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Edited Transcript of PLNT earnings conference call or presentation 7-Nov-19 9:30pm GMT

Q3 2019 Planet Fitness Inc Earnings Call

Newington Dec 6, 2019 (Thomson StreetEvents) -- Edited Transcript of Planet Fitness Inc earnings conference call or presentation Thursday, November 7, 2019 at 9:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Christopher J. Rondeau

Planet Fitness, Inc. - CEO & Director

* Dorvin Donald Lively

Planet Fitness, Inc. - President & CFO

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Conference Call Participants

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* Andrew Mali

Roth Capital Partners, LLC, Research Division - Research Associate

* John Edward Heinbockel

Guggenheim Securities, LLC, Research Division - Analyst

* John William Ivankoe

JPMorgan Chase & Co, Research Division - Senior Restaurant Analyst

* Jonathan Robert Komp

Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst

* Joseph Nicholas Altobello

Raymond James & Associates, Inc., Research Division - MD & Senior Analyst

* Jonna Kim

Cowen and Company, LLC, Research Division - Research Associate

* Peter Jacob Keith

Piper Jaffray Companies, Research Division - Principal and Senior Research Analyst

* Rafe Jason Jadrosich

BofA Merrill Lynch, Research Division - Associate

* Randal J. Konik

Jefferies LLC, Research Division - Equity Analyst

* Sharon Zackfia

William Blair & Company L.L.C., Research Division - Partner & Group Head of Consumer

* Brendon Frey

ICR, LLC - MD

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Presentation

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Operator [1]

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Good evening. My name is Denise, and I'll be your conference operator today. At this time, I'd like to welcome everyone to Planet Fitness Third Quarter 2019 Earnings Call. (Operator Instructions) Thank you. I would now like to hand the call over to Brendon Frey. Please go ahead.

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Brendon Frey, ICR, LLC - MD [2]

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Thank you for joining us today to discuss Planet Fitness' Third Quarter 2019's Earnings Results. On today's call are Chris Rondeau, Chief Executive Officer; and Dorvin Lively, President and Chief Financial Officer.

A copy of today's press release is available on the Investor Relations section of Planet Fitness' website at planetfitness.com. I would like to remind you that certain statements we will make in this presentation are forward-looking statements. These forward-looking statements reflect Planet Fitness' judgment and analysis only as of today, and actual results may differ materially from current expectations based on a number of factors affecting Planet Fitness' business. Accordingly, you should not place undue reliance on these forward-looking statements.

For a more thorough discussion of the risks and uncertainties associated with the forward-looking statements to be made in this conference call and webcast, we refer to you to the disclaimer regarding forward-looking statements included in our third quarter 2019 earnings release, which was furnished to the SEC today on Form 8-K as well as our filings with the SEC referenced in that disclaimer. We do not undertake any obligation to update or alter any forward-looking statements, whether as a result of new information, future events or otherwise. In addition, the company may refer to certain adjusted non-GAAP metrics on this call. Explanation of these metrics can be found in the earnings release filed earlier today.

With that, I'll turn the call over to Chris Rondeau, Chief Executive Officer of Planet Fitness. Chris?

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Christopher J. Rondeau, Planet Fitness, Inc. - CEO & Director [3]

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Thanks, Brendon, and thank you, everyone, for joining us today. We delivered another quarter of solid results, highlighted by system-wide same-store sales growth of 7.9% on top of a 9.7% gain a year ago and adjusted earnings per share of $0.36 versus $0.28 last year, an increase of 29%. The majority of our system-wide sales growth in Q3, approximately 75%, was driven by net member growth as casual and first-time gym users continue to be attracted to our brand and welcoming, nonintimidating fitness concepts.

When compared to the industry, our growth is remarkable. According to IHRSA, the International Health, Racquet & and Sportsclub Association, the U.S. fitness industry opened roughly 1,100 new locations and added 1.6 million members in 2018. In that same year, Planet Fitness opened 211 new stores and added 1.8 million members. We accounted for roughly 20% of the industry unit growth and more than 100% of the volume growth.

Taking Planet Fitness out of the industry, the U.S. industry grew by over 800 stores, but membership declined by about 200,000, reinforcing that other fitness concepts are trading amongst themselves and with new store openings, they are sharing a smaller piece of the same pie. Our bullish well-capitalized franchisees continue to fuel our expansion efforts in both new and existing markets. With the opportunity to double our domestic store count over time, the U.S. remains our primary growth driver. That said, international markets represent a very attractive opportunity for our brand and business, and we are excited to share a development on this front.

Recently, we finalized plans to open our first Planet Fitness stores in Australia. Our entry into the Australian market is being led by a partnership between 2 existing U.S. franchise groups who joined forces with a local Australian fitness operator, who owned the trademark of the Planet Fitness name in Australia and operated 7 locations in New South Wales. The initial development agreement secures ownership of the Planet Fitness trademark and grants the right to convert and remodel several existing locations to our Planet Fitness brand and build a minimum of 35 new locations in a portion of Australia.

In the third quarter, we see opportunity to alter and test our marketing mix, being creative in select markets to measure overall effectiveness. We are pleased with the initial results and we will be incorporating the learnings going forward. While our marketing plans and media spend for the remainder of this year are largely committed, these tweaks will be implemented into our 2020 marketing plan in order to strengthen our messaging with our core consumer, especially during the important post-New Year's sign-up period and improve our reach throughout the right balance of TV, digital and other forms of advertising. In addition, our internal team and advertising agency have worked closely with our franchisee marketing committee to further share data and insights, enhance national and local marketing synergies and collaborate on our 2020 marketing plan.

Further adding to our strength of marketing, I'm excited to announce that Jeremy Tucker will be joining Planet Fitness later this month as our new Chief Marketing Officer. Most recently, Jeremy served as Vice President, Marketing, Communications & Media at Nissan North America where he served as head of U.S. marketing on the executive leadership team. Jeremy brings nearly 20 years of broad marketing experience across large-scale global industries including retail, automotive, entertainment and consumer-packaged goods and managing robust marketing budgets and teams. Prior to Nissan, Jeremy held various marketing roles at Walt Disney Company and PepsiCo. I'm pleased to officially welcome him to the Planet Fitness management team. I'm confident that his deep experience will be an asset to our brand and our franchisees and will enable us to continue to elevate and optimize our national and local marketing efforts.

As part of our future plans, we're gearing up for Q1 and being the presenting sponsor of Time Square's iconic New Year's Eve celebration for the fifth year in a row. Once again, Planet Fitness will be front and center on a global stage at a time when fitness and health and wellness is top of mind for consumers. On the marketing sponsorship front, we are excited to announce that Planet Fitness will be the exclusive fitness partner of The Biggest Loser when the show returns in January on the USA Network, the #1 rated cable network among adults 18 to 49 in 2018. In fact, 1 of the trainers in the show is a Planet Fitness member, who experienced her own incredible weight loss journey and uses her experience to motivate others. We look forward to being part of the show's comeback in Q1.

