we can now start to think more strategically about this stuff. So from a capital allocation standpoint, we are absolutely going to prioritize our high-return investments. That's our new stores. Our pipeline was quite robust in our legacy markets. With the addition of Sunshine in February, that pipeline is even more attractive. So we're going to continue to pump our money into those stores, the new stores that return a high -- have a high ROI. Remodels and re-equips, we're going to lead by example by making sure that members in our existing stores have great experiences. So when it's time to remodel, we're going to go to the full on, in some cases, relocating them to bigger spaces, better spaces than we could probably get 10 years ago or so. And also re-equips. No one's going to out-new us, especially in our corporate clubs. And then technology, as you heard from Sherrill, is an increasingly important part of our brand, our member experience, and we'll continue to invest in that. And then share repurchases. You heard -- you saw last week, the Board authorized a new $500 million buyback authorization. And so the way we're thinking about this as opposed to what you saw in the prior slide, we're going to have a consistent level of repurchases of 1 million shares a year. So you can sort of count on that. Again, this all assumes the world doesn't go crazy, which we think it won't, but 1 million shares a year and have the opportunity to opportunistically and plus that up. So where we think it makes sense to buy back more in a given period, we'll do it. But minimum count on 1 million shares a year. And as we think about the algorithm now for the next 3 years, we see revenue growing in the low to mid-teens. We see adjusted EBITDA growing in the high teens and factoring in that 1 million share repurchase, adjusted EPS will grow in the low to mid-20% growth. Now one thing I wanted to note here is we absolutely see the new store growth over the next 3 years averaging 200 plus. We'll talk more about 2023 and how that all looks on our year-end call. Hopefully, we'll know a lot more about the HVAC situation. But I think if you think about this 3-year period in our existing markets -- sorry, in our -- in the U.S., in our existing international markets, and then also the new international markets we're going to enter, we absolutely see 200-plus as being the average. So with that, I'll turn it back over to Chris.

Well done team. Great job. So a lot of stuff put over today. And I think hopefully, it really kind of got showed our road to 4,000 and our confidence in the road to 4,000. I think when you look at our differentiated model, over 30 years we've built this out, right? Market share opportunities that only are better from the pandemic, people paying more attention to health and wellness, the Gen Z penetration and the way they're working out and 10,000 gyms have closed around the country. Brand appeal has increased. Jamie mentioned this in the judgment free zone, what originally was invented about breaking down the intimidation and making people feel comfortable to work in the gym. With younger generations, it's more about diversity and inclusion. So it's a much broader meeting today and really resonates with the younger populations, and you'll see that in our advertising here going forward. And the marketing machine. When you think about the marketing machine, here, we estimate was $250 million of marketing this year. And every incremental member and every incremental store that drive more members is more marketing in that market to get people off the couch and Bill showed how that works, right? That's why we're so confident in that 4,000. And in that marketing budget, we have 20 million members or 22 million members and that continues to grow and that marketing flywheel continues to spin. And then Tom mentioned, 140 million people over the age of 15 around our existing stores already that aren't members of any gym, 140 million around our existing fleet. And I think about that, the opportunity there of what haven't we said, what haven't we told them in the marketing, where haven't we touched them to get them off the couch. There's just so much opportunity for this brand. And that's why I think the 4,000 is the floor, not the ceiling, and so much more opportunity for us. And then we have international on top of that. So it's been really great. I'm going to open up for questions and I'm going to invite the rest of the team up here now just to help answer those with me. Go ahead, John.

So multipart question around international, right? So how do you think about prioritizing countries and regions, thinking about Asia versus Europe and then within those regions. What countries do you want to target first? Number one, two, how do you sort of structure it? Will these be all franchised arrangements? Are you going to use some MFAs and maybe some corporate locations to start countries. And then third, big picture, right? I think would you agree that the -- whatever the opportunity is in the U.S., the non-U.S. opportunity is probably at least as big eventually 20 years down the road or whatever the timeframe is, what -- do you disagree with that for demographic reasons?

