Ladies and gentlemen, thank you for standing by. My name is Bhavesh and I will be your conference operator today. At this time, I would like to welcome everyone to the Q3 2023 Planet Fitness Earnings Fiscal. At this time, all lines have been placed on mute to prevent any background noise. After the speaker’s remarks there will be a question-and-answer session. Thank you. I will now hand the call over to Stacey Caravella, VP of Investor Relations. You may begin your conference.

Thank you, operator, and good morning, everyone. Speaking today will be Interim Planet Fitness Chief Executive Officer, Craig Benson; and Chief Financial Officer, Tom Fitzgerald. Both 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 Craig, I would like to note that we posted a slide on our Investor Relations website this morning that summarizes the updates that we will be discussing during our call. I would also like to remind everyone that the language on forward-looking statements included in our earnings release also applies to our comments made during the call. Our release can be found on our investor website, 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 Craig.

Thank you, Stacey, and thanks everyone for joining us for the Planet Fitness Q3 earnings call. I’m honored to serve as interim CEO of such a truly unique brand with a strong track record of growth as we enter the next chapter of the Planet Fitness journey. As a board member and a Planet Fitness franchisee, I know firsthand the power of this brand, the strength of our team, and our commitment to a welcoming, non-intimidating culture, all of which uniquely position us to continue to lead the industry. My priority is to lead the team as we execute on the current strategy, with a focus on enhancing store returns. We look forward to finding an outstanding CEO candidate to lead us in capturing the growth opportunities ahead of us. Let’s move on to our results. We ended the third quarter with more than 18.5 million members. System-wide same-store sales growth was 8.4%, primarily driven by new member growth and more than 19% adjusted EBITDA growth. As a result of our performance and our outlook for the fourth quarter, we are raising our full-year financial guidance targets for revenue and adjusted EBITDA for 2023. Tom will go through that later on. We feel really good about our membership trends. We added nearly 110,000 net new members in Q3, outperforming net growth for the same period last year as well as 2019. We continue to see our strongest net member growth among Gen Zs, who now make up a quarter of our membership base. We believe we are unique among most multiunit brands, as the average age of our member continues to decrease. This was further enhanced by another successful high school summer pass program. We had more than three million teens and two million parents and guardians sign up for this year’s program. At the end of October, our conversion rate of teen participants to paying members was 5.5% versus 5% last year. More than 30% of our new joins in Q3 were previous members compared to about 20% pre-COVID. We also continue to see higher overall visits per member, as well as all age groups visiting more frequently year-over-year. We again experienced year-over-year improvement in our cancellation rate, which continues to decline for the ninth straight quarter. Lastly, we opened 26 new stores this quarter, bringing our global store count to nearly 2,500. We have added 145 new locations since Q3 of last year, which is nearly three times the growth of the top 17 of our competitors combined. It was against this backdrop of industry-leading performance that we met with all of our franchisees last month to review the updates we are making as part of what we call our new growth model. We all left the meeting even more excited for the long-term opportunities that we have as a brand. We are addressing the biggest opportunities to further improve the attractiveness of our returns for our franchisees as they manage their capital deployment and timing of their investments, while maintaining our strong focus on a great member experience. We believe it is a win for the franchisees and for us as the franchisor. First on pricing. We are proud that we haven’t raised the $10 Classic Card price in 30 years. However, consumer expectations on price have changed in a highly inflationary world. We are exploring whether we have an opportunity to increase the price on our Classic Card without sacrificing member growth. To that end, we have been testing different price structures, messaging, and price points in several markets around the country for more than a couple of months now. As we are a recurring revenue model, we plan to continue running these tests to understand the impact that increasing price has on membership growth. Now to our membership levels. Our membership recovery coming out of the pandemic closures has resulted in all-time high system-wide membership levels. Additionally, the stores that matured as of March 2020 are back to pre-COVID membership levels on average. And importantly, our 2023 cohort of new clubs is indexing very close to pre-pandemic new store ramp levels. However, the cohort of nearly 700 stores that opened from 2019 to 2022 have experienced much slower ramps to maturity, given that their early critical years of member growth were interrupted by COVID. This is nearly 30% of our system. These stores have not yet benefited from consecutive years of typical first quarters. As a reminder, 60% of our net member growth for the year historically occurs in Q1. We expect these stores to eventually grow to membership levels consistent with the rest of the system, but they will take longer and will likely weigh on the returns across a given franchisee’s portfolio. The cost to build a new store continues to be approximately 30% higher than in 2019. The total capital expenditure cost today, which includes the total cost to build, re-equip, and remodel a Planet Fitness, is up nearly 70% over the 10-year life of a franchise agreement compared to a decade ago. And while the pressures are primarily from external factors, such as inflation and higher interest rates, we are addressing the things that are within our control, in order to further enhance store returns and lessen the increased capital expenditure burden for existing stores. Our management team has been working on the new growth model for a good portion of the year, trying to balance improving new store returns without significantly impacting our P&L. Our plan is focused on reducing the capital requirements for opening and operating a Planet Fitness franchise. This includes making changes to the franchise agreement, adjusting the timing for cardio and strength re-equipments based on usage, and committing to reduce capital expenditure for new builds and remodels while also looking for ways to reduce operating expenses. We believe that the changes we are making will free up a significant amount of capital for our franchisees in the near-term, providing them with additional flexibility and resources to build their store portfolios for the long-term. Tom is going to walk us through the details momentarily. The new structure is standard for all agreements moving forward, and our franchisees can also take advantage of it for their existing stores. In closing, our management team has taken responsible and data-driven approaches to adjusting our franchisee return model, which we believe set us up for sustainable growth. We recognize that the operating landscape has changed, and therefore, we are evolving for the long-term sustainability of the model without compromising the member experience. We believe we are pulling the correct levers to drive the right long-term outcomes and to ultimately increase returns for all of our stakeholders, both internal and external. Now, I will turn it over to Tom.

Thanks, Craig, and good morning, everyone. Today, I’m going to address three topics. First, further details on how we are evolving our model as Craig referenced, second, our Q3 financial results and lastly, our 2023 outlook. We learned valuable lessons as the franchisor of a fitness brand during the pandemic, including the importance of building and maintaining a trusted franchisee-franchisor relationship. We were nimble and quickly made changes to support our franchisees and their most pressing needs while our stores were temporarily closed. This included 18-month extensions for both new store obligations under area development and on re-equipped cycles for existing stores. These extensions provided franchisees with greater flexibility and liquidity to help meet their various obligations while stores were temporarily closed and until membership levels began to recover. The result was that we did not permanently close any of our stores due to COVID, while the industry experienced a 25% reduction in all gyms in the U.S. And in today’s post-pandemic world with persistent higher inflation that has significantly increased new store construction costs, we are using that experience to further refine our model and position us and our franchisees for continued sustainable growth. As Craig noted, this isn’t just a win for our franchisees. It is also a win for us as the franchisor, and we believe it is also in the best long-term interest of our shareholders. As part of the plan, we are making changes to how we hold franchisees accountable for their new store build obligations, as well as updating our joint fee structure. Let me walk through each of the five parts of our new growth model in more depth. The first component of our plan is to extend the length of our franchise agreement from 10 years to 12 years and to eliminate the initial $20,000 franchise fee. Franchisees will be required to remodel at the 12-year mark and pay a franchise fee at that time. The franchise fee change is meaningful to our franchisees who are required to pay the fee when the store opens, but has less impact on our P&L as we recognize it over the life of the agreement. The second element of our new growth model is to extend the timing for re-equipments to achieve a system average of six years for cardio and eight years for strength. Clubs that have higher than average usage will still be required to re-equip at five and seven years, while clubs with lower usage will be at seven and nine years. As a reminder, all stores that were opened at the end of 2021 received the previous re-equip extension. So today, on average, those stores are on a 6.5 and 8.5 year schedule already. Therefore, we expect this change to have minimal near-term impact on our financials. The second cardio re-equip will coincide with the 12-year remodel requirement, reducing the number of disruptions to the club and its members from seven to six in the first 24 years of operation. The third component of the new growth model is targeting a 5% to 10% reduction to the investment required to build a new store without compromising the member experience. In addition to value engineering the store build, the targeted reduction includes the waived initial franchise fee and the changes to the mix of equipment, which we have been refining this past year as our members are consistently seeking more strength and less cardio. The latter has the added benefit of reducing capital expenditure since strength equipment costs less than cardio, and we are also adding additional open spaces for stretching and working out. We expect that this will continue to pressure equipment segment revenue. However, we will continue to examine potential adjustments to our equipment pricing and margin as appropriate to protect our margin dollars per placement and re-equip. The fourth part of our new growth model affects our area development agreements, where we will transition from grace periods to the more typical cure period mechanism, which will lead to greater clarity and alignment on our development pipeline. Grace periods allow the franchisee an additional 12 months to open a location if there was a delay outside of their control. Franchisees will now enter a six-month cure period if they are in default on a unit obligation, which is a more common practice in the franchise world. The fifth and final element of our new growth model is to shift from the franchisees paying us a fixed fee for online joins to a fee equal to a percentage of member dues for all joins regardless of the join channel. This new structure allows us to participate in the upside on potential future price increases. There are many specifics and nuances that we are still working through as we transition to this new structure. As Craig noted, this is the model that we propose to our franchisees, and we are highly encouraged by their enthusiastic response to it. We expect most will accept it. Now I will cover our third-quarter results. All of my comments regarding our quarter performance will compare Q3 2023 to Q3 of last year unless otherwise noted. We opened 26 new stores compared to 29. We delivered same-store sales growth of 8.4% in Q3, franchisee same-store sales grew 8.2%, and corporate same store sales increased by 10.1%. More than three-quarters of our Q3 comp increase was driven by net member growth, with the balance being rate growth. Black Card penetration was 62.1%, a decrease of 80 basis points. The decrease primarily reflects the continued increase in our Gen Z membership growth and the conversion of high school summer pass participants to paying members. For the third quarter, total revenue was $277.6 million compared to $244.4 million. The increase was driven by revenue growth across all three of the segments. The 21.6% increase in franchise segment revenue was primarily due to increases in royalties, web joint fees, and national ad fund revenue. The royalty increase was primarily driven by same-store sales growth, royalties on annual fees, and new stores. For the third quarter, the average royalty rate was 6.6%, up from 6.5%. The 12% increase in revenue in the corporate-owned store segment was primarily driven by same-store sales growth and new store openings, as well as the four stores that we acquired in the second quarter. Equipment segment revenue increased by 6%. We completed 22 new store replacements this quarter compared to 27 last year. For the quarter, replacement equipment accounted for 78% of total equipment revenue. Our cost of revenue, which primarily relates to the cost of equipment sales to franchisee-owned stores, amounted to $53.8 million compared to $48.5 million. Store operations expense, which relates to our corporate-owned stores segment increased to $63.1 million from $57.9 million. SG&A for the quarter was $33.3 million compared to $27.1 million. Adjusted SG&A was $30.7 million; this includes a $2.6 million adjustment for CEO transition-related expenses. National advertising fund expense was $17.6 million compared to $17.0 million. Net income was $41.3 million, adjusted net income was $51.8 million, and adjusted net income per diluted share was $0.59. A reconciliation of adjusted net income to GAAP net income can be found in the earnings release. Adjusted EBITDA was $111.9 million, and adjusted EBITDA margin was 40.3% compared to $93.9 million with adjusted EBITDA margin of 38.4%. A reconciliation of adjusted EBITDA to GAAP net income can be found in the earnings release. And by segment, franchise adjusted EBITDA was $67.6 million and adjusted EBITDA margin was 68.9%. Corporate store adjusted EBITDA was $44.4 million and adjusted EBITDA margin was 39.2%. Equipment adjusted EBITDA was $16.4 million and adjusted EBITDA margin was 24.8%. Now turning to the balance sheet. As of September 30, 2023, we had total cash, cash equivalents, and marketable securities of $474.1 million compared to $472.5 million of cash and cash equivalents on December 31, 2022, which included $46.4 million and $62.7 million of restricted cash respectively in each period. Year-to-date through September, we used $125 million to repurchase shares. Total long-term debt, excluding deferred financing costs, was $2.0 billion as of September 30, 2023, consisting of our four tranches of fixed-rate securitized debt that carries a blended interest rate of approximately 4.0%. As a reminder, we don’t have debt coming due until September of 2025. Finally, moving on to our updated 2023 outlook, which we included in our press release this morning. Historically, our new store openings typically skew to the fourth quarter, and in particular to December, as franchisees work hard to open their new stores before New Year’s Eve. However, similar to the past few years, we continue to experience unpredictable delays in the various steps to open a new store. Chief among them is the extended permitting timeline in many municipalities. With less than two months remaining in the year, we have narrowed in on a range for new store openings and franchisee equipment placements that we believe accounts for the things that we and our franchisees can control. We now expect between 150 and 160 new stores and between 130 and 140 equipment placements in new franchise stores. We continue to expect system-wide same-store sales growth to be in the high single-digit percentage range given our strong membership trends. We now expect that re-equip sales will make up approximately mid-60% of total equipment segment revenue for the year. Our franchisees continued to invest in their existing stores as evidenced by the fact that we expect our full-year re-equip revenue to be greater than what we had originally forecasted. Given our strong sales during our re-equip promotions year-to-date, we expect light Q4 re-equip sales as franchisees are allocating capital to building new stores. This is the primary driver behind our revised expectation of approximately 14% revenue growth and approximately 18% adjusted EBITDA growth. We now expect approximately 33% growth in adjusted net income and adjusted earnings per share growth of approximately 35% based on shares outstanding of approximately 89 million. We continue to expect net interest expense to be in the low $70 million, capital expenditures up approximately 40%, and depreciation and amortization up in the high teens percentage range. As we mentioned last quarter, we will revisit our three-year outlook, which we initially provided back in November 2022, next year when we provide our targets for 2024. In the meantime, our teams are working with franchisees on their development, remodel, and re-equipment claims for 2024 as they determine their near and long-term capital requirements and priorities under this new structure. We believe our new growth model will further enhance franchisee returns, continue to increase our leading competitive position, and deliver long-term sustainable value that benefits our shareholders and our entire system. I will now turn the call back to the operator to open it up for Q&A.

Our first question comes from Randal Konik at Jefferies. Please proceed with your questions.

I guess, Tom, what would be helpful for us on the call is you talked about you’re going to give us 2024 guidance in a couple quarters. But what would be helpful is just to get some perspective on how we should be thinking about directional change in unit openings going into next year. And just like shaping of the curve around equipment revenues, I think you said there shouldn’t be all that much change from a replacement perspective. So just help us think about puts and takes about just next year without obviously, you’re not going to give us specific guidance, but just framing out the kind of path from here would be super helpful going in for next year.

Randy, thanks for the question. I appreciate that there is a desire to know that it is difficult to talk about at the moment because that is the work that is ahead of us. We made these changes for a couple of reasons. One, to free up the capital for franchisees. Particularly the big move is to move the remodels that we are doing in 2024 to move them out. Now some of those that are more brand damaging will have to get done, but ones that we can take a little time on we will. And so that frees up the capital. And also making some other changes to improve the - while we think the returns are strong, making them even stronger should help drive some unit growth. How both of those things play out in 2024, directionally to your question, is the work ahead of us and our teams to work with our franchisees and really sort of play all this through, both in terms of how they see their pipeline, but also just executing the agreement changes. So anyway, Craig, go ahead.

So, I just wanted to add one thing. As you know, we rolled this out on the 16th of October to our franchisees. These are big organizations in many cases, and so it takes time for them to process these changes. They had no sort of inkling about what we were going to bring to the huddle, and so they are processing this as well. So it is going to take us a little bit of time to get it to their organizations, most of us to our organization. So that is, I think, a big portion of what Tom’s talking about.

Got it. And then would you - so then to handicap it, would you think that the updated unit guidance you gave for this year would be kind of the floor or close to the floor based on the pipeline you can see? And then just on top of that, Craig, you talked about some of the pricing change work or at least testing you have been doing, I believe, on the White Card. How do you - what have you learned so far in those tests? Maybe give us a little flavor there so we can get some perspective on what’s been changing in those tests, price elasticity, price sensitivity, so we can get a feel for just how high the probability is that you could lift off that $10 a month White Card price point?

I’m going to let Tom talk about the pricing, but I just wanted to sort of talk about where we are as far as store openings go. Listen, Tom said it right at the beginning of the call. It has become increasingly difficult to forecast openings because of changes, especially in the permitting and the entire process of inspections and getting a certificate of occupancy. And so what used to be a little more straightforward - or maybe a lot more straightforward, has changed for the worse. And so we are dealing with that the best we can. Our franchise is working very hard, and trust me, I’m one of them. So I get what’s happened in the marketplace, and it is frustrating to have things ready to go but not be able to complete the opening.

Yes. And Randy, on the pricing one, as you know, with the subscription model, we have to read it longer than you would a typical QSR retail test. And so we are reading it through. We have got roughly 100 stores and a few different DMAs in the $15 test. So it is $15 when we are not on sale, it is $10 on sale. So we are reading it both in those sort of sale periods and what we call the evergreen non-sale periods. At the end of the day, our criteria is we don’t want to sacrifice member growth. We think like a retailer or restaurant, transactions are important for them, but member growth is the sustainable lifeblood of this business. If we can maintain that while adding some upside, then we will. But we don’t want to say - given we are trying to get people off the couch, and cost is a barrier to getting off the couch. We just want to be very careful about how we learn our way into what is a better place than where we are today. It may take us a little time, and these tests may prove to be that or they may prove not to be that - we have to run some other tests, but it is definitely not something that - with only two price points we can’t bet much on hunches. We got to scientifically figure out what’s better than what we have. And if we find something, we will move to it.

And then I just want to add one thing. Part of ours is not just the entry price. It is the length of time somebody stays a member. So to the extent price influences that in a dramatic way, that is harmful to our business, and we are looking at the lifetime value of a member.

So can you guys just talk a little bit more; you got to the decision to change the store-level model. I guess is there an agreement as to what the saved dollars will be used to, or are you going to ask for a commitment towards the new gyms or something else, or is this more to help their returns? Is this a concession or are you seeing a change in the structural requirements to run a gym? So Tom, I think you mentioned maybe finding a way to improve the margins for your own equipment. So kind of thinking that through, and then just really just thinking through if replacements and remodels were historically necessary to keep the gyms fresh, how do you ensure that loosening these restrictions won’t hurt that customer experience? And then just lastly, I guess, do you believe this is the end of negotiations or is there anything else to expect to come for franchisee benefits?

We have been collaborating with the Board and leadership for months, considering various options. In previous calls, we have addressed inquiries about potential actions we could take. We believe this approach strikes a balance in supporting liquidity while acknowledging the impact of inflation on construction and remodeling costs. We ask for some time to optimize those remodels. If any aspect harms our brand, it must be addressed, whether it involves a corporate store we acquired or a franchise store. Ultimately, our priority remains focused on our members. However, we are shifting from a uniform approach to a more tailored strategy, particularly regarding equipment. For instance, stores with significantly more members than average will require more frequent updates to cardio equipment, potentially on a five-year cycle or even sooner if the equipment shows significant wear. Conversely, stores with lower membership might follow a seven-year cycle while others are on a six-year cycle. This approach takes member experience into account based on usage. Our aim is to enhance store growth, but implementing these changes is challenging. We can't easily alter the guidelines and pace established by the ADA, and finding suitable real estate is increasingly difficult. CBRE has noted that this marks the fourth consecutive year of record lows in center growth. We are considering all these factors and collaborating with our franchisees to determine the best mix of adjustments.

And I just want to bring up one thing that is maybe not clear to everybody. Remodels, there is no margin in it at all for corporate. So it is a nice new box. It looks nice and it hopefully brings in more members, and therefore, we get better royalties from that. But there is no direct margin that comes from our remodel.

There is no revenue or margin implication.

I guess first question, and I think I know the answer to this, is there anything you guys can do on the permitting and inspection side to accelerate that, or is it really out of your hands and it really just depends on the particular town?

It is completely dependent upon where you are trying to locate. Some towns are very cooperative, and other towns are very slow. And it starts with just getting the permit to start, and it goes all the way through the inspections. Second last club, I just opened a month and a half ago or so. The guy decided to build a spec, then went to Italy for a month and didn’t tell anyone. And so we couldn’t get into reset for a month waiting for them to come back from his trip that was unplanned. Since COVID, some of the departments and some of the towns have changed considerably as far as expediting permits and inspections and certificates of occupancy. So you go in and you don’t even know what you are going to deal with till it starts. You hope for the best, but sometimes that doesn’t happen. Other towns are great. But you don’t know. So it is difficult to project as different portions of the permitting process and the inspection process are managed by different people. So one section may be fine, and another section may not be as fine. So it is all over the place.

Yes, and Joe, maybe one thing to add on that. In permitting, in some cases, you can use an expeditor, and franchisees really like Craig; I want to get the store open, so they will do whatever they can. On inspection, not so much. I mean, there is nobody going to fast track that. But it is definitely more difficult than it has been.

It is difficult for us too because we have free rent periods, but if you are stuck not opening, those free rent periods expire and you are not even open to enjoy the benefits of free rent.

So from what I hear, it is early. The process is going well. We are attracting some good interest. As far as the qualifications go, clearly, fitness would help us. I don’t think there is anybody bigger than us in fitness, so we can’t attract somebody from a bigger company, a fitness company, at least that would know more than what we know. But certainly, international experience is important to us. Consumer branding is important to us. Consumer marketing is important to us and perhaps understanding globally how we do all this, obviously, our public company experience is important to us as well.

And would you expect someone to be in place before you provide guidance for next year or after?

That might be a bit tight, but maybe. I don’t know exactly how fast this is proceeding. But I know that the Board, which is running this process, is very focused on doing a good job and moving it along.

It is always hard to predict, Joe, as you know, and I think to Craig’s point, this is an attractive role. It is hard to find a place where you are eight times bigger than your next competitor with lots of growth opportunity. But it is an important job, obviously, to make sure we take our time. I think we are providing guidance at the end of February. I think that, as these things go, is pretty tight to Craig’s point. But I think the Board is moving with urgency, but not hastily.

Tom, can you talk about the mechanics of shifting from the grace period? Meaning, so if I’m on 1 now, does that continue? When do you transition over? Is it January 1st? And then does that have any impact, you think, on cadence of openings, one way or the other, whether it pulls forward or pushes it out? And then relatedly, for Craig, as a franchisee, what do you think you need to see - others need to see to want to step up again? Is it - because maybe returns will never be what they were five years ago, that is fine relative to other alternatives? Do you just need to see stabilization and some modest improvement?

Yes, I will take the first one there, Joe. John, my gosh. We are moving through those changes here in all the documents. It is going to take a little while. We expect by January, we will be moving through that transition process by which the grace - whatever if a store is in a grace period today, it will move to a cure method. Our intent is not to have a meaningfully different timeframe for that particular store than would exist under the grace period. We need to work to case individually. But that is essentially how we see it. So we don’t think it will affect the timing of new stores that are in process now. It is just a matter of transitioning from one to the other.

Yes, no, no. So thanks for the question. I love the plan, as do all our franchisees. Maybe I will take you back to the huddle where I talked about the four pillars of what we need to do together to make this brand even stronger than it is. It starts with being aligned with our franchisees and having buy-in from both sides and frequent work together to enable us to be able to deal with this inflationary environment. It is not going to go away, at least not soon. We need to work together on different aspects of this model to ensure that we do the best we can. One of those areas is leverage. Our size is so big that we have never done a really good job of leveraging that for pricing, for opportunities to work with people directly. Some of the promotional things we are doing within clubs now, we are starting to see vendors that want to come to us to sell their merchandise and consumer brands that never would have happened before, but our scale has changed at 18.5 million members and 2,500 locations. I’m going to hark back to my insurance build that Tom likes to laugh about. But I got paid $425,000 last year for business insurance. My quote that came in four days before due renewal came in at $850. Total claims over the last five years is less than $800,000. But with 23 gyms, I don’t have the leverage to lean on an insurance company and say that is unacceptable. But with 2,500, we have an opportunity to work with these people to get the best product at the best price, and that goes across all different things. That is leverage. The other thing that we need to do is a better job with the marketing. We talked about earlier is branding as well as promotional marketing. We need to do that to make sure that we have an opportunity to get our story out there, because these Gen Zs and what have you are much more into value but also into what do you stand for? And that brand is very important to us. Those are just some of the things we need to do a better job of in order to really grow this brand. So I have a big belief in this brand, and we have to be really innovative in the way we look at putting new things in clubs, testing our pricing - different iterations of our pricing to make sure that we are getting the maximum value that we can to augment the customer experience. If we do these things well, this brand will be around for at least another 30 years.

Guys, one quick follow-up since you brought up marketing, right? As you get to $300 million of spend and higher, to restructure that more nationally, maybe provide relief to franchisees, right? They can spend 100 basis points less. How do you think about that? Is that not a near-term opportunity? It is down the road?

We need to grow into this brand thing a little bit better. We are not ready right now. At the huddle, I talked about changing the mix. It is coming because we have to be much more about branding and a little less with promotion. By the way, we are going to probably spend closer to $400 million next year. It is getting to be a big nut. We need to spend it effectively. We are, by far, the biggest spender on marketing of anybody else, with $0.09 of every member dollar going into marketing. It is a big expenditure, but it is also a big opportunity.

And John, the discussion that Craig is mentioning is just merely taking the nine and remixing it, not lowering it. We still think there is a lot of folks to get into fitness before we start thinking about reducing the rate.

Tom, can you just clarify what your comments meant about the equipment margins? I know you talked about protecting the dollar profits in the segment. Is there a way where you can probably pass through the cost you buy the equipment from to the franchises at least on a case-to-case basis, or is it something differently how you are thinking about it?

Yes, I think what I was trying to convey there is as we continue to evolve the mix of equipment, you may have heard us talk about where the Gen Z clearly seems to prefer strength and functional workouts versus cardio. Treadmills still get about the same usage, but things like ellipticals and bikes are getting far less used. So we have been - we took a first swing at this to readjust the mix or to adjust the mix to have less cardio and more strength. We are taking a bigger move on that because, given that Gen Zs are 25% of our member base and millennials have similar habits, though not quite the same, and because strength costs less than cardio. In some cases, the functional areas just have more open space so people can work out. Overall, the revenue per new store will come down. What we have done is adjusted our margin that we charge so that the dollar margins that we earn on that new store placement are roughly the same. That is what I was trying to convey. We have done that historically and will continue to do that, and we will see how it all evolves. But that is what I was trying to convey.

Got it. And follow-up on the changes to the growth model. So looking at the math here, it looks like this uplift and cash-on-cash returns over the life of the period is close to up 200 basis points and it is translating to close to $0.5 million per new store build in terms of present value of savings. So is it fair to expect that this improves the visibility by like 15 to 20 stores each year? Is this the right way to think about it?

Yes, I think there are two different things, right. One is the CapEx dollars. As you know, this model is a CapEx-heavy, OpEx-light model compared to most. Our flow-through and all that and margins attest to that. We have had - in light of the inflation and higher interest rates and the usage patterns that have changed in our stores, we thought it was appropriate to look at the reinvestment cycles, read cardio and strength re-equipments, and also remodels. Back to what I was saying before, Rahul, on the cardio, not all stores are created equal when it comes to remodeling. Prior to 2016, we didn’t have a design standard. From 2016 and forward, the stores that were built look like stores we are building today, much closer to them. The cost to remodel those prior stores is going to be more than the cost to remodel the stores that were built 2016 and forward. So again, we can’t apply a one-size-fits-all, but there are some stores that, frankly, when we go in them, we are not happy with them. Those stores will still need to be remodeled, and that is what we are calling sort of brand-damaging. You can’t really translate the improved store returns and improved economics that are admittedly starting from a pretty strong place, to incremental new store units. That is the work ahead of us working with our franchisees, as Craig and I talked about earlier.

And I just want to bring up one thing that may not be clear to everybody. Remodels have no margin in it at all for corporate. It is a nice new box. It looks nice and it hopefully attracts more members, and therefore, we get better royalties from that. But there is no direct margin that comes from our remodel.

There is no revenue or margin implication.

Tom, can you quantify the impact on the cash-on-cash returns you are expecting from these new growth model changes? Can you also describe what changes are being made to reduce the $3 million investment by 5% to 10% beyond just the elimination of the initial franchise fee?

Yes, so it is a target, Chris, and it is not a one-and-done. We want to continue to challenge ourselves to now and going forward, as we have historically, maybe with a little more urgency for lack of a better term, given the higher cost of everything now to build. The way we have modeled it, we think the returns move up nicely. It depends, obviously, on the store and how many members they project and so on and so forth. On average, it is an improvement that we think may take folks from thinking about should I get ahead of my schedule again and maybe saying no historically with the current environment. Now in this new model, this new growth model, maybe that no turns to a yes. That is really the intent that we are after. Once we work through all these changes and so on, I think folks will do the math themselves and hopefully come to that same conclusion.

I mean, as you know, I have interest in Dunkin’ Donuts as well. We have about 2,000 franchisees at Dunkin’ Donuts and just about 100 here. Many of our franchisees have scale, and they are big operators. We are excited that the Flynn Group wants to participate with us. I think they can be helpful to the system is all because of their experience in other franchise models. We have had interest from several different sources over the past, and this brings a different dynamic. I’m anxious to see what it brings for us and the opportunities to learn from somebody else that comes into the system. We have some pretty strong large operators in the system right now.

And Chris, just one thing on that too. They are investing in the operators rolling in the case of the Flynn Group like in other situations.

I guess kind of going back to development and appreciating all the challenges there. I’m just curious, what you can do to maybe bring more into the top of funnel to help buffer against the delays that are not within anyone’s control? Is there anything that you can do for that top of funnel? And then secondarily, if these changes to franchisee capital requirements do free up more capital to develop, what would be a logical lag time there? I guess I’m just - these will be adopted theoretically in the not-too-distant future by franchisees. Is it too late for that to really impact 2024? Just given the timeframe that now is extended to open a club?

Yes, it is a good question. Again, we don’t know all the answers because our franchisees got this information less than a month ago now. But there are a few other issues associated with development, and Tom mentioned one, which is real estate availability. You heard me talk about leverage earlier. We have not employed leverage for our scale in the way we should have. We need to work in the real estate industry just as hard with the scale that we bring. We are the third largest retail consumer of space, TJX and all their concepts is the top, and it is third. I don’t think we have employed that leverage and scale to be able to take advantage of that. So finding a site is the first step, and then it is all the other things you have to go through. Tom also mentioned that CBRE said that the amount of development has gone down consistently over the last four years. So we are finding a few different dynamics. But our scale should help us, and we are trying to really push that to help us get into places that maybe in the past we wouldn’t have got into.

Yes, and Sharon, maybe to add to that; back to your top of funnel point, some of the big brands like Bed Bath & Beyond, more recently, Rite Aid, we do come at those folks to try to get a number of sites to be able to come our way. We are actually opening a couple of stores in our corporate segment that are former Bed Bath & Beyond over time here. That is another opportunity, but it is trickier given the vacancy rates are tougher. In some cases, we have exclusionary clauses where people won’t allow fitness centers into the space. Another retailer will block it. So our real estate team and the leadership team there are doing top to tops with some of those brands to see if we can get around those exclusions. As you have heard us say, we are very different than the typical gym or fitness center in that our traffic patterns are flipped from what the center usually experiences. Our busiest days are Monday and Tuesday, not Saturday. It is a lot of work and a lot of activity, but we are fighting the fight on all fronts.

Okay. And then you mentioned playing with the White Card membership that you are doing some tests there. Are there other ways you are looking at monetizing the membership base beyond just changing price points for members? You have been very disciplined in the past about keeping the revenue just coming from equipment and really the dues and the royalties associated with that. I mean are there other ancillary streams of revenue that you could introduce that would increase franchisee complexity?

You heard me say earlier about innovation, and innovation includes pricing. We are getting a lot of information and using The Flynn Group as an example. They may be helpful in figuring out how to be even more creative in the way we go to market. We are going to be testing things, and I have got a lot of franchisees that have some experience too in looking at it, but our first foray is what we have already announced. In the longer run, we are going to be constantly innovating in different areas, including price to see if we can’t find the sweet spots of places that we need to be. But at this point in time, there is no add-on service or something like that we are looking at.

Just first, how are you thinking about Black Card penetration from here? What gets that going in the right direction? Does the potential move to a higher pricing tier on Classic Card help narrow the gap between the two pricing tiers? Just how are you thinking about Black Card?

Yes, I will start that, and maybe Craig will answer or add to it. So I think, Alex, you probably heard us talk about, we think the Black Card mix being down year-on-year is due to a couple of things. One is the Gen Z penetration. They have a lower Black Card mix. The second thing though, and we feel this may actually be bigger than the first part, is last year in Q1, Omicron was hitting. Our Classic Card sale was really muted. Our penetration or the mix of Black Card to Classic Card in the first half of Q2 was really unique in that Black Card was a bigger part of the mix. That carried through the rest of the year. I think we will get a better gauge on all of that when we are in Q1 of next year, assuming everything is okay, and our January sale is not affected by anything like it was in 2022. I think that will be a true read up against this year’s Q1, which was much more typical. In terms of the spread between Black Card and Classic Card, that is clearly something we are looking at in the test. As you can imagine, our goal in the test is to raise the member dues versus the control stores, but in a way that doesn’t sacrifice number growth. We are looking at the joint trends and cancel trends, to Craig’s earlier point, as well as the Black Card mix and how that changes. There is a lot to factor in there. Up until now, we have had an increasing gap between Classic Card and Black Card, but the Black Card amenities were so attractive that it enabled six out of 10 people who thought they were going to come in for a $10 membership, come in for Black Card membership. At one point, it was $19.99, and it made its way all the way to $24.99. We will see how the test goes and continue to evaluate that and other options to see if we can find a better mix of price points to drive more dues, without sacrificing member growth.

Perfect. And then just my final question. Are there any sort of quick modeling implications with the transition to the new store growth model that you think would be sort of helpful for people on the call, just in terms of like, it sounds like some of the near-term impacts are pretty muted. Is there anything that we should be incorporating in our models as we move forward?

Yes. Sure thing, Alex. Maybe just high points here. Any stores that were built in 2019 and prior, they all got an 18-month extension on their re-equip cycles. Any stores built in 2020 and 2021 received a 12-month extension on those cycles. Anything built in 2022 and forward, they were back to the five and seven years. So those are the stores that are changing to what we described, six and eight on cardio and strength. The impact isn’t until 2026 when some of the stores that were equipped on cardio in 2021 would be due in 2026, that is the five-year cycle. But now they are being pushed a year. That is really the first impact there. If you work through your modeling and what stores opened when, it is not always exact, but it will get you close enough on what that impact might be. It carries forward from there. We think in the trade of what we are talking about here in the new growth model, that was the best way to sort out how we could free up some cash and liquidity for reinvestment, recognizing not one size fits all, recognizing equipment usage is changing and shifting from cardio to strength and all the things we talked about. We thought at the end of the day, the benefits far outweighed the re-equipment impact in the out years.

Thank you, ladies and gentlemen. This does conclude today’s conference call. Thank you for participating. You may now disconnect.