Planet Fitness, Inc. Announces Fourth Quarter and Year-End 2018 Results

SOURCE: Planet Fitness

Fourth Quarter System-Wide Same Store Sales Increased 10.1%
230 New Planet Fitness Stores Opened System-Wide in 2018
Executed $300 Million Accelerated Share Repurchase in Fourth Quarter

HAMPTON, N.H., Feb. 26, 2019  -- Today, Planet Fitness, Inc. (NYSE: PLNT) reported financial results for its fourth quarter ended December 31, 2018 and announced its full year 2019 outlook.

Fourth Quarter Fiscal 2018 Highlights

• Total revenue increased from the prior year period by 30.1% to $174.4 million.
• System-wide same store sales increased 10.1%.
• Net income attributable to Planet Fitness, Inc. was $24.8 million, or $0.29 per diluted share, compared to a net loss attributable to Planet Fitness, Inc. of $3.5 million, or $(0.04) per diluted share in the prior year period, which included the net negative impact of approximately $17.2 million related to the remeasurement of the Company's deferred tax assets and tax benefit arrangements due to tax reform in 2017.
• Net income was $28.8 million, compared to net income of $0.8 million in the prior year period which included the net negative impact of approximately $17.2 million related to the remeasurement of the Company's deferred tax assets and tax benefit arrangements due to tax reform in 2017.
• Adjusted net income⁽¹⁾ increased 38.2% to $32.5 million, or $0.34 per diluted share, compared to $23.5 million, or $0.24 per diluted share in the prior year period.
• Adjusted EBITDA⁽¹⁾ increased 21.6% to $62.3 million from $51.2 million in the prior year period.
• 98 new Planet Fitness stores were opened system-wide during the period, bringing system-wide total stores to 1,742 as of December 31, 2018.

Fiscal Year 2018 Highlights

• Total revenue increased from the prior year by 33.3% to $572.9 million.
• System-wide same store sales increased 10.2%.
• Net income attributable to Planet Fitness, Inc. was $88.0 million, or $1.00 per diluted share, compared to $33.1 million, or $0.42 per diluted share in the prior year, which included the net negative impact of approximately $17.2 million related to the remeasurement of the Company's deferred tax assets and tax benefit arrangements due to tax reform in 2017.
• Net income was $103.2 million, compared to $55.6 million in the prior year, which included the net negative impact of approximately $17.2 million related to the remeasurement of the Company's deferred tax assets and tax benefit arrangements due to tax reform in 2017.
• Adjusted net income⁽¹⁾ increased 45.3% to $119.5 million, or $1.22 per diluted share, compared to $82.3 million, or $0.84 per diluted share in the prior year.
• Adjusted EBITDA⁽¹⁾ increased 20.8% to $223.2 million from $184.7 million in the prior year.
• 230 new Planet Fitness stores were opened system-wide during the year, bringing system-wide total stores to 1,742 as of December 31, 2018.

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

"We concluded a very successful 2018 with strong fourth quarter results," stated Chris Rondeau, Chief Executive Officer. "Fourth quarter system-wide same store sales increased 10.1%, marking our 48^thconsecutive quarter of positive same store sales growth and the third year in a row that fourth quarter same store sales grew double digits on a percentage basis. At the same time, we sold equipment into 104 new stores during the fourth quarter, bringing our full year count to a record 228. From our group of experienced franchisees who are eager to expand their footprints to increasingly favorable real estate trends, our growing national and local advertising budgets and our initiatives aimed at enhancing the member experience, we believe there are tremendous opportunities to build on our recent accomplishments. I am confident that we have the right franchisees in place to more than double our U.S. presence and attract more casual and first time gym users to our welcoming, non-intimidating fitness offering, and do it in a manner that generates increased value for our shareholders over the long-term."

Operating Results for the Fourth Quarter Ended December 31, 2018

For the fourth quarter of 2018, total revenue increased $40.3 million or 30.1% to $174.4 million from $134.0 million in the prior year period. $9.2 million, or 6.9% of the increase, is national advertising fund revenue and is included in our franchise segment. We began reporting national advertising fund contributions as revenue and expenditures as expense in 2018 in connection with the adoption of the new U.S. GAAP revenue recognition standard. By segment:

• Franchise segment revenue increased $16.6 million or 41.4% to $56.6 million from $40.0 million in the prior year period, which includes commission income and the above-mentioned $9.2 million of national advertising fund revenue;
• Corporate-owned stores segment revenue increased $8.0 million or 28.4% to $36.2 million from $28.2 million in the prior year period, $6.1 million of which is from new corporate-owned stores opened or acquired since September 30, 2017; and
• Equipment segment revenue increased $15.8 million or 24.0% to $81.6 million from $65.8 million in the prior year period, driven by an increase in replacement equipment sales to existing franchisee-owned stores.

