Good day. Thank you for being here, and welcome to the Planet Fitness, Inc. Second Quarter 2021 Earnings Conference Call. I will now turn the call over to your speaker today, Ms. Stacey Caravella. The floor is yours. Thank you, operator, and good afternoon, everyone. Speaking on today's call will be Planet Fitness' Chief Executive Officer, Chris Rondeau; and Chief Financial Officer, Tom Fitzgerald. We also have Dorvin Lively, President of Planet Fitness on the line, who will be available for questions during the Q&A session following the prepared remarks. Today's call is being webcast live and recorded for replay. Before I turn the call over to Chris, I would like to remind everyone that the language on forward-looking statements included in our earnings release also applies to our comments made during this call. Our release can be found on our website, investor.planetfitness.com, along with any reconciliation of non-GAAP financial measures mentioned on the call with their corresponding GAAP measures. Now I will turn the call over to Chris.

Thank you, Stacey, and thank you, everyone, for joining us today for Planet Fitness' Q2 Earnings Call. It's a testament to the strength of our brand that more than 13 million people remain committed members of Planet Fitness in the depth of a global pandemic when most of our gyms were temporarily closed. Our membership momentum continues to defy our historical seasonal patterns. And through July, we had more than 15 million members. We have regained approximately 75% of the members we lost from our peak in Q1 2020 to our low in Q4 2020. I have never seen this type of unseasonable membership growth in my nearly 30 years at Planet. And some of our larger franchisees, who have been with us for a good portion of that time, are also amazed at the positive trends that they're seeing across their portfolios. And today, with nearly all our stores reopened, existing members are reengaging with us and new members are joining at unprecedented rates, as they all realize the importance of fitness to their overall wellness. We're in the business of helping people feel better and get healthy, and that's what they're seeking right now: a community-based support system in a judgment-free environment, combined with an incredible membership value proposition. COVID hit the U.S. hard. The country came into the pandemic with more than 70% of adults over the age of 20 considered overweight or obese, one of the top risk factors for severe illness with COVID. In fact, life expectancy in America fell by 1.5 years in 2020 due to the pandemic and other residual impacts, the largest single-year decline since World War II. A Kaiser health study showed that people who regularly exercise had the best chance of beating COVID while people who were inactive did much worse. And most importantly, physical activity makes people feel better, not only physically but also mentally. We believe the unseasonal momentum in our membership gains is fueled by people recognizing the importance of self-care. Our messaging to consumers is about taking the first step of getting off the couch and getting into a fitness routine. Our national May sale of 1 month free and no commitment removed all the barriers to doing so. As a result, total net member growth in May was 3x our growth in May 2019. In June, we ran a Black Card flash sale. And for the month, net member growth was nearly 20x what we saw in June 2019, during which we ran a similar offer. For the quarter, net member growth in Q2 not only exceeded Q1 net growth, it doubled what we saw in Q2 2019. We ended Q2 with more than 14.8 million members. Exceeding 15 million members with our July national sales is truly remarkable for our brand when you consider the state of our business in the second quarter of 2020. We had approximately 30% of our stores temporarily closed and negative net membership growth. In just 12 months, our business has rebounded. And importantly, our franchisees are very excited about the trend in the future. It's hard to predict whether these unseasonable joins will continue for the rest of the year, but we believe that people are recognizing the importance of taking better care of themselves. The trends in our business have tested us. In addition to the strength of our joins in June, attrition and usage are normalizing, and in some cases, exceeding our 2019 level, both on a regional and age demographic basis. During June, we began to see certain key metrics in our business return to nearly pre-COVID levels. National usage trending up during the quarter, ending June at nearly 90% of 2019 levels. Usage in June for all demographics was nearly back to a typical pre-COVID month with only boomers trailing. However, it is still trending upward for that age group. Our last group of reopenings are returning to prepandemic performance levels faster than those that reopened back in 2020 as people begin to return to more normal activities. While COVID had a temporary impact on our business, there are areas that the pandemic accelerated such as our digital strategy. When we shut down our stores last year, we quickly shifted to keeping our members engaged digitally with free workouts offered via the web and our mobile app. And as we announced last quarter, we strengthened our partnership with iFit to unlock future opportunities to further accelerate our digital content strategy. App adoption by our members is nearly 60%, having grown from 40% in Q4 2020. During Q3, we plan to roll out a Refer a Friend incentive program through the app. During the second quarter, we hired a Chief Digital Officer, Sherrill Kaplan, to lead our bricks with clicks strategy. We believe that the future of the fitness industry is about providing people with a high-quality in-person experience, coupled with the ability to engage and service them outside our four walls. We're providing them with many other benefits as well as differentiated premium content to make it even easier to get the most out of their membership. We believe that there may be an opportunity for us to aggregate other wellness categories into our app at a disruptive value, all geared towards casual first-timers. We continue to pilot PF+ in a limited number of stores to test price elasticity, included as a bundled offering with our Black Card membership. We expect to run this test for the balance of 2021 and look forward to sharing more on possible offerings in early 2022. In June, nearly 40% of PF+ subscribers joined our bricks-and-mortar locations, underscoring that consumers want a more omnichannel fitness experience. I'm proud of the efforts of our franchisees, headquarter staff and club staff who persevered during the pandemic to keep our systems strong. And I'm very excited to now have nearly all our stores reopened. There's a dislocation in the fitness industry, with 22% of the gyms permanently closed due to the financial impact from COVID through the second quarter. While at the same time, more Americans are realizing that fitness is essential to physical, mental and emotional well-being. After shutdowns, quarantine and isolation, they're seeking a sense of community. We believe we are a place that fills that need with our affordable, nonintimidating workout environment that gets people moving and confident as they go on vacations again, head back to the office or see family and friends they haven't seen in a long time. Importantly, our franchisees believe this as well. As a result, we now expect to be at the high end of our 75 to 100 new store openings range for 2021, reflecting their growing confidence in the strength of our business and near-term growth prospects. Tom will get into more specifics on our outlook for the balance of the year in his remarks. We also announced today that we signed an agreement to accelerate growth in Mexico with a joint venture made up of a prominent local retail services company and one of our largest U.S. developers. The agreement is for a minimum of 80 new stores over the next 5 years in addition to the 5 stores we currently have in Mexico. I'm extremely pleased that we have added 1.5 million members in the first 7 months of this year. With nearly a quarter of all gyms closed due to COVID, I believe that the opportunity in front of us is significant. With so much potential given the changing market dynamics and the tailwinds behind health and wellness, the 4,000-plus long-term, domestic store opportunity looks better and better. I always knew that we would come out of the pandemic even stronger, but the pace is even faster than I expected. I always come back to the fact that we are a purpose-led brand on a mission to change people's lives for the better, which is what the U.S. and the world needs more than ever. I'll now turn the call over to Tom.

