Hello, and welcome to the Planet Fitness Fourth Quarter 2021 Earnings Call. My name is Alex, and I’ll be coordinating the call today. I will now hand over to your host, Stacey Caravella, Head of Investor Relations for Planet Fitness. Over to you, Stacey.

Thank you, operator, and good morning, 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 here, 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’d 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, and their corresponding GAAP measures. Now, I will turn the call over to Chris.

Thank you, Stacey, and thank you, everyone, for joining us for the Planet Fitness Q4 Earnings Call. First, I'm going to cover our fourth quarter membership results, as well as January trends. Then I'll discuss why I continue to be so bullish on our leadership position in the fitness industry, as we emerge from the pandemic that has brought to the forefront, the critical importance of health and wellness. I'm extremely proud of how our franchisees, headquarters staff, and club staff continue to be agile through this ever-changing environment, which enabled us to grow our annual net membership at nearly pre-pandemic pace in 2021. We added 1.7 million members, ending the year with 15.2 million. For the seventh consecutive year, we rang in 2022 as a presenting sponsor of Times Square's New Year’s Eve celebration. It was great to see Times Square once again covered in purple and yellow, and to be part of that iconic celebration as this year marks Planet Fitness's 30th anniversary. However, the highly transmissible Omicron variant that began to surge in late December and throughout January led to a softness in our January join trend compared to pre-pandemic levels. A significant portion of Americans were directly or indirectly impacted by Omicron in January, which significantly disrupted their daily lives. According to the US Census Bureau, it's estimated that approximately 14 million Americans did not work at some point during December 29 to January 10 because they had COVID, or were caring for someone with COVID, while they had to look after a child whose school or daycare was closed. That's a staggering number. We saw this disruption reflected in our membership behaviors. During January, usage slipped below the approximately 90% index to 2019, which was the same rate we observed during most of 2021. Higher member usage historically corresponds with higher join activity. As quickly as the Omicron surge began, it started to wane as January progressed. Accordingly, member usage rebounded, and we hit our highest usage rate since the start of COVID at the end of January. While we believe that Omicron was primarily the biggest factor in causing the softness from January joins compared to pre-pandemic levels, we also believe that our agency consolidation had some minor impact as well. As we discussed, at the end of 2021, we transitioned from 16 agencies handling our national and local marketing and advertisement to one, Publicis Groupe. Not unexpectedly, with a transformation of this size and scale, there have been some challenges. While we believe that consolidation was the right next step to evolve our marketing, drive efficiencies, and gain greater visibility into system-wide spend performance, we are expanding our local agency options to include Publicis in a very small number of our top-performing local agencies. This is similar to our equipment business, as we offer our franchisees three vendors from which to choose. We believe this is the right approach as we work through the transition with Publicis, and that the long-term benefits from the consolidation of agencies outweigh the near-term disruption. So, while we had positive net member growth in January, it was not back to pre-pandemic levels. We added over 400,000 new members in January, which is over 100,000 more than we added in January of last year. Although the consumer dynamic differed from last year, in 2021, people were awaiting vaccines. This year, people were home, either quarantined or caring for sick family members. Despite this, we ended January with 15.6 million members, surpassing our pre-pandemic first quarter 2020 membership peak and achieving an all-time membership high. We are not going to cover February membership growth, but we felt it was important to discuss January as most of the business seemed to have experienced some type of impact from the Omicron variant. Now, let me move on to our position as a leader in the fitness industry. There are three primary reasons that I am excited about the near-term and long-term future of Planet Fitness. First, we are investing in growing as the industry is contracting. Second, Gen Zs were the fastest growing demographic group in our 2021 membership, who, along with millennials, prioritize an active lifestyle more than their previous generations. Third, a silver lining of the pandemic is that it opened people's eyes to the importance of fitness and their overall health. On my first point, the Fitness and Health Club Industry Trade Group, IHRSA, recently reported that now 25% of all health and fitness facilities in the US are permanently closed as a result of the pandemic at the end of 2021. I'm proud that not a single Planet Fitness location closed permanently due to COVID. In fact, over the past two years, we have added more than 250 new locations, with 132 in 2021 alone. Not only are we growing, but we are also making strategic investments to the future. To that end, we acquired Sunshine Fitness, one of our largest and best-performing franchisees, closing the transaction and our debt refinancing and upsizing on February 10. In addition to our 112 corporate stores, we now have 114 clubs in the southeastern part of the US. With this acquisition, we are doubling down on the emerging fitness boom, acquiring a top-tier operator in the system with very strong store-level four-wall margins, and diversifying our corporate store geographic footprint in markets with a long runway for future store development. We now own more than 200 corporate stores for approximately 10% of the total system, which is our target ownership level. And it allows us to retain our asset-light business model, an important part of our shareholder value proposition. Another potential long-term positive for our business is the encouraging trends on our membership base when looking at it by each cohort. Millennials continue to be the largest demographic segment of our total membership base. In fact, more than 8% of all millennials living in the US are Planet Fitness members. Even more encouraging is the recent growth we have seen in Gen Z members. In 2021, this generation demonstrated growth of nearly three times that of the millennial category, bringing our share of Gen Zs over the age of 15 in the US to nearly 8%, which is notable as only half of that generation is old enough to join our gyms. And not only are we capturing more of the younger generations, but we're also bringing back an increasing number of former members, as they recommit to a healthier lifestyle. Our rejoin rate in 2021 was approximately 30%, compared to 28% in the pre-pandemic. In fact, IHRSA recently reported that among those who canceled their memberships in big box gyms, half say they’re planning to return in the next six to 12 months. Affordability and a welcoming, less intimidating atmosphere are key criteria for what they're seeking in a gym, exactly what we offer and what differentiates us from the rest of the industry. Finally, the pandemic accelerated a trend of increased interest in health and wellness that was already underway. Our consumer messaging in 2022 will focus on the feel-good feeling you get after a good workout and the mental health benefits that exercise provides that extend beyond just physical benefits. The CDC reports that even one workout can reduce depression, anxiety, and improve your sleep. This messaging was in our first-ever Super Bowl advertisement in our 30-year history, which highlighted that fitness is about more than just identity and your waistline. It features Lindsay Lohan, along with other stars like William Shatner. Despite the near-term negative impact of Omicron, we believe there's tremendous untapped opportunity for our brand long-term to get people off the couch, with approximately 140 million non-gym members living within 10 miles of an existing Planet Fitness. It's too early to tell if the unseasonable join pattern that we experienced in 2021 will continue this year. We have learned to be nimble and agile as we operate in a volatile environment. It appears that we are slowly entering a new phase of the pandemic. All our stores are back open. COVID restrictions are lifting. Mask mandates are ending. And most importantly to our business, our member usage is rebounding, and membership levels have reached an all-time high. We revolutionized the gym industry nearly 30 years ago with three key points of differentiation: our welcoming, friendly judgment-free environment catering to first-time gym-goers, our variety of high-quality brand-name cardio and strength equipment, and our affordable membership options. We remain committed to delivering these to our members. This commitment is fueled by our phenomenal growth over the past three decades, and it enabled us to grow even during a devastating pandemic. As we look to the future, we believe our purpose of enhancing people's lives and creating a healthier world sets us and our franchisees up for long-term success. I'll now turn the call over to Tom.