Now for a brief update on the launch of our enhanced mobile app in early August. We have seen strong growth in both usage and downloads as evidenced by a 49% increase in new downloads per day compared to our previous app. Prior to rollout, all club team members across the system were trained on new features and functionality to promote the app and assist members with the transition. And to increase overall engagement, we have implemented the app at the club level in our tours and new-member orientation. Since the launch, there have been 2 incremental releases, enhancing existing functionality based on user feedback, such as improving the login experience and new features such as referring a friend to join and upgrading to the Planet Fitness Black Card. We are evaluating user feedback and will continue to enhance our offering with future releases.

Shifting gears a bit, I want to briefly recap the Teen Summer Challenge program that ended September 1. Final results were incredible, with over 900,000 teens taking part in the program and conducting over 5.5 million workouts. Introducing Gen Z to fitness not only sets them up on a path to develop healthy habits and build self-esteem, we also see it as a great long-term opportunity to introduce Planet Fitness to Gen Z and their families. In September, we held our annual franchise commerce with more than 1,500 attendees, including franchisees, their team members, vendors and brand support staff. The theme of the meeting was focused on the member mission and elevating their overall benefits experience in all channels throughout their entire journey with us. Our franchisees walked away from the event with energy, passion and commitment to continuing to grow the brand and building more stores so we can bring fitness to more people's backyards. Our team members are inspired to remember the member in everything we do, going above and beyond to wow them with customer service and support.

Our continued success and growth is a result of the collective passion and commitment of our entire system, and I'm extremely proud that the brand continues to be recognized for both our excellence in customer service and for our remarkable growth. For the second consecutive year, Planet Fitness has been named to Newsweek's list of America's best companies for customer service. We were also named in the 2019 Franchise Times' top 200 list, ranking number 49 overall, up 10 spots from last year's ranking of 59. The company also ranked #6 in both Franchise Times' top 10 fastest growers by units and top 10 fastest growers by sales.

I'm extremely pleased by our third quarter results and our track record for continuing to deliver strong performance. In fact, the third quarter marked our 51st straight quarter or more than 12 years of positive same-store sales. That's pretty remarkable. And for me, what's even more exciting is Planet Fitness has a substantial runway for growth and a bright future ahead, from our domestic store expansion opportunities and increasing international growth prospects to our group of experienced well-capitalized franchisees and growing national and local advertising budget. We also believe our focus on enhancing the members' experience through our multiyear technology initiatives and exploring new brand sponsorships will further strengthen the attractiveness of the Planet Fitness brand and concept. I believe we're on the right path to conclude another outstanding year with a strong fourth quarter and that the company is on the right path towards achieving our objectives and generating increasing value for our shareholders.

I'll now turn the call over to Dorvin.

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Dorvin Donald Lively, Planet Fitness, Inc. - President & CFO [4]

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Thanks, Chris, and good afternoon, everyone. I'll begin by reviewing the details of our third quarter results and then discuss our full year 2019 outlook. For the third quarter of 2019, total revenue increased 22.1% to $166.8 million from $136.7 million in the prior year period. Total system-wide same-store sales increased 7.9%. From a segment perspective, franchise same-store sales increased 8.1%, and our corporate store same-store sales increased 4.9%. Approximately 75% of our Q3 comp increase was driven by net member growth with the balance being rate growth. The rate growth was driven by a 100 basis point increase in our Black Card penetration to 61.5% compared with the prior year period, combined with higher Black Card pricing for new joins. The rate growth was mostly driven by the $2 price increase that was put in place system-wide in October of 2017 as the $1 price increase was put in place in September of 2019. The impact from the increased Black Card pricing drove approximately 180 basis points of the increase in same-store sales.

Our franchise segment revenue was $66.7 million, an increase of 21.7% from $54.8 million in the prior year period. Let me break down the drivers for the quarter. Royalty revenue was $46 million, which consists of royalties on monthly membership dues and annual membership fees. This compares to royalty revenue of $36 million in the same quarter of last year, an increase of 27.8%. This year-over-year increase had 3 drivers: first, we ended the quarter with 244 more franchise stores compared to the same time last year; second, as I mentioned, our franchise same-store sales increased by 8.1%; and then third, a higher overall average royalty rate. For the third quarter, the average royalty rate was 6.2%, up from 5.7% in the same period last year, driven by more stores at higher royalty rates compared to the same time last year.

Next, our franchise and other fees were $3.2 million compared to $3.5 million in the prior year period. These are fees received from online new member sign-ups, the recognition of fees paid to us for new franchise agreements, area development agreements and the transfer of the existing stores and fees received from processing dues through our point-of-sale system. Also within franchise segment revenue is our placement revenue, which was $4.3 million in the third quarter compared with $2.5 million a year ago. These are fees we receive for assembly and placement of equipment sales to our franchise-owned stores within the U.S. The increase was due to higher replacement equipment placements combined with placement of equipment in 45 new stores compared with 43 in the year-ago period.

Our commission income, which are commissions from third-party preferred vendor arrangements and equipment commissions for international new store equipment sales, was $0.6 million compared to $1.4 million a year ago. And then finally, our national advertising fund revenue was $12.7 million compared to $11.4 million last year. Our corporate-owned store segment revenue increased 15.1% to $40.7 million from $35.4 million in the prior year period. The $5.3 million increase was due to higher revenue of $2.7 million from corporate-owned stores opened or acquired since the end of the second quarter of last year, an increase in corporate-owned same-store sales of 4.9%, contributing $1.4 million and increased annual fee revenue of $1.1 million.

Turning to our equipment segment. Revenue increased by $12.9 million or 27.9% to $59.4 million from $46.4 million. The increase was driven by higher replacement equipment sales to existing franchise-owned stores. Replacement equipment sales were 61% of total equipment sales in the quarter compared to 49% during the same time last year. Our cost of revenue, which primarily relates to direct cost of equipment sales to new and existing franchise-owned stores, amounted to $46.2 million compared to $36.9 million a year ago, an increase of 25.3%, which was driven by the increase in equipment sales during the quarter.

Our store operating expenses, which are associated with our corporate-owned stores, increased to $22.3 million compared to $18.8 million a year ago. The increase was driven by costs associated with the 14 stores opened or acquired since the end of the second quarter of last year. SG&A for the quarter was $20.9 million compared to $17.2 million a year ago. This increase was related to incremental payroll to support our growing franchise operations and infrastructure, higher information technology expense, marketing and professional fees and higher expenses related to our franchisee conference held in September, which was not held in the prior year quarter.

National advertising fund expense was $12.7 million, offsetting the aforementioned NAF revenue we generated in the quarter. Our operating income increased 21.8% to $53.1 million for the quarter compared to operating income of $43.6 million in the prior year period, while our operating margins were essentially flat with the year-ago period at 31.8%. Our GAAP effective tax rate for the third quarter was 25.8% compared to 26% in the prior year period. As we've stated before, because of the income attributable to the noncontrolling interest and not taxed at the Planet Fitness corporate level, an appropriate adjusted income tax rate would be approximately 26.6%.

On a GAAP basis, for the third quarter of 2019, net income attributable to Planet Fitness, Inc. was $25.8 million or $0.31 per diluted share compared to net income attributable to Planet Fitness, Inc. of $17.5 million or $0.20 per diluted share in the prior year period. Net income was $29.7 million compared to $20.5 million a year ago. On an adjusted basis, net income was $33.1 million or $0.36 per diluted share, an increase of 19.5% compared with $27.7 million or $0.28 per diluted share in the prior year period. Adjusting -- net income has been adjusted to exclude nonrecurring expenses and reflect a normalized tax rate of 26.6% and 26.3% for the third quarter of 2019 and 2018, respectively. We have provided a reconciliation of adjusted net income to GAAP net income in today's earnings release.