Thanks, Chris, and good afternoon, everyone. Before I get into the review of our financials, I want to touch on a couple of key topics, starting with store expansion. During the quarter, we opened 24 new stores, bringing our total count to 2,170. As Chris said, we now expect to be at the top end of the 75 to 100 new store range for the year, reflecting the growing confidence of our franchisees to accelerate their development plans. It also reflects the strengthening of their balance sheets. Several franchisee groups are taking advantage of the increased supply of real estate. As a reminder, we don't typically go after the real estate from gyms that have closed; we look for big box retailers that occupy a 20,000 square foot space. We believe we're even more attractive to landlords given that no Planet Fitness locations permanently closed because of the pandemic, which strengthened our position as a tenant of choice. We're not necessarily seeing rents come down yet, but we are hearing from franchisees that landlords are sometimes offering more tenant improvement dollars. In general, we are seeing a more favorable real estate market and historically unseasonable membership trends, which have been the catalyst for some of our franchisees to accelerate their development pipelines. I would categorize franchisee sentiment as bullish as membership levels continue to climb. Next, I want to elaborate on Chris' comments about the state of our business last year in the second quarter. As previously mentioned on last quarter's call, we are not reporting a Q2 system-wide same-store sales growth number due to the fact that the majority of our stores were not billing in the prior year period. We assume we will resume reporting system-wide same-store sales in the third quarter. As a reminder, our same-store sales results are a function of the change in membership trends over the trailing 12 months compared to the year ago period. As of the end of Q2, we had 6 consecutive months of sequential net member growth, but our membership levels were still below prior year. Black Card penetration increased to 62.6%, up 191 basis points to last year, contributing to continued growth in average monthly rates. Now I'll turn to our Q2 financial results. Total revenue increased $97 million or 241.1% to $137.3 million from $40.2 million in the prior year period. The increase was driven by revenue growth across all 3 segments. The increase in franchise segment revenue was primarily due to growth in royalties, NAF and franchise and other fees primarily attributable to COVID-related temporary store closures in Q2 last year. The increase in revenue in the corporate store segment was also primarily due to COVID-related temporary store closures as well as the impact of 7 new corporate stores opened compared to Q2 2020. Equipment segment revenue increases were driven by higher equipment sales to new and existing franchise-owned stores due in part to temporary store closures related to COVID last year. Our cost of revenue, which primarily relates to the direct cost of equipment sales to new and existing franchise-owned stores, amounted to $18.5 million compared to $8.5 million a year ago. Store operation expenses, which relate to our corporate-owned store segment, were $28.4 million compared to $14.7 million in Q2 last year. The increase was primarily attributable to lower operating and payroll expenses last year due to COVID-related temporary closures, along with higher expenses with the new stores we opened in the last 12 months. SG&A for the quarter was $21.8 million compared to $15.9 million a year ago. The increase was driven by higher incentive and stock-based compensation, travel expenses and expenses associated with our mobile app compared with the prior year period. National advertising fund expense was $13.5 million compared to $10.9 million in the prior year period. Adjusted EBITDA was $55.6 million compared to a loss of $9.3 million in the prior year period. A reconciliation of adjusted EBITDA to GAAP net income or loss can be found in the earnings release. By segment, franchise adjusted EBITDA was $51.8 million. Corporate store adjusted EBITDA was $10.4 million, and equipment adjusted EBITDA was $5.6 million. Adjusted net income was $18.2 million and adjusted net income per diluted share was $0.21. Now turning to the balance sheet. As of June 30, 2021, we had total cash of $527.4 million compared to $515.8 million on December 31, 2020. This was comprised of cash and cash equivalents of $469.1 million compared to $439.5 million and $58.2 million and $76.3 million of restricted cash, respectively, in each period. Total long-term debt, excluding financing cost, was $1.78 