Earnings Call Transcript - PLNT Q3 2025

Operator, Operator

Thank you for waiting. My name is Van and I will be your conference operator today. I would like to welcome everyone to the Q3 Planet Fitness Earnings Call. I will now hand the call over to Stacey Caravella, Vice President of Investor Relations. Please proceed.

Stacey Caravella, Vice President of Investor Relations

Thank you, operator, and good morning, everyone. Speaking on today's call will be Planet Fitness' Chief Executive Officer, Colleen Keating; and Chief Financial Officer, Jay Stasz. They 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 Colleen, 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 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 Colleen.

Colleen Keating, CEO

Thank you, Stacey, and thank you, everyone, for joining us for the Planet Fitness third quarter earnings call. In the first 9 months of the year, we made considerable progress in executing our strategic imperatives and are feeling energized to capture even greater opportunities in the evolving fitness landscape. Our strong financial performance in the third quarter is indicative of that progress and allows us to raise elements of our 2025 outlook, which Jay will touch on in greater detail. As consumers increasingly prioritize their health and well-being, we are pleased to have ended the quarter with approximately 20.7 million members and 6.9% system-wide same club sales growth. We added 35 new clubs and ended the quarter with a global club count of 2,795. Our reach is unparalleled. At the same time, with population growth and deurbanization over the past several years, we see increased opportunities to bring our high-value offering to an ever-growing community of fitness-minded consumers in more geographies than ever before. In September, we announced record-breaking participation in our 2025 High School Summer Pass program with more than 3.7 million teens completing over 19 million free workouts in our clubs. Participation was up roughly 30% from last year, reflecting teens' desire to stay active and prioritize their well-being during a critical time when school is out. We believe that the marketing emphasis on our expanded product offering, including more strength equipment, is resonating with younger consumers. We also shifted our marketing approach this year by increasing the number of influencers we use to promote the Summer Pass and we prioritized platforms that drive participation such as TikTok. This year alone, we've invested nearly $170 million in waived membership dues. Historically, we've converted mid-single-digit percentages of the participants to paying members over time. To reach these highs in the fifth year of the program speaks volumes about Gen Z's commitment to their health and wellness. Key findings from this year's participants are particularly affirming with 93% of surveyed participants reporting that the program helped them create sustainable fitness routines and 78% feeling more confident. Let's now turn to the progress we've made on our 4 strategic imperatives during the third quarter. As a reminder, the 4 strategic imperatives are redefining our brand promise and communicating it through our marketing, enhancing our member experience, refining our product, optimizing our format, and accelerating new club growth. I'll start with redefining our brand promise. In the third quarter, we continued with our 'We are all strong on this planet' marketing campaign that highlights our best-in-class equipment, our welcoming atmosphere, and the supportive community we offer. Our strong join trend has continued, and our member count at the end of Q3 was in line with our expectations. We also saw increased Black Card penetration in the quarter with 66.1% of our total membership now at the higher tier, a 300 basis point increase from the same quarter last year. Consumers continue to recognize the value of the Black Card with the smallest price gap between our 2 membership tiers since we launched the Black Card. As many of you know, we held off on increasing the price of our Black Card membership until we got on the other side of the Classic Card price increase anniversary. After thoughtful consideration, significant testing, and data analysis, we've made the decision to raise the