Files on this page are PDF. Download Acrobat Reader(opens in new window) free of charge.

Planet Fitness, Inc. Announces Third Quarter 2016 Results

10/26/2016

Total Revenue Increased 26.4% to $87.0 Million
Third Quarter System-Wide Same Stores Sales Increased 10.0%
Company Raises Full Year 2016 Outlook

NEWINGTON, N.H., Oct. 26, 2016 /PRNewswire/ -- Planet Fitness, Inc. (NYSE: PLNT) today reported financial results for its third quarter ended September 30, 2016 and announced it is pursuing an increase in the size of its credit facilities and considering paying a one-time dividend.

Third Quarter Fiscal 2016 Highlights

  • Total revenue increased from the prior year period by 26.4% to $87.0 million.
  • System-wide same store sales increased 10.0% compared to the prior year period
  • Net income was $14.9 million, or $0.08 per diluted share, compared to net income of $0.7 million, or $0.04 per diluted share in the prior year period.
  • Adjusted net income(1) increased 51.7% to $15.9 million, or $0.16 per diluted share, compared to $10.5 million in the prior year period.
  • Adjusted EBITDA(1) increased 33.5% to $35.4 million from $26.5 million in the prior year period.
  • 37 new Planet Fitness franchise stores were opened during the period, bringing system-wide total stores to 1,242 at September 30, 2016.

(1) Adjusted net income and adjusted EBITDA are non-GAAP measures. For reconciliations of Adjusted EBITDA and Adjusted net income to U.S. GAAP ("GAAP") net income see "Non-GAAP Financial Measures" accompanying this release.

"Our business continues to get stronger," commented Christopher Rondeau, Chief Executive Officer. "Third quarter system-wide same store sales increased 10% as a growing number of casual and first time gym users are joining Planet Fitness. The combination of our affordable, non-intimidating fitness offering and increased national and local advertising spend, which continues to increase with each incremental new join, is fueling greater brand awareness in all markets and membership growth across the store base. Our formula for expanding Planet Fitness' market share, enriching members' lives and delivering strong returns to our franchisees has been working. At the same time, our business model has consistently generated double digit earnings growth and strong free cash flow, providing the company a great foundation for driving significant long-term shareholder value." Mr. Rondeau continued, "based on our performance and more importantly, the long runway for growth ahead of us, we are also announcing that we are seeking to amend our credit facilities to, among other things, increase the size of our term loan.  Proceeds from the incremental borrowings, plus cash on our balance sheet, will enable us to consider a special cash dividend to holders of our Class A common stock and other equivalent payments, including payments to unit holders of Pla-Fit Holdings, LLC, of up to approximately $280 million."

Operating Results for the Third Quarter Ended September 30, 2016

For the third quarter of 2016, total revenue increased $18.2 million or 26.4% to $87.0 million from $68.8 million in the prior year period. By segment:

  • Franchise segment revenue, which includes commission income, increased $7.4 million or 37.5% to $27.2 million from $19.8 million in the prior year period;
  • Corporate-owned stores segment revenue increased $1.5 million or 6.1% to $26.7 million from $25.2 million in the prior year period; and
  • Equipment segment revenue increased $9.2 million or 38.7% to $33.1 million from $23.9 million in the prior year period. This increase was driven by equipment sales to new franchisee-owned stores related to more new equipment sales compared to the prior year period and an increase in replacement equipment sales to existing franchisee-owned stores.

System-wide same store sales increased 10.0% compared to the prior year period. By segment, franchisee-owned same store sales increased 10.3% and corporate-owned same store sales increased 5.4%.

For the third quarter of 2016, net income was $14.9 million, or $0.08 per diluted share, compared to net income of $0.7 million, or $0.04 per diluted share in the prior year period. Adjusted net income increased 51.7% to $15.9 million, or $0.16 per diluted share, from $10.5 million, in the prior year period. Adjusted net income has been adjusted to reflect a normalized federal income tax rate of 39.5% for the current year period and 39.4% for the comparable prior year period and excludes certain non-cash and other items that we do not consider in the evaluation of ongoing operational performance (see "Non-GAAP Financial Measures"). 

Adjusted EBITDA, which is defined as net income before interest, taxes, depreciation and amortization, adjusted for the impact of certain non-cash and other items that we do not consider in the evaluation of ongoing operational performance (see "Non-GAAP Financial Measures"), increased 33.5% to $35.4 million from $26.5 million in the prior year period.