Thanks, Chris, and good morning, everyone. As Chris referenced, we are making strategic investments for the future against a backdrop of industry contraction. We recently completed the acquisition of one of our best-performing franchisees, as well as the successful refinancing and upsizing of our debt. We raised $900 million under our existing securitized debt facility in an oversubscribed deal that consists of a five-year, $425 million tranche and a ten-year $475 million tranche, and resulted in a lower overall weighted average interest rate for our total debt. With the net proceeds, we repaid one tranche of outstanding debt, paid the transaction cost, funded the reserve accounts associated with the debt, and used a portion for the acquisition cost. We also issued additional equity as part of the acquisition funding. The success of the refinancing and the closing of the acquisition signified the continued strengthening of our balance sheet, and most importantly, is a testament to how well our business has rebounded since the height of the pandemic. Now, I will cover our Q4 financial results and will address our operational and financial outlook for 2022. All my comments regarding fourth quarter performance will compare fourth quarter 2021 to Q4 of 2020. We opened 62 new stores during the quarter, bringing our full-year total to 132, as Chris noted earlier. We had positive same-store sales growth in the fourth quarter, with systemwide same-store sales increasing 12.3%. Franchisee same-store sales grew 12.4% and our corporate same-store sales increased 10.1%. Approximately 75% of our Q4 comp increase was driven by net member growth, with the balance being rate growth. The rate growth was driven by a 210-basis point increase in our Black Card penetration to 62.6%. Q4 total revenue increased $49.9 million, or 37.3% to $183.6 million, from $133.8 million. The increase was driven by revenue growth across all three segments. The increase in franchise segment revenue was due in part to new stores and stores that were opened this year that were temporarily closed last year, same-store sales growth, equipment replacement revenue, and franchise and other fees. For the fourth quarter, the average royalty rate was 6.4%, up from 6.3%. The increase in revenue in the corporate-owned store segment was driven by new store openings, same-store sales growth, and the cycling of temporary store closures in the prior year period. Equipment segment revenue increases were driven by higher equipment sales to new and existing franchisee-owned stores. For the quarter, replacement equipment accounted for 45% of total equipment revenue. We completed 63 new store placements in the quarter versus 45 last year. Our total cost of revenue, which primarily relates to the direct cost of equipment sales to franchisee-owned stores, amounted to $47.4 million compared to $25.3 million. Store operations expenses, which relate to our corporate-owned stores segment, were $28.6 million compared to $25.6 million. The increase was primarily attributable to expenses associated with the new stores we opened since last October. SG&A for the quarter was $27.3 million compared to $17.4 million. The increase was driven by higher payroll expense due primarily to increased incentive and stock-based compensation, as well as some increased travel expenses. National advertising funding expense was $17.6 million, compared to $15 million. Adjusted EBITDA was $63.0 million compared to $51.1 million. Now, by segment, franchise adjusted EBITDA was $49.6 million, corporate store adjusted EBITDA was $15 million, and the equipment adjusted EBITDA was $14.3 million. Net income was $6.3 million. This reflects a $17.5 million reserve against our investment in iFit that we made in March of 2021. We were required to assess the value of our investment as of December 31, 2021, and we will continue to assess it quarterly. Adjusted net income was $22.5 million, and adjusted net income per diluted share was $0.26. Now turning to the balance sheet. As of December 31, 2021, we had total cash, cash equivalents, and restricted cash of $603.9 million, compared to $515.8 million on December 31, 2020. This was comprised of cash and cash equivalents of $545.9 million, compared to $439.5 million, and $58 million and $76.3 million of restricted cash, respectively, in each period. After the impact of the debt financing in February 2022, total long-term securitized debt, excluding deferred financing cost, was $2.1 billion, consisting of our four tranches of debt and $75 million of variable funding notes. Now to our 2022 outlook. Our view for 2022 assumes there is no material resurgence of COVID that causes member disruptions, whether it be shutdowns or more stringent mandates that result in a significant change in membership behaviors. I'll start by discussing the Sunshine Fitness acquisition and how acquiring a franchisee impacts all three of our segments. First, within the franchise segment, royalties go down as we no longer receive the royalties and other fees such as franchise fees, web join fees, and equipment placement fees from the acquired stores. Second, in the equipment segment, we no longer receive equipment sales and margin, as the stores are now part of our corporate store portfolio. Finally, the corporate-owned store segment benefits from the increased four-wall profit of the newly acquired stores. One of the primary drivers for this acquisition is gaining the team that operated one of the best performing franchise networks. So, the SG&A expenses in the corporate store segment will increase accordingly. We also expect both our CapEx and depreciation and amortization to approximately double in 2021, with the additional stores and new store developments adding to our portfolio. One other item to note is that we completed the Sunshine transaction in mid-February. So, it will not have a full 12-month impact on our 2022 results. Now to our outlook for this year, which includes the impact from the acquisition and the refinancing. We expect new equipment placements of approximately $170 million. As a reminder, these placements are only in franchise-owned locations. Historically, this number would have included placements in new Sunshine Fitness stores but will not going forward. We expect that half of our equipment segment revenue will come from re-equips. We expect systemwide same-store sales to be in the low double-digit percentage range, and for our full-year revenue to grow in the mid-50% range over 2021. We expect that our full-year adjusted EBITDA will grow in the high 50% range, and for our net interest expense to be approximately $89 million, and adjusted net income to increase in the low 90% range over 2021. We expect adjusted earnings per share to grow in the mid-80% range using shares outstanding of $91.1 million, which is inclusive of the issuance of equity as part of the Sunshine transaction. And with that, I'll turn it over to the operator for Q&A.