Adjusted EBITDA, which is defined as net income before interest, taxes, depreciation and amortization, adjusted for the impact of certain noncash and other items that are not considered in the evaluation of ongoing operating performance, increased 22.2% to $65.7 million from $53.8 million in the prior year period. A reconciliation of adjusted EBITDA to GAAP net income can also be found in the earnings release.

By segment, our franchise segment EBITDA increased 19.6% to $44.3 million driven by royalties received from additional franchisee-owned stores not included in the same-store sales base and an increase in franchise-owned same-store sales of 8.1% as well as a higher overall average royalty rate. Our franchise segment adjusted EBITDA margins decreased approximately 210 basis points to 66.5%. The decrease in margin was due to the higher SG&A expenses discussed earlier, including expenses related to our franchisee conference held in September, which was not held in the prior quarter.

Corporate-owned store segment EBITDA increased 9.9% to $16.8 million, driven primarily by the 4.9% increase in corporate same-store sales, higher annual fees, the 6 new stores opened and 8 stores acquired since the end of the second quarter of last year. Our corporate stores segment adjusted EBITDA margins decreased by approximately 125 basis points to 43.5%, with about half of the decrease due to foreign exchange rates.

Our equipment segment EBITDA increased 42.3% to $13.7 million driven primarily by higher replacement equipment sales to existing franchise-owned stores versus year ago. Our equipment segment adjusted EBITDA margins increased by approximately 230 basis points to 23.1%. The increase in margin was primarily due to the onetime reduction of margin in the prior year as a result of the transition to the new equipment vendors effective in July of 2018.

Now turning to the balance sheet. As of September 30, 2019, we had cash and cash equivalents of $219.8 million compared to $289.4 million on December 31, 2018. The decrease in cash and cash equivalents primarily reflects our share repurchase activity over the past 9 months, including $158 million for the repurchase of an additional 2.3 million in shares during the third quarter of this year, which completed the $500 million repurchase program the Board authorized in August of 2018. Total long-term debt, excluding deferred financing cost, was $1.2 billion at September 30, 2019, consisting solely of our whole business securitization.

Now to our full year outlook. For the year ended December 31, 2019, we now expect total revenue to increase approximately 19% over 2018, up from our previous guidance of 18%. This includes total new store equipment sales now expected to be at the higher end of our previous range of 250 to 260 stores, including approximately 15 international equipment sales and system-wide same-store sales of approximately 8.6%, up from our prior guidance of approximately 8%. This guidance assumes fourth quarter system-wide same-store sales of approximately 8%.

In terms of our profitability, we are raising our projections and now expect adjusted EBITDA to increase approximately 24%, adjusted net income to increase approximately 21% and adjusted EPS to increase approximately 28% to $1.56 per share, up from our previous expectation for adjusted EPS to increase approximately 26%. This guidance assumes a weighted average diluted share count in quarter 4 of 90.9 million shares and 92.6 million shares for the full year and net interest expense in the fourth quarter of $13.7 million and $52.3 million for the full year.

Now we'll turn the call back to the operator for questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Your first question comes from Randy Konik with Jefferies.

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Randal J. Konik, Jefferies LLC, Research Division - Equity Analyst [2]

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First question, I guess, Chris, can you just expand upon -- you gave us some good insight on Australia and thinking through a market far away here. So kind of -- what is that -- going into Australia, what does that kind of have you thinking about in terms of taking over the rest of the planet, if you will, I guess, pun intended. Give us some perspective how you might be thinking about the longer-term future and why you might attack a region or not, why Australia, et cetera. Just give us some perspective there.

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Christopher J. Rondeau, Planet Fitness, Inc. - CEO & Director [3]

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Sure, good question. As I've always said, U.S. is still our main focus with 4,000 potential, and we're barely halfway there. So first of all, I'd make that statement. But I'd say, we did do some studies on international, and Australia was 1 of the top 5 that they recommended. English speaking makes it a bit easier than a lot of other places. And also, I think, with definitely being able to obtain the trademark that was registered by another individual there was a cherry on the top that we could take that at the same time. So -- and it was also good where we had 2 U.S. franchisees that we know and are very good trusted operators with partnering with that individual in Australia, who's also a veteran fitness operator from that country, did seem to be a great partnership to have that be the next frontier, if you will.

So I think as we've mentioned in the past, Ray Miolla, our Chief Development Officer, who came originally from Gap. He's been here a little over 2 years now or 1.5 years now. I think you give him -- and he's led their whole international franchising, so as you've seen the development here in the U.S. really come together well here and with our plan this year here, I think you give him another year. I think the international focus will be quite a bit stronger. He'll divert some of his attention that way.

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Randal J. Konik, Jefferies LLC, Research Division - Equity Analyst [4]

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Got it. And then I guess related back to the United States, the way I kind of have conversations with investors, we talk about your company reminding us of Amazon. But with Amazon, Amazon has competitors like Walmart and Target, which are pretty sizable and so forth. How do you think about -- it seems to me your business, just as it grows the footprint, you continue to gobble up more and more share because of the price point, because of the amenities and the closeness to where the stores are versus where people work and live. So kind of -- when you look at the competitive set, there's not someone that kind of coming up your rear there in terms of a lot of units and size, are you -- do you see kind of as you get more of these units built, you're going more towards 250, 260 versus 200 back in the day, you're continuing to kind of crowd out the competition and just take more and more of those members away. Can you give us some -- how do you react to that? How do you -- give us some commentary around what I just said.

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Christopher J. Rondeau, Planet Fitness, Inc. - CEO & Director [5]

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Yes. No, I -- that's a good question. And I look at -- you think about size and scale advantage for a minute and you look at it in every facet of everything we do and have. We're franchising 17-or-so years, and we've taken that much time to find the best of the best franchisee groups out there that are sophisticated, well-seasoned operators who are building their 20th, 50th or 100th-plus store today, Randy, that they are, in their own right, a national competitor in a lot of ways, right, compared to anybody else in our industry. So they -- 5, 10 years ago, they were opening 1 a year. And now they're opening 15 or 20 a year each. So they themselves are a force to be reckoned with with their own CMOs, their own Chief Development Officers and so on, so very sophisticated.

You put our size and scale advantage with negotiating with REITs and landlords and retailers and equipment manufacturers, and you just go down the list that we're closing in here on 2,000 real quickly. And the largest really full-size operator in this country would be LA Fitness at about 700. They've been there for quite a few years, really, they haven't really grown. Lower cost would be crunched at about 300, and we're opening almost that this year.

So the acceleration of our growth with the franchisees in their, I guess, their excitement for the brand and the unit economics of this model, just constantly parlaying their dollars back into building stores and building stores faster. And at the end of the day, what we continue to see is stores that we're approving from a proximity to another store. 5 or 10 years ago, we never would have dreamed to put them that close, and it really does seem the more we've opened, the more we can open. And the confidence in that 4,000 is -- it seems like every quarter is more reassured in our eyes that is very attainable because it just seems like the more we open, we're more convenient. We market more dollars. We have more reciprocity with the Black Card. And the flywheel is just spinning from every way.