Black Card price to $29.99 after our peak join season in 2026. We're also continuing to test new Black Card amenities such as dry cold plunge and red light technology that would add even more value to our Black Card offering. We unveiled several of these potential new offerings to our franchisees last week at our annual franchisee meeting and they were met with great enthusiasm. We look forward to sharing our plans to modernize the Black Card Spa at our Investor Day next week. Finally, we're excited to announce that we'll be sponsoring New Year's Rockin' Eve next month in Times Square for our 11th consecutive year. This is a high-visibility event that continues to put Planet Fitness on a global stage and keeps our brand top of mind for consumers as they think about prioritizing their health and fitness goals in the New Year. Now to member experience and format optimization. We know that establishing a relationship with our members is important to their engagement and retention. And utilization matters as people tend to be more loyal to brands that they use regularly. It's an indication of the value they find in their Planet Fitness membership, which is why we're pleased to see utilization rates continue to increase, a leading indicator of member stickiness. We're partnering with our franchisees to put the member at the core of everything we do, along with the team members in our clubs who play a critical role in personally welcoming every member. We see time and time again when club team members greet our members by name and provide personal recognition, it enhances the experience for both the member and the team member. Our goal is to create a deeper sense of loyalty and emotional connection to drive retention and ultimately, revenue. A recent consumer insights study showed that Planet Fitness outperformed several other fitness brands on feeling welcomed. This is an important emotional equity when we consider that gymtimidation can be a barrier to gym membership and usage. We also saw strong positive associations for Planet Fitness with convenient location, value for money, price, easy access, and machine variety and availability. These are strong associations for our brand. Member experience goes beyond a welcoming atmosphere. It includes providing members with the ideal equipment mix in a club with a format optimized layout so they can achieve their workouts their way. To this end, we gave franchisees who are developing or renovating clubs this year the opportunity to build a traditional layout or one of the new format optimized clubs and 95% elected to build one of the newer club formats. By the end of 2025, close to 80% of clubs system-wide will have some version of an optimized format. That's nearly 4 out of 5 clubs. We will share more about this next week at our Investor Day. And finally, our efforts to accelerate new club growth. We continue to refine our product offering and enhance operational efficiencies to maximize the economic value proposition for our franchisees while delivering the most relevant on-brand experience for today's members. That said, we're a top line-driven business and we are keenly focused on driving unit economics through top line growth. In August, our franchisees voted to shift 1 percentage point of the marketing funding from the local advertising fund to the national ad fund. This change will enable us to unlock new marketing opportunities to drive consideration and conversion, spend our dollars more efficiently, and ultimately, fuel member growth. Our goal is to drive top-line revenue as it is the key driver of unit economics. We do this through more effective marketing while enhancing the bottom line through greater marketing efficiency and the flow-through on incremental revenue in this high-margin business. We're grateful to our franchisees for this vote of confidence in our marketing leadership and strategy. Finally, we proudly received 2 notable honors recently. First, we were named to Fortune's 2025 100 Fastest-Growing Companies list. And second, we were recognized as #22 in this year's Franchise Times Top 400 as the top-rated fitness concept. These honors illustrate the strength of our brand and are a testimonial to the dedication of our esteemed team members and franchisees. Now I'll turn it over to Jay.