Our first question for today comes from Simeon Siegel of BMO. Simeon, your line is now open.

Thanks. Hey, everyone. Good morning. Just curious, Chris, can you talk - how are the conversations with your franchisees? How have they gotten since the acquisition announcement? Any color you can offer there? Maybe Tom, anything further you could talk about the iFit credit loss, and any impact of how you're viewing digital offerings? And then just lastly, any thoughts on wages? Like how should we think about wage inflation as we're going forward? Thanks a lot, guys.

Sure, Simeon. Yes. The franchisees were actually really encouraged by it. I think it showed with their own - either own private equity or maybe a future deal, they might do that. The fact that the franchisor was excited about the brand, much to double down on this boom. They were thought it was really showed good light to the business. I think also, it being our very first franchisee ever in the system, they were number one, believe it or not. So, it was kind of a full circle. They’re very much encouraged and still founder-led, that business, even though it was private-equity held, but founder-led. So, they were very encouraged - and encouraging and congratulating that franchisee themselves and that franchisee, Shane McGuiness, now works for corporate, along with their management team, to run our corporate store. So, it was all good. I think it just shows that us corporately are very excited with the business going forward.

Yes. Simeon, it's Tom. thanks for the questions. And I think in terms of the iFit credit loss, the short story is there was some press in January that you may have seen where their first and largest sponsor was suing them. And they made some statements about the fact that they had hired - that the firm had - that iFit had hired someone to help them with their financing. It was Lazard, as well as a bankruptcy attorney. So, that prompted us to talk to them, review their financials, review their outlook, and ultimately engage outside parties to help us with the valuation and how to think about it, the probabilities of outcomes, and all of that math ended up with the write-down that we or the valuation sort of adjustment for that. In terms of inflation, we've talked about this before, but we are lucky that our in-store model has very low labor content. Typically, there are 12 to 15 folks on the payroll. And while wages have gone up, if you think about it as a percentage of sales and what inflationary pressures may bring compared to the same-store sales growth, which we are now - you can see how it's accelerated from - now that we're sort of back more - in a more typical high single-digit, low double-digit range of same-store sales growth, the majority of that being member growth, we believe that will help store four-wall margins expand despite the labor pressure. So, it’s not great, but it ultimately hurts us less than it hurts others with a higher labor content. And ultimately, doesn't prevent margins from expanding as our same-store sales get back on their historical patterns.

Great. Thanks a lot, guys. Best of luck for the year ahead.

Thank you. Our next question comes from John Heinbockel of Guggenheim. John, your line is now open.

Great. So, guys, I wanted to start with marketing, on two thoughts. Maybe, Chris, talk about how you think the local marketing disruption transition hurt you in January, right, in terms of maybe what the franchisees were not doing or not spending on local, if that was it. And then part of that long-term, right, you do the Super Bowl. you're getting bigger. Your thoughts on national versus local, right, the composition of that and how that changes, I guess, toward more national over the next couple of years.