Sure. I'll start. I would say Europe is a little different in the sense that there's a lot of bigger competitors, right, where now Asia is one focal point of us that doesn't have a large low-cost provider. So their greenfield makes a lot of sense. In Europe, I think you have to weigh out, does M&A make sense? Do you refranchise some of the countries out or a part of them, but again, to Tom's point, they're not judgment-free. So I think the bigger question there is if you go in there at onesie-twosie start that way, brand awareness is going to be tough to crack when somebody has 1,000 stores like [ Basic ], for example, but they're not judgment free. There's no doubt about that. So there's a much more complicated probably venture into Europe in that sense as far as which really makes sense. You also wonder too, is if you could buy one of those chains over there in some of their poor performing locations or less performing. Do you convert those over and start to test the water, maybe another way to do that. But I do think I don't -- I've seen people are people, and even when we started franchising in 2003, I mean every franchisee said well, California is different. And well, people in Orlando are different than -- and guess what, they're all exactly the same. And whether we have stores in Manhattan or Oakland, California, our best-performing corporate store, witnesses the highest crime rates in the country, works the same. Works just as good. People are people, they're intimidated, they never worked out and they need access to fitness. And to Jen's point, our TAM is everybody. It doesn't judge that or change that. Income doesn't change that. Fitness and health is universal, period, right? As long as you're old enough to work out. So I think as far as the rest of your countries to your point, I think, yes, I think over 10 years, 5 years or 20 years, people are going to evolve down this road, if they're behind us or not.

And John, I think you asked a couple of other parts there too. I'll take a swing at it. I think by the way, in Europe, not all Europe is the same, right? Some countries are less developed, less concentrated. Others are more concentrated. So it's not a one-size-fits-all. I think the MFA thing, we are not fans of generally. We want to control the brand, we don't want intermediaries controlling our brand, especially this one. And the model is relatively simple. So I don't think there's a need for that. The third one, I think you're a former White House reporter in your prior life, you ask a lot of questions. The third one, could international be as big as the U.S. I think time will tell, but certainly, nothing is standing in the way that we see of our model working. Now does it have to be modified? For sure. Like in Australia, they don't allow tanning. So they do spray tanning. In Mexico, we do haircutting not tanning. So we can -- but the core of the brand, the $10 gets you -- get off the couch and the judgment free zone and all the things that appeal to people in the U.S., we think are universal.

Its Randy Konik, Jefferies. I guess just a quick question for Bill to clarify, you said you were looking at testing or you're testing the annual fee potential change as well as maybe looking into the royalty rate. If you're just thinking about when we would get more of a definitive kind of answer on that? Would that be in the next 12 months, next 18 months, how are you thinking about that first?

I appreciate you give me credit, but I think that was Tom who said that.

We are testing. It is like Black Card applies to all new members, it's not retro, right? So we are testing that. We'll read it, and depending on how confident we are in the read will determine whether we want to continue to test it or not. So we haven't made up our mind yet, Randy, but we're looking at the tape every time we can look at the tape, which is once a month, and see how that goes. So we haven't decided yet, but given all the inflation that people have experienced, we think this is a relatively off-the-radar increase. We'll see. That's why we're testing it.

Got it. And then you touched on the Black Card penetration of Australia at 76%. It's -- in Panama it's 78%. I think for the whole company right now, it's like 70%, is more in that ballpark. Maybe give us some perspective on where do you see, at least in the U.S. market, where the Black Card penetration can kind of max out, if you will, especially as you're getting more of these partnerships, these benefits that you get from the Black Card besides being able to go to any Planet Fitness gym with the Black Card. Just want to get -- curious on where you think that kind of goes? And then on -- let's go back to pricing on Black Card. You've raised it methodically, let's say, $1, $2 in the last 3, 4 years. How do you think about where the ceiling is on that, because $24.99 is still well below like a competitor at $50 a month. So where do you kind of think that ceiling is? Is it around $30 long term? Just curious on, Chris, maybe or Tom, how do you think about that potential ceiling for the Black Card, both on penetration and price per membership?

Sure. Yes. Domestically, we're about 62% Black Card across the 16 million members. The -- and as we go up, one thing we kind of watch with the Black Card is reciprocity is definitely the most used feature. One in 5 workouts is somebody using a visiting club. And that hasn't changed even since COVID or work from home, that hasn't changed at all. So as we open more stores every couple of years, you open another 400-plus whatever stores, that reciprocity is a bigger sell. And our Black Card penetration continues to eke up a little bit. And I almost -- we almost think about it a little bit as it comes up, do we raise the price a little bit, ride it back down a little bit, bring it back up. I mean as you open more stores or the meditation pods that are over there being implemented in stores now, and we add more value with the perks with Sherrill and digital app, that value becomes so much better that people keep buying Black Cards, right? And so I think as that rides up, you can probably expect that as it gets closer to maybe 65%, you probably might see a price increase around that point and ride it back down, and bring it back up again over time. We do have clubs in the U.S. that are 75% roughly, and some that are higher. And again, that's the average across the [ system ] right? Australia is high, Mexico is high, Panama is very high. And tanning actually is not big there, but haircuts in South America is very big. Believe it or not, we have hair salons that are Black Card members. We tried that in the States, but codewise it's too hard here, but it's -- but in Australia, like you said, you have spray tanning, not regular tanning. It probably does really well there, too. But I think we probably look at that way with that 65% being the level to stop thinking about it.