Segment EBITDA represents our Total Segment EBITDA broken down by the Company's reportable segments. Total Segment EBITDA is equal to EBITDA, which is defined as net income before interest, taxes, depreciation and amortization (see "Non-GAAP Financial Measures").

  • Franchise segment EBITDA increased $7.3 million or 47.2% to $22.8 million compared to the prior year period, driven by royalties from new franchised stores opened since September 30, 2015 as well as higher same store sales;
  • Corporate-owned stores segment EBITDA increased $1.3 million or 14.0% to $10.6 million compared to the prior year period, driven primarily by higher revenue related to the increase in same store sales; and
  • Equipment segment EBITDA increased by $2.2 million or 45.7% to $7.2 million compared to the prior year period, driven by higher equipment sales to new franchisee-owned stores related to more new equipment sales compared to the prior year period and an increase in replacement equipment sales to existing franchisee-owned stores.

Amendment to existing credit facilities

The Company is seeking to amend its senior secured credit facilities to allow for, among other things, incremental term loan borrowings of approximately $230 million. In connection with this potential amendment, the Company is considering paying a special cash dividend to holders of our Class A common stock and other equivalent payments, including payments to unit holders of Pla-Fit Holdings, LLC, of up to approximately $280 million in the aggregate with the proceeds from the additional borrowings and available cash. The specific timing and amount of any such amendment or dividend and equivalent payments, if any, has not been determined and there can be no assurance that such amendment will be consummated on the terms anticipated or at all or that, even if the amendment is consummated, any dividend or equivalent payments will be declared and paid.  The payment of a dividend and any equivalent payments is subject to consideration of various factors by the Company's board of directors, including, among other things, the Company's financial position, alternative uses of cash, and other business and legal requirements.

2016 Outlook

For the year ending December 31, 2016, the Company now expects:

  • Total revenue between $373 million and $378 million;
  • System-wide same store sales growth in the high-single digit range;
  • Adjusted net income of $65 million to $66 million, or $0.66 to $0.67 per diluted share.

Presentation of Financial Measures

Planet Fitness, Inc. (the "Company") was formed in March 2015 for the purpose of facilitating the initial public offering (the "IPO") and related transactions that occurred in August 2015, and in order to carry on the business of Pla-Fit Holdings, LLC ("Pla-Fit Holdings") and its subsidiaries. As the sole managing member of Pla-Fit Holdings, the Company operates and controls all of the business and affairs of Pla-Fit Holdings, and through Pla-Fit Holdings, conducts its business. As a result, the Company consolidates Pla-Fit Holdings' financial results and reports a non-controlling interest related to the portion of Pla-Fit Holdings not owned by the Company. The financial results in periods prior to the IPO and recapitalization transactions are of Pla-Fit Holdings, as the predecessor to the Company for accounting and reporting purposes. Accordingly, these historical results do not purport to reflect what the results of operations of the Company or Pla-Fit Holdings would have been had the IPO and related recapitalization transactions occurred prior to August 2015.

The financial information presented in this release includes non-GAAP financial measures such as EBITDA, Total Segment EBITDA, Adjusted EBITDA, Adjusted net income and Adjusted net income per share, diluted to provide measures that we believe are useful to investors in evaluating the Company's performance. These non-GAAP financial measures presented in this release are supplemental measures of the Company's performance that are neither required by, nor presented in accordance with GAAP. These financial measures should not be considered as substitutes for GAAP financial measures such as net income or any other performance measures derived in accordance with GAAP. In addition, in the future, the Company may incur expenses or charges such as those added back to calculate Adjusted EBITDA, Adjusted net income and Adjusted net income per share, diluted. The Company's presentation of Adjusted EBITDA, Adjusted net income and Adjusted net income per share, diluted should not be construed as an inference that the Company's future results will be unaffected by similar amounts or other unusual or nonrecurring items. See the tables at the end of this press release for a reconciliation of EBITDA, Adjusted EBITDA, Total Segment EBITDA, Adjusted net income, and Adjusted net income per share, diluted, to their most directly comparable GAAP financial measure.

The non-GAAP financial measures used in our full-year outlook will differ from net income and net income per share, diluted, determined in accordance with GAAP in ways similar to those described in the reconciliations at the end of this press release. We do not provide guidance for net income or net income per share, diluted, determined in accordance with GAAP or a reconciliation of guidance for Adjusted net income and Adjusted net income per share, diluted, to the most directly comparable GAAP measure because we are not able to predict with reasonable certainty the amount or nature of all items that will be included in our net income and net income per share, diluted, for the remainder of 2016. These items are uncertain, depend on many factors and could have a material impact on our net income and net income per share, diluted, for fiscal 2016.