billion as of June 30, consisting of our 3 tranches of securitized debt and $75 million of variable funding notes. Our securitized debt structure is covenant light. We have 2 maintenance covenants: a debt service coverage ratio and a total system-wide sales threshold. These are both tested quarterly, calculated on a trailing 12-month basis and reported on a roughly 2-month lag. In our most recent debt covenant reporting period of June 5, 2021, we had a 13% and an 81% cushion to the first triggering event for our debt service coverage ratio and system-wide sales covenant, respectively. We believe we have sufficient headroom for our 2 maintenance covenants, especially now with nearly all of our stores open. Additionally, I'd like to point out that this was the final reporting period with Q2 2020 included in our trailing 12-month calculation. This was our toughest quarter financially last year. And as a result, we believe it was a trough from a DSCR standpoint. Now to our outlook for the balance of 2021. With vaccines readily available across the nation, strong membership growth trends and just under 5 months remaining in this year, we have better insight into what we believe our performance will be across key metrics. However, I'd like to note that our current view for 2021 assumes there is no major resurgence of COVID that causes member disruptions, whether via shutdowns or more stringent mask mandates that result in a significant change in membership trends, particularly as the Delta variant is causing case counts to spike across the U.S. We have already discussed that we expect to be at the high end of our 75 to 100 new store opening range. As a reminder, last quarter, we noted that we expect equipment replacement to be approximately 50% of our total equipment revenue this year. We continue to believe this will be the case. With respect to our corporate store segment, it's important to note that our corporate clubs are primarily in markets that were most impacted by temporary shutdowns from COVID and were in the group of stores that were temporarily closed the longest, which as we've said is the biggest factor impacting a store's recovery to pre-COVID levels. Additionally, the vast majority of our corporate stores are mature stores. Therefore, we expect lower revenue and profit for the balance of this year and into next year for our corporate store segment compared to 2019 levels. We still believe in the strategic importance and viability of our Corporate Store portfolio, it will just take a longer period of time for those stores to return to the previous financial performance levels. Now let's turn to SG&A. There are 2 drivers for increased SG&A spend versus 2019. First, our investments into future growth engines for the business, including our bricks with clicks strategy, IT infrastructure and franchise marketing. For example, as Chris mentioned, on digital, we have a new Chief Digital Officer, who is leading our efforts for an omnichannel experience for our members. From a marketing perspective, we have invested to promote our app, support California store reopenings and participate in lobbying efforts for the fitness industry. The second driver is compensation, including having additional leadership positions as well as typical compensation growth. So when you take all of this together, we believe that our full year revenue will be between $530 million and $540 million. We expect SG&A to be in the low $90 million range. We believe adjusted EBITDA will be between $200 million and $210 million. And we expect that adjusted earnings per share will be between $0.65 and $0.70. Finally, our pace of recovery has been faster than we expected, and our membership growth is highly encouraging. As I mentioned earlier, our same-store sales results are a function of the change in membership levels over the trailing 12 months compared to the prior year period. We cycled the most significant member declines in Q3. We expect that our same-store sales will become positive given our expectation that Q3 membership growth and membership levels will exceed that of last year. However, I want to reiterate that this outlook assumes there is not another prolonged operational setback, whether through mask mandates, temporary shutdowns or other less tangible ways that COVID can affect the American psyche and, in turn, our business. But we know that our business model is resilient. And while the near term is somewhat difficult to predict, we believe that we are well positioned financially and strategically to capitalize on the value-creating opportunities emerging as the country comes out of the pandemic. And with that, I will turn it over to the operator for Q&A.