System-wide same store sales increased 10.1%. By segment, franchisee-owned same store sales increased 10.1% and corporate-owned same store sales increased 9.0%.

For the fourth quarter of 2018, net income attributable to Planet Fitness, Inc. was $24.8 million, or $0.29 per diluted share, compared to a net loss attributable to Planet Fitness, Inc. of $3.5 million, or $(0.04) per diluted share in the prior year period. Net income was $28.8 million in the fourth quarter of 2018 compared to $0.8 million in the prior year period. Both 2017 amounts include the net negative impact of approximately $17.2 million related to the remeasurement of the Company's deferred tax assets and tax benefit arrangements due to tax reform. Adjusted net income increased 38.2% to $32.5 million, or $0.34 per diluted share, from $23.5 million, or $0.24 per diluted share, in the prior year period. Adjusted net income has been adjusted to reflect a normalized federal income tax rate of 26.3% for the current year period and 39.5% for the comparable prior year period and excludes certain non-cash and other items that we do not consider in the evaluation of ongoing operational performance (see "Non-GAAP Financial Measures").

Adjusted EBITDA, which is defined as net income before interest, taxes, depreciation and amortization, adjusted for the impact of certain non-cash and other items that we do not consider in the evaluation of ongoing operational performance (see "Non-GAAP Financial Measures"), increased 21.6% to $62.3 million from $51.2 million in the prior year period.

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

• Franchise segment EBITDA increased $6.8 million or 21.1% to $38.8 million driven by royalties from new franchisee-owned stores opened since September 30, 2017, a higher average royalty rate and higher same store sales of 10.1%;
• Corporate-owned stores segment EBITDA increased $3.3 million or 29.4% to $14.6 million driven primarily by additional stores opened and acquired since September 30, 2017, an increase in same store sales of 9.0% and higher annual fees; and
• Equipment segment EBITDA increased by $4.1 million or 27.3% to $19.0 million driven by an increase in replacement equipment sales to existing franchisee-owned stores.

Operating Results for the Fiscal Year Ended December 31, 2018

For the fiscal year ended December 31, 2018, total revenue increased $143.0 million or 33.3% to $572.9 million from $429.9 million in the prior year. $42.2, or 9.8% of the increase, is national advertising fund revenue and is included in our franchise segment. We began reporting national advertising fund contributions as revenue and expenditures as expense in 2018 in connection with the adoption of the new U.S. GAAP revenue recognition standard. By segment:

• Franchise segment revenue increased $74.0 million or 49.3% to $224.1 million from $150.2 million in the prior year, which includes commission income and the above-mentioned $42.2 million of national advertising fund revenue;
• Corporate-owned stores segment revenue increased $26.5 million or 23.6% to $138.6 million from $112.1 million in the prior year, $18.5 million of which is from new corporate-owned stores opened or acquired since January 1, 2017; and
• Equipment segment revenue increased $42.5 million or 25.3% to $210.2 million from $167.7 million in the prior year, driven by an increase in equipment sales to new stores and an increase in replacement equipment sales to existing franchisee-owned stores.

System-wide same store sales increased 10.2%. By segment, franchisee-owned same store sales increased 10.4% and corporate-owned same store sales increased 6.5%.

For the fiscal year 2018, net income attributable to Planet Fitness, Inc. was $88.0 million, or $1.00 per diluted share, compared to net income attributable to Planet Fitness, Inc. of $33.1 million, or $0.42 per diluted share, in the prior year. Net income was $103.2 million in 2018 compared to $55.6 million in the prior year. Both 2017 amounts include the net negative impact of approximately $17.2 million related to the remeasurement of the Company's deferred tax assets and tax benefit arrangements due to tax reform. Adjusted net income increased 45.3% to $119.5 million, or $1.22 per diluted share, from $82.3 million, or $0.84 per diluted share in the prior year period. Adjusted net income has been adjusted to reflect a normalized federal income tax rate of 26.3% for the current year period and 39.5% for the comparable prior year period and excludes certain non-cash and other items that we do not consider in the evaluation of ongoing operational performance (see "Non-GAAP Financial Measures").