Investor Conference Call

The Company will hold a conference call at 4:30 pm (ET) on October 26, 2016 to discuss the news announced in this press release. A live webcast of the conference call will be accessible at www.planetfitness.com via the "Investor Relations" link. The webcast will be archived on the website for one year.


About Planet Fitness

Founded in 1992 in Dover, N.H., Planet Fitness is one of the largest and fastest-growing franchisors and operators of fitness centers in the United States by number of members and locations. As of September 30, 2016, Planet Fitness had more than 8.7 million members and more than 1,200 stores in 47 states, the District of Columbia, Puerto Rico, Canada and the Dominican Republic. The Company's mission is to enhance people's lives by providing a high-quality fitness experience in a welcoming, non-intimidating environment, which we call the Judgement Free Zone®. More than 90% of Planet Fitness stores are owned and operated by independent business men and women.  

Forward-Looking Statements

This press release contains certain statements, approximations, estimates and projections with respect to our anticipated future performance, especially those under the heading "2016 Outlook," and statements relating to the proposed amendment of the Company's senior secured indebtedness and potential use of proceeds to fund a special dividend and other equivalent payments ("forward-looking statements"). Forward-looking statements are neither historical facts nor assurances of future performance. Instead, they are based only on the Company's current beliefs, expectations and assumptions regarding the future of the business, future plans and strategies, projections, anticipated events and trends, the economy and other future conditions. Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict and many of which are outside of the Company's control. Actual results and financial condition may differ materially from those indicated in the forward-looking statements. Important factors that could cause actual results and financial condition to differ materially from those indicated in the forward-looking statements include, among others, the following: the Company may be unable to negotiate  the terms of the potential amendment with its lenders, including the right to pay a special cash dividend to its stockholders and other equivalent payments on the terms contemplated or at all; the Company may not be able to fund dividends, including a special cash dividend, with cash on hand, borrowings under its credit agreement or at all; the Company's board of directors may not approve and declare any dividend and other equivalent payments, even if funds are available to the Company under its credit agreement or otherwise, or may determine to declare a dividend and other equivalent payments in an amount that differs materially from the amount described in this press release in management's remarks or otherwise. Other important factors include risks and uncertainties associated with competition in the fitness industry, the Company's and franchisees' ability to attract and retain new members, changes in consumer demand, changes in equipment costs, the Company's ability to expand into new markets, operating costs for the Company and franchisees generally, availability and cost of capital for franchisees, acquisition activity, developments and changes in laws and regulations, our substantial indebtedness, our corporate structure and tax receivable agreements, general economic conditions and the other factors described in the Company's annual report on Form 10-K for the year ended December 31, 2015, and the Company's other filings with the Securities and Exchange Commission. Except as required by law, neither the Company nor any of its affiliates or representatives undertake any obligation to provide additional information or to correct or update any information set forth in this release, whether as a result of new information, future developments or otherwise.


Planet Fitness logo.

 

 

 



Planet Fitness, Inc. and subsidiaries


Condensed consolidated statements of operations


(Unaudited)


(Amounts in thousands, except per share amounts)





For the three months
ended September 30,



For the nine months
ended September 30,




2016



2015



2016



2015



Revenue:

















Franchise

$

23,046



$

16,148



$

70,042



$

51,806



Commission income


4,179




3,646




14,338




11,624



Corporate-owned stores


26,675




25,153




78,756




73,674



Equipment


33,107




23,870




98,686




87,588



Total revenue


87,007




68,817




261,822




224,692



Operating costs and expenses:

















Cost of revenue


25,925




18,858




77,365




70,104



Store operations


15,181




14,305




45,673




43,354



Selling, general and administrative


12,244




17,348




36,470




43,840



Depreciation and amortization


7,745




7,976




23,127




24,160



Other (gain) loss


(241)




(9)




(406)




(76)



Total operating costs and expenses


60,854




58,478




182,229




181,382



Income from operations


26,153




10,339




79,593




43,310



Other expense, net:

















Interest expense, net


(6,291)




(6,556)




(18,819)




(17,872)



Other expense


(204)




(1,815)




30




(2,627)



Total other expense, net


(6,495)




(8,371)




(18,789)




(20,499)



Income before income taxes


19,658




1,968




60,804




22,811



Provision for income taxes


4,795




1,230




11,504




1,921



Net income


14,863




738




49,300




20,890



Less net income attributable to non-controlling
interests


11,438




4,631




38,374




4,857



Net income attributable to Planet Fitness, Inc.