And is there just a range between where you think like there's a max out in terms of it? Yes. And where is -- say, competitor, is it $50 a month where they're kind of on average right now?

As far as their price?

As far as if you look at their price on average. An average price of $50 or a spread of $20, an average gym there is still a wide spread.

Yes, I think that. But I think the bigger question that we always -- and I thought we would have hit it by now, but we haven't, is that the $10 difference from that to the jump to the Black Card, which is now, well, 150%. So you're going -- you're almost in the 1.5x that, is that spread too wide that people just won't make the jump? And I thought it was going to happen in '23, no less in '22 and it's still going. So I think that shows the value, right? I think the members are really seeing that. So I don't really know where that ceiling is already. I really don't. I think as we add more value, add more locations, add more perks and so on, I think that time will tell.

Hi, Alex Perry from Bank of America. Impressive presentation. I just wanted to first ask, aside from the High School Summer Pass, what are you doing differently to drive member acquisition of Gen Z? And what would be the strategy going forward? Do you see these younger generations adopting Black Card at the same rate as some of the older generations? And then how do you find member retention as generations sort of age and maybe seek out sort of other concepts?

That's all 3 of you, Sherrill, Jamie, [ Ian ].

I'll start with acquisition and then hand it over. As we mentioned in the presentation, we are looking at ways to kind of double down on these younger generations. So Summer Pass being one of them. But when we look at emerging channels, TikTok, as I mentioned, Netflix is doing -- is changing their structure coming soon. So we're looking at ways and looking at the behavior and the way they're assuming content and placing ourselves in those channels. I think we're going to learn a lot over the next couple of months, whether that's further acquisition from Summer Pass or the Amazon Halo promotion, but we are showing up in places maybe we hadn't before. So you will see a slight change as we look at 2023.

I would say on the retention side, we're probably in Chapter 1 and really testing things and then measuring it because our tenure's already so long. But I think the focus -- I know the focus is really just to maximize the member experience and member satisfaction, and make sure they're thrilled with not only the brick-and-mortar experience, but the digital features and partnerships that we're bringing to them. And I think good things will come if members are happy, right? So we're very, very focused on member satisfaction. In terms of future partnerships, which I think is part of your question?

Yes, future partnerships, sort of Black Card penetration versus other generations.

Gen Z, yes.

I mean the -- so yes. So I can jump in on the Black Card penetration piece. We do see the Gen Z joining at a slightly lower Black Card rate than the older generations. But then I'd just reiterate from a retention perspective, we don't see that change all that much as the generations get -- as the members get older. But I think just from an age perspective, that Black Card percentage is just naturally a little bit low to start.

Thanks, Alex.

Perfect. One quick follow-up. Just on the membership opportunity, I think you talked to the ability to double your membership, sort of if you take the rough math, 33 million members. If this is the right number, 7,500 members per store, that implies sort of a 4,400 domestic unit opportunity. I mean I guess as far as like -- maybe is that the right type of number? And what could drive that number sort of higher or lower?

Yes. I mean I think there's nothing pointing to the -- that you can't get there, right? And we've done it. If you go back, we had 1,000 stores. And we get to 2,000 stores or we get 500 to 1,000 and maybe it just kept happening. I think the bigger question is when we're spending $500 million on marketing, how much deeper do we penetrate? I mean in the high-water mark, I don't think we'll really know because I don't think we really can tell when there's $500 million of spend on marketing at that point, now Generation Alpha is now in the mix, and their propensity to join is even higher than, let's say, the Gen Zs are, the high-water mark is hard to tell. And I think by the time we get to 4,400, the number is probably going to be different.

I think maybe just to add to that, Alex, we don't see anything competitively that's changing or really going to get in the way. I think Jen's slide, one of our favorite slides, is how we rack and stack against all the other HVLP players, it's quite different. So I think both in terms of the spend we'll have, the messaging and options to say more and different things as well as no one else is going to be doing it, we have the share of voice. Joe?

Joe Altobello, Raymond James. I guess first question and that was my first question, Tom, on competition. Particularly for Gen Z and Gen Alpha, if they're not joining a Planet, where are they going to work out?