Your first question comes from the line of John Heinbockel from Guggenheim.

Chris, considering the current membership trends, what are your thoughts on the promotional activities you plan to implement before the end of the year? Are you more inclined to increase promotions because members are likely to respond positively, or do you think you can afford to scale back since they are naturally returning?

That's a good question. Yes, right now, we have nothing unusual from a marketing scheduling standpoint. It looks quite similar to previous years, maintaining a regular cadence. However, what’s particularly interesting is the strong organic demand we’re experiencing on non-promotional days, which is quite remarkable—something I haven't seen before. Even on those off-promotion days, the demand remains consistent. So, we'll maintain our usual marketing schedule, but membership is currently very robust across all demographics.

And maybe secondly, right, when you think about the Black Card pricing test, you're going about that pretty deliberately, I think, compared to the last 2 increases, right? Right? I think you tested it for a couple of months and then went with it. Is that because of COVID? Or is that because you're trying to figure out whether people will pay for the digital content and whether you want to include it in the Black Card pricing or do it separately?

I would say it's a bit of both. It's been a pilot for that reason so we can test if $22.99 is the right price or if it needs to be higher or lower. We're also looking at whether digital is driving customer acquisition or at least helping to maintain the same percentage of Black Card members despite the price increase. So it’s a mix, but I believe we will always keep the PF+ digital option separate from the Black Card bundle for several reasons. We've observed that members who use PF+ often move on to join physical locations, with about 40% of non-physical location members who subscribed to PF+ going on to become physical members after. This suggests they are easing into the experience before committing to a physical location, which is promising. It serves as an additional marketing channel for us and establishes a perceived value, making the bundle seem like a better deal due to its off-the-street pricing. Therefore, I think we will continue to offer both options.

Next question is from the line of Randy Konik from Jefferies.

I have a question for Chris and Tom. Chris, in the press release, you mentioned confidence in meeting and possibly exceeding your long-term target of 4,000 locations in the United States. Can you provide more details because it seems you’re becoming more optimistic about the long-term unit potential, especially as competitors are closing? Some additional insight would be very helpful. Tom, regarding the EBITDA dollar guidance at the high end for the year, it suggests an EBITDA margin of about 39%, I believe. Your previous peak in EBITDA margin was 43% in 2017. I would like to understand better how we should approach the medium term regarding where EBITDA margins might settle for the business and whether the increased SG&A in 2021 will slow its growth rate in 2022. Essentially, should we expect some EBITDA margin expansion next year? I'm curious about that.