3,425




(3,893)




10,926




16,033




















Net income per share of Class A common stock(1):

















Basic

$

0.08



$

0.05



$

0.28



$

0.05



Diluted

$

0.08



$

0.04



$

0.28



$

0.04




















Weighted-average shares of Class A common stock
outstanding(1):

















Basic


44,669




35,661




39,394




35,661



Diluted


44,686




98,710




39,397




98,710




(1)

For the three and nine months ended September 30, 2015, represents earnings per share of Class A common stock and weighted-average shares of Class A common stock outstanding for the period from August 6, 2015 through September 30, 2015, the period following the recapitalization transactions and IPO.

 

 

 

Planet Fitness, Inc. and subsidiaries

Condensed consolidated balance sheets

(Unaudited)

(Amounts in thousands, except per share amounts)




September 30,



December 31,




2016



2015


Assets









Current assets:









Cash and cash equivalents


$

65,954



$

31,430


Accounts receivable, net of allowance for bad debts of $673 and $629 at
   September 30, 2016 and December 31, 2015, respectively



14,435




19,079


Due from related parties



97




4,940


Inventory



759




4,557


Restricted assets – national advertising fund



2,455




1,962


Other current assets



19,420




10,977


Total current assets



103,120




72,945


Property and equipment, net



56,577




56,139


Intangible assets, net



258,799




273,619


Goodwill



176,981




176,981


Deferred income taxes



255,729




117,358


Other assets, net



1,132




2,135


Total assets


$

852,338



$

699,177


Liabilities and equity:









Current liabilities:









Current maturities of long-term debt


$

5,100



$

5,100


Accounts payable



14,415




23,950


Accrued expenses



10,207




13,667


Due to related parties



3,966





Equipment deposits



3,978




5,587


Restricted liabilities - national advertising fund



2,455





Deferred revenue, current



17,084




14,717


Payable to related parties pursuant to tax benefit arrangements, current



8,916




3,019


Other current liabilities



222




212


Total current liabilities



66,343




66,252


Long-term debt, net of current maturities



477,067




479,779


Deferred rent, net of current portion



4,878




4,554


Deferred revenue, net of current portion



8,472




12,016


Deferred tax liabilities



1,275





Payable to related parties pursuant to tax benefit arrangements, net of current
portion



265,156




137,172


Other liabilities



489




484


Total noncurrent liabilities



757,337




634,005


Equity:









Class A common stock, $.0001 par value - 300,000 shares authorized, 49,914
   shares issued and outstanding as of September 30, 2016 and 36,598 shares issued
   and outstanding as of December 31, 2015



5




4


Class B common stock, $.0001 par value - 100,000 shares authorized, 48,665
   shares issued and outstanding as of September 30, 2016, and 62,112 shares issued
   and outstanding as of December 31, 2015



5




6


Accumulated other comprehensive loss



(1,123)




(1,710)


Additional paid in capital



14,825




352


Accumulated deficit



(4,248)




(14,032)


Total stockholders' deficit attributable to Planet Fitness Inc.



9,464




(15,380)


Non-controlling interests



19,194




14,300


Total stockholders' equity (deficit)



28,658




(1,080)


Total liabilities and stockholders' equity (deficit)


$

852,338



$

699,177


 

 

 

Planet Fitness, Inc. and subsidiaries

Condensed consolidated statements of cash flows

(Unaudited)

(Amounts in thousands)




For the three months ended
September 30,




2016



2015


Cash flows from operating activities:









Net income


$

49,300



$

20,890


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









Depreciation and amortization



23,127




24,160


Amortization of deferred financing costs



1,114




1,070


Amortization of favorable leases and asset retirement obligations



297




380


Amortization of interest rate caps



459




-


Deferred tax expense (benefit)



11,062




(141)


Provision for bad debts



44




547


Gain on disposal of property and equipment



(347)




(76)


Equity-based compensation



1,373




4,647


Changes in operating assets and liabilities









Accounts receivable



4,898




8,830


Due to and due from related parties



8,494




4,532


Inventory



3,798




237


Other assets and other current assets



(1,635)




(563)


Accounts payable and accrued expenses



(10,172)




(11,745)


Other liabilities and other current liabilities



(30)




57


Income taxes



(7,543)




969


Payable to related parties pursuant to tax benefit arrangements



(6,007)




-


Equipment deposits



(1,609)




823


Deferred revenue



(1,264)




626


Deferred rent



379




1,330


Net cash provided by operating activities



75,738




56,573


Cash flows from investing activities:









Additions to property and equipment



(9,266)




(13,830)


Proceeds from sale of property and equipment



402




76


Net cash used in investing activities



(8,864)




(13,754)


Cash flows from financing activities:









Proceeds from issuance of Class A common stock sold in initial public offering, net of
   underwriting discounts and commissions



-




156,946


Use of proceeds from issuance of Class A common stock to purchase Holdings Units



-




(156,946)


Exercise of common stock options



79




-


Proceeds from issuance of long-term debt



-




120,000


Principal payments on capital lease obligations



(37)




(343)


Repayment of long-term debt



(3,825)




(3,525)


Payment of deferred financing and other debt-related costs



-




(1,698)


Premiums paid for interest rate caps



-




(880)


Repurchase and retirement of Class B common stock



(1,583)




-


Distributions to Continuing LLC Members



(27,071)




(171,101)


Net cash used in financing activities



(32,437)




(57,547)


Effects of exchange rate changes on cash and cash equivalents



87




(102)


Net increase (decrease) in cash and cash equivalents



34,524




(14,830)


Cash and cash equivalents, beginning of period



31,430




43,291


Cash and cash equivalents, end of period


$

65,954



$

28,461











Supplemental cash flow information:









Net cash paid for income taxes


$

8,121



$

1,105


Cash paid for interest


$

17,261



$

17,063


Non-cash investing activities:









Non-cash additions to property and equipment


$

127



$

709


 

 

 

Planet Fitness, Inc. and subsidiaries
Non-GAAP Financial Measures
(Unaudited)
(Amounts in thousands, except per share amounts)

To supplement its consolidated financial statements, which are prepared and presented in accordance with GAAP, the Company uses the following non-GAAP financial measures: EBITDA, Total Segment EBITDA, Adjusted EBITDA, Adjusted net income and Adjusted net income per share, diluted (collectively, the "non-GAAP financial measures"). The Company believes that these non-GAAP financial measures, when used in conjunction with GAAP financial measures, are useful to investors in evaluating our operating performance. These non-GAAP financial measures presented in this release are supplemental measures of the Company's performance that are neither required by, nor presented in accordance with GAAP. These financial measures should not be considered as substitutes for GAAP financial measures such as net income or any other performance measures derived in accordance with GAAP. In addition, in the future, the Company may incur expenses or charges such as those added back to calculate Adjusted EBITDA, Adjusted net income and Adjusted net income per share, diluted. The Company's presentation of Adjusted EBITDA, Adjusted net income, and Adjusted net income per share, diluted, should not be construed as an inference that the Company's future results will be unaffected by unusual or nonrecurring items.

EBITDA, Segment EBITDA and Adjusted EBITDA

We refer to EBITDA and Adjusted EBITDA as we use these measures to evaluate our operating performance and we believe these measures provide useful information to investors in evaluating our performance. We have also disclosed Segment EBITDA as an important financial metric utilized by the Company to evaluate performance and allocate resources to segments in accordance with ASC 280, Segment Reporting. We define EBITDA as net income before interest, taxes, depreciation and amortization. Segment EBITDA sums to Total Segment EBITDA which is equal to the Non-GAAP financial metric EBITDA. We believe that EBITDA, which eliminates the impact of certain expenses that we do not believe reflect our underlying business performance, provides useful information to investors to assess the performance of our segments as well as the business as a whole. Our Board of Directors also uses EBITDA as a key metric to assess the performance of management. We define Adjusted EBITDA as net income before interest, taxes, depreciation and amortization, adjusted for the impact of certain additional non-cash and other items that we do not consider in our evaluation of ongoing performance of the Company's core operations. These items include certain purchase accounting adjustments, management fees, certain IT system upgrade costs, acquisition transaction fees, public offering-related costs, IPO-related compensation expense, pre-opening costs and certain other charges and gains. We believe that Adjusted EBITDA is an appropriate measure of operating performance in addition to EBITDA because it eliminates the impact of other items that we believe reduce the comparability of our underlying core business performance from period to period and is therefore useful to our investors in comparing the core performance of our business from period to period.

A reconciliation of Adjusted EBITDA to net income, the most directly comparable U.S. GAAP measure, is set forth below.



For the three months ended
September 30,



For the nine months ended
September 30,




2016



2015



2016



2015


Net income attributable to Planet Fitness, Inc.