It's a good question. I'm not -- I think there -- they definitely seem to be using more functional training. The difference, though, I'd say is that most functional boutiques are a heck of a lot more expensive than we are. I'm not sure if a Gen Z is spending $100 or $200 a month for a boutique, right? So I think back to Bill's point, with some of the stuff we're investigating here and studying is what they're using. We looked at just general workouts in the club, for example. And the club is doing 1,000 workouts in a day, let's say, their cardio usage is about 17% down as far as minutes in that particular location, but it's triple because Gen Zs are now in the facility and they're not doing cardio. Strangely enough, treadmills are. Treadmills are exactly the same, but ellipticals and bikes aren't really the thing that they choose. So I think we're learning things and then probably fine-tuning our equipment makeup, so that as that generation starts coming in, we give them more of what they're looking for.

Got it.

Jen, do you want to talk a little bit about the Magid research that we're refreshing?

So the -- our customer segmentation, it's a few years old now. And given that so much has changed dramatically throughout the pandemic, we're actually working on refreshing that, kind of the behavioral view of our members and sort of who's the nervous novice versus what we call fitness hoppers and committed champions. We've got multiple segments where we track them behaviorally and kind of watch them over time to see how we drive lifetime value.

And we might get some insights as well from that, to your question.

That's helpful. And just maybe to follow up on that, in terms of store growth, I know a lot of chatter about 200 stores hopefully next year, potentially next year. And I know HVAC and the access to equipment there has been a big issue. We're also hearing about private equity and their inability to access capital more and more in the last few weeks and months. Are you seeing any or hearing anything from your franchisees about their ability to access capital?

I think most of our franchisees, Joe, they're so large. The bigger ones who are doing most of the development, they have their own term loan structure. They're not necessarily -- and the business generates so much cash, it can self-fund a lot of the growth. They're not necessarily bringing money from the private equity firm in to fund the development. They might have had to do that situationally during the shutdown just to provide some capital for the business, but nobody is really bringing checks from private equity into the business to drive development. It's all either through their existing debt structures, which most of them have in place. And are rates higher? Yes, because it's all floating. But still, relatively speaking to anything else they can put their money against, our returns are, they tell us, the best they see.

Linda Bolton-Weiser with D.A. Davidson. Can you talk about -- I know you've mentioned recently that the attrition has gone down and people are working out more, and seem more committed to working out. But they have 50% of members who don't go into a gym once a month even. I think that ratio has been pretty constant. Is that the case? And how do you work at getting that to go down because you really want people to work out, right? Because when I think that 50% don't even go in the gym, I'm thinking that's a risk to your membership base like in a severe recession. So how do you work on getting more people into the gym? And also the number of workouts for the teens in the summer seemed low when you figure out how many per person and all that. Like how many of those teens actually went in the gym?

Sure, sure. I'll start, and then, Jen, you can take it. I would look at -- it's been -- 50% haven't used a club in a 30-day period. It's been there for decades. It has never changed. And I think when you look at our member is they're a bit episodic. And meaning that they have the membership, so it's there when they want to need it and they want to use it. So they might take the summer off, for example, then they might work out because they have high school reunion coming up, honestly. Then they step off the wagon, holidays are there. And then they have a weigh in they've got to go be in, so they've got to work out again. They work out like crazy for 3 months on that. So as opposed to the typical fit -- getting fitter where they're 5 days a week, hell or high water, I'm making it on Sunday morning to work out. Think about our membership for a minute, like our club that does 1,000 workouts on a Monday, that exact same club, the Sunday, the day before, might do 400. So they're a very different customer than that 6-day a week or 7-day a week. I mean our average person is working out 6x a month. That's it. That's the average. And before COVID, it was 5x a month. But Jen, do you want to hit on some of the other sets?

Yes. I think -- and that's sort of part of our appeal, too, right, is you don't have to feel guilty if you don't work out 10x a month. So then from a teen summer challenge perspective, that usage rate pretty much mirrored what we see in our normal -- in our whole member base, both by day of week, time of day and the frequency of visits and the percent visiting. So it was very much consistent with what we see in our member base. And then from a -- when we think about that 50% who use the gym, I think part of the strategy is being able to serve them outside our 4 walls so that they do get value from their membership perks, et cetera, while they're not using the gym. So I don't know if you want to elaborate on that.

Yes, I think that's right. The beauty of our Perks program is it provides value outside the 4 walls. And what we took you through in my section on member engagement about the 3 themes that we're hearing from members, we're trying to address those head on with a lot of the changes that we're making in the digital platform. So motivation, guidance, making it easy.