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Randal J. Konik, Jefferies LLC, Research Division - Equity Analyst [6]

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I just want to ask one last thing here because -- around churn. The one thing that people always ask about is churn in the industry and yours is much lower. As you're getting more Black Card members, as you're doing more of those partnerships with Reebok and other types of -- 1-800-Flowers or other companies that want to kind of get access to your members and you're giving more to your members, are you seeing more customer satisfaction, lower churn? Just give us some perspective there. And that's all I have.

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Christopher J. Rondeau, Planet Fitness, Inc. - CEO & Director [7]

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Yes. I mean, I mentioned in the last couple of quarters, I mean, retention is very slightly better, although better but very slightly. I don't know if we can really nail it back down to 1 or 2 of the things that we've done over the time. But I think as long as we continue to add more value to being a member of Planet, it has to help the overall product and value that the customer is getting that drives the experience. And I think with the customer service that we continue to be in the upper rankings of, the last couple of years, J.D. Power last year, and I think you just continue to do the right thing and give more value and not necessarily charge more for it. I think you -- while we win, keep the customers' best interest at heart.

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Operator [8]

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Your next question comes from Jonathan Komp with Baird.

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Jonathan Robert Komp, Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst [9]

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I just wanted to maybe ask about the same-store sales trends. And maybe a broader question as you look throughout 2019, any kind of reflection on the commentary from last quarter about new joins being a little bit light? And then in conjunction with the pretty solid update to the full year comps outlook, just curious how you're viewing the trends within the system and any color looking forward.

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Christopher J. Rondeau, Planet Fitness, Inc. - CEO & Director [10]

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Sure. Yes, I'll comment more on the kind of the marketing front that I had spoke to in the last earnings then probably Dorvin can speak to the same-store sales piece. As you recall, a lot of what I've looked at with data over the years and what had changed was a lot more of the allocation of the national ad fund, where I'd mentioned we kind of overallocated money to digital and wasn't growing the traditional cable TV advertising at the same clip as unit growth or NAF growth. And as I mentioned in my remarks, some of the fine-tuning, we were able to do a little tweaks this third quarter and even real-time today.

More around that is, again, this year is pretty much baked, but we were able to do some small changes in, the small changes we had done were -- or did do was more around that taking some money out of digital, throwing it more into cable and network, and we're seeing promising results that led me to believe that we're going down the right road here of what we thought the data was telling us. So more to come, but really 2020 is being based off that plan and that end. We have the marketing -- IFC marketing committee, this independent franchisee council, that we involve, heavily collecting data from them on a local level to really streamline both how we spend NAF but also how we recommend that the franchisees spend their local advertising fund, the LAF, and I look forward to 2020.

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Dorvin Donald Lively, Planet Fitness, Inc. - President & CFO [11]

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Yes, I think what, Jon, what I'd add to it is that a couple of things to keep in mind, we stated on the call, Q2, that that did not anticipate the rolling out nationwide of the $1 price increase. So that was not embedded into our guidance at that time. And I think we had commented on the call that the results were very similar to what we'd seen previously with the $2 price increase and that we would expect the impact to be very similar in terms of the cadence and the impact to the new -- to the $2 price increase when we rolled it out. We expect that -- it had very minimal impact, as I said in my remarks a few minutes ago, in Q3. On a full year basis, it's going to be about 10 basis points, so it's not huge. In Q4, we expect it to be in kind of the mid-30s, in that range, basis points of an increase in same-store sales for Q4.

So when we set, back in August, when we were looking at the balance of the year, looking at our business and some of the comments we made back then and adjusted our guidance to approximately 8%, that was based on what we knew at that time. And then we saw some favorability in Q3, and as Chris commented earlier in his remarks, some additional favorability that we're seeing now. So all of that is baked into how we get to the guide that we gave now for the full year, but we feel good about where the trends of the business are now and some of the changes that Chris talked about on the marketing front. But that's how we got to where we guided to.

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Jonathan Robert Komp, Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst [12]

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Yes, that's really encouraging to hear. Maybe a follow-up then on the unit development. As you have accelerated the pace of development, I'm curious either what data you have or what feedback you hear from franchisees about the new unit performance given the accelerated pace of openings. And then is there anything unique about the pace of openings this year? Or should we think about this kind of the base going forward in terms of the pace of annual openings?

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Dorvin Donald Lively, Planet Fitness, Inc. - President & CFO [13]

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Yes, I think we've got some really great franchisees across the system, all the way from our larger guys, even down to the smaller guys that continue to build out their territories. And new store performance is really not much different than what it has been last year, year before, et cetera. We're going into some newer markets that has less penetration than in some others. But frankly, some of the results, even in, this is to Chris' comment earlier about sometimes, it seems the more we open, the more we can, that even stores that we open up in more highly penetrated markets still seem to perform very similar as well. So we feel good about that, and that's why Chris made the comment about -- we still think that long-term target seems to make sense.

In terms of the franchisees' willingness to invest, obviously the returns are there that they want to get into these markets as fast as they can. But at the same time, we and they want to be at Main and Main. And so, in some cases, there's either something not available quite yet, and it makes sense to wait or doing ground-ups, and we're doing more ground-ups this year than we have had historically, let's say, 2 or 3 years ago. So that takes a bit longer to get those done. But as we sit here right now, in terms of the guidance we gave for the year, and you know this as well as anybody, Jon, there's a lot of clubs that's still left to get open and get equipment in here in the last, say, 3 weeks in November and then all of December because there's so much activity that happens at that time of the year, but that gave us confidence to kind of say we think we'd be at the upper end of that range.

The -- I guess the governor on that, so to speak, is we've been -- we've had weather in our favor in the last few years, so we didn't have any major snowstorms that kept trucks from getting to a gym site. And it generally, our franchisees and their real estate folks, working in parallel with our teams here on the construction side, to make sure that we can get these stores open by the end of the year or certainly get the equipment in so they can open shortly after the year closes, gives us confidence in that kind of the higher end of that 250 to 260 range that we talked about earlier.

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Operator [14]

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Your next question comes from Oliver Chen with Cowen and Company.

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Jonna Kim, Cowen and Company, LLC, Research Division - Research Associate [15]

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This is Jonna on for Oliver. Just looking at the corporate stores, are you seeing anything different compared to franchisee stores in terms of member growth trends? And obviously, you won't see the same benefit from the new stores on that side. So how do you think about the comp trend over time?

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Dorvin Donald Lively, Planet Fitness, Inc. - President & CFO [16]

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Thanks, Jonna. A corporate store really performs pretty similar to a franchisee store in similar markets. So if you're in a more urban areas to, let's say, more suburban markets to maybe smaller cities or on the outskirts of a more major metropolitan area, they perform very similar. And in fact, we have cities where we have corporate stores and franchisee stores that are in the same market. And if you went in the stores, one, you wouldn't know the difference between it's a corporate store or a franchise store. And quite frankly, if they opened in the same year, let's just say they're a 3-year old store, a 5-year old store, their growth rates are going to be almost virtually identical.