$

3,425



$

(3,893)



$

10,926



$

16,033


Net income attributable to non-controlling
interests



11,438




4,631




38,374




4,857


Net income


$

14,863



$

738



$

49,300



$

20,890


Interest expense, net



6,291




6,556




18,819




17,872


Provision for income taxes



4,795




1,230




11,504




1,921


Depreciation and amortization



7,745




7,976




23,127




24,160


EBITDA


$

33,694



$

16,500



$

102,750



$

64,843


Purchase accounting adjustments-revenue(1)



450




195




458




465


Purchase accounting adjustments-rent(2)



202




248




664




692


Management fees (3)






1,384







1,899


IT system upgrade costs (4)






(116)







3,901


Stock offering-related costs (5)



1,078




2,167




2,105




7,239


IPO-related compensation expense(6)






6,155







6,155


Severance costs(7)









423





Pre-opening costs (8)












793


Other(9)









72





Adjusted EBITDA


$

35,424



$

26,533



$

106,472



$

85,987


 

(1)

Represents the impact of revenue-related purchase accounting adjustments associated with the 2012 acquisition of Pla-Fit Holdings on November 8, 2012 by TSG (the "2012 Acquisition"). At the time of the 2012 Acquisition, which consisted of the purchase of interests in Pla-Fit Holdings by investment funds affiliated with TSG Consumer Partners, LLC, the Company maintained a deferred revenue account, which consisted of deferred area development agreement fees, deferred franchise fees, and deferred enrollment fees that the Company billed and collected up front but recognizes for U.S. GAAP purposes at a later date. In connection with the 2012 Acquisition, it was determined that the carrying amount of deferred revenue was greater than the fair value assessed in accordance with ASC 805—Business Combinations, which resulted in a write-down of the carrying value of the deferred revenue balance upon application of acquisition push-down accounting under ASC 805. These amounts represent the additional revenue that would have been recognized in these periods if the write-down to deferred revenue had not occurred in connection with the application of acquisition pushdown accounting.

(2)

Represents the impact of rent related purchase accounting adjustments. In accordance with guidance in ASC 805–Business Combinations, in connection with the 2012 Acquisition, the Company's deferred rent liability was required to be written off as of the acquisition date and rent was recorded on a straight-line basis from the acquisition date through the end of the lease term. This resulted in higher overall recorded rent expense each period than would have otherwise been recorded had the deferred rent liability not been written off as a result of the acquisition push down accounting applied in accordance with ASC 805. Adjustments of $105, $104, $372 and $310 in the three and nine months ended September 30, 2016 and 2015, respectively, reflect the difference between the higher rent expense recorded in accordance with U.S. GAAP since the acquisition and the rent expense that would have been recorded had the 2012 Acquisition not occurred. Adjustments of $97, $144, $292 and $382 for the three and nine months ended September 30, 2016 and 2015, respectively, are due to the amortization of favorable and unfavorable lease intangible assets which were recorded in connection with the 2012 Acquisition and the acquisition of eight franchisee-owned stores on March 31, 2014. All of the rent related purchase accounting adjustments are adjustments to rent expense which is included in store operations on our consolidated statements of operations.

(3)

Represents management fees and expenses paid to a management company affiliated with TSG pursuant to a management services agreement that terminated in connection with the IPO.

(4)

Represents costs associated with certain IT system upgrades, primarily related to our POS system.

(5)

Represents legal, accounting and other costs incurred in connection with offerings of the Company's Class A common stock.

(6)

Represents cash-based and equity-based compensation expense recorded in connection with the IPO.

(7)

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

(8)

Represents costs associated with new corporate-owned stores incurred prior to the store opening, including payroll-related costs, rent and occupancy expenses, marketing and other store operating supply expenses.

(9)

Represents certain other charges and gains that we do not believe reflect our underlying business performance. In 2016, this included the expense related to the adjustment of our tax benefit arrangements primarily due to changes in our effective tax rate.

A reconciliation of Segment EBITDA to Total Segment EBITDA is set forth below.

 



Three months ended
September
 30,



Nine months ended
September
 30,




2016



2015



2016



2015


Segment EBITDA

















Franchise


$

22,814



$

15,496



$

71,308



$

46,778


Corporate-owned stores



10,550




9,256




30,259




26,342


Equipment



7,153




4,910




21,330




18,914


Corporate and other



(6,823)




(13,162)




(20,147)




(27,191)


Total Segment EBITDA(1)


$

33,694



$

16,500



$

102,750



$

64,843



(1)      Total Segment EBITDA is equal to EBITDA.