Yes, sure. Thanks, John. Yes, the local advertising by the franchisees, I think with the migration over to Publicis, which still, I think the limiting from the 16 we currently had, formerly had, to the one, was the right move, although I think quite the undertaking with our size and scope of our marketing machine, as I always talk about. I think it was more of an undertaking than anyone anticipated, which is why we're going to bring in two more to help ease that transition. I think - but the important thing really is the - for the first time ever, January was the first time really we had clear insight on exactly, not only what was spent, but actually the mix, how many GRPs were bought, what channels on TV, what channels on cable TV, what radio stations? You go down the list. So, I think the data collection is super important, which is what we require all three or so of the smaller sizes of agencies we bring in to make sure we continue to capture that. So, that's the good news. I think we’re just trying to coordinate everything, get all our ads placed. Sometimes latent buying causes higher prices or a lack of inventory to buy. So, I think some of that probably played a part. How much is hard because with Omicron in the first couple weeks of January, how much is really portrayed to each. I think our workouts always kind of proceed first before the joins come in, meaning the higher the workouts, the more joins we get. And as I mentioned in my opening remarks, we saw our workouts for the end of January, the highest we have seen since our original shutdown in May - in March of ‘20. So, it’s evident that from our lack of workouts in the first part of January, the Omicron probably had a much larger impact than advertising did for sure. I think the Super Bowl was a great spot. We've got tons of good credit from it. We were one of the top 10 commercials for the Super Bowl this year for our first year ever. I think those big things are important for our brand and important for the industry where no one else has our size and scope to really do this, right? And now with 25% of the gyms shutdown in the US, our moat is larger and our size and scale advantage is even better. So, I think more things like this, whether it’s Super Bowl, New Year's Eve, we’ll have to continue to look at other things like that, and quantify which is the right place to spend and where do we put more money or more commercials. But I couldn't be more happy with the Super Bowl commercial and all the play we got. And we actually had it - it was perfect timing because it played out right in the middle of our February national sales. So, it was good for us.

And then maybe as a follow-up, right, so do you think - we do now know how much franchisees have spent locally. I mean, I know there was a target. Were they actually spending that, or do you think they were spending that? And then secondly, you talked about Gen Z. So, do we get back to the teen summer challenge this year? And if so, how big an event do you want that to be?

Yes, good question. Yes, we didn't - I don't see there's much variation or lack of spend necessarily. I think it's more, where are they spending it, and how are they spending it? There's always - nobody ever really had best practice. So, some believe or some agencies that more network TV is better than cable, or FM radio is dead and it really isn't. So, it's all that data we can capture that the rest of the disease going forward can start to learn by and us learn by it quite frankly, because we really didn't have the insight to it. So, we'd have markets throughout the country that would overperform others, but no real data that proved what was the reason behind it. So, that's probably the big part. Yes, the teen summer challenge, like if you go back, you've always been a big fan of it, as we are too. We had almost a million teens in 2019 in that summer activating. That was 5% of all Gen Zs of age that joined within three months as a free summer membership. So, and then through COVID, with all that was going on, we didn't reactivate it. And I think we're seeing how these Gen Zs are coming into our gyms and working out now is really astonishing and great, I think with mental health. And you've seen so many reports with the Gen Zs are feeling it almost more than others that they're gravitating towards fitness to hopefully deal with some of that. So, yes, we're definitely weighing the options now and preparing to hopefully launch that. More to come on it, but hopefully we get to launch it, and I think it'll probably be even a bigger - able to do, I think with a bigger launch than the 2019 year.

Thank you. thanks, guys.

Thank you. Our next question comes from Alex Perry of Bank of America. Alex, your line is now open.

Hi. Thanks for taking my question. Could you maybe just give us a bit more color on sort of how you would expect members signups to trend 1Q this year versus prior years? Do you think that there will be a bit of a seasonality shift, given Omicron in January? Or maybe remind us how much January usually represents as a percent of 1Q memberships? And then just off of that, are you thinking of doing sort of additional promotions to sort of help sign-ups through sort of February and March?

Sure. Thanks, Alex. This is Chris. Currently, we don't plan on changing our normal cadence of national sales throughout the year. So, it's pretty much the same as it's been for historically over the years, as far as like our April sale and so on, and July, and so on the rest of the year. Yes, as you probably recall, like last year was very unfeasible. Our second quarter was bigger than our first quarter and that never happens. First quarter historically accounts for about 50% of the entire year's net joins in January, but 40% of net joins, which last year was completely upside down. So, more to come and we'll see. it's hard to really predict right now what's going to happen. But as I mentioned, like the workouts definitely are the first sign before joins. And the end of January, we had the highest number of workouts we had seen since the original shutdown. So, that's a huge sign for us. And I think the other important thing is, our cancellations are actually better than January of ‘20. So, even pre-COVID. So, I think people are realizing now, with the different variants we've seen, they're just temporary, right? And eventually, you get back to working out and get back to outdoors. So, the fact that our cancellations didn't spike, people realized it's a temporary pause from workouts until you feel comfortable to go back out. So, that's another good sign for us.

That's incredibly helpful. And then maybe just a question on the club openings through the year. So, what would drive upside to sort of the 170-franchise number that you laid out on the franchise side? And then maybe just a little more color on how you expect the corporate store portfolio to evolve, given the Sunshine deal and a bigger opportunity there, given the white space from Sunshine. Thanks.