So I mean that's the beauty of our brand is that it's the -- Chris always says he likes the Big Mac, you want the -- you expect the Big Mac in 1 place to look, feel, taste like it is in another store, we want that same experience from our members to be exactly the same. And Jim and his team that runs our corporate store portfolio and then our great franchisees that run theirs and market collectively together in co-ops. So we've got co-ops where we have corporate stores that are participating in the marketing co-op along -- side-by-side with franchisees, and they're all making group decisions on how to spend their money, et cetera. And so I think that's why from a performance perspective, why it's virtually identical.

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Jonna Kim, Cowen and Company, LLC, Research Division - Research Associate [17]

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Got it. And just one more follow-up, you're still expecting replacement mix for the year to be slightly under 50%?

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Dorvin Donald Lively, Planet Fitness, Inc. - President & CFO [18]

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Yes, I think it's going to be probably around 45%, 46%, kind of in that mid- to slightly upper 40s.

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Operator [19]

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Your next question comes from Sharon Zackfia with William Blair.

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Sharon Zackfia, William Blair & Company L.L.C., Research Division - Partner & Group Head of Consumer [20]

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I guess, Dorvin, it would be really helpful to talk about the price benefit impact as we enter 2020. So you've got that residual $2 price benefit that's kind of continuing to roll off. And then you've got the $1 that just started. I mean does that kind of leave all-in kind of 2020's aggregate price benefit similar to 2019?

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Dorvin Donald Lively, Planet Fitness, Inc. - President & CFO [21]

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I'd say a couple of things, Sharon. We're not prepared obviously to kind of nail down comp guidance yet for next year. I think the way to think about it, though, is that the -- and I made the comment a minute ago on the $1, I would expect, based on everything we know right now, that the $1 impact, we rolled that out on October 1 of '17. So we got a full quarter's worth, so we rolled it out September, early September here of '19. So I would expect Q4 this year and then 4 quarters next year to be pretty comparable at 50% of the rate as the $2 price increase was. We will continue to see a decrease on the $2 impact now that we're 9 quarters, or will be 9 quarters, I guess, past it once we end Q4 this year. There'll still be some residual impact to it because it's not all gone away, and we still have members at the $19.99 price point. And as -- over time as they churn, and we continue to add more at the $22.99. But we'll have a lessening impact in 2020 on the $2 price increase.

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Sharon Zackfia, William Blair & Company L.L.C., Research Division - Partner & Group Head of Consumer [22]

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Okay, that's helpful. And then could you talk about on Australia if there are any tweaks to the model you plan on making in that market? And then I just want to make sure I kind of inferred company-owned development correct in the quarter. It looks like you might have opened a handful of clubs. If that was accurate, could you kind of talk about what's going on on the corporate-owned side?

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Dorvin Donald Lively, Planet Fitness, Inc. - President & CFO [23]

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Corporate and I'll talk about Australia.

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Christopher J. Rondeau, Planet Fitness, Inc. - CEO & Director [24]

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The Australia, well, interestingly enough, Bagel Mornings there doesn't work, so we're going to have muffins. So pizza nights still work. And instead of Tootsie Rolls on the counter, we have Mentos. So those are the 3 changes as far as the -- that part of it. The only thing that really changes the model there is tanning is not allowed in the model. And pricing-wise in Australia, U.S. dollars-wise is about a little over $13 a month for the White Card, which is -- in Australia it's a bit different where they bill biweekly. So it's AUD 10 biweekly, so AUD 20 total in a month, which turns out to be a little over USD 13.

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Dorvin Donald Lively, Planet Fitness, Inc. - President & CFO [25]

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Sharon, your question on corporate stores. We opened 2 new corporate stores in Q3, and we anticipate opening 4 more corporate stores in Q4.

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Operator [26]

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Your next question comes from John Heinbockel with Guggenheim Securities.

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John Edward Heinbockel, Guggenheim Securities, LLC, Research Division - Analyst [27]

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So let me start with -- I think it looks like membership actually went up 100,000 or so in the quarter, is that fair? And then I'm curious what impact you saw from Teen Summer Challenge. Was that a nice membership driver this quarter? Or is that likely to happen more over time?

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Christopher J. Rondeau, Planet Fitness, Inc. - CEO & Director [28]

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I would see the Teen Summer Challenge as over time. I think to-date, we're about 65,000 total joins, of which about 45,000 are parents. So I think -- well, I think it's more of a longer-term play, honestly, John, but we did have a little bit of joining traffic after that and just kind of learned best practice from a nationwide standpoint. So as we look to roll it out next year, how do we have a year-over-year performance of driving hopefully incremental joins from best practices going forward.

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John Edward Heinbockel, Guggenheim Securities, LLC, Research Division - Analyst [29]

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And then as you think about -- what do you do differently? Because I don't think you did a ton of marketing last year around this, what do you do differently to try to drive that 900,000 up? And then longer term, when you think about the mix between national and local, I do think you want to move the mix a little more national. When does that start to move? And what's the right mix? Is the right mix, 5 national, 4 local, something like that?

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Christopher J. Rondeau, Planet Fitness, Inc. - CEO & Director [30]

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As far as the national marketing plans? Yes, television, we have about...

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John Edward Heinbockel, Guggenheim Securities, LLC, Research Division - Analyst [31]

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Yes, television, yes, yes.

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Christopher J. Rondeau, Planet Fitness, Inc. - CEO & Director [32]

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Oh, yes. So we have about 4 national programs now, plus we have some class deals that are also mixed in there. Yes, I think with the new IFC marketing committee and the new CMO coming on board, with Jeremy coming on board, I think a year or so from now, more credibility, more data, more performance here based on some of the mix I talked about with switching out of digital, get some more cable advertising. I think that makes a very good point to think about the synergies and then I guess the cost-effectiveness of blending some of that 7 and 2 and is it -- the big question is, is it 3 and 6, is it 5 and 4? We don't know that yet, but there is some savings there as we consolidate some of that spend, especially from buying purposes nationwide. So I think that will probably happen in time, and I hope it does.

As far as Teen Summer Challenge, we did it nationally, mostly it was all free PR, which is incredible. We had, you know, 2 billion impressions. Locally here in New Hampshire, it was our second year doing it because we piloted it here in New Hampshire the first year. In New Hampshire, we used some TV to push it. In New Hampshire, we did more than double the teens this summer compared to last summer. So I'm not sure we can replicate that nationwide, but I think maybe some TV backup on advertising the sale -- the sponsors, the efforts, I guess, to get people aware that we're doing it for free on TV could be a push next year for the Teen Summer Challenge.

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John Edward Heinbockel, Guggenheim Securities, LLC, Research Division - Analyst [33]

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And then just lastly, you talked about maybe going back to more broadcast in the first quarter. We've talked about in the past, the business may be becoming a little less seasonal. Do you think that's true? Or with a little marketing elbow grease, you can still have -- the seasonality we've seen historically in the first quarter still applies?

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Christopher J. Rondeau, Planet Fitness, Inc. - CEO & Director [34]

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Yes, I mean, seasonality is still a big driver for us. I mean between daylight savings as we are all seeing right now, it's been pitch back already here for an hour, and it's getting cold and New Year's resolutions, that changes, for sure. But there's definitely been -- the third quarter for us has, in the -- 10 years ago, it was always -- it almost you go backwards, essentially, where now, we get a little bit of ground where before you'd actually go backwards, you'd be higher than January, but you'd be still backwards. So the world, I think, has changed some there for sure.