I can't stress enough the -- it's been here for 30 years. It's so weird to think about running the business without an app, believe or not. Like it's -- the app launched in summer of '19, right before COVID, and it was very -- all the foundation was there, but very limited on the functionality of the app. Sherrill come on board, really fast paced a lot of that. But this industry, unless somebody walks through the door, we have no way to really service our member or offer them anything, right? So unless they walk through -- we clean every day and the AC is running, right? But if they don't walk through, unless we pick them up and drag them in, we can't service them. So with an app now is a big part of what we do. And the fact that we can engage our membership outside the doors, whether it's workouts or it's discounts on gas, the fact that we can offer them something outside of 4 walls is pretty dynamic compared to how we ran the business before. And the beauty of it today, here we are, today after COVID, is the fact that we have the money to put behind that and the resources to put behind that and the competition doesn't, it just widens the moat that much more from the competition outside even just bricks-and-mortar.

A good presentation today, guys. It's Peter Keith with Piper Sandler. Maybe I'll just kick off with a financial question to Tom, but maybe a boring question. But the revenue growth is intriguing that you're looking out in the next 3 years. I think myself and others appreciate the commitment to 200 units per year going forward. So maybe just bridge us to that low to mid-teens revenue growth guidance. You're looking at looks like maybe high teens unit growth. And does that then imply kind of a mid- to high single-digit comp growth? And how do you get to that type of comp growth when you look at members versus pricing?

Yes. So it's not high-teens unit growth, Peter, it's 200 -- no, it's okay. It's all right. I just want to clarify. But I think we still see strong same-store sales growth, where we projected this year low double digit, likely high single digit across the 3 years due to member growth and also some of the pricing that we talked about on the Black Card and the mix. We're not saying anything particularly about each year, we're just saying, on average, we believe we'll be above the 200-plus new units per year. We still have to work our way through 2023, and we're going to talk about that, when we're going to talk about that on the year-end call. So I don't want anybody getting ahead of ourselves here because there's still a lot of unknowns. And hopefully, the picture will be clearer. It's pretty murky when it comes to how this is all going to play out. Now that may be -- one unintended benefit of a recession is maybe other people are pulling back and the demand for HVACs just slows down and then there's more available. But to our knowledge, they still haven't caught up with the demand. So -- but full stop, across the 3 years, there's no doubt in our mind, again, assuming nothing happens in the world with another virus or anything like that, that we will not -- that there's nothing that we see will prevent us from having 200-plus on average across those years.

Just a quick follow-up. You guys have always had this nice comp benefit from new store maturation. It's pretty meaningful. Maybe just think about how that has evolved as the unit growth has come down on a percentage basis, but how could look at the revenue growth contribution going forward?

Yes. I think with that store growth -- so I think there's 2 things here, Peter. One is our history is not yet fully capturing that Gen Z phenomenon and each successive generation being more inclined to work out. So that should be a tailwind to all stores, including mature stores. But as the percentage of new stores declines because our base is getting bigger, those tailwinds from the ramping stores will be lower than they have been historically. So we haven't really fully commented on same-store sales growth, but we -- as the base grows in terms of the 3-year, I gave you a high single digit, probably in the early years, it may be high to mid -- or low to mid in the outer years. But I think as the base grows, it's still robust same-store sales growth, right? And how much of that is member growth and how much of that is pricing? We'll talk about that when the time is right. But we see it still being a balance, but largely driven by member growth.

This is Warren Cheng from Evercore ISI. Great presentation today. This question is for Bill. Can you just help us better understand the slide you put up with the 3 markets, Houston, Miami, Philly, that last column, just continuously getting revised higher? What were the biggest drivers for that? Is that just sort of a natural function of brand awareness? Is it kind of the surprising behavior of the younger consumers? Maybe just the commonalities for those markets where that saw the biggest revision.

So generally, it's our understanding of the marketplace and how -- where our clubs are, where our members are and the learning that we've had over that 10-year period and we continue to get. So each year, we learn more and more about where we've opened clubs. What our reach is. Is it 12 minutes? Is it 10 minutes? How far can we reach. We know where this club ends, where the next one starts. Is there an opportunity in the middle? So as more people in that middle may be using those outer clubs, that tells us the club could be in the middle. So we can go there if there's nobody, the people, but no club tells us a club can be there. So it's a continued evolution of the brand really that informs that, through the data that we have and the systems that we use.