Sure, Alex. This is Dorvin. One of the things that we said throughout the kind of the latter half of 2021 was that we expected to see acceleration of our growth, given that most of our clubs were open and then we ended the year, now we have all of our clubs open. We certainly saw franchisee activity out there in the field, in their areas that they have starting to submit sites. We opened 132 last year, guided to the 170 this year. That 170 of placements would not include Sunshine, because that's now - internally, we don't recognize revenue on placements. So, that number would have been a bit higher if Sunshine was a standalone franchisee. Clearly, there was pipeline in that territory that they owned. They had not fully built out their various area development agreements that they had. At the time that deal was being marketed, we looked at the whitespace they had and their required development under their existing ADAs at the time, and believed that there were incremental sites to be built. You may recall, Alex, we've talked about in the past that virtually every time we re-review an area development agreement, we tend to add more sites to it just because the more we open, it seems like the more we can open. So, that's just one factor to keep in mind. But I think the crux to your question is that the franchisee sentiment has continued to get more positive and positive as we've kind of gotten into the state of where now there's fewer cases with Omicron. Obviously, there were some peaks in that back in late last year, even into early January, but it started to subside. But when you think about it, we didn't have a single store closure during COVID. And when we opened back up, the member base was still there. The economics of the model, although had been impacted some, was a bit fewer members. And Tom talked about earlier, side impact from wage increases, et cetera. But net-net, when you look at the four-wall economics of our model, it's still superior to about any kind of other four-wall box that you can invest in. So, our private equity guys that own the businesses are extremely positive. We still have other private equity guys that are trying to get in. And so, we feel really good about it. We'll have more - obviously more info as we get throughout the year, but we've said that we'll get back into that 200-plus range. Just a matter of when, not if.

Perfect. that's really helpful. Best of luck going forward.

Thank you. Our next question comes from John Ivankoe of JPMorgan. John, your line is now open.

Thank you very much. The question was also on the 170 of placements, or I guess franchise unit development being an approximate of that. There was at least some conversation at - or some thought at various points in ’21, that ‘22, given your current run rate for ‘21 development, that ‘22 development would actually be above or at least in line with the 200-plus type of run rate that you were on basically 2019 and before. So, I just wanted to see if there were any constraints on the franchise side that we should be sensitive to, especially as we think about ‘23, ’24. Are they still rebuilding balance sheets? Is it staffing that they might be concerned about, even though there are only 12 to 15 employees per gym? Is it things like Omicron? Or is it permitting, construction, the other types of delays that we're hearing about broadly in the marketplace? If you could talk about what may be transitory and specific to ‘22 in terms of perhaps constraining that unit development versus what may be more structural.

Hey, John, Tom and I will tag team this. I'll let him address kind of the financing side of it from the franchisee perspective. But I'll make just a couple of comments to the first part of your question. I think that the rebuild of the pipeline, which we've talked about kind of Q3, Q4, clearly started because we got into - we ended up with a good number of openings in the back half of ’21. And there is certainly a - there's not a lack of willingness to get out there and build sites. There was probably a bit of, I don't know if hesitation is the right word, or negotiation maybe is another word to add into that. Could there be an impact of softness in the real estate development markets that could benefit you when you sign a 10-year lease? So, I think a lot of views going into this was, there's going to be a lot of closures across the real estate landscape, et cetera, et cetera. And there certainly has been, but maybe not 20,000 square foot boxes. I think you've said - you've heard us say, and it really hasn't changed much, a bit softness in some markets, some of the really strong power centers where we would like to get into, probably not much, a bit more on the TI, tenant improvement allowance dollars, which obviously helps on the overall ROI. But I would say, we're seeing an acceleration from where we were six months ago of sites being submitted. And so, from a run-rate perspective, I think we'll be there sometime this year, barring any other issues with COVID impacts. But it just takes a bit of time to kind of get up into that run rate, I guess, is the way I'd say it. But we're feeling really good about the number of franchisees that are out there looking at sites, submitting sites, and have sites in the existing pipeline right now. You may recall, just one more comment I’ll make is, we have really good insights into say the next, call it, three months or so, because those are sites that are in construction or in permitting, or coming out of permitting and being bid out with GCs, et cetera. When you get into the next three months, there are LOIs and leases being negotiated. And then past that, you don't have a lot of insight yet. So, sites, call it, September, October, November, December, we don't have a lot of insight into those yet, but we will as we get further into the year. And I think that's how we will - as you recall, we've kind of done this every year. We get more insights; we give more updates as to where we see us coming. But Tom can kind of address the constraint or no constraint on the franchisee financial side.

Yes. Hey, John. I think the system has obviously gotten better and better with each subsequent quarter financially. And as you know, we raised our outlook for 2021 new store growth across the year and still beat it. So, I think all that is very good signs. I think it's really more a function of what Dorvin said, not so much on the financial side of franchisees and their ability to get the capital to invest. I think they're doing quite well. Are there some that were harder hit from the pandemic, based on where their stores were? Yes, but I think in the main, it continues to strengthen. And I think the best way to demonstrate that is the new store growth and how it improved across the year. From the standpoint of supply chain and other factors, there were some issues in Q4 with the ships backing up. And on equipment, it really didn't hurt us, but it caused a lot of jostling and extra effort on our behalf and our main vendors for equipment, BAS. But now that's really quite different. Our largest vendor actually has more inventory than our demand. So, the lead times are down considerably from where they were in Q4. So, all that is very positive. So, we think it's all what Dorvin said. It's just a matter of time and the momentum continuing to build so that we go from the low 100s to the mid-100s, the higher 100s and ultimately 200.

Yes, John, that 170, as I said earlier, would have been higher with Sunshine being a franchisee. So, it's a bit higher than that apples to apples.

Can you - just for the benefits of all of us, could you quote that number? I mean, were they going to open five or 10 stores that would have otherwise been there, or would you prefer not to?

Yes. I don't think we will from the perspective of the same thing as the rest of the group, because if I were to have Sunshine back in December when they put their budget together, exactly what they would have built, and we don't always do that. We try to get a decent number, and that's kind of we come up to the 170. But everybody kind of holds a little bit back sometimes, and then sometimes they get more and sometimes they get less. But the kind of full number that they might have built on a standalone basis is probably different than what it would have been back in December or so.