Sure. Thanks, Randy. This is Chris. Yes, the 4,000 potential, you might recall us discussing in the past, even before COVID, when most of our new unit sales for franchise development occurred in existing territories we had already sold years ago. We might have sold it for 10 stores in a county, and now we know much more than we did then. Franchisees are approaching us with the insight that what we thought could hold 10 stores might actually hold 14 based on our current knowledge. Therefore, we have always believed that the 4,000 figure could be on the conservative side of what the potential is emerging from COVID. There are many factors, including the fact that 22% of the industry was shut down, which is significant. Out of 41,000 stores, 22% have closed, with a higher percentage in the boutique sector compared to full-service gyms. About 14% of gyms have shut down, while approximately 27% of boutiques have closed, indicating a higher impact on boutiques. Regardless, this 22% of gyms are no longer operational. Additionally, what we're observing with the organic growth I mentioned is simply the increased demand we see coming out of COVID, as people recognize that being overweight or not taking care of their health has contributed to hospitalizations and unfortunate deaths. This reinforces the importance of health and wellness, and I believe the industry is positioned for significant growth for many years following this. We're likely to witness trends that the industry hasn't experienced before. To answer your question, the closure of gyms strengthens our model, especially as we're appealing to casual first-timers. Currently, 40% of our new members have never been to a gym before, which holds true for the second quarter as well. We're successfully encouraging people to become active, particularly those who need assistance the most. Additionally, we know that less affluent neighborhoods have been more affected by COVID, and 25% of our gyms are located in areas that the government classifies as low income. Thus, we are addressing a crucial need. I believe the 4,000 figure is likely a low estimate, and once everything stabilizes, we may need to reevaluate to determine a more accurate potential moving forward.

Randy, regarding the P&L question, as we navigate through various factors by segment, we've noted that the Corporate Store segment has been in markets affected for a longer duration, which impacts performance. In addition, while our franchise segment's membership levels are on the rise, they have been recovering more slowly compared to their relatively strong position in 2019, which was more immediate. This timing difference relates to our subscription model. However, we don't foresee any structural barriers in the near or long term that would prevent us from reaching our 2019 EBITDA margin levels of 43%. The current situation reflects some depressed revenues and shifts across our three segments. With respect to SG&A, as Chris highlighted, we've made incremental investments in personnel, systems, and marketing to support our integrated strategy. Generally, we operate with a prudent approach, yet we will invest where we see significant opportunities. It's about balancing frugality with the necessary investments to capitalize on our perceived growth potential.

Next question is from Oliver Chen from Cowen.

Chris and Tom, it sounded like the membership trends were running better than you expected given your prepared remarks. What drove that upside relative to your expectations? And then second, on the bricks and clicks growth strategy, what are you most excited about? Why was now the right time for a Chief Digital Officer? And how might this impact the models and membership and/or churn? Just what generally is on the road map?

Sure, thanks, Oliver. I want to discuss the current growth in membership and what is driving it. Typically, after April, we don't see much growth in mature stores for the rest of the year, and in many cases, these stores even experience a slight decline. However, what we are witnessing now is unprecedented, as mature stores are growing during a time when they usually don’t. They have added a significant number of new members in the first quarter and into April. Normally, they would maintain or lose some members later in the year, but this year they're actually continuing to grow even in months where they typically do not see growth. The strong organic demand during sales periods is a key factor in this growth. For instance, seeing growth in June or July is something we have never experienced before; usually, we struggle to maintain our membership during the summer. Furthermore, our bricks and clicks strategy, although still in its early stages, shows great potential for the future. As I have stated in previous calls, our industry relies on opening our doors and allowing customers to use our facilities, but we don’t offer many services beyond that. By expanding our services and engagement outside our four walls, we can enhance customer satisfaction and improve retention. Currently, our platform focuses primarily on exercise, but there are many opportunities to expand into areas like nutrition, meditation, and self-help, including sleeping aids. The way people are interacting with us is changing as well; now, 65% to 70% of new memberships come from digital channels, compared to only 30% to 35% in 2019. This shift indicates a significant change in consumer behavior that I believe is here to stay. Additionally, we are now providing app upgrades and a referral program where members can refer friends through the app, earning rewards for successful referrals. This kind of engagement with our members enhances their experience and helps us foster loyalty over the long term.

And lastly, usage. How have usage trended? And what are your expectations there and what you're seeing nationally and/or regionally?