Got it. That's very helpful. My follow-up question, I was wondering if you guys can help frame the opportunity: if some of the digital initiatives that Sherrill talked about, some of these customer retention initiatives really start to have an impact, is there a way to think about the impact on churn or normalized member growth? What's the average tenure of the consumer, especially the younger consumers that come in?

Have we shared average tenure?

No.

No. Okay. We don't talk about average tenure.

Good question, Sherrill.

I know how to stick to my roles here. So we do monitor it, obviously. And again, like I said earlier, I think we are very much focused on creating the best member experience, and we hope that good things come, like the flywheel that you saw, more people upgrade and more people stay longer. I think it's just kind of the natural sequence of having a great member experience.

I think 1 thing I'd add to that, too, is the fact now we're able to start seeing people using the app, but they haven't used the store, but to Linda's question about people not using, we [ expect to ] see people using -- redeeming Perks and buying Crocs, whatever act they're doing, if you watch the video, but they haven't use the store in 3 months, that's when I think we will decide to see [ who ] cracking the code. Because our cancellations, I mean, the vast majority of them, it's all nonuse. And I thought nonuse tolerance, everybody has a different level of nonuse tolerance. Some will go 3 months, some will go 3 years, because it's just $10 a month. But if they get into the value outside the 4 walls, whether it's exercises or discounts on gas, that's when we'll start to see, I think, some changes.

Yes. We're building to complement the brick-and-mortar experience always first, but we know our consumer behavior end-to-end. And to Chris's point, we're always trying to create features that would be beneficial, whether you're working out or not.

Great presentation. Paul Golding from Macquarie. This is a question, I think, for Bill, Tom and Chris. I think it was 2016, Bill, you mentioned 116 franchisee -- 160 franchisee groups, around 1,100 stores, 120 franchisee groups across 23, 50 now. I wanted to ask if you could give any color around stratification across these franchisee groups in terms of their post-COVID ability to open new units. And then that brings to mind your comments around ADA boundaries and some deals across those boundaries for acquisitions across franchisees. What role, if any, are you playing in that? And then finally, any comments around your sort of ideal level of consolidation around franchisee groups? Because with maybe HVAC today, maybe there's an opportunity for better supply chain economics and sort of market power across larger groups in the future.

I think -- so I'll start with how the population moves at franchisees. So today, it's -- there's a good number of franchisees in our system today with still 5 or less clubs, and then there's a good number that have 50-plus. And that's that -- the group in the middle is actually not that many, right? They're either big or they're smaller, and many of the smallers are original franchisees that came into the system. Bigger things happened around them, and they didn't take advantage of those, they got the 5 clubs and they stopped. They will contract over time. I am positive of it. It gives opportunity. I'll use Denver perhaps as an example. So in Denver, Colorado, we had clubs out there, and there were a couple of other franchisees out there. We wound up selling our clubs to one of the franchisees there because it improved that 4 opportunities came to that market through that sale. So us selling to a franchisee that was there, cleared up, there were a lot of border lines between those -- us and them. So it cleared opportunity for 4 more locations. And I think that's what will happen because that next closest person gets a different value out of that purchase than anybody else. So they may pay a premium for it because for them, it was 4 more clubs. So I think that's what some of the larger groups will do. On the other side of this, we've always said -- I think we originally said when I got here, 5%. We would want to stay at about 5% being our largest franchisee. Today, we talk about that as 10 just like us. I don't think that means we'd want 10 franchisees that own 10% of our system now. I don't believe that's good for us. I don't think that's our long-term outlook. I don't know that number today. But I do believe 120 will come down. What it ultimately comes down to? Time will tell us.

Great. Max Rakhlenko, Cowen and Company. So the same on franchises. But the conversations that you're having with the franchisees today, what are their biggest pressure points? Where are some more areas that you can be more helpful? Or, are many of the bigger ones becoming self-sustaining at this point with their own management teams? Just any more color from the more recent conversations you've been having.

It is a sophisticated group. So as I said, if I go back before COVID, our field organization pre-COVID probably had 25 people supporting at that point, 2,000 clubs or whatever that number was. Today, it's 10 on the operations side. So we've downsized that because we think there's efficiency, and they are sophisticated. The ability to execute the model consistently from the operating perspective is pretty good. So it's, as Chris said, they kind of tripped into that opportunity to franchise the model and the simplicity of operating the model. I think where the complexity in the model is in real estate, moving the real estate, getting the real estate, the right real estate, understanding that and then the marketing of it. I think we're going to help a lot through some of the work we've done with the marketing setup and having 3 agencies kind of run that and understanding the data so that we will help our franchise community evolve on the marketing side to be much more consistent than we are today. I think that's a top line opportunity for us over time. I think it's an efficiency opportunity as we support that over time. So I think it's an efficiency opportunity for the franchisee actually over time, so that they won't need maybe some of the things that they have today because we'll be directing that more and the agencies will be directing that more.

Max, maybe the only thing I'd add to that is, and we've talked about it a little bit, is the cost to build has gone up. Everything has gone up, right? There's very few things you can build today that costs at or less than what they did in 2019. Now the good news is some of those costs are coming down. So what we may see of our larger franchisees, as you know, we talk to the top 30 once a year. We're largely through that process this year. There's no 1 answer for all 30. They're all a little different. But I think in some cases, they realized costs might be $200,000, $300,000 more than they were before. And they're just going to keep going because the returns are still quite good. Others may say, I don't necessarily have to be ahead of my area development schedule, I can wait until those costs come back in line. I'll stay on my area development schedule. I just may not be ahead of it until those costs come back in line. So they're a little different. But no concerns about the longer term or membership or anything like that. They're all quite bullish. It's just a matter of playing the inflation -- playing the timing of the cost to build inflation. Good news is it's coming down, which is good.

Right. And then so you talked about maybe slowing down the opening, getting back to the plan on the time line instead of being ahead. Obviously, HVAC remains an issue, and yet you seem pretty confident around hitting at least $200,000 a year for the next 3 years. So just maybe what gives you that confidence, just more color as the environment is dynamic, it's challenging, who knows if it's going to get better or not? So just why do you think $200,000 is going to be achievable? And then into the pandemic year opening, I think, $240,000, $260,000 in the last couple of years. Is there an opportunity to potentially get to that level over the next couple of years?

Let me start. So I think, Max, just to put it out there, and this is not meant to be an outlook. This is just a could happen. If the HVAC issue stays the same or worsens, there's a chance that, that will affect 2023 to the degree that it takes us off our average that we articulated. It doesn't mean that it's going to last forever, I can't imagine that, nor over the 3-year period. What it may mean is the subsequent years are higher than that average, and the average is the average plus. I think the other thing that gives us comfort is they're obligated to open the stores. They're not going to spend the money they spent to build the business they have, or buy into the business, in the case of transactions here in the last few years. And by not developing, they lose the pipeline that they have. So they're not going to do that. They're at least going to stay on their schedule. And probably when things get back to normal, be ahead of the schedule [ en masse ] as they were pre-COVID. So that's what gives us the confidence to say what we said. And again, it's in existing markets and markets we look to enter as well.

Yes, a good portion of their value of their facilities is the runway they have and the territory they control. So to lose that would be, I mean, the cost of construction is nothing compared to the value that they would lose, by losing the area [ they were ] developing. So I think to Tom's point, they're not going to -- hell or high water they're going to open [ the facilities ] on schedule. They might not just open up the next 2 years of units early, hoping maybe the cost comes down. And that's not all, because some just don't care. They rather have cash flow now anyway. But yes, the contractual obligations of losing an ADA is extremely valuable for them.

And I think just to frame that, we'll move on because I know we're running out of time. Transactions in our system without any pipeline, they're usually going for 6x, 7x, transaction in this pipeline are 9, 9-plus. So that's, to Chris's point, it's a huge delta in the value. Jon?

Jon Komp from Baird. Just 2 questions. One, when you look at unit volumes for the mature stores, I think you said mid 30% of the base is back to pre-COVID average unit volumes. Can you just talk about the remaining 2/3 that are not back, the current thinking, given everything you've said today, about when you'd expect those to get back to pre-COVID average unit volumes? And then just, Tom, 1 follow-up on the financial plans. It looks like maybe you're embedding sort of a low to mid-40% enterprise level EBITDA margin. Could you maybe just share your views on showing leverage on the bottom line versus some of the reinvestment you see over the next few years?

Yes, sure thing, Jon. I forgot what the first part of that question was.

The mature stores.