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Dorvin Donald Lively, Planet Fitness, Inc. - President & CFO [35]

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Yes. Just the only thing I'd add to that, John, is, I mean, clearly, think about how many stores we've added in the last, say, 5 years. We didn't have near the number of stores in some of the Southern states like Texas and Florida and California. Some of the areas where the climate, frankly, is different and also can dictate kind of when you might want to join. And obviously, in the summertime in Florida, you really don't want to be working out outside. So there's some pieces of that, but as Chris says, still Q1 and early Q2 is still an important period.

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Christopher J. Rondeau, Planet Fitness, Inc. - CEO & Director [36]

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Yes, I think to that point, I think in the northeast or the northern part of the states, you have New Year's resolutions plus weather, where in the southern states you have New Year's resolutions, but in the summertime, it's kind of their winter because it's too hot outside. So theirs isn't quite as big of a spike in January.

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Operator [37]

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Your next question comes from Peter Keith with Piper Jaffray.

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Peter Jacob Keith, Piper Jaffray Companies, Research Division - Principal and Senior Research Analyst [38]

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Nice results, guys. Just 2 questions on the franchisee event. For our model, could you just give us what the cost during the quarter was to run that event? And then secondly, maybe if you just dig a little bit deeper for us, were there any kind of key interesting learnings broadly for the franchisees or even, Chris, for you regarding your key franchisees? I know in the past, you've talked about increased sophistication, adding more executive talent. Curious if you could just give us a little more color on maybe some of the learnings overall from that event?

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Christopher J. Rondeau, Planet Fitness, Inc. - CEO & Director [39]

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Sure, sure. This is Chris. I'll go over the learnings part of it. So it's always best practices, and we actually even include some of the franchisees in some of the teachings and teach-ins. We have 1,500 people. Most of them, at this point, not only the senior management there, but it's a lot of director or regional managers throughout the country that are running 10 or 20 stores themselves. So it's a lot of hands on.

And this whole -- it was really about customer service and how to integrate the app and technology and how to onboard people. So I think there's a lot of low-hanging fruit there on how -- what's the right way to onboard a member from the day they join and get them acclimated to the club, and I think with the technology and the app piece of it, how do we teach them how to utilize technology, whether it's the equipment or the app, and the different equipment we have so they get a better experience in the club. So this one was all about the member. And it was also about the team members, the people that run our stores and how do we streamline their jobs so that they can spend more time and attention to members and not the day-to-day tedious things, operating just the front desk, for example, so a lot of great stuff.

I mean, I say it every year, but the enthusiasm within the system is second to none. I mean, it's some of the happiest, most culture-driven people in the system. And as I said in the past, I mean, even the 14 or so private equity groups that have entered the system where the franchisees that have been here and opened 1 store with me 10, 15 years ago that now have 30 or 40 stores that have taken tens of millions of dollars off the table, they still roll some equity and they still work every single day building more stores. So they really believe in the direction of the company and what we're out to do as a brand. So there's more to it than just the dollars. They really realize we're out there to serve a purpose.

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Dorvin Donald Lively, Planet Fitness, Inc. - President & CFO [40]

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Yes, Peter. The franchisee conference cost us in the quarter about $700,000 net expense.

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Peter Jacob Keith, Piper Jaffray Companies, Research Division - Principal and Senior Research Analyst [41]

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Okay, Dorvin. One -- just a follow-up question, again, on the, I guess, the comp raise for the year. So perhaps there's a little extra scrutiny on the back half of the comp guide coming off of Q2. So I guess, in our math, you were previously guiding for about a 6.5% to 7%. Now you're saying it -- you're implying about an 8% for Q4. So it's a nice step-up. Did I hear you correctly that it's really all attributed to that $1 Black Card price increase? Or is there anything on the member front that's perhaps coming in a little bit stronger?

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Dorvin Donald Lively, Planet Fitness, Inc. - President & CFO [42]

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No, it's -- I mentioned that the $1 impact would be about 35 bps of the impact in Q4. So whatever math you kind of back into, that's the impact of that. So the balance of it is what we're seeing from membership trends and member growth, not only what we saw in Q3, kind of back half Q3 and then what we've seen in terms of current trends as we project over the balance of the year. So the majority of it is really member growth that's driving the comp.

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Operator [43]

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Your next question comes from John Ivankoe with JPMorgan.

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John William Ivankoe, JPMorgan Chase & Co, Research Division - Senior Restaurant Analyst [44]

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I apologize if I missed this. It's a pretty basic one, I think. As you guys have obviously ramped up development in fiscal '19, how is that giving you visibility for fiscal '20? I mean is it -- I mean are you kind of comfortable at the nominal levels, do you think we should be expecting another step-up? Obviously, there's still a lot to be done here on the placement side between now and the end of the year, but how are we setting up for '20? What should we be putting in our models at this point? And I have a couple of follow-ups as well.

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Dorvin Donald Lively, Planet Fitness, Inc. - President & CFO [45]

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Sure, John. I think you'll recall probably over the last -- certainly, the last couple of quarters, I've talked about 2 big, I guess, particular points that I think has kind of got us to where we're at right now. One is that we clearly have more sophisticated larger groups that can afford to have their own real estate departments and people that's focused on just kind of real estate development and construction, you know, to get stores open, whereas 3, 4, 5 years ago, franchisees were doing that and marketing and ops and everything else, so that's one. The second point is that we've added to our SG&A both our own internal folks in the field, real estate directors, et cetera, as well as hiring our own commercial real estate brokers in the field and then we've added some technology to get more sophisticated with market planning and location siting, et cetera, et cetera.

So all of that, I think, is -- and all of that working in concert has allowed us to what I think is kind of, I guess, I'd call it kind of filling the pipeline because in the real estate world, you don't just work on one store and get it open then work on another one. And you got to keep it going, which I think is your point as to so what do you know now today, sitting here in kind of the middle of Q4, that maybe you didn't know a year ago, and how do you kind of play that out and think about it for next year. And as you know, we haven't given guidance, and we'll do that for next year when we report the year-end results, but I'd say the pipeline is -- it continues to be very strong.

We still have over 1,000 in the pipeline that are committed. We had that back same time last year, and we've opened a bunch of stores in the last 12 months. So we continue to add incremental sites to our area development agreements, and a lot of that comes about from that -- the efforts of not only the franchisees team, but our real estate brokers kind of resizing some of those markets. And we can do that either voluntarily by the franchisees wanting to amend their franchise -- or amend their ADAs rather or when a transaction takes place and a franchisee sells to private equity or another franchisee, then we -- that's an opportunity that we can resize those ADAs at that point in time.

Chris mentioned that kind of the favorability in terms of -- with our size and scale. So yes, I think we get first dibs lots of times on properties that are coming available. I've said in the past that today versus 3 or 4 years ago, the REITs and a lot of these major developers will -- they'll be more than willing to come see us as opposed to us trying to get our way into a meeting with them wherever their offices are at, so that's great. The brand is bigger and better known now in virtually every community because we have so many stores now.