Yes. We ended June with about 90% of 2019 levels, so almost back to normal. Many of the generations have returned to pre-COVID levels. The boomers are still a bit behind but are showing positive trends, which is great. So we are almost back to what we normally see. Usage remains consistent as well, with average member usage being about six times per month.

Next is from the line of Joe Altobello from Raymond James.

This is Adam speaking on behalf of Joe. I understand that the guidance assumes there won’t be any unexpected developments like shutdowns or mass mandates, which are hard to predict. That being said, have you noticed any effects on membership so far? I know it's still early regarding Delta's recent weeks, whether in terms of new sign-ups or cancellations. It might be too soon to identify those trends, but have you observed anything in that area?

We haven't been monitoring it closely because we did observe some market reactions last summer when there were spikes in August. However, we are not witnessing that same response with the Delta variant, either nationally or regionally.

Okay. That's encouraging. And one more, if I could. I believe New York City posted a rule requiring proof of vaccination to enter gyms. Do you think that prospect might slow membership or store growth in any way in the near term?

It could. We haven't seen it yet, but it is definitely a bit of a challenge for people to navigate. A key point is how long this lasts for you, but we haven't seen it impact things so far. Out of our entire portfolio, we have about 95 clubs that require masks at all times and around 31 clubs that require masks when not exercising but while walking around. So it's not as widespread as you might believe, particularly in the Northeast where it seems to be more focused.

Got it. Congrats on the encouraging membership trends.

Thank you.

Next is from Jonathan Komp. Please also state your company name.

It's Jon Komp from Baird. I have a broader question to follow up on. Considering the momentum and membership growth you're experiencing, along with the positive outlook you've mentioned, how do you view your ability to stay ahead of the competition? While you've pointed out metrics regarding gym closures, some of your peers are experiencing similar patterns. Do you believe you're doing enough to maintain your advantage? Additionally, as you plan to stay ahead, how should the costs or investments be divided between Planet and your franchisees?

Yes, that's a good question. You might remember that towards the end of last year, we invested about $10 million in corporate marketing to enhance the National Advertising Fund and accelerate its impact. Currently, we don’t feel the need to make such investments again, though we are keeping that option open. With the current trends in membership growth, we are confident in our position. As you know, the National Advertising Fund is funded by 9% of membership dollars, meaning that as membership grows, those funds will increase more rapidly. Right now, we don’t see any reason to change our current approach. Our enthusiasm about membership growth is shared by the franchisees, who frequently reach out to share their positive experiences, especially regarding the months of July and June. This growth is essential for franchisees to stabilize their finances and feel confident about negotiating leases and opening new clubs. Consequently, we are optimistic about achieving significant unit growth in the next two years, especially since franchisees are actively searching for real estate.

Yes, that's great. Maybe one follow-up then. As we consider how to project equipment revenue in the coming years, I'm thinking about 2019, when it was close to $250 million. Do you have any general thoughts on what we should anticipate for next year regarding that?

Yes, Jon, it's Tom. We're really not commenting on 2022 at this point, we'll do that on our year-end call. But I think once all these extensions have kind of run their course, we expect that sometime in 2022, we'll be back on kind of a normal rhythm, assuming there's no disruption with COVID. But sometime in 2022, back on a normal rhythm in terms of both store development and re-equip cycles.

Next is from John Ivankoe from JPMorgan.

Could you provide insights into how the first-year volumes are performing? Specifically, I'm interested in the stores that opened in the last 12 months, particularly those from 2021, and how their performance compares to previous years.

I appreciate the question, John. I'll begin, and others may add their thoughts. Looking back, the stores that opened last year performed below historical norms. However, the stores that opened in the fourth quarter started to align more closely with our typical expectations. The stores we opened this year have exceeded our expectations in terms of their initial performance during the first months. This is very encouraging and serves as another positive indicator that our franchisees are feeling optimistic.

And above expectations, I mean, would that mean that you're, for example, higher than your 2019 class? Or there's still some drag in the new unit volume?

Higher.

Next is from Simeon Siegel from BMO Capital Markets.

Congrats on the ongoing progress. Chris, sorry if I missed it. I think you touched on it, but can you speak to the composition of the new members? Has it changed versus pre-COVID? I think you mentioned the 40% first-timers. But can you maybe speak to the percent coming from competitive closures or reactivations from your own COVID-lapsed customers? And then, Tom, can you guys gave the average royalty rate? I think you normally give that. So sorry if I missed that.