Okay. And I just want to revisit one point. Certainly, in restaurants, permitting delays are very, very common. Is that the case? you’re permitting a restaurant, I think it's probably harder than, or definitely harder than permitting a gym like yours. Could you comment on potential permit delays that maybe you're kind of kicking some units out to future quarters and how is overall construction GC type of availability to work on your style projects?

Yes. I think that permitting is no doubt taking longer now. it's not quite as bad as it was back in June, July, or something like that. The issue - California is always very difficult. It takes six months or longer, whereas other locations maybe could be done in three months or something like that. But I think we're probably at kind of an apple to apples basis with where we were kind of in Q3 or so now. I mean, it hasn't gotten a lot better, but it's not getting worse. It's market by market, but it's probably just the new world we have to live in with where - pre-COVID, there were probably more inspectors and more staff in municipality offices to be able to work with you. And you could walk in and sit down and work out a permit and come back and sit down and get it finalized. Now, a lot of it is through online because they have less people and they just use that as a way to kind of shift, I think the way they do business because a lot of people are still working from home. As far as the GC side, we're not seeing too much difficulty on that. There's guys out there that we've used repetitively in these markets because we're generally building where we already have stores. And so, we have a good network of guys kind of in that area. Trade skills, when you get on further down the chain, gets a little bit harder at times. We were seeing inflationary costs, like in lumber back 12 plus months ago and even into the spring last year. That's come way back down from where it was, but there's clearly been some inflationary cost on the total side of the build, but at least it's not quite as bad as it was nine, 10, 12 months ago.

Thank you.

Thank you. Our next question comes from Brian Harbour of Morgan Stanley. Brian, your line is now open.

Yes, good morning, guys. Maybe just to follow up on a couple of the things that you've addressed, but more directly on kind of new unit returns, new unit economics. Are those kind of back to where they were - and you've given good detail on this before, but are they back to where they were pre-COVID? Are you seeing some of these things like construction costs or equipment costs pressuring that perhaps? You talked - you mentioned kind of real estate cost and tenant improvement allowance. I'm just kind of tying that together and trying to think about kind of new unit returns.

Yes. Hey, Brian, it's Tom. I’ll take that one. So, I think in terms of some of the factors you mentioned, are they higher? Yes. Are they changing? Like - things like the equipment cost, they're - we're now seeing some inflation there where prior it was really pretty de minimis. But it's still - whether it's that or the cost to build for some of the costs that they incur locally, are they higher? Yes, they're higher than they were. Is it uniform? Not exactly. Does it take a decision to - as we talk to franchisees, which we do all the time, is it changing a decision to build a store to hold or wait? No. As we look at the store performance, we're not quite back to where we were pre-COVID in terms of new stores ramping, but it's pretty close. It's 85% of where we would have expected them to be for the 2021 opening. So, it is not - and franchisees just see that as working our way through all the things we've been working our way through, COVID-related, nothing hampering the longer term. And I think when you look back, as I - or not look back, but think back to pre-COVID, we had so many quarters of strong same-store sales performance. Even the last few years, high single-digit, low double-digit, all those factors you could argue, with an industry that's now - has 25% fewer units, each successive generation being - having a higher degree or more inclination to work out and join fitness clubs, boomers to X, to millennials, to Zs, everybody just sees all the momentum moving in the right direction, both in the short-term and the long-term. So, these decisions are long and they're not, as I said, taking a decision to build to one that says pause or don't build.

Okay, great.

The returns are still - is the short answer. The returns are still terrific.

Yes. Okay. And maybe just a second question on the corporate unit margin. So, obviously, those will kind of change this year as you fold in all the new units. Is there any way to think about kind of how much those will change? And also, you were still kind of in the process of recovering margin on your pre-existing corporate stores. Do you think that will happen this year, or will that take a little bit longer?

Yes. I think we'll talk about the system maybe more generally here. So, the good news is, as Chris mentioned, our membership levels are above their pre-COVID peak now. But we have more stores, a couple hundred more stores than we did then. So, membership on a per-store basis has not quite recovered. Again, we think that's a matter of time, not if it will. I think we'll get back to those levels and then some. On the corporate store side, if you think about that metric, it's more depressed than the rest of the system, just based on the geography we operate, and the Northeast was hit harder in terms of the membership change, but it's building back. So, that - and we've talked about that, that it's just going to take a little bit longer for those stores to rebound. Clearly, the mix of stores now with Sunshine in the mix and the geographies they operate in, the margins that they had, being quite a bit better than the existing corporate store portfolio, will margin up the weighted average quite significantly. So, all of this is just a matter of us working our way through and ultimately bringing some of those better best practices from the Sunshine group, which was among our top performing franchisees, to the existing portfolio to accelerate those membership rebounds and the margin improvement.

Thank you, guys.

Thank you. Our next question comes from Sharon Zackfia of William Blair. Sharon, your line is now open.

Hi. Good morning. I guess two questions. First, I mean, you're seeing pretty impressive Black Card penetration improvements over the past year. Can you talk about what might be more compelling to members now than it was kind of in prior years to drive that penetration, and what that is telling you about your pricing power? And then secondarily, just given the acquisition, how does that at all impact the potential timing of kind of resumption of returning capital to shareholders?