So with all of that said, I don't see this as being a 230, 255, 285, 350 kind of front. I kind of like the pace of where we're at. I think that you've heard us talk about the flywheel on the marketing side, and I think that's one of the key reasons why we've had virtually no underperforming stores. I mean there's always some on the bell curve, but when you open up a market and you put your first one and your second one and your third one and all of a sudden you start building the momentum and marketing dollars, the next 3 or 4 benefit from the first.

And so to go into a market -- California is a great example in, say, LA -- the Greater LA area where we don't have a ton of stores yet and still opening some, but to go in there and try to double what we have all of a sudden in the next 6, 8 months just doesn't make sense because you wouldn't have enough marketing dollars to support the amount of stores and then to drive the amount of members that we've been able to prove that we can do through the maturity curve of a new store. And you've heard us talk about that in the past.

So we'll see, but I guess the comment I'd say is the pipeline is strong. We feel good about it. And we think we got the right assets in place and divide -- and devoting the right attention to this. And our franchisees, frankly, they've stepped up their game to do that as well. And I think that's why you see where we're at this year versus where we were, say, 12 months ago.

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John William Ivankoe, JPMorgan Chase & Co, Research Division - Senior Restaurant Analyst [46]

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A couple of -- which may be a little bit more boring and more short from your perspective. As we think about kind of new unit volumes relative to average unit volumes, however you think about it, is there kind of a good percent that we should be thinking about going forward? I mean it's not -- the math that we do on new unit volumes isn't perfect. It is volatile to quarter-to-quarter, but we're still just kind of trying to capture a trend in terms of new unit volumes as a percentage of average unit volumes is the first point. And then secondly, as we're kind of in the fourth quarter of '19, could you give us an update on the waterfall of how these stores comp kind of after their -- in their 13th month, 25th month, what have you, just in terms of what the current math on that is?

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Dorvin Donald Lively, Planet Fitness, Inc. - President & CFO [47]

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So on your first question, when you're saying new unit volume, are you talking about how a store is performing on an AUV basis?

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John William Ivankoe, JPMorgan Chase & Co, Research Division - Senior Restaurant Analyst [48]

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Yes. So say, for example, the volume of an average store in year 1 relative to the average store. I mean it's -- I don't know exactly what vernacular you use. I mean, in restaurants, we could say something like if it's 60% or 70% or 80% of the average unit volume. In some cases, it's 100% of the average unit volume. That wouldn't be the case for a gym like yours. But however you want to kind of communicate year one volumes relative to averaging unit volumes?

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Dorvin Donald Lively, Planet Fitness, Inc. - President & CFO [49]

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Yes. So let me do it the way I've always done it and -- because I don't want to start kind of something new here and I don't have that data point in front of me either. What we say is that a typical store, so kind of average, and frankly, their -- the bell curve is pretty tight on this, is that a typical store will reach cash flow breakeven in about month 6, month 7, kind of in that range, and by month 16, it kind of reaches an AUV of about 1.5 to 1.7. And yes, if it's a big -- if it's a club in a high urban area, it may have more members and have more AUV, but it's going to have more cost, more rent, occupancy, et cetera, et cetera. But on the averages, that's kind of where it gets to by about month 16. And that kind of second year run-rate then, and that's what I would consider a pretty good run-rate that then starts to comp in that kind of, call it, mid-single-digits on after that or mid- to high single-digits because it's still ramping in the back end of year 2 and even into year 3, as an example, versus, say, a 5-year old store.

But that's the way we think about it. We set targets for all stores and we say here's where you ought to be in about month 16. And we'll talk with franchisees on what they need to do out of the gate. We like to get stores open with 1,000 plus members or so out of the gate on day 1. And in a normal curve, they're going to get to that 1.5 million, 1.7 million, call it, in month 16.

So that's how it's performed, and it's been very, very similar last 3 or 4 years.

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John William Ivankoe, JPMorgan Chase & Co, Research Division - Senior Restaurant Analyst [50]

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Okay. Go ahead.

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Dorvin Donald Lively, Planet Fitness, Inc. - President & CFO [51]

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I was going to go to the waterfall. So go ahead and...

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John William Ivankoe, JPMorgan Chase & Co, Research Division - Senior Restaurant Analyst [52]

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Yes, excellent. Thank you. Perfect.

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Dorvin Donald Lively, Planet Fitness, Inc. - President & CFO [53]

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Okay. So from the way a store performs on -- and we look at this on an individual store because if you think about it, you've got a franchisee that's looking at a territory or, frankly, we at corporate, do we open a store at this location? And so we're looking at that -- how that individual store is going to perform. And back to my comment, those are the kind of those expectations.

So as you know, we put stores in comp in month 13. So in that month 13, and back to my previous comment, I used the point of month 16 and it's still ramping, but that you're in that kind of 1.5 million, 1.7 million zone. That store in its first year comp at month 13 is going to be a 40-plus percent comp. And then that store and its kind of second year is going to be kind of the, call it, mid-single-digits or thereabouts.

And then think about it, John, it's now a 4-year-old store or older now because I've been -- first year is not in comp. I talked about the second and third -- or its first year comp and second year comp. So a store that's a 4-, 5-, 6-year-old store is going to comp -- they're going to comp very similar to the other cohorts there. What we do see at times is when stores get into month and into years like 6, 7, 8 time period, sometimes we'll see a bit of an increase in comp and we think that's because -- or we know that in a lot of situations it's because that's when the franchisees are -- they are doing a number of things. They are replacing the equipment. They may be doing some modest renovations. They don't have to do a complete renovation until they get to the end of their 10-year franchise agreement, but sometimes in a market where they already have 10, 12, 15 stores and they may be changing some of the things in one other club, they may just go ahead and do it in another club even though it's in year 8 or 9 or something. So oftentimes, we'll see those stores then, maybe a store in year 7 or 8, might be doing a bit better than stores that's in, call it, 5 or 6 or something. But in general, and I've said this for several years now, that stores are kind of 4 years and older generally comp in the low to mid-single digits, and that's been...

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John William Ivankoe, JPMorgan Chase & Co, Research Division - Senior Restaurant Analyst [54]

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I just wanted to -- just to clarify something, especially since we're on a live call to transcript. So after year 1 is 40%. Then you mentioned going to mid-single-digits. Did we skip a year in the middle to go from that 40% to mid-single-digits? Or is that kind of how we should be thinking about it?

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Christopher J. Rondeau, Planet Fitness, Inc. - CEO & Director [55]

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No. That's the way we have always talked about it, John.

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John William Ivankoe, JPMorgan Chase & Co, Research Division - Senior Restaurant Analyst [56]

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Okay. All right. Okay. That's perfect. So kind of you have the 13th month. For the 12th month, 40%. And then after that, kind of mid-single-digits and then low to mid after that.

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Operator [57]

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Your next question comes from Dave King with Roth Capital Partners.

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Andrew Mali, Roth Capital Partners, LLC, Research Division - Research Associate [58]

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This is Andrew stepping on for Dave. So I guess just, first, to start off, what percentage of your current members at one point canceled their memberships and then have since come back to become members again?

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Christopher J. Rondeau, Planet Fitness, Inc. - CEO & Director [59]

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Yes. Out of the 14-plus million, about 20% have been members at least one time in their past.