Yes. Our rejoin rates remain consistent with those in the first quarter. About 30% of our new members are rejoining us, which is higher than the typical 20% we have observed in previous years. Currently, around 3% of new members are coming from our closed competitors. Additionally, approximately 40% of first-time members are new to us from a more sedentary lifestyle. The Gen Z demographic is joining at unprecedented levels, while Gen X and millennials are experiencing similar growth, though boomers are slightly lagging behind.

And yes, I mean, the royalty rate for the quarter was 6.3% versus 6.4% last year, and that's really just a mix of stores that were open and billing last year compared to this year. No fundamental structural change or anything.

Perfect. Is there any notable difference in economics for Mexico compared to the U.S. as you implement that?

No, not really. The royalty rates and the development of the 80 stores over five years indicate a strong partnership with a group from Mexico, which is collaborating with one of our largest franchisees in the U.S. who operates almost 100 locations. The group has successfully introduced brands like Forever 21 and Old Navy to Mexico, so I believe this partnership will be advantageous given the market conditions there.

Next question is from Peter Keith from Piper Sandler.

My congratulations as well on the continued progress. A quick question, I guess, for the revenue guide that you've provided of $530 million to $540 million, what would you have roughly for a year-end member count to get to that range?

Peter, it's Tom. We actually don't provide guidance on the member outlook. And as you know, things are still kind of fluid. But in a typical year, we've seen very unseasonable trends in membership this year, as Chris alluded to. And on our last call, it was a couple of data points. Now it's more data points as we've gone through the quarter and into July. And typically, a store would lose some members in the back half of the year. So we try to put our best thinking in taking an atypical year versus what typically happens and stir all that together to come up with how we guided revenue, but unfortunately, we don't provide membership outlook.

Okay, fair enough. My follow-up question is about the pace of new gym openings. You've indicated the high end of the range for 2021. While I know you're not providing guidance for 2022, I'm curious about how conversations with franchisees are evolving. In the past, you've mentioned that franchisees might wait until after the January selling season to make decisions about openings in 2022. Is that changing due to the quicker member recovery you're experiencing? Could we see gyms open sooner in 2022 based on the feedback you're receiving?

Go ahead, Dorvin. Go ahead.

Yes, Peter, we see that when the shutdowns occurred last year and it became clear they would last for some time, franchisees halted their development activities and even furloughed some real estate team members, as they were uncertain about when they could resume building new stores. As we moved through 2021, particularly after the holidays amid concerns related to COVID-19 and the initial availability of vaccines, the situation began to change. Vaccination rates vary by state, affecting people's willingness to return to their daily routines. This context, as Chris pointed out earlier, helps explain the trends we are currently witnessing. Franchisees are closely monitoring their businesses and we provide them with updates regarding the overall system. They meet these trends in real-time within their individual markets. This is why, as Tom mentioned in our guidance, we expect to be at the higher end of our anticipated range. Franchisees are actively pursuing new deals again. However, the timeline remains a challenge. Typically, it's about nine months from the moment they start looking for a location in a specific market, including working with both internal and external commercial real estate teams to identify potential sites, negotiate letters of intent, and secure tenant improvements. While franchisees are now engaging in the market and starting to initiate LOIs, we're not yet back to the pace we held when everything was disrupted last March. Much of the delay is due to the time required to achieve this. We have reiterated our confidence in the recovery model and are optimistic about returning to the growth we experienced previously; it's a question of when, not if. At this moment, while we aren't making comments regarding 2022, it is evident that franchisees are more willing to identify potential sites now than they were 60 or 90 days ago.

Next question is from Paul Golding from Macquarie.

My first question is if you have any update on Australia and the rollout there given the prolonged snap lockdowns that we've seen over the last several weeks.

Yes. Sure. So I think we just have a few stores there, but we get an update from our franchisees. And it is sort of on again, off again; it's tough. But I think, overall, when they're open, the trends that they see are still encouraging them and they're forging ahead with their development plans for the future.

So that 35-unit estimate over the next several years is still the target for now?

Yes.

I believe that four out of five locations are currently closed. They should reopen by the end of the month, but that timeline is uncertain.