Jay Stasz, CFO

Thanks, Colleen. We're very pleased to deliver another quarter of strong results. And as Colleen mentioned, we're raising our full year '25 outlook. Now to our third quarter results. All of my comments regarding our third quarter performance will be comparing Q3 of '25 to Q3 of last year, unless otherwise noted. We opened 35 new clubs compared to 21. Included in our openings are 5 locations where a franchisee acquired and converted regional gyms to Planet Fitness clubs. This is a strategy that we will use as another option to accelerate new club growth. These clubs, in many cases, open with a built-in membership base, giving franchisees a jump on top line ramp. We delivered system-wide same club sales growth of 6.9% in the third quarter. Franchisee same club sales increased 7.1% and corporate same club sales increased 6.0%. Approximately 80% of our Q3 comp increase was driven by rate growth, in line with our expectations, with the balance driven by net membership growth. Black Card penetration was 66.1% at the end of the quarter, an increase of 300 basis points from the prior year and a sequential increase of approximately 30 basis points from Q2. Our Q3 ending member count of approximately 20.7 million members was in line with our expectations as the third quarter is typically not a quarter with significant membership change. Our join trends during the quarter were strong, including conversions to paying members from our High School Summer Pass program. Attrition rates, while elevated on a year-over-year basis, were not out of line with historical levels, and we started to see moderation late in the quarter. For the third quarter, total revenue was $330.3 million compared to $292.2 million, an increase of 13%. The increase was driven by revenue growth across all 3 segments, including an 11% increase in franchise segment revenue and a 7.6% increase in our corporate-owned club segment. For the third quarter, the average royalty rate was 6.7%, flat to the prior year. Equipment segment revenue increased 27.8%. The increase was driven by higher revenue from equipment sales, including both new equipment and re-equips. We completed 27 new club placements this quarter compared to 15 last year. For the quarter, replacement equipment accounted for 82% of total equipment revenue compared to 85% last year. Our cost of revenue, which primarily relates to the cost of equipment sales to franchisee-owned clubs, was $58.2 million, an increase of 27.3% compared to $45.7 million last year. Corporate club operation expense increased 11.4% to $79.8 million. The increase was driven by operating expenses from 30 new clubs opened since July 1 of '24, including 10 in Spain. SG&A for the quarter was $30.5 million compared to $32.6 million, while adjusted SG&A was $30 million or 9.1% of total revenue compared to $31.3 million or 10.7% of total revenue, a decrease of 4.2%. National advertising fund expense was $21.4 million compared to $19.7 million, an increase of 8.7%. Net income was $59.2 million, adjusted net income was $67 million and adjusted net income per diluted share was $0.80. Adjusted EBITDA was $140.8 million, an increase of 14.4% and adjusted EBITDA margin was 42.6% compared to $123.1 million with adjusted EBITDA margin of 42.1%. Now turning to the balance sheet. As of September 30 of '25, we had total cash, cash equivalents, and marketable securities of $577.9 million compared to $529.5 million on December 31, '24, which included $56.4 million of restricted cash in each period. During the quarter, we used approximately $100 million of cash on hand to repurchase and retire approximately 950,000 shares of our stock. Moving on to our revised '25 outlook, which we provided in our press release this morning. With 2 months remaining in the calendar year, we are confident in our ability to open between 160 and 170 new clubs, which includes both franchise and corporate locations. We recognize that we have a lot of clubs to open during the fourth quarter, but this is standard business practice and we've completed this number of openings in prior fourth quarters. We are also confident that we can complete the 130 to 140 equipment placements in new franchise clubs. Given our strong results in Q3 and the overall strength in the business, we are increasing our outlook for '25. We now expect the following: same club sales growth of approximately 6.5%, up from 6%; revenue to grow approximately 11%, up from 10%; adjusted EBITDA to grow approximately 12%, up from 10%; adjusted net income to increase in the 13% to 14% range, up from 8% to 9%; adjusted net income per diluted share to grow in the 16% to 17% range, up from 11% to 12% based on adjusted diluted weighted average shares outstanding of approximately 84.2 million shares, inclusive of the impact of the shares we have repurchased throughout the third quarter. We expect net interest expense of approximately $86 million and D&A to be approximately $155 million with CapEx to be up approximately 20%. In closing, we are excited by the momentum in the business and evidence that our strategic imperatives are producing results. We had a highly successful High School Summer Pass program as we continue to build loyalty with Gen Zs. And our franchisees are investing in opening, remodeling, and adding strength equipment as they see the benefits of our work to reposition our brand and optimize our layouts, putting the member at the core of what we do. I will now turn the call back to the operator to open it up for Q&A.

John Heinbockel, Analyst

Colleen, your thought on holistically this marketing split, right, between local and national. I know the 1% shift that adds maybe, I guess, $50 million to the national piece. How do you want to spend that? Where do you think that goes over time, right? And what's sort of the right level? I guess you would think as you get larger, right, maybe you end up spending closer to in total, 7% of sales as opposed to something higher. What's the thought on that?

Colleen Keating, CEO

So I'll speak to the shift of the 1 percentage point from the local ad fund to the national ad fund. I won't get super granular for competitive reasons, of course, but this will enable us to augment some of the marketing that we're doing digitally, use AI and augment our CRM, digital content optimization, and a number of other things that, again, will give us the opportunity to have greater reach with each of those marketing dollars. It will also enable us to buy media more efficiently on a national basis. So again, really get more mileage out of every dollar that we're spending.

John Heinbockel, Analyst

Okay. As a follow-up, can you remind us about your target of 5,000 stores or clubs in the U.S. and how you view that in terms of market density? Additionally, when considering different geographies, do you see a larger opportunity for smaller, less dense markets than you initially thought? Would making the economics work require a smaller club size, and how much smaller would a club need to be to achieve that?

Colleen Keating, CEO

So there's a couple of questions in there and I'll start maybe with the first one on the opportunity and density. As you know, we are more dense on the East Coast, so Northeast, East Coast, Southeast, less dense Midwest, West. And at the same time, where there has been population growth, job growth, deurbanization, new home construction, which, again, demographically meets the demand coming from millennials as forming households. We think there's opportunity where we're less dense to increase our penetration. And we think that some of the demographic shifts that have occurred with that deurbanization and population growth over the last several years complement that very well. And we've had several studies done to opportunity size the domestic landscape that supports that growth. Generally speaking, those growth numbers are supported with 20,000 or traditional 20,000 square foot club. At the same time, I think we've talked before, we're developing prototypes that are a bit smaller than the 20,000 square foot club that will enable us to go into markets that maybe don't have quite the population density but might be underserved from a fitness standpoint today.

Sharon Zackfia, Analyst

I wanted to actually double-click maybe on the churn. There was a lot of chatter kind of within the quarter amongst investors that maybe the click-to-cancel churn was much more elevated than what you expected but it doesn't seem like that was the case. So I wanted to check on that. And you mentioned moderation. Are you kind of back to normal levels of churn? And should we expect member growth to sequentially resume again in the fourth quarter?

Jay Stasz, CFO

Sharon, this is Jay, and I'll address that to begin. We do not provide guidance on membership growth, so I won’t comment on that. However, we are satisfied that the 20.7 million members aligned with our expectations. Regarding attrition, the rates were higher compared to last year. Nevertheless, when we look at it over multiple years, they fall within the historical range we’ve observed. Additionally, we did notice some moderation towards the end of the quarter. Our outlook and modeling suggest continued elevated rates year-over-year, which is consistent with our previous expectations on the last call for Q2 and this call. This is reflected in the guidance we provided. We are encouraged by the underlying trends in the business.

Sharon Zackfia, Analyst

And Jay, can I just follow up? Is that continued elevation just the tail from click-to-cancel? Or is it something you're seeing that's more macro?

Jay Stasz, CFO

No, we think it's driven by the click-to-cancel tail.

Jonathan Komp, Analyst

I want to just follow up. Could you maybe talk a little more directly when you look at the guidance raise for the year, combined with the confidence to commit to the Black Card pricing after your peak period coming up? Could you maybe just talk about more directly what's driving your increasing confidence to announce both of those today?

Jay Stasz, CFO

I can start with those items. From a guidance perspective, we had strong results in our third quarter, which is reassuring. When considering the factors contributing to our year-over-year growth, we are experiencing significant momentum in our equipment business. Franchisees are actively engaging with these new formats, both with new clubs and re-equipments, which are reflecting positive trends. Regarding SG&A, we noted a decline in the quarter due to an annual franchisee conference that occurred last year, but this year it was moved to the fourth quarter. Excluding that, we are seeing positive trends in SG&A. We are also carrying forward the sales upside from the third quarter into our full-year guidance. All these factors are shaping the guidance we provided. We see a positive trend with revenue separating, gaining leverage, and driving EBITDA growth. Concerning the Black Card price increase, we've tested and analyzed it and decided to set it at $29.99. Our tests show that this change has been beneficial to AUV. We won’t comment on impacts for next year until the price increase occurs, but historically, when we adjusted the Black Card price, the acquisition rate did drop temporarily but typically recovered within the year, restoring the penetration level. A new factor this time is the increase in the Classic Card price, which hasn't been present in the past. We’ll have to observe how that plays out, but we anticipate the Black Card price increase will positively affect AUV.

Jonathan Komp, Analyst

Okay. That's great. And then maybe just a follow-up, Colleen. I know there are several positives in today's announcements, but it's notable that you have an Investor Day coming up next week. Could you share at a high level what we should expect to hear or the plans you hope to present going into next week to set the stage?

Colleen Keating, CEO

Yes, sure. Happy to. We'll give you a bit more granular detail on the progress that we're making on our strategic imperatives. And we'll also give you a multiyear view of what you can expect from a growth trend standpoint. So you'll get some numbers beyond, obviously, just a single year. So some multiyear projections from us.

Joseph Altobello, Analyst

I guess first question on the competitive landscape. Curious if you're seeing any shifts at all, whether it be from low-priced, high-value competitors or even some of the more higher-priced competitors in the space.

Colleen Keating, CEO

I'll start and just say for the quarter and year-to-date, we've been quite pleased with the join trends and the join volume. So again, as I've said before, I think our biggest competition is fear of walking in the front door. And our marketing is really resonating with consumers today, both the strength equipment and the ability to get strong at Planet Fitness but also conveying the sense of community at Planet Fitness. So again, feeling very good about the join trends.

Joseph Altobello, Analyst

Helpful. And maybe just to follow up on that, in terms of new store openings for next year, I know, obviously, there's not a ton of visibility at this point. But what does the availability of real estate look like? And could we see more acquisitions and conversions like you did this past quarter?

Colleen Keating, CEO

We are not providing guidance for next year yet. However, I want to mention that we are observing negative absorption in shopping center retail space for the first time in several years. While enclosed malls have experienced negative absorption, the shopping center retail space, which is what we target for Planet Fitness, has also seen this trend year-to-date. Additionally, there has been a slowdown in rent increases; during the first half of this year, rent growth in both quarters was below the inflation rate. We consider these to be encouraging signs. Moreover, the retail bankruptcies, store closures, and grocery stores downsizing to smaller footprints are all contributing positively to the availability of retail space for our clubs.

Randal Konik, Analyst

Colleen, I’d like to turn it back to you. I believe the question was about what you’ll be sharing at the Analyst Day next week. You provided a brief response, so could you offer some insights on the key themes or takeaways regarding the Planet story and business model that you want both the buy and sell sides to think about as we approach the meeting next week?

Colleen Keating, CEO

Absolutely. I'm happy to address that and appreciate the question. Many are seeking insights into the factors driving our business projections. However, it's crucial to highlight the significant macro trends benefiting our industry. We are indeed in the golden age of fitness, and I stand by that statement. The demand for our offerings is higher than ever, with a vast potential market of fitness-focused consumers. Our ability to meet this demand is strong. We will provide more specifics next week. Additionally, we've been developing our Blue Ribbon team, adding several outstanding new leaders and promoting seasoned team members to expanded roles. We want to give everyone the chance to meet them and hear their insights, covering areas such as marketing, development, and operations, including international opportunities. You'll hear from several of our new team members and those in expanded roles next week as well. Absolutely. I'm going to save a couple of things for next week, but we will definitely discuss the global expansion opportunity and the success we've had in Spain, highlighting our strong brand performance there. We launched in Spain as a proof of concept, and it has been extremely successful. We will provide specific data on Spain to illustrate that success and also discuss where we see additional growth opportunities, including the potential cadence of global growth as part of our multiyear outlook for unit growth.

Rahul Krotthapalli, Analyst

Colleen, can you discuss your thoughts on the strategic brand partnerships with like either large retail or consumer brands, hotels, airlines, whatever you're free to talk about and given the efforts around ramping the marketing strategy and the strong membership base you have? And I have a follow-up.

Colleen Keating, CEO

We have initiated several partnerships and brand collaborations that have benefited our members. Year-to-date, there have been over $7 million in perks redemptions for our consumers. These redemption rates have been increasing steadily over the past five years as we focus on expanding our offerings. We see more potential for brand partnerships and are currently developing some. However, for competitive reasons, I can't disclose specific brands until we are ready to launch the partnerships. We have noted strong utilization from our members in past partnerships, achieving a new record in redemption this year, with even more opportunities ahead. Brian Povinelli brings valuable experience from leading a top membership and loyalty program in the hospitality industry, which will help us as we rebrand and relaunch after a merger. Expect to see more developments in this area.

Rahul Krotthapalli, Analyst

Perfect. Regarding membership retention, you have a significant amount of data with 20.7 million members. Can you provide some insights into how you plan to use AI and other technological tools to enhance membership retention and utilization?

Colleen Keating, CEO

Yes. So from an AI perspective, I touched on it a little bit in marketing at a pretty high level. So think about AI-enabled CRM, think about AI-enabled marketing with digital content. So serving up content that is more targeted to a consumer. But again, I won't get into a ton of granular detail just for competitive reasons. And then I think you'll see it embedded in our app. We've talked about kind of the revitalization of our app, our app being one of the most downloaded, if not the most downloaded fitness app on the App Store, and the opportunity to leverage AI to more personalize the experience for our members when they're utilizing the app and can enhance the in-club experience and out-of-club experience.

Christopher O'Cull, Analyst

Colleen, I know the company has been testing additional services in the Black Card Spa area like red light therapy and spray tanning, among others. But what are you learning about the value of those services to members?

Colleen Keating, CEO

We are evaluating utilization and gathering feedback from our members. Earlier this year, we implemented NPS across the company, which is providing us with immediate real-time feedback and helping us collect more consumer data. Last week, we presented the potential Black Card amenities to our franchisees at our huddle, and they were quite excited. Several vendors were present, and our franchisees were inquiring about when they could access these amenities. We aim to conduct the right amount of testing to ensure we are truly optimizing the Black Card Spa offering. Simultaneously, this data will guide our market strategy for new offerings to further enhance the Black Card Spa.

Christopher O'Cull, Analyst

Great. And then I believe last year, you had some incremental marketing investment in the fourth quarter. So I was just hoping, could you maybe share or elaborate on how you plan to lap that this year? I'm assuming it may be safe to assume that year-over-year spend will at least be in line with the total spend last year.

Colleen Keating, CEO

As our revenue increases, the marketing fund also grows. A significant portion of the marketing fund is determined by the percentage of revenue captured. While I won’t detail specific promotional plans for Q4, I can say that we previously considered Q1 to be the prime quarter for promotions. However, we have recognized that all quarters offer opportunities for promotion, and we can effectively utilize marketing throughout the year for positive outcomes.

Maksim Rakhlenko, Analyst

Great job, everyone. Very nice quarter. So first, you recently ran a perk, which was a discount on a workout planning app. I'm not sure if that was new or not. But with an increase in popularity in many of these digital personal training or workout planning apps, are there bigger opportunities to embed this sort of technology into the Black Card membership? There was previously a push in the personal training and something that some of your HVLP peers are doing. So just curious, is leveraging technology an opportunity to both unlock revenues as well as provide a better member experience?

Colleen Keating, CEO

So certainly, and I touched on this a little bit when Rahul asked about AI, use of AI, and we do see an opportunity to use AI or leverage AI to more personalize the experience for our members. And one of the ways we could use it is in personalizing workout plans for our members as well. So all of that is on the AI road map as well as the app revitalization road map.

Jay Stasz, CFO

Yes, Max, this is Jay. We're thinking about it in a way that should remain consistent from one quarter to the next. The main factor here is that we are now reaching the anniversary of the price increase for the Classic Card that we implemented at the end of June last year. As we've mentioned, we do experience a rate benefit from this, but it decreases over the duration of our membership. Therefore, the reduction in that rate benefit is contributing to the decline when comparing Q3 to Q4.

Logan Reich, Analyst

Congrats on a strong quarter. My question was on the High School Summer Pass. I mean, up 30% is a really impressive number and you guys talked about the strength of equipment and the marketing. I guess my question was more on the conversion rate to paying members that's in the mid-single digits. Just any more color you guys can give on that just on the timing of when those high school pass users convert, kind of the shape of that? And any sense on if that number could potentially be higher than historical levels, just given participation is up a lot. Just curious if that translates to upside to your conversion rate as well?

Colleen Keating, CEO

Sure. I'll start. So we'll report on conversion at the end of the fourth quarter because we continue to convert through September, October, even a little bit in November because they are able to utilize the pass through the end of August and then we see this kind of surge in conversion in September, October, a bit into the fourth quarter as well. So we'll give you more data on that at the end of Q4. And when I think about the number of paid members converted out of summer pass, obviously, it's a bigger denominator. So even at a similar conversion rate, the numerator is going to be larger. But what we're seeing so far is fairly similar conversion percentage and really encouraged by the overall strength of the program.

Madison Callinan, Analyst

This is Madison Callinan. I'm on for Brian. First, are we now behind the lion's share of expected click-to-cancel impact? And do you expect any positive impact on rejoins next year as a result?

Jay Stasz, CFO

Yes. So we're not giving guidance outside of this quarter right now. Of course, we'll be meeting next week and giving long-term targets and more color there. And from an attrition standpoint, as we said, right, consistent is that we have seen elevation in the attrition rate year-over-year. When we look at it at a multi-year lens, it is more consistent with what we've seen historically. We have modeled the elevated attrition rate into Q4 and that is included in our outlook.

Colleen Keating, CEO

Yes. Can I also just add, one of the things that we have seen and we saw it in the test environment, a couple of test environments previously. One thing that has proven true is that where we are now able to say one click to cancel or cancel any time in the join flow, we are seeing it give us a lift in the join conversion.

Jay Stasz, CFO

Yes. We'll talk more about that next week. And certainly, from a Black Card standpoint, we'll get into specifics on that more when we do the price increase.

John-Paul Wollam, Analyst

If we could just start first on kind of franchisee returns. A lot has been done in the last few years with the new growth model to really improve those franchisee IRRs. So I'm just wondering, are there maybe 1 or 2 data points you can share about kind of just some accelerating license sales or maybe interest in new licenses that you can share?

Jay Stasz, CFO

I'll start. Yes. I mean we're not probably going to talk about ADA or license sales or franchise agreement sales. But what I can speak to the IRRs and how we think about it. We track, certainly our more recent club openings post the new growth model post the Classic Card price increase and we're tracking those from a top line basis to see if we're hitting kind of our internal hurdle rate for the IRRs, which obviously are shared with ourselves and the franchisees' lens. So we're pleased to report that those are tracking right in line. So we're seeing the lift as we would expect from those initiatives. And that's a top line lens. Obviously, part of the new growth model was giving some more flexibility on the CapEx re-equip timing schedules. So that's positive as well. And I think to your point, with Chip now here as the CDO, he continues the effort to value engineer the club build-out costs and we spoke about that to the franchisee group last week at our huddle. We've also, as part of our fit for strategy structure, established a formal procurement team under the finance org, under my org. And we've started some initiatives there where we think we can save the franchisees' money.

Colleen Keating, CEO

Yes, I will add to that. One key point is that franchisee same club sales growth for the quarter was 7.1%. The franchisees are clearly benefiting from the rise in membership and effective marketing. Additionally, we've noticed that real estate availability, which has been somewhat challenging for development, is starting to improve. Another indication of franchisee confidence is that we have had franchisees acquiring conversion clubs recently, which allows them to expand their operations more swiftly. Furthermore, in every instance where we've seen portfolio transactions, our existing franchisees have expressed interest in purchasing more territory or clubs as they become available. This reflects their confidence in our system. Meanwhile, we remain committed to improving the financial situation for franchisees by working on reducing build costs while ensuring a great member experience.

John-Paul Wollam, Analyst

Perfect. And then just one quick follow-up and I think fairly straightforward. But I assume most of the unit openings coming in the fourth quarter are largely through a lot of maybe permitting and municipal processes. And I would assume it's largely all on a local basis. But anything in terms of the government shutdown that would be a potential risk to unit openings in the fourth quarter?

Colleen Keating, CEO

We haven't seen any indication that the federal government shutdown is affecting openings. You're correct that permitting is primarily done early in the construction phase, and local municipal inspections, such as final certificates of occupancy and sign-offs, take place later on. These inspections are managed at the local level rather than federally.

Arpine Kocharyan, Analyst

Could you talk to the general trends you saw in terms of gross adds for the quarter? What you saw in Q3 and what you're seeing into Q4 as we see churn kind of normalize a bit here? And you saw slightly lower membership in Q3 versus Q2, which is, I think, in line with what you saw last year quarter-to-quarter. But last year, you were going through the price increase on Classic Cards. So maybe if you could talk to the sort of gross adds versus underlying attrition trends in the quarter?

Jay Stasz, CFO

Yes, I didn't catch the second part of your question. I heard the part about the gross joins. Could you please repeat the rest?

Arpine Kocharyan, Analyst

Yes. Just your membership is slightly lower in Q3 versus Q2, which is, I think, in line with what you saw last year quarter-over-quarter. But last year, you were going through the price increase on Classic Cards. So maybe if you could talk to the sort of gross adds versus underlying attrition trends in the quarter that you saw would be helpful.

Jay Stasz, CFO

Certainly. I can begin by saying that we don’t disclose the exact gross joins or cancels. However, we did observe strong joining trends, which we mentioned in our prepared remarks. These join trends were counterbalanced by a higher attrition rate, which we addressed earlier. The attrition rate has increased compared to the previous year. When we analyze this over multiple years, it aligns more closely with our historical patterns. Generally, the third quarter is not a period known for significant net additions; it can remain flat or decrease slightly. We've observed this in the past, and it reflects our expectations for this quarter as well. We anticipate these trends will persist moving forward. We are witnessing positive trends in terms of joins and have forecasted continued elevated attrition year-over-year, both of which are factored into our annual outlook.

Colleen Keating, CEO

It is also important to mention that, as we've noted before, when we introduced click-to-cancel previously, we observed a moderation after about 12 weeks. Considering our introduction of click-to-cancel in the second quarter, we were within the anticipated elevated attrition period at the beginning of the third quarter. As Jay pointed out, we have begun to see that moderation. Additionally, we have maintained very strong rejoin rates, remaining in the mid-30s throughout the quarter. Our marketing efforts are effectively driving join volume, and we are also retargeting lapsed members, contributing to the robust rejoin rate.

Marni Lysaght, Analyst

I believe recent issues like churn have been addressed in previous questions. However, I'm interested in your outlook for rollout. Could you provide some insights, or would it be better to discuss this at the Analyst Day next week? Specifically, when you're competing for space, and considering your earlier remarks about prototypes for smaller formats, how should we view franchise groups and your perspective on competing for those locations?

Colleen Keating, CEO

Yes. I think one of the things that our real estate team is doing in partnership with our franchisees is getting ahead of space availability and talking with the large landlords and brokers to make sure that we articulate the value proposition of putting Planet Fitness in a center, particularly we skew heavy female. We contribute to traffic to the center because we don't have classes, we're not taking up significant amounts of parking at a given time, and we also contribute traffic to a center during off-peak times because most retail centers are getting heavy traffic on the weekend and our heaviest traffic is weekday, in the early part of the week. So it's really about making sure that we highlight why Planet Fitness is a prospective great tenant and also the resiliency of our business, the durability of our cash flows, the fact that we came through COVID with a number of temporary club closures for municipal reasons but not one club permanently closing for financial reasons. And compare that to the retail closures and retail bankruptcies, we should be a very attractive tenant. So it's really about promoting the value of having Planet Fitness in the center.

Operator, Operator

I will now turn the call back over to Colleen Keating for closing remarks.

Colleen Keating, CEO

Well, first, I want to thank our team members and franchisees for delivering such a solid quarter. I am very encouraged by the momentum we’re bringing into the fourth quarter to finish a strong 2025. We look forward to sharing more insights about our long-term growth opportunities at our Investor Day next Thursday. Thank you, everyone.

Operator, Operator

Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.