So, Sharon, this is Chris. I'll handle the Black Card and then hand it off to Tom or Dorvin to handle the capital question. Yes, the Black Card penetration now is 62.5%, up 200 basis points over last year. Definitely reciprocity still, even today, is the number one use function. And there were some conversations during - even all of last year, quite frankly about, with the whole new work from home, is reciprocity still a big sell? And it still happens to be a number one used function. And each year, we open more stores, and even during COVID, have. So, that continues to be a more and more bigger value over time and will always continue to be a bigger value as we get to 3,000 or 4,000 stores. So, that one will definitely be the big push and will continue. And as I mentioned, we do have - we always test new things, like the meditation pods we're testing right now at about five stores. We have the test we have in about 100 stores now, which unlocks the digital component of premium content in the app for about 100 stores. We're going to run that through the first quarter and probably have more report on it at the end of the first quarter on how that result is. I mean, we're still excited about digital. Content is still part of it, for sure. And as we've mentioned in the past, what we're really seeing people do with digital has changed quite a bit from pre-COVID. And the workout part is really a small piece of it. It's important, but a small piece, and the QR codes and equipment that people can teach themselves how to use is important. But just the joining function today, about almost 70% of our joins are digitally. In pre-COVID, that was about 35%. So, and how they pay their balances on their membership is in the app, how they check out the crowd meter in the app, how they refer a friend in the app now. I mean, all that functionality didn't exist pre-COVID. So, but just how it moved the needle here on collections, keeping billing and keeping customers happy and engaged. So, that's definitely a plus. But I continue to see the Black Card, as it continues, penetrate, the bigger question, I think, Sharon is, price elasticity, and is there another bucket too in that Black Card longer term, just from the penetration? Do we ride this up to a 62, 63, 64, raise the rate a little bit, maybe it comes back slightly and then write it up again as we open more stores.

Yes. Sharon, it's Tom. And by the way, to Chris's point, on the digital, I just want to come back to something Simeon and mentioned that I didn't cover. So, the iFit, the allowance we took against iFit, that's really based on the financial picture that we see there and all the modeling we had to do, as I mentioned. It doesn't affect our strategic partnership and their ability to produce content as we see it. So, it's really - it's more on the financial side, not on the operational side. And we've had a lot of conversations with their team here in the last couple of weeks about where they sit. In terms of the corporate store acquisition, I mean, we've said before, we were not in any hurry to make any key capital allocation policy decisions based on what was going on with the variant. And as we saw the opportunity with Sunshine, frankly, we didn't see a better place to invest our money. So, we did it. And the good news is, we still have a lot of cash on the balance sheet when - because we only essentially wrote a check for a little over $100 million to acquire them. As we think about where the industry is, we think it is a historic time of disruption. Chris has talked about the fact that industry consolidation has probably accelerated by several years and weeding out the smaller folks. And when you look at what's happening outside of the traditional brick and mortar operators, it's also very disruptive, a time of incredible dislocation. Valuations are changing dramatically. So, frankly, we like the optionality to see how all this unfolds. And if there's in fact there, a strategic move to make, we have the flexibility to do it. And if there's not, then we won't. If there's not one that's attractive, but we don't have anything planned, but we think having the optionality, let this all play out a little bit further, see how it shakes out, and then ultimately, figure out what the best capital allocation strategy is going forward. And does that mean we resume share repurchases? We think so. It's just, we're not sure when that starts. We'd rather see some of these things unfold, give ourselves the flexibility to potentially react to them before we make any decisions.

Thanks.

Thank you. Our next question comes from Jonathan Komp of Baird. Jonathan, your line is now open.

Yes. Thank you. Hopefully, you can hear me. First question, just on the corporate stores, could you share - oh, good. Yes. On the corporate stores, could you just share how many openings you're planning in the guidance for ’22? And then, how should we think about the growth rate going forward for the combined corporate business now on the store side?

Hey, Jon. We haven't historically - so first of all, we're moving away from store openings to placements again. We did that only temporarily during the sort of height of COVID in ‘20 and ‘21. So, we want to get back to placements, which to Dorvin’s point earlier, excludes the corporate stores in now Sunshine. And I apologize if - I forget the second part of your question there.

It's all right. Yes, I was just asking specifically on the company store openings. I think you typically have talked to sort of a rough number that you expect to open per year, but is that something you're not going to do going forward?

Yes, Jon, we typically opened in somewhere in the six to eight range, something like that corporately, around - most of our stores are kind of in the Northeast, kind of Pennsylvania or north. But what we have - what we are not doing in this release, is kind of combining what the Sunshine number would be. We can talk more as we get throughout the year in terms of kind of total capital to be spent in store development. But when you think about it, a lot of our CapEx is in replacement equipment and other things, not just in new stores itself, but we have not disclosed that number for this year.

Okay. Understood. And then Tom, maybe a broader question on the ‘22 guidance, the revenue and the EBITDA ranges you gave. Could you just share what's coming from the organic business and what the contribution from Sunshine is so we can - as we think through the modeling?

Yes. Jon. What we didn't want to do is kind of get into the specifics there. I think there's a lot of moving parts as we talked about during the call, or I talked about during the call, with equipment moving, the equipment margin and revenue goes away, the royalty, web join fees, all those things go away. So, it's - what I would say is, we have factored in the 10 and a half months that we will have Sunshine in our business for this year fully reflected in the guidance. And I think that's all we want to get into at this point in terms of breaking it out, because otherwise it just becomes a big reconciliation game that I don't think we want to get into.

Yes. Maybe just one last statement on this, Jon, is that I think Tom has prepared remarks talked about how CapEx for the year could be kind of double what it was in the prior year. So, that could be one way to think about it. I think the other point is that the franchise - Sunshine, as I’ve said, had about 100 stores. So, they don't typically open 10% to 15% of growth in one year. But when we get obviously quarter by quarter, we'll be talking about what our actual capital was for each of the quarters, and then how many corporate stores we opened, what have we grown in the fleet itself. But one way to think about it is kind of the double of the CapEx in the prior year, with that being - a good chunk of that being in replacement equipment, as I said earlier, versus new CapEx for store development. Obviously, in that number are other things on the HQ side, whether it's IT investments and other things as well.

Okay, understood. Thank you.

Thank you. Our final question for today comes from Chris O’Cull from Stifel. Chris, your line is now open.

Good morning, guys. This is Patrick on for Chris. I had a brief phone issue as well. So, if a redundant question, forgive me. But I wanted to ask you about Sunshine's management team and how they've driven the results they have in their store portfolio. And just, can you elaborate a little bit more on specifically how they achieved those results and how they're going to replicate that margin in those store portfolio and just the timeline generally you expect them to be able to do that?

Sure. This is Chris. I’ll start off, and then Tom or Dorvin can add, if they’d like. Yes, they've always - they have a great track record. It's still founder-led, like I said. They've been here from day one as the first franchisee. So, the founder there that started the business, he still manages that as the CEO. He came on board here with his management team, which he's built over the years. Their same-store sales trends have always been great. Their operational excellence has always been great. They have a great CMO in place, great CLOs in place. I mean, they're just definitely a well-oiled machine. One thing on their margin, and I think they can influence our corporate stores, but also their margin is, they also operate in the south in lower rent areas, right? They just lower rent. Sometimes the payroll costs are slightly lower than here in the Northeast. So, some of the margin is strictly just that. But I do believe their operational excellence, taking care of our corporate store fleet, our existing corporate store fleet, will be great influence there. And also, I think to add to that is, now also the influence. We had a little bit of a hybrid approach, right, Chris? We are - our VP of Corporate Stores, was tapping into our development department here are at the corporate office, and then our ops department and our marketing department here that services the franchisees as well. So, here now with this franchisee has this well-oiled infrastructure there that's now running our store fleet. It allows our main office crew here to focus 100% of their time and energy on service from the franchisees directly. So, it's kind of an eloquent solution to both sides here. It runs our corporate stores stronger and also allows our franchisees better service. So, I think that's a big plus for us.

Great. And then I was just curious as well on the Black Card membership, wanted to follow up on that. I know you were testing the rollout of PF+, and if there was any update there in terms of driving a higher subscription rate as you roll that in. and just more broadly, given some of the inflationary pressures just across the board for consumers, do you think at this point, outside of anything you get from an increase in penetration, but the actual rate that you're charging on the Black Card membership, is this a moment that you would look to increase that if you were to roll in digital for PF+? Or do you think you've got an advantage here where you can widen your gap to the industry by kind of holding that membership rate constant?

Yes, I think that - I think I’m going to back up first. Our white card rate, the $10 price point is one we always usually get asked on first, when you raise that. And I think the fact that we can advertise 10 bucks a month, which is just a price point - cancel anytime, $10 a month, it's a price point that really gives access to anyone and everyone out there that can give fitness a try. So, but the fact that people come in and they walk out and 62% of them walk out paying more than double, is just an unbelievable model. And I think the Black Card is probably where we see the pricing flexibility or elasticity where the more perks or benefits we add to it, the more value. And to your earlier question, we talked about with Black Card and reciprocity, every year we open 100 plus units, 200 plus units, that's a bigger benefit, right? So, I think that's always in our back pocket and as well as testing, whether it's digital or we're testing meditation pods, and adding more value there. So, I think that will definitely be the pricing power. Yes. We are testing the 100 stores with the PF+ for $24.99 today. So, $2 more than the current price. We're also testing that without digital, just to see if we can get it without even a digital component to it. So, more to come on that. We'll probably have more to talk about at the end of first quarter as we run through the joins here, the join cycle here in the first quarter. But I think we've seen Black Card penetration, as we've raised price over the last probably a handful of years here, we raised it and we continue still to eat that up a little bit, 100, 200 basis points a year, which is great. I think we'll continue to see that as we add more value to it. And I think one other thing I'd add to it, with the digital world is, the PF perks button in the app, which we really had no place for all our perks that we offer our members in. And now, with the data we're capturing from the number of click-throughs through that perks button, allows us to now go to more and bigger companies out there that really opened their eyes, right? You figure, we do roughly 8 million workouts a week, and we have about 65 or so percent of our members have the app, but 80% of all new joins get the app, and they use that to check into the club. So, a lot of eyeballs on that app every week, right? So, we have the Shell gasoline one, which is the more recent one, along with Nun and Goodr sunglasses, Shell Gas, that is one of the best integrations we’ve done so far. It's almost a million gallons of gas that have been redeemed by our members for discounts. So, that's another Black Card perk we can add is, different discounts for different vendors based on membership types too. So, constantly look to add value, not necessarily - I think to Tom's point, our margins are very strong. I think we can weather this inflation here with same-store sales growth and only really raise price if we add value.

Great. Thanks guys.

Thank you. We have no further questions. So, I'll hand back to Chris Rondeau for any closing remarks.

Great. Thank you, everyone, for joining us this morning. Been an exciting fourth quarter for us. Look forward to seeing how the first quarter unfolds here. As I mentioned, the workouts are picking up here at the end of January, highest we've seen since the original shutdown. And as I mentioned that joins follow. So, I think, with fewer clubs here in the industry, we didn't lose a single club, and I think our future continues to do be brighter as we come on the other side of this. So, look forward to our first quarter call. Thank you.

Thank you for joining today’s call. You may now disconnect.