 

 

Adjusted Net Income and Adjusted Net Income per Diluted Share

As a result of the recapitalization transactions that occurred prior to our IPO, the New LLC Agreement designated Planet Fitness, Inc. as the sole managing member of Pla-Fit Holdings. As sole managing member, Planet Fitness, Inc. exclusively operates and controls the business and affairs of Pla-Fit Holdings, LLC. As a result of the recapitalization transactions and the New LLC Agreement, Planet Fitness, Inc. now consolidates Pla-Fit Holdings, and Pla-Fit Holdings is considered the predecessor to Planet Fitness, Inc. for accounting purposes. Our presentation of Adjusted net income and Adjusted net income per share, diluted, gives effect to the consolidation of Pla-Fit Holdings with Planet Fitness, Inc. resulting from the recapitalization transactions and the New LLC Agreement as if they had occurred on January 1, 2015. In addition, Adjusted net income assumes that all net income is attributable to Planet Fitness, Inc., which assumes the full exchange of all outstanding Holdings Units for shares of Class A common stock of Planet Fitness, Inc., adjusted for certain non-recurring items that we do not believe directly reflect our core operations. Adjusted net income per share, diluted, is calculated by dividing Adjusted net income by the total shares of Class A common stock outstanding plus any dilutive options and restricted stock units as calculated in accordance with U.S. GAAP and assuming the full exchange of all outstanding Holdings Units and corresponding Class B common stock as of the beginning of each period presented. Adjusted net income and Adjusted net income per share, diluted, are supplemental measures of operating performance that do not represent, and should not be considered, alternatives to net income and earnings per share, as calculated in accordance with GAAP. We believe Adjusted net income and Adjusted net income per share, diluted, supplement GAAP measures and enable us to more effectively evaluate our performance period-over-period. A reconciliation of Adjusted net income to net income, the most directly comparable GAAP measure, and the computation of Adjusted net income per share, diluted, are set forth below.

 




For the three months
ended September 30,



For the nine months ended
September 30,





2016



2015



2016



2015



Net income attributable to Planet Fitness, Inc.


$

3,425



$

(3,893)



$

10,926



$

16,033



Net income attributable to non-controlling
interests



11,438




4,631




38,374




4,857



Net income


$

14,863



$

738



$

49,300



$

20,890



Provision for income taxes, as reported



4,795




1,230




11,504




1,921



Purchase accounting adjustments-revenue(1)



450




195




458




465



Purchase accounting adjustments-rent(2)



202




248




664




692



Management fees(3)






1,384







1,899



IT system upgrade costs(4)






(116)







3,901



Stock offering-related costs(5)



1,078




2,167




2,105




7,239



IPO-related compensation expense(6)






6,155







6,155



Severance costs(7)









423






Pre-openings costs(8)












793



Other(9)









72






Purchase accounting amortization(10)



4,843




5,257




14,528




15,797



Adjusted income before income taxes


$

26,231



$

17,258



$

79,054



$

59,752



Adjusted income taxes(11)



10,361




6,800




31,226




23,542



Adjusted net income


$

15,870



$

10,458



$

47,828



$

36,210





















Adjusted net income per share, diluted


$

0.16







$

0.48

























Adjusted weighted-average shares outstanding(12)



98,572








98,615






 

 

(1)

Represents the impact of revenue-related purchase accounting adjustments associated with the 2012 Acquisition. At the time of the 2012 Acquisition, which consisted of the purchase of interests in Pla-Fit Holdings by investment funds affiliated with TSG Consumer Partners, LLC, the Company maintained a deferred revenue account, which consisted of deferred area development agreement fees, deferred franchise fees, and deferred enrollment fees that the Company billed and collected up front but recognizes for U.S. GAAP purposes at a later date. In connection with the 2012 Acquisition, it was determined that the carrying amount of deferred revenue was greater than the fair value assessed in accordance with ASC 805—Business Combinations, which resulted in a write-down of the carrying value of the deferred revenue balance upon application of acquisition push-down accounting under ASC 805. These amounts represent the additional revenue that would have been recognized in these periods if the write-down to deferred revenue had not occurred in connection with the application of acquisition pushdown accounting.