Yes.

Got it. On PF+, could you share any additional engagement statistics regarding the number of unique workouts in a specific month? I'm trying to understand the uptake. Also, as a follow-up to Oliver's question about whether this is intended to be a top-of-funnel initiative, do you see it evolving into a more independent offering with its own branding and marketing? How should we consider this in our model?

There is still a lot of testing to be done here. We haven't released any subscription numbers yet, but there are many app users who aren't PF+ subscribers. Regarding your comment about being top of funnel, you're correct. Many people engage with the app as unpaying members, leading them to bricks and mortar locations, and sometimes they convert to PF+ first. This creates a challenge for funneling, as it acts as another marketing avenue for us. Of those who subscribed to PF+ but weren't bricks and mortar members, 40% have now converted. In the first quarter, this figure was 30%, and in the fourth quarter, it was 20%. You'll notice how people engage with PF+ and then become bricks-and-mortar members afterward. Additionally, 70% of PF+ members have also been using bricks and mortar concurrently, indicating strong engagement. Approximately 80% of subscribers are current Planet Fitness members who have chosen to pay more for additional services. Most of these are Black Card members, which is why we're testing the bundle to see if we can attract more from just Black Card holders, not only those who opt for it. There's much to learn here. When we consider the top of the funnel, of the 12 million app downloads, 9 million are members while the remaining 3 million are either non-members or lapsed members who still engage with the app. There is significant opportunity for engagement and conversion among those app users who are not yet paying subscribers, so we have much more to explore and learn.

Next question is from Chris O'Cull from Stifel.

Tom, I apologize if I missed this, but how much of the equipment revenue this quarter was reequipped? And how should we think about the ramp in replacement equipment revenue for the balance of the year?

Yes. Hey, Chris, sure thing. So in Q2, it was 60% of revenue, brings the first half to about 45% of total equipment revenue. And so we said that for the full year, we're staying with what we said on the last call, which is the reequips would constitute about 50% of our full year equipment revenue.

Okay, that's helpful. Is the net off-season growth you're experiencing due to increased gross sign-ups, reduced cancellations, or both? Additionally, have you noticed any changes in retention since the May and June promotions compared to similar promotions you ran before COVID?

Yes, it's both actually. We're noticing that the timing this year feels reversed. Our performance in May and June was significantly better compared to June of 2019. The day we launched our May sale saw the most net member growth, even beyond January of this year. Demand is definitely stronger now than it was in the first quarter, particularly compared to last year. People are out and about again, and the resurgence of the business is unlike anything we've experienced before. There are various factors at play, including gym closures and an increased focus on health and wellness. Time will tell how things evolve, especially if any new challenges arise with the Delta variant. However, this trend may have the potential to continue in the years to come.

Last question is from Alex Perry from Bank of America.

Chris, I think in the prepared remarks, you made a comment that it's hard to see whether those unseasonal joins will continue. Maybe could you talk through the cancellation rate of new joins within the first few months versus normalized levels, especially with some of the no-commitment promos you guys have been running.

We haven't observed any changes in retention or attrition rates, nor have we seen an increase in attrition related to any commitments. This remains positive news. Consumer studies show that the message of no commitment is often more significant than the actual discount on enrollment fees, as many individuals want the reassurance that they can cancel if needed. Interestingly, about 40% of our members have never visited a gym and are already contemplating cancellation before even signing up. Unfortunately, the industry has a reputation for poor cancellation policies, and we aim to eliminate those obstacles. The reassuring news is that we haven't experienced any rise in attrition due to these types of offers.

That ends our question-and-answer session. I'll turn the call back over to the presenters for closing remarks.

Good. Thank you, operator. Thank you, everyone, for joining us today. As you can tell from our tone, we couldn't be more excited about the momentum in the business, something I have never seen in my almost 30 years here. I'm also pleased that not only our staff but our franchisees share the same sentiment. This is what we hoped would happen, and quite frankly, it's even better than we expected. We didn't know when customer enthusiasm would return; people simply want to get back to health and fitness now more than ever. So all is good news. I look forward to supporting some of the franchisees and resuming growth to get more people off the couch. Thank you all.

That concludes today's conference call. Thank you all for participating. You may now disconnect.