Adjusted EBITDA, which is defined as net income before interest, taxes, depreciation and amortization, adjusted for the impact of certain non-cash and other items that we do not consider in the evaluation of ongoing operational performance (see "Non-GAAP Financial Measures"), increased 20.8% to $223.2 million from $184.7 million in the prior year period.

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

• Franchise segment EBITDA increased $26.1 million or 20.6% to $152.6 million driven by royalties from new franchisee-owned stores opened since January 1, 2017, a higher average royalty rate and higher same store sales of 10.4%;
• Corporate-owned stores segment EBITDA increased $9.8 million or 21.0% to $56.7 million driven primarily by additional stores opened and acquired since January 1, 2017, an increase in same store sales of 6.5% and higher annual fees; and
• Equipment segment EBITDA increased by $9.1 million or 23.5% to $47.6 million driven by an increase in equipment sales to new stores and an increase in replacement equipment sales to existing franchisee-owned stores.

Share Repurchase Program

On November 13, 2018, the Company entered into a $300 million accelerated share repurchase agreement (the "ASR Agreement") with Citibank, N.A. ("the Bank"). Pursuant to the terms of the ASR Agreement, on November 14, 2018, the Company paid the Bank $300 million in cash and received 4,607,410 shares of the Company's Class A common stock. At final settlement, the Bank may be required to deliver additional shares to the Company, or, under certain circumstances, the Company may be required to deliver shares of its Class A common stock or may elect to make a cash payment to the Bank, based generally on the average of the daily volume-weighted average prices of the Company's Class A common stock during the term of the ASR Agreement. The ASR Agreement contains provisions customary for agreements of this type, including provisions for adjustments to the transaction terms, the circumstances generally under which the ASR Agreement may be accelerated, extended or terminated early by the Bank and various acknowledgments, representations and warranties made by the parties to one another. Final settlement of the ASR Agreement is expected to be completed during the second quarter of 2019, although the settlement may be accelerated at the Bank's option.

2019 Outlook

For the year ending December 31, 2019, the Company expects:

• Total revenue increase of approximately 15% as compared to the year ended December 31, 2018;
• System-wide same store sales in the high single digits;
• Adjusted net income to increase approximately 18% as compared to the year ended December 31, 2018; and
• Adjusted net income per diluted share to increase approximately 25% as compared to the year ended December 31, 2018.

Presentation of Financial Measures

Planet Fitness, Inc. (the "Company") was formed in March 2015 for the purpose of facilitating the initial public offering (the "IPO") and related recapitalization transactions that occurred in August 2015, and in order to carry on the business of Pla-Fit Holdings, LLC ("Pla-Fit Holdings") and its subsidiaries. As the sole managing member of Pla-Fit Holdings, the Company operates and controls all of the business and affairs of Pla-Fit Holdings, and through Pla-Fit Holdings, conducts its business. As a result, the Company consolidates Pla-Fit Holdings' financial results and reports a non-controlling interest related to the portion of Pla-Fit Holdings not owned by the Company.

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

The non-GAAP financial measures used in our full-year outlook will differ from net income and net income per share, diluted, determined in accordance with GAAP in ways similar to those described in the reconciliations at the end of this press release. We do not provide guidance for net income or net income per share, diluted, determined in accordance with GAAP or a reconciliation of guidance for Adjusted net income and Adjusted net income per share, diluted, to the most directly comparable GAAP measure because we are not able to predict with reasonable certainty the amount or nature of all items that will be included in our net income and net income per share, diluted, for the year ending December 31, 2018. These items are uncertain, depend on many factors and could have a material impact on our net income and net income per share, diluted, for the year ending December 31, 2018.

Investor Conference Call

The Company will hold a conference call at 4:30 pm (ET) on February 26, 2019 to discuss the news announced in this press release. A live webcast of the conference call will be accessible atwww.planetfitness.com via the "Investor Relations" link. The webcast will be archived on the website for one year.

About Planet Fitness

Founded in 1992 in Dover, NH, Planet Fitness is one of the largest and fastest-growing franchisors and operators of fitness centers in the United States by number of members and locations. As of December 31, 2018, Planet Fitness had more than 12.5 million members and 1,742 stores in 50 states, the District of Columbia, Puerto Rico, Canada, the Dominican Republic, Panama and Mexico. The Company's mission is to enhance people's lives by providing a high-quality fitness experience in a welcoming, non-intimidating environment, which we call the Judgement Free Zone®. More than 95% of Planet Fitness stores are owned and operated by independent business men and women.