PLNT
$47.95
Planet Fitness
($1.50)
(3.03%)
Earnings Details
2nd Quarter June 2018
Thursday, August 09, 2018 4:05:00 PM
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Summary

Planet Fitness Beats

Planet Fitness (PLNT) reported 2nd Quarter June 2018 earnings of $0.34 per share on revenue of $140.6 million. The consensus earnings estimate was $0.31 per share on revenue of $129.7 million. The Earnings Whisper number was $0.32 per share. Revenue grew 31.0% on a year-over-year basis.

The company said it expects 2018 earnings of approximately $1.12 per share on revenue of approximately $541.7 million. The company's previous guidance was earnings of approximately $1.18 per share on revenue of approximately $515.9 million and the current consensus earnings estimate is $1.18 per share on revenue of $528.8 million for the year ending December 31, 2018.

Results
Reported Earnings
$0.34
Earnings Whisper
$0.32
Consensus Estimate
$0.31
Reported Revenue
$140.6 Mil
Revenue Estimate
$129.7 Mil
Growth
Earnings Growth
Revenue Growth
Power Rating
Grade
Earnings Release

Planet Fitness, Inc. Announces Second Quarter 2018 Results

HAMPTON, N.H., Aug. 9, 2018 /PRNewswire/ -- Today, Planet Fitness, Inc. (NYSE:PLNT) reported financial results for its second quarter ended June 30, 2018.

Second Quarter Fiscal 2018 Highlights

  • Total revenue increased from the prior year period by 31.0% to $140.6 million.
  • System-wide same store sales increased 10.2%.
  • Net income attributable to Planