Viva Leisure Limited (VVA) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the Viva Leisure Limited Half Year Results Call. [Operator Instructions] I would now like to hand the conference over to Mr. Harry Konstantinou, CEO. Please go ahead.

Thank you. Good morning, ladies and gentlemen, and thank you for joining us on the conference call today for Viva Leisure's First Half FY 2024 Results Presentation. As always, we thank you for your time and interest in the Viva business. I'm joined today by our CFO, Mr. Kym Gallagher. This morning, a selection of documents among them an investor presentation to which we will be referring throughout today's session were submitted to the ASX. This presentation is currently being broadcast live via openbriefing.com and will subsequently be accessible for replay on the Viva Leisure Investor Relations website later today. Today, I'm excited to guide you through Viva's journey for the first half of FY 2024, including highlighting our achievements, challenges and future opportunities. Together with today's half year update, we will be providing our guidance for the full year and most importantly, providing details on management's expected performance in quarter 4, which lays the foundation and starting point for the subsequent financial year. After the presentation, we will open for questions. I would like to remind participants that to ask a question, you must dial into the conference call as the webcast does not support live questions. Viva's story and journey truly began 2 decades ago in 2004, when we opened our first location. In January 2024, the business, which is often seen as an overnight success, achieved its 20th anniversary, a remarkable achievement in what some consider a discretionary spend business. The Viva business is built with a sense of achievement and belief in the high goals we set each and every day. Our team of 1,700 plus operate in an industry that is dedicated to enhancing people's lives, something we will take great pride in. Viva is a lifestyle business and consumers continue to prioritize their personal health wellness and fitness within their daily lives. We see this every day with increasing visitations and data and usage within our facilities. Our network of clubs now average 85,000 member visits per day. Our 350,000 members rely on us to guide them and provide the facilities and services to help them achieve their goals, which will ultimately lead them to enjoying a healthier life. I will start the presentation on Slide 5. Our half year results continue to highlight the resilience and robustness of Viva Leisure's strategic direction and operational capabilities. On the back of a significant surge in revenue last financial year, this has continued in the first half with a 17.3% increase to $79.1 million for the half. This also represents a 7% increase half-on-half. This increase comes during a period where the company slowed its greenfield program and focused on its previously announced strategic review, which included accelerating its refurbishment and upgrade program, whilst also having to close several locations, which were underperforming and approaching the end of their lease term. EBITDA has climbed to $16.6 million for the half, an increase of 18.6% from the previous corresponding period and 9.2% half-on-half, a reflection of our relentless pursuit of improved margins and operational excellence. EBITDA margin increased to 21% and notably, it surpassed 22% in the second quarter, demonstrating the company's capacity for sustained financial performance. Corporate members at owned locations ended the half year just over 180,000, up 9.8% from the previous half year in FY 2023. And members across all locations were over 345,000, up 6.2% from the previous corresponding period. The growth in membership, both at corporate-owned locations and franchise locations shows an increase in health consciousness and awareness. A recent McKinsey survey highlighted that over 70% of respondents believe it is important to invest in their personal health and appearance and that over 60% consider the gym as a core component of their fitness routine. Interestingly, over 55 of respondents expressed their reason for exercising was to be healthier rather than to look better. This research from McKinsey is evident in our growing membership and increasing visitation data. A link to the research is included as a footnote to our results announcement. Across corporate-owned locations, our utilization was 70.9%, an increase of 120 basis points on the previous corresponding period. We ended the year with 168 corporate at the half year with 168 corporate locations and a network of 345 locations. At the end of December, the company exited a corporate membership program it had inherited via some of its previous acquisitions, management believes the yield from these members was not sufficient as it averaged $2.80 per week, whilst 8,395 members were canceled, in terms of revenue, these members represented less than 0.5% of our annual revenue. Where possible and where indicated, membership and utilization numbers have been normalized to reflect this for comparison purposes. Within the appendix section of the presentation is a summary of this decision. Moving to Slide 6. As you will see from both the revenue and EBITDA charts, other than during the COVID affected periods, the business has had continuous half-on-half growth, and this is a trend that has continued into the most recent results. The increase in revenue and EBITDA is even more significant in this half as the business closed and repurposed 7 HIIT Republic locations, effectively reducing our total loan clubs from the full year result by 3. Moving to Slide 7. The first half focused on consolidation as part of our previously announced strategic review and accelerated refurbishment program. This program is nearing completion with 63% of identified locations completed in the first half. This has set the foundations for a strong second half. The key focus for the second half include location growth. Delays in development approvals from councils and a focus on existing portfolio slowed greenfield growth in the first half. However, additional leases have been secured to ensure a strong second half and FY 2025 supply. A focus on profitable growth. The strategic consolidation executed in the first half has established a robust platform for future growth. This will be evidenced in the quarter 4 run rate details to be provided shortly. Strong early second half trading. The second half has commenced extremely strongly with January achieving over 5,000 net member growth in corporate members and the Plus Fitness network achieving over 4,000 net member growth. To put this into perspective, each member is worth approximately $800 per annum to the business and subject to keeping these members for a full 12 months will generate an additional $4 million in revenue from the January growth over the calendar year. Acquisition opportunities. We have in front of us significant pipeline of acquisition opportunities, which we hope to settle in the second half. As indicated later in the presentation, management believes this to be between 10 and 15 locations for the second half of the year. Plus Fitness, we have a slide on this later in the presentation. However, we expect to see the Plus Fitness division achieved 200 operating Australian clubs in the second half for the first time in their history. And finally, vending machines and digital signage. Having previously highlighted what we call our non-membership revenue, we again increased our forecast for vending machines and digital signage. Originally forecast to generate approximately $2.1 million combined, we now expect this to be closer to $3 million for the full year. These are our high-margin part of our business with vending machines averaging 50% margin and digital signage closer to 100% margin as we receive a commission with no significant costs to operate. In addition, we are exploring options to extend the advertising opportunities within our network of clubs, for example, offering dedicated screens at locations and options for rolling out the Viva built hardware and software, which operates the signage network to the Plus Fitness network of clubs on a revenue share model. This is early stage, and we do not anticipate any additional contribution in the second half above the revised forecast provided. Moving to Slide 9, guidance. Based on information currently available and barring any unforeseen events, Viva Leisure provides this guidance for the FY 2024 year. Revenue range of $162 million to $164 million. This represents an increase of 15.4% over FY 2023 at the midpoint. EBITDA range of $35 million to $35.5 million. This represents an increase of 20.7% over FY 2023 at the midpoint and over 12% increase half-on-half. EBITDA is expected to increase in terms of percentage over revenue as a result of the leverage and scale the business can now achieve. We target an EBITDA margin for the full year between 21% and 22%. Moving to Slide 10. The growth within the Viva business month-on-month, quarter-on-quarter and half-on-half is significant, especially when you consider we are a recurring revenue business with constant net member growth each period. The business does not rely on the next cyber sale or holiday sale to grow. And whilst we do take advantage in market during those periods, we are a top of mind lifestyle business as individuals identify a need to improve their health and well-being. Accordingly, we have, in addition to the full year guidance provided the quarter 4 run rate forecast. Management have forecast revenue of $42.5 million to $43.5 million for the last quarter of the year. Annualized, this translates to $170 million to $174 million. Importantly, EBITDA is forecast in the range of $9.5 million to $10 million for the quarter or $38 million to $40 million for the full year. To put this into perspective, the business has just reported $16.6 million for the half and is forecasting $9.5 million to $10 million for the upcoming quarter. This provides a very strong foundation and run rate for the upcoming year. The expected EBITDA margin is forecast for the quarter between 22% and 23%, noting as reported, the second quarter of the year achieved a 22% EBITDA margin. My team and I are excited about the rest of the year and the foundation is being laid for next year. I will now pass to our CFO, Mr. Kym Gallagher, to run you through the details of the financial results.

Thank you, Harry, and Good morning all. I'm on Slide 12. Looking at revenue growth, this chart shows the bridge between the revenue in HY 2023 and the drivers of growth to HY 2024, which is an impressive 17.3% year-over-year growth. The most important statistic here is the growth in members and associated revenues to our organic club base, i.e., those clubs on foot as at 31 December 2022. When comparing the revenue numbers at 31 December '22 versus 31 December '23, these clubs exhibited a growth of nearly 75% of the 17.3% total growth. This growth can, in part, be attributed to the completion of Phase 1 of the refurb program, which occurred across FY '23. This has led to strong member growth across the current period as well. We expect to see similar impacts from our FY '24 refurb program as it nears completion. The remainder of the growth is split between calendar year 2023 greenfield sites and acquisitions. The greenfield sites will show strong growth for the remainder of FY '24 and into FY '25 as they mature. I'm on Slide 13. During the period, we removed approximately 8,400 members relating to the Fitness Passport corporate program. While this seems significant at nearly 5% of the member base, the current net revenue impact is less than 0.5%. Note that when excluding this adjustment, we've grown the membership base by 6.2% across the calendar year on a combined group basis. This growth has continued into the new financial year -- sorry, into the new year with further growth of 3.2% in the month of January alone. This doesn't include any acquisitions and is the highest 1-month organic growth in the group's history and sets a massive platform for second half. I'm on Slide 14. This chart shows the bridge of Viva and club members between December '22 and December 23. Impressive growth in members of 12.8% for the period December '22 to January '24 being 13 months, which includes members growing in the month of January alone by 2.7%. This is worth highlighting because between December '22 and December '23, we grew net members by 16,100. This includes 7,600 from acquisitions. And in January alone, we added 5,000 members all organically. Notably, calendar 2023 acquired members account for approximately 40% -- 47% of the increase in members, but only 15% of the revenue growth, suggesting the second half of FY '24 will include a reasonable uplift for these sites on a full year basis. I'm on Slide 15. For those unfamiliar with our business, one of our key metrics is utilization. This is a measure of members per square meter of floor space at a facility to monitor capacity. We assume that 2 members per square meter of health club floor space is at capacity and 1 member per square meter at HIIT Republics and boutiques. The realistic long-term target of the group is an average of 75% to 80% utilization. We're currently sitting at 71.7% in January 2024, which is up from 69.7% at 31 December '22. Utilization typically slumps across the December holiday period as external university students canceled their memberships and people generally either suspend or cancel. This is then followed by a big bounce back to business as usual in January as New Year's resolutions kick in. And as you can see, utilization across that 1-month improved by 0.8%. This is one of our key drivers of the business, particularly for our EBITDA margin. Each new member improves utilization creates revenue and most of this falls to the EBITDA line. I'm on Slide 16. Firstly, the results shown throughout this section are predominantly based on an ex AASB16 basis, which is also consistent with prior periods. As we have already mentioned, but worth mentioning again, the half year has ended with revenues up $11.7 million to $79.1 million, which is up 17.3% and in addition, EBITDA is up 18.6%. Despite facing -- still facing inflationary pressures through much of the half, we've managed our cost base effectively such that we've improved our margin from 20.7% for the first half of FY '23 to 21% for the first half of FY '24. In addition, our quarter 2 margin exceeded 22%. NPAT also produced a record for the half on an ex AASB16 basis at $4.8 million, up 14.3%. I'm on Slide 17. There's a slight reduction in the cash balance at balance date of the significant investment in our strategic refurbishment plan, which was largely funded by cash in H1. We've now completed 17 of the forecast 27 projects. The good news is the cash balance as at today actually exceeds $8 million cash on hand. We now have access to our new fit-out facility, and refurbs are now being funded through that facility. Senior debt borrowings have remained under control, actually reducing by approximately $800,000 since 30 June. Accordingly, leverage remains low, with total debt to EBITDA, which includes total senior facilities and equipment finance at approximately 1.25x. We also have considerable headroom in our senior facility with approximately $27 million available for future acquisitions. I'm on Slide 18. Cash flows from operations improved by 12% over the prior corresponding period. Strong cash flows from operations were deployed into $10.7 million for CapEx for greenfield sites, the refurb plan and technology projects. In addition, as mentioned on the previous slide, we had an overall reduction in our senior debt. The lease principal reductions line is the principal reduction of our equipment leases and rental leases, so it includes the property rent payments component. As mentioned also on the previous slide, while our closing cash balance at balance date was $4.3 million as of today, the balance exceeded $8 million. I'm on Slide 19. Our location or 4-wall EBITDA margins remained similar to the prior period at 42.4% for the half despite the continuing inflationary pressures. In addition, our corporate costs or the cost of doing business have also declined marginally as a percent of revenue across this period. Our EBITDA margin, as mentioned, previously grew from 20.7% to 21% over the prior corresponding period, and this includes an improvement in the quarter 2 in margin to exceed 22%. I'm on Slide 21. The group generated free cash flow of $6.7 million for the half versus $5.4 million for the prior corresponding period. This resulted in just over 40% of EBITDA falling to free cash. Accordingly, we remain well above our internally set target of a conversion of 35% of EBITDA to free cash before tax. As mentioned on previous slides, the free cash generated was largely invested in greenfield sites, acquisitions and site upgrades, as well as $2.3 million spent on technology projects such as The Hub and Viva Pay. I'm on Slide 22. This shows some further analysis on how our CapEx has been spent for the year. The new site CapEx is CapEx spent on greenfield sites over the period and site upgrade CapEx as major works performed in existing sites under the refurb plan. As mentioned previously, these upgrades are undertaken to target an increase in membership and therefore, utilization, as well as yield rather than simply maintaining the premises. On these projects, we spent $3.4 million, and we anticipate a return on this cash investment of around 80% within 12 months. To date, we have already gained 1,800 new members at the 17 sites completed and gained an annualized $2 million in EBITDA and including cost savings, and Harry will talk about all of this in more detail in a later slide. Maintenance CapEx is CapEx spent on existing sites, but does not include equipment replacement, which is lease finance and therefore, not a cash outflow. The goal is to keep maintenance CapEx below 3% of revenue. I'm on Slide 23. Very briefly, this slide shows the principles behind our allocation of capital. These allocation principles have not changed materially since the last reporting period. And we have set a target of approximately 3% of revenue to be invested in maintenance CapEx, noting that this period, it was approximately 2.8%. And while The Hub is nearly complete, Viva is looking to continually exploit its technology point of difference by investing in future projects and enhancements to our current tech. Accordingly, we have estimated approximately 3% of revenue, having achieved 2.9% for the half. Now that we have largely completed the refurb plan, we'll refocus on greenfield site rollouts having secured 21 locations. In addition, we still have available approximately $27 million in undrawn senior facilities available for acquisitions. Thank you. I'll now hand back to Harry.

Thanks, Kym. I'm on Slide 25, business strategy and outlook. Now we get to the exciting part of the presentation, discussing business strategy and outlook for the second half and beyond. As identified in our full year 2023 presentation, Viva conducted a strategic review of assets to determine any underperforming locations and on the flip side, any locations which we believe with some strategic changes could be improved -- could have improved performance and superior growth. We conducted this review with both a short- and long-term view and most importantly, with the primary objective through improving return to our shareholders. Those investors who have followed us over our journey know that Viva is more than just the gym business. We design, build and operate all our technology to improve the business returns, control the entire member experience and differentiate. We actually have technicians on staff that design and build circuit boards and software that operates on these boards to improve the member experience to assess the business during acquisitions and minimizing any impact on existing members transferring to Viva acquired club. Our technology is what differentiates us from other operators around the world and creates a significant opportunity moving forward. Having acquired and successfully integrated over 70 acquisitions in the past 5 years, Viva's technology has proven itself time after time. Viva's unique approach to club design, location, identification, accelerated greenfield cash flow breakeven, which, to remind our investors, sits between 4 to 8 weeks from opening and portfolio of brands allows us to attract more members. Moving to Slide 26. Our upgrade and refurbishment program was the focus in the first half. We had identified 27 locations as targets. To be clear, the refurbishment program was not about catching up on repairs and maintenance, but rather strategically changing locations based on our data-driven decision-making processes to repurpose, reconfigure and, in some situations, exit locations. I am proud to advise that 17 of the 27 locations have been completed, with the majority of locations completed in November and December, we have not yet seen the full impact of these changes. Management has a target of an additional $6 million in annualized EBITDA, of which we believe $2 million annualized has already been achieved with the cost savings. Our savings include removing various group fitness rooms, underutilized and other club facilities like [ crashes ] where required and growth in membership at these locations. Management believes we are on track to complete the remaining 10 locations in the second half and achieve the additional EBITDA target. We expect to be in a position to provide a full summary of the full year -- at the full year results on the program. Moving to Slide 27. As indicated earlier, the first half was focused on achieving our strategic reviews targets and then resulted in -- which resulted in a reduction of greenfield locations during the period. The second half, we expect to return to our focused strategic growth objectives. With this in mind, we provide the following targets: acquisitions. Management believes we will complete between 10 and 15 location acquisitions in the second half based on what is in front of us. We expect to use the newly acquired senior debt facility for these acquisitions. New greenfield locations. We have identified and secured 21 new locations, a record for the business to have in the pipeline. We anticipate 3 to 4 of these locations to open in the remaining second half of the year. We expect the balance to open next financial year as they become available for fit-out based on handover from landlords or approval of development applications currently being considered by councils. Under negotiation for lease. We have 35 new greenfield opportunities being considered at the moment. Again, this is a record volume of opportunities. With delays for development approvals extending post COVID and not recovering back to pre-COVID levels, one of the decisions the business has made is to plan for secured locations to undergo design and subsequent approvals over 9 to 12 months rather than 3 to 6 months as was previously the case. The acquisitions secured greenfield locations and additional greenfield opportunities bode well for an exciting upcoming period of growth. Moving to Slide 28. It feels like forever we have been talking about The Hub and Viva Pay, and I'm pleased to advise that we are live in approximately 10% of Plus Fitness locations. This is significantly -- this is slightly behind our expectations. However, on the bright side, the full benefit of the additional EBITDA and revenue expected from Viva Pay was not included in the first half results. However, we still manage a significant period of growth. In terms of an update, I can advise that 100% of the Plus Fitness locations are now utilizing the Viva Labs door controllers. We have deployed over 300 door controllers during the December and January period. The business has completed various rounds of training for franchisees on The Hub ready for rollout, and the Plus Fitness MemberID app has been published to the App Stores and is live for members of Hub-enabled locations to use. We now expect full rollout of both The Hub and Viva Pay during quarter 4 of this financial year. Moving to Slide 29, Plus Fitness. The Plus Fitness franchise network is growing from strength to strength on the back of a fresh new design that has been deployed at nearly 40% of Australian locations. The current network is 204 locations strong with 194 in Australia, 2 in New Zealand and 8 in India. Importantly, 12 new locations have been secured by franchisees year-to-date. This is in addition to the 5 locations secured in June 2023. In total, 23 locations are secured and in various stages of pre-DA, in DA, in build or in pre-opening. Management expects 7 to 9 of these locations to open this financial year and the balance next financial year. With 7 to 9 locations operating -- opening this financial year, Plus will hit a milestone in Australia with 200 operating locations for the very first time. Interestingly, when we compare the performance of the entire group of new design locations to the older design, we now have 12 continuous months where the new design group has outperformed the growth of the old design group on a percentage basis. This has instilled significant faith in the Viva vision into the franchise network, which in the early days of Viva ownership was slightly unstable. The Plus Fitness management team have navigated the Plus Fitness business perfectly to ensure our franchisees are held in the best possible regard and have improved returns for their investment. This has resulted in a percentage of franchisees to becoming or about to become multi-franchisees having secured additional territories. This, we believe strengthens the entire network. In terms of corporate buybacks of Plus Fitness locations, Viva now owns 26 locations out of the 194 in Australia. We expect to continue this program acquiring profitable locations to improve return for our shareholders. Viva Leisure has produced yet another outstanding performance in the first half of FY 2024. In this period, we continue to execute our articulated strategy, concentrating on refurbishment and modernization initiatives and strategically repurposing or divesting from locations that fell short of our benchmarks. Although our attention to these priorities moderated the pace of our greenfield and acquisition efforts in the first half, with 63% of identified locations now finalized, we are poised to rapidly advance these programs in the second half. The strategic initiatives implemented in the first half are anticipated to yield considerable contributions by quarter 4 FY 2024 setting a strong foundation for a robust run rate, and we believe the guidance provided reflects these expected outcomes. This is our strongest trading half since Viva Leisure became a public company and demonstrates the uniqueness of our business model, the advantage of our proprietary billing and membership platform and the strength of our team to execute. I believe this is further evidenced during the half, which focused on refurbishments and upgrades as opposed to location growth and acquisitions, but still managed to generate over 17% growth in revenue and over 18% growth in EBITDA over the previous corresponding period. Finally, as the appreciation for health and fitness maintains its upward trajectory around the world and in Australia, Viva remains at the forefront, ready to cater to the expanding demand within our established markets and beyond. My team and I look forward to continuing this journey with you. Thank you, everyone, for your time today to listen to what we have to say for your support of the business and for your belief in what we are building. The results speak for themselves, and we expect them to continue to grow and improve. We operate within the lifestyle industry, focusing on genuine health care through a unique and diversified recurring revenue model. Our mission is to equip individuals with the tools needed to obtain and maintain good health, recognizing that no one desires to be unhealthy. Our agility and ability to pivot quickly combined with our control over the entire ecosystem and experience sets us apart. We are Viva Leisure. I would now like to open up for questions.

[Operator Instructions] Our first question comes from the line of James Bisinella with Unified Capital Partners. [Audio Gap] Excuse me, our first question comes from the line of Nick McGarrigle with Barrenjoey.

Maybe just a bit of context around the Fitness Passport members. What was the yield on those was, and the decision to no longer participate in that network, just as an opening one?

Yes. So there is a slide in the back of the presentation with some of the detail. It's on Slide 33. Those members were yielding for us about $2.80, which obviously affected utilization, made utilization look higher, but may yield look lower. The Fitness Passport program is not a program that we have joined at any of our clubs. We sort of inherited it as part of acquisition. So it currently operates in 21 of our 168 sites. Of those, we canceled 14 of them. The payback for us is about 1,800 members out of the 8,000. We've achieved 871 of those as at the reporting date. So notwithstanding they were canceled in -- on the 31st of December. We're nearly halfway there to achieving the same result financially. Noting, as we mentioned in the presentation, that it represents less than half of 1% of our total revenue. But on a member count, looks significant. But this will balance out the average revenue per member more appropriately. So we thought it was a good thing to exit the program. In addition, [ VB ] is in development with its own corporate program.

Maybe just a question around yields because it felt like I think you might have timed some price increases on a proportion of the member base to coincide with minimum wage increases. But how should we think about potential yield increases looking into the second half and into next year? How much of that is included in your guidance?

Yes, so we don't do price increasing across the board. What we do is, we do it strategically. So when you look at the locations that have formed part of the strategic review, if they were upgrades to clubs, more additional floor space by removing [ crash ] or something, we'll look at price increases for new members there and then we'll follow that to existing members. And we use a lot of data decision making processes on those pricing reviews. So if a member is sitting at potentially 20% below the current market rate, they may go up slightly more than a member. That's less than 20% below the market rate. We try to obviously offer loyalty for long term members who continually will pay less than market rate if they've been with us for a long time. But we don't have anything baked into the forecasts for the rest of this financial year. We'll generally look at a price increase for the beginning of FY 2025.

Okay, cool. And then just in terms of progress on the return on invested capital on the upgrade program, can you just give us an update on what you're seeing there early on? And does it give you confidence to have an expanded program for FY '25?

Yes, Nick, it's Kym here. Yes, so what we've seen is an uplift across the sites that have been completed in the first half of that 1,800 net new members across there. So the clubs are obviously closed for a couple of weeks as we went through the refurb program. Come out the other side, you've got a reduction in members and now we've got a net increase across those completed of 1,800 members. So, obviously, we've got the revenue uplift from that and also in most instances at a high yielding rate simply because the club looks a lot better than what it did. And secondly, we've got all the cost savings attributed to closing [ crashes ] and shutting down group fitness and whatnot. So we anticipate at the moment, and based on the calcs that I've done, as at 31 December, that we've got about $2 million run rated already in the result. We're aiming for 6 in total across the full program of 27 clubs, 2 looks like it's already banked in. And a lot of these refurbs only finished in late November or mid-December. So, as you'll note from the full year presentation, we suggested up to 12 months in order to get the full benefit from the refurb program. So we think we started off pretty well.

Also in regards to the second part of that question about expanding the program, we didn't identify just as many as we could do. We identified across the whole portfolio and it was 27 at the time. So there are no more to do other than if something changes. So if the data shows us that group fitness is not being utilized as much as it can and there's a demand for more floor space at a club, then we will add that to the plan. But at the moment the 27 is all that's scheduled.

And obviously your guidance doesn't include any future acquisitions. But you've got a pipeline of 10 to 15 there. Can you give us a sense on -- I know you probably can't give us any sense necessarily on what the earnings of those combined groups would be, but are they at the larger end of member numbers on average or are they at the smaller end? And then is the pipeline of potential acquisitions completely funded by debt headwind?

Yes, so our expanded debt facility will allow us to complete these acquisitions. So we're very comfortable with that. I'm not sure at this stage we can give any more guidance on those acquisitions other than to say there are about 5 acquisitions for up to 15 locations.

Our next question comes from the line of James Bisinella with Unified Capital Partners.

Can you hear me now?

Yes, we can hear you.

Perfect. Yes. Well, congratulations on the result firstly. Just firstly on that 6,000 member increase in January, obviously, a very strong net add rate there. What's been the driver of that increase firstly? And then secondly, how did that compare to the same period last year?

Do you want to take it?

Yes, James. It's Kym here. Yes, so, this is -- typically we see this every January as far as that New Year's resolution boost. In addition, we get university students returning. We've got a lot of international students that return across late January, early February. So we start to see them all sign up. But typically it is that New Year's resolution after pretty much the December period where we do see a slump in membership, a lot of high level of suspensions and cancellations and then pretty much everyone just hits a go button in that first couple of weeks of January and we see pretty strong sign-ups. So if we've had about 5,000 organic sign-ups this year? Last year, it was more like about 3,500. So it's significantly higher than last year.

Great to hear. And did you need to pull the promotional lever much to get that net add rate in Jan? Or was margin held pretty steady across the month?

Yes. So as far as the advertising and marketing campaigns, December, we tend to tone it right down because there's not too many people thinking about much across that Christmas, New Year period. And we like to run month end specials. So we remain relatively quiet across the second half of December and January, then just simply returns to the normal advertising or marketing spend that we would do in any given month. So there's nothing special about that. We tend to run mid-month campaigns and end of month campaigns, and the cost across January was about the same. We sit on a cost of acquisition per customer of about $25 to $26, and that remains relatively unchanged for the last 12 months.

Just follow up that question in regards to yield, when we promote, we don't play with the yield, so the yield always remains the same. We don't discount that. The only time we would discount is during a presale. So before a club opened, we might do a couple of dollars off per week. If you sign-up before the club opens and then when the club opens, it returns. Our promotions pretty much over the last 18 to 24 months have been based on free time. So 2 weeks free, if you sign-up now, 3 weeks free, no joining fee, that sort of thing because maintaining the yield is important for us.

Definitely. And just last one from me. I guess, you've managed cost pressures pretty well and you've held margin. I imagine the smaller operators will be having a hard time given the recent increase in wage costs. Are you seeing greater opportunities for brownfield acquisitions at sort of more attractive terms given that trend?

I think generally smaller operators are -- if they're operating the business themselves, the wage pressures might not necessarily affect them. In terms of brownfield locations or even acquisitions, I mean, we pay such a low multiple in this industry compared to a lot of other industries. I'm not sure it will go down anymore, but we are seeing significant amount of opportunities. I mean, this is the highest amount of locations in our pipeline we've secured and the highest amount of locations currently being presented to us for consideration. So we're pretty excited about that.

Excellent. And maybe just one more. Sorry. Just around the churn environment. Looking across the business, I guess, it looks like the consumer is holding up pretty well. Have you got any commentary around that? I mean, it's coming through your member numbers, but just any commentary around the macro environment would be interesting.

I think people forget that our average price point is $15, $16, $17 a week. And that doesn't necessarily have the same pressure as paying $20 for lunch on one day. We're a weekly fee. So being a no contract provider as well, 28 days notice, you can exit. So we see churn for us has remained pretty straight lined, sort of low 5s, 5%, 5.1% is generally what it lands at each month.

Congrats again on the result, guys.

Our next question comes from the line of Daniel Ireland with Petra Capital.

Harry and Kym, well done on the result. I just had a question on the Plus Fitness business. Can you just provide a little commentary around the upfront fees that franchisees will pay? Has there been any change to that and continuing on with the same fees on an ongoing basis with those franchisees?

Yes, so when we say secure territory, that means they've signed their franchise agreement and paid their franchise fee, which is $50,000 to secure a territory. That is generally not refundable. If they can't find a location, we'll move a location for them. So that is secured for us. And the franchise fees stay the same. They generally go up every 12 months for new franchisees, and older franchisees have a percentage increase, but they static at about $1,100 a month for franchisees.

Okay. And just with the commentary on the leases that were signed in the first half, you said that there were some delays with DA approvals and things like that. So what gives you that confidence that you don't think that those DAs will be held up going forward? Has there been sort of a change in the environment? Just a little more commentary around that?

Yes, so I think this is why we have a bigger pipeline, because the DAs are falling at different stages. So we find that in Queensland, DAs come -- are approved by council much quicker than they are in, for example, New South Wales and the ACT, and even Victoria is slightly slower than we would like. So this is what has resulted in us planning for the design submission for a DA and approval of a DA extending from sort of 3 to 6 months, more to 9 to 12 months. And that's what we plan. And look, they all come out, but it's just post COVID and government councils and everything working from home, they just take a lot longer and we just have to plan for that because otherwise what happens is, we don't have any in the pipeline.

Our next question comes from the line of [ Stephen Beale with Dealsmate Limited ].

Just a question on the franchising. I think the plan was to franchise Rebalance. Generally, franchising being quite a good way to grow quickly with less capital. So just why you haven't done it and how you're thinking about balancing the capital light way of expanding franchise versus owned sites, please?

Yes, that's an interesting one, Steve, because it is a low capital cost option. But when you look at the Viva results, say, if we step back into, say, a monthly result, Viva generates about $13.5 million worth of revenue a month. $13 million comes from corporate sites and $0.5 million on average comes from the network. When you look at membership, it's about 50-50. When you look at clubs, it's about 55% on the franchise network. But you can see from a profit and shareholder return type, the money for us is in the corporate owned clubs. So franchising is really good. We acquired the Plus Fitness business to provide a pipeline of clubs because we have a first right of refusal. But to really grow the business, it's all in the corporate club side of things. And we've built the business in such a way that it's self sufficient and we can roll out what we've targeted 24 greenfield sites a year and now have the acquisition for a senior debt facility for acquisitions. So it's sort of self-funding there. In regards to Rebalance, it's something that we've decided only a couple of weeks ago to put on hold at the moment just because some other opportunities are in front of us, which may work well with that not being franchised.

Okay, great. Probably feeds into my next question in terms of capital allocation and the buyback you announced last year. So you've obviously got a lot of opportunities in front of you. You got the buyback, you got the greenfields, different things in the portfolio. So how are you prioritizing that? And are you paying to buy back stock or how's that program?

Yes, so we did start the buyback program. And the directors look at the share price and determine when they believe it's low and appropriate for us to use the company's cash to buy that. When we announced that program, we were buying back at $1.15, $1.20 a share. We haven't acquired anything for the last couple of months on the share buyback, obviously, because nothing's been reported. So we've been deploying the cash for the greenfield sites, as you indicated. And that is our priority. Having 21 locations in the pipeline, it's a bit of a lucky dip when they actually fall. But we plan that they hopefully come out of council all around the same time or at a nice pace and then we can continue to do those.

Yes. Great. And maybe one more. Any opportunities on partnerships revenue? I mean, if you get all your members, you got over 300,000 members. Cross sales into [ MOB ] site lululemon and having sort of partnership discounts and things like that. Just thinking not sure what you've been able to sort of think about in that space?

Yes, it's not something we've explored. We like to do sort of 1 additional thing at a time. So we started with vending machines. We tested it across 10 clubs. That worked well. We rolled it out and we have like 120 vending machines in our network generating significant revenue. The next thing we've tried now is the digital signage. So that's going to generate somewhere between $300,000 and $400,000 of commission to us. So there's no hard cost. We don't have a salesperson on the ground selling it. So it's a high-margin return. We'll deploy more screens and see what we can do about that and then we'll look at what other opportunities and partnerships. But that is something that has been discussed internally but just hasn't really progressed.

Our next question comes from the line of Dan Stein with OC funds.

Harry, congrats on your most recent acquisition. Can I just ask, if we look at Slide 34 and you've talked up to roughly $9 million of contribution, is that included in that fourth quarter run rate on Slide 10?

There's a component of Viva Hub and Viva Pay, that is included in the quarter 4, about $500,000 in that. And the refurbishment program, as we indicated, the majority of it finished in November, December. So we've only seen a slight impact. The annualized impact is about $2 million. We're now hitting the larger Club Lime sites. They were difficult to do in November, December because a lot of the sites get busy, like our sites at like Broadbeach in Queensland and things like that, which are on the list. We don't really want to interrupt them during the summer period because they have significant amount of casual members. So there is a small component in that. But the real effect is 12 months on the refurb program, which is that $6 million.

Yes. So we kind of exclude $2 million of that because you've achieved that. So we should think that $4 million and roughly another $2 million or $3 million should drop into that -- either that fourth quarter of '24 run rate as you exit. So potentially in the first quarter of '25. Is that fair?

Yes, Dan, it's Kym here. I think we just need to make sure that we're talking about annualized numbers or run rated numbers, as you just mentioned, as opposed to dropping into a quarter, because while we've got -- we've pointed out that we've got about $2 million in annualized earnings. That's based on the calculation of how much has revenue increased, what were the cost savings and let's multiply that on an annualized basis. So while it's $2 million annualized, we'll see it across the next 12 months as opposed to necessarily falling in a quarter or a half year result. I think the best way to look at it is that, $6 million just gradually across a 12-month period post completion of the site, almost in a straight line, is kind of how we're looking at it, simply because we don't know the exact timing that certain projects are going to complete except within a realistic time frame. But the way that we forecast it is gradually across a 12-month period post completion.

Right. Okay. So we won't necessarily expect that whole, whatever it is, incremental kind of $6 million to run rate from the first quarter of '25.

No. You would expect to see that all completely finished by the end of FY '25. So it'll be fully run rated by the end of next year at the latest. And, I guess, bearing in mind the bulk of the growth or the impact will come within the first 2 months and then it'll kind of tail off. But as I said, we've just budgeted for it straight line or forecast for it straight line, but you'd probably see a little bit more of an impact upfront in the first quarter than in the last quarter.

Yes. Okay. And then we should add to that any incremental earnings from acquisitions that you close over the next 6 months on top of this annualized run rate that you've got on Slide 10.

That's right. So the acquisitions that Harry had mentioned, some of the -- we've got a couple of large ones that we're looking at that are not included in any of these numbers simply because they're too preliminary in the due diligence phase at this point to put towards any of these forecasts, although we're confident that with discussions with the vendors and how the due diligence is going that we should be able to complete. Ultimately, the goal is to complete those prior to 30 June. And if we do, we'll make an announcement to that effect at the appropriate time.

And just to be clear on that, when we identify an acquisition, it means we've signed a heads of agreement with it. We're not just chipping at the outside. We've signed a heads of agreement. We know what we're prepared to pay. We know what the vendor is prepared to accept, and then we're in financial and legal due diligence. Just reviewing the opportunity to make sure it meets the -- what we've been advised of.

Thank you. There are no further questions at this time. I'll now hand back to Mr. Konstantinou for closing remarks.

Again, thank you, everyone, for your time today to listen to what we have to say and your support of the business and your belief in what we are building. We're pretty excited about what the rest of this financial year has and what leading into next financial year. We hope to update when we get closer to some of these acquisitions and how they're likely to perform, because we are getting questions about that. But, obviously, we'll provide those details once we are secure. But thank you for your time. Thank you for your support. And we hope to speak to a few of you one-on-one shortly. Thanks.

That does conclude our conference for today. Thank you for participating. You may now disconnect.