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Andrew Mali, Roth Capital Partners, LLC, Research Division - Research Associate [60]

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Great. That's helpful. And then, I guess, just second, just a quick follow-up. I know you guys have said that it's fairly similar, but about how big was the differential between Black Card and White Card churn?

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Dorvin Donald Lively, Planet Fitness, Inc. - President & CFO [61]

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It's virtually the same. No difference.

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Operator [62]

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Your next question comes from Rafe Jadrosich from Bank of America Merrill Lynch.

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Rafe Jason Jadrosich, BofA Merrill Lynch, Research Division - Associate [63]

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Chris, I just wanted to follow-up on your comments on the adjustments you made to marketing in the third quarter. Did you see an improvement in the new member growth during the quarter? And then how much more opportunity do you have on the marketing side to continue to tweak that model?

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Christopher J. Rondeau, Planet Fitness, Inc. - CEO & Director [64]

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Yes. It was member growth and it was definitely a tweak, I believe, on the mix. We spent less in digital, pushed more of that to cable. We also used -- we might have talked in the past that market segmentation study, customer segmentation studies on -- and we learned a lot from that, too, is also networks and the use of fine-tuning on what network channels in cable we were advertising on. From past performance, we've used as well as what we learned what they -- the channels they watch. So we kind of add the best of one side of this and the other side to pick the right networks to go on, so that also had a play in it, but less digital spend and better performance. And only -- there's only so much we can do this year because we're already committed for most of the spend, but some more fine-tuning for the remainder of this year, but the 2020 is when we'll -- we've already pretty much completely overhauled our future here with the franchisees and how we spend next year.

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Rafe Jason Jadrosich, BofA Merrill Lynch, Research Division - Associate [65]

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And then I just wanted to follow-up again, sorry to follow-up on John's question from earlier, just I think in the past, the second year of your waterfall, you've spoken about, like a 15% to 20% before you went to mid-single-digits? Like, has that changed? Or do I have that wrong? In the past, those have gone 40% to mid-single-digit?

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Dorvin Donald Lively, Planet Fitness, Inc. - President & CFO [66]

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No. I said it's kind of mid-teens, mid- to high-teens in its second year of comp. First year is 40-plus percent. Second, year comp is in that mid- to high teens. And then third and on -- or in the kind of low to mid-single digits on average.

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Rafe Jason Jadrosich, BofA Merrill Lynch, Research Division - Associate [67]

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And then just sort of one more for me. As you look at the -- your older clubs, some of the more mature clubs, like, are you seeing any change in the comp trends there in terms of retention? Or are you still seeing positive comps in some of your most mature clubs?

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Christopher J. Rondeau, Planet Fitness, Inc. - CEO & Director [68]

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Yes. All the old stores, all cohorts are positive. Usual thing we've seen, I think, is the ones in that -- the reequip is year 5 for cardio, year 7 for strength, and what would see more trends around that clubs in 7-plus seems to actually pick up a little bit more than the clubs in the mid-range. So if you look at like the lull, the lull although positive is still in the year 5, 6, which is a testament to the commitment to the of the franchisees and us as a brand, which this industry has never really seen people dedicated and committed to reequipping and remodeling stores and keeping them fresh and new, and if you go this industry, you go to a 10-, 20-year-old store just 10 or 20 years old. So most brands in other industries do remodel and do spend CapEx to keep their stores now. And I think that's what we're seeing even our old cohort stores continue to perform. And even the oldest markets, even here in New Hampshire, where we've been 27 years in a state that does not grow, it's been 1.3 million people forever, it's still member growth.

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Operator [69]

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Your last question comes from Joe Altobello with Raymond James.

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Joseph Nicholas Altobello, Raymond James & Associates, Inc., Research Division - MD & Senior Analyst [70]

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Quick questions on Black Card membership. I'm just trying to understand how we should think about that pricing lever going forward? Since the increase 2 years ago was $2, this year, it was $1. So the delta between that and the classic card has now gone from $10 a month to $13. So I'm thinking about how wide that gap can go between Black Card and classic card? And maybe secondly, what the runway is in terms of the penetration rate? You're at 61.5%, I guess, Black Card membership today. Is there a number that you guys think that tops out at it, call it, 70%, 75%, for example?

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Dorvin Donald Lively, Planet Fitness, Inc. - President & CFO [71]

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Sure. So yes, we were -- before the first price increase in 2017 to that $21.99, we were $19.99 essentially forever. What made us originally decide to do some price testing and change it was the reciprocity function, so you can use any store in the country or world for that matter for no charge if you're a Black Card member. And that's the only way you can do that is if you're a Black Card member. It happens to be the most used perk of the Black Card. So it beg the question, back then, we had 1,600 or so stores and does the time to do it, which we did it, moved it by $2, had a little to no pushback on acquisition and moved it. Here we are this year. We're already at another 400-plus stores since then, so it beg the question once again, should we test it again? So I think outside of other services we offer on the Black Card, reciprocity is probably something we always have in our back pocket. You know what I mean? So I think every 2 or 3 years, we have another 400 or 500, 600 stores that it makes sense that we test it again. This price increase of $1 has been really well received and probably a little better than the last one, quite frankly. You're right, we're at 61.5% Black Card, year ago now, we were 60.5%, so we're up 100 basis points. So I think we'll always constantly look at reciprocity as one of those drivers.

And on top of that, we're always looking at other things, whether it's the technology and capturing data from the cardio so that members have it on their app, and if you're a Black Card member you receive that. Content in the app, we unlock certain features in there, whether it's weight loss or diet, nutrition or certain contact. You work out at home, which you can't make to the club today, that is a Black Card benefit. So what are other ways or other services that we can use.

So I think, to answer your question on the Black Card pricing, I will always look to see there's ways that we can raise it, but only if the member is receiving value for that raise. I'd never just do it cause. So if we build 400, 500 more stores in a couple of years, then yes, that begs the question, do we offer more nutrition or content or other service? We'd look to see if there's a lever there to pull.

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Joseph Nicholas Altobello, Raymond James & Associates, Inc., Research Division - MD & Senior Analyst [72]

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In terms of the penetration, is there an upper band where you feel like that's a size it can go?

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Christopher J. Rondeau, Planet Fitness, Inc. - CEO & Director [73]

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Yes. Sure. We have some stores there in the 70s% penetration there. So I think just continually room to slowly move that up. I mean certain features, tanning is an example, are used more in some regions than others. So certain amenities or certain perks are used more than others. Reciprocity is another one, some areas that are well built out with a big network of clubs, reciprocity is a much higher sell in that area, so some do get higher. So I think there's room to continually to slowly edge that up over time. So that would be a perfect storm is to be able to offer value to get price as well as more acquisition.

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Operator [74]

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Okay. I'd now like to turn the call back over to Chris Rondeau for closing remarks.

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Christopher J. Rondeau, Planet Fitness, Inc. - CEO & Director [75]

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Well, thank you, everybody. Thanks for joining us for the call today. Really excited for our momentum here in Q3 and continue its momentum to close out this year here and carrying to 2020. So look forward to our next call. Thank you.

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Operator [76]

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This concludes today's conference call. You may now disconnect.