Mature stores. I'm sorry. So we think a really good -- so by the way, when we say that, just to be clear, we're talking about stores that were built 2018 and prior. It's not the rolling mature stores. So these are when things shut down in March, where were their membership levels and where are they now. So for that group of stores, you're right, we're sort of mid-30s, and I think we need a really good January Q1, which all signs look like we're going to have one, assuming there's no new strain that comes around. And I think that will drive that percentage up quite a bit. And then a good Q2, and then it probably levels off again. So we're not necessarily predicting when that will happen because it's a little idiosyncratic by the markets and how they were affected by COVID. And the political environment and also the actual length of closure. But there's -- we don't see anything standing in the way. And we have -- in these franchise business reviews we've discussed, we have talked to a few franchisees where they're back to and above, in all of their stores, the pre-COVID levels. And if you're at pre-COVID member levels, you're definitely above on an AUV because of the rate stuff that we've talked about. So we see it just as a matter of time, Jon, on that one. In terms of the overall franchisor, we believe the algorithm that we laid out will continue to drive some leverage from SG&A. But we also want to have the ability to make the investments that we want to make. So we're not looking for a large basis point leverage from SG&A, but we are looking for a little bit. But we also want to make sure that we can invest in international, we want to make sure we can invest in digital and we can invest in the things that we know will grow our -- this is a growth business, right? We're not looking to save our way to glory in any -- but we also know that it's the right thing to make sure there's some leverage that helps expand the margin. So we absolutely see the 41% pre-COVID margin in our future and likely going past that down the road, given all the dynamics and opportunities we've talked about.

I think the only thing I'd add, too, to that is, which also helped us get us through COVID is the diversity of our franchise base in the sense that many of them have clubs in multiple states. So even though they might be in a state that was affected worse than others with COVID, so that 30% roughly, that's above or pre-COVID levels, they have got stores in both markets. So they might have stores in Canada, for example, just it was those in Florida that are above where they were. So that diversification has helped us, too.

Brian, did you have one?

This will be our last question. We're over time.

Appreciate the interest.

Brian Harbour from Morgan Stanley. Maybe just a couple questions on development, in the case studies that you showed. So those are obviously kind of large metro markets, and some of those are pretty high members per club. I guess the question is, do you have kind of a deliberate strategy to bring that down and fill in those markets in order to perhaps have kind of smaller clubs there and just spread it out a little? And then second question is, you obviously also had a lot of dots on that map in pretty small towns. And maybe just talk about some examples of like how small of a town can support a Planet Fitness? What do you see in terms of membership in those markets? And how does that kind of affect your future development plans?

So I think a couple of things. So some of the infill, which would be as the membership goes up and how do we put a club between 2 clubs, it's still not the focal point of what we do, right? We're still hitting brand-new markets. We're learning about our infill opportunities. But we're still -- Philadelphia may seem a little bit of that in some of the decline in the membership is a little more infill. But Houston, by example, it's still not even an infill strategy. We are still going to put down a Planet Fitness where nobody around it is a Planet Fitness member. So there's still a lot of opportunity as we go back to remapping Houston and looking at Houston 3 years from now versus Philly. Philly is one where we are starting to drop some infill locations. It's a tighter geography than the sale of the Houston has 8 counties, Philly is really almost the Philly proper area. So they're very different what the 2 examples were. But 2 different opportunities. As far as small market, we've tested it. We believe we have a good model for small markets. We can go fairly low in terms of the population that we can service. Again, if we can -- if that penetration is 10-plus percent and we want 7,500 members, we have markets that are 15, 17, they use Dover a lot as a great example of kind of how we've evolved that market. But we believe we have a footprint model. We continue to evaluate that against small markets to see if there's different opportunity. And I don't -- who knows where the brand evolves to as we get to infill? It may be different, right? And I should -- who knows what it evolves to, right? There's still opportunity to learn tighter infill. If we push up that Gen Z and Alpha and that part of the membership, so Chris talks about 140 million people within 10 minutes of the clubs that we have that we don't have today, part of that is that population. As they become members of that club, we're going to learn more, again, around how infill looks and how close a club could be to another club so that we meet those needs.

I think maybe 1 thing to add, Brian, even in smaller markets, it doesn't necessarily mean smaller stores. We have some franchisees in smaller markets who take a bigger space than you might think they should. Rents are low, so the incremental cost isn't all that. And they just want to make sure no one else is coming to that area with another concept. So it's more of an offensive move to protect the investment, but in their view, money well spent.

Cincinnati is a great example. Cincinnati, originally [ at to ] 13 clubs, it's almost 25 clubs today and their AUVs are over $2 million. It's not a very big market compared to the other 3 I put on the map. But unbelievable and every one of those clubs, some of those are more suburban-urban market -- I mean, rural markets, and he's building 30,000 square feet.

All right. Good. Good. Good. Well, thank you, everybody. I appreciate all your attendance and your questions, and I hope the deeper dive today helped to answer some questions in our journey to 4,000-plus. Thank you.

Thanks, everybody.