(2)

Represents the impact of rent related purchase accounting adjustments. In accordance with guidance in ASC 805–Business Combinations, in connection with the 2012 Acquisition, the Company's deferred rent liability was required to be written off as of the acquisition date and rent was recorded on a straight-line basis from the acquisition date through the end of the lease term. This resulted in higher overall recorded rent expense each period than would have otherwise been recorded had the deferred rent liability not been written off as a result of the acquisition push down accounting applied in accordance with ASC 805. Adjustments of $105, $104, $372 and $310 in the three and nine months ended September 30, 2016 and 2015, respectively, reflect the difference between the higher rent expense recorded in accordance with U.S. GAAP since the acquisition and the rent expense that would have been recorded had the 2012 Acquisition not occurred. Adjustments of $97, $144, $292 and $382 for the three and nine months ended September 30, 2016 and 2015, respectively, are due to the amortization of favorable and unfavorable lease intangible assets which were recorded in connection with the 2012 Acquisition and the acquisition of eight franchisee-owned stores on March 31, 2014. All of the rent related purchase accounting adjustments are adjustments to rent expense which is included in store operations on our consolidated statements of operations.

(3)

Represents management fees and expenses paid to a management company affiliated with TSG pursuant to a management services agreement that terminated in connection with the IPO.

(4)

Represents costs associated with certain IT system upgrades, primarily related to our POS system.

(5)

Represents legal, accounting and other costs incurred in connection with offerings of the Company's Class A common stock.

(6)

Represents cash-based and equity-based compensation expense recorded in connection with the IPO.

(7)

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

(8)

Represents costs associated with new corporate-owned stores incurred prior to the store opening, including payroll-related costs, rent and occupancy expenses, marketing and other store operating supply expenses.

(9)

Represents certain other charges and gains that we do not believe reflect our underlying business performance. In 2016, the included the expense related to the adjustment of our tax benefit arrangements primarily due to changes in our effective tax rate.

(10)

Includes $4,219, $4,484, $12,655 and $13,452 of amortization of intangible assets, other than favorable leases, for the three and nine months ended September 30, 2016 and 2015, respectively, recorded in connection with the 2012 Acquisition, which consisted of the purchase of interests in Pla-Fit Holdings by investment funds affiliated with TSG Consumer Partners, LLC and $624, $773, $1,873 and $2,345 of amortization of intangible assets for the three and nine months ended September 30, 2016 and 2015, respectively, recorded in connection with the acquisition of eight franchisee-owned stores on March 31, 2014. The adjustment represents the amount of actual non-cash amortization expense recorded, in accordance with U.S. GAAP, in each period.

(11)

Represents corporate income taxes at an assumed effective tax rate of 39.5% for the three and nine months ended September 30, 2016, and 39.4% for the three and nine months ended September 30, 2015, applied to adjusted income before income taxes.

(12)

Assumes the full exchange of all outstanding Holdings Units and corresponding shares of Class B common stock for shares of Class A common stock of Planet Fitness, Inc.

 

 

 

A reconciliation of net income per share, diluted, to Adjusted net income per share, diluted is set forth below for the three and nine months ended September 30, 2016:



For the three months ended September
30, 2016



For the nine months ended September
30, 2016




Net
income



Weighted
Average
Shares



Net income
per share,
diluted



Net
income



Weighted
Average
Shares



Net income
per share,
diluted


Net income attributable to Planet Fitness
Inc.(1)


$

3,425




44,669



$

0.08



$

10,926




39,394



$

0.28


Assumed exchange of shares(2)



11,438




53,903








38,374




59,221






Net Income



14,863












49,300










Adjustments to arrive at adjusted
   income before income taxes(3)



11,368












29,754










Adjusted income before income taxes



26,231












79,054










Adjusted income taxes(4)



10,361












31,226










Adjusted Net Income


$

15,870




98,572



$

0.16



$

47,828




98,615



$

0.48


 

(1)

Represents net income attributable to Planet Fitness, Inc. and the associated weighted average shares, diluted of Class A common stock outstanding.

(2)

Assumes the full exchange of all outstanding Holdings Units and corresponding shares of Class B common stock for shares of Class A common stock of Planet Fitness, Inc. Also assumes the addition of net income attributable to non-controlling interests corresponding with the assumed exchange of Holdings Units and Class B common shares for shares of Class A common stock.

(3)

Represents the total impact of all adjustments identified in the adjusted net income table above to arrive at adjusted income before income taxes.

(4)

Represents corporate income taxes at an assumed effective tax rate of 39.5% applied to adjusted income before income taxes.

 

Logo - http://photos.prnewswire.com/prnh/20130109/NE34800LOGO

To view the original version on PR Newswire, visit:http://www.prnewswire.com/news-releases/planet-fitness-inc-announces-third-quarter-2016-results-300351907.html

SOURCE Planet Fitness, Inc.

Investor Contact: Brendon Frey, ICR, [email protected], 203-682-8200; Media Contacts: McCall Gosselin, Planet Fitness, [email protected], 603-957-4650 or Julia Young, ICR, [email protected], 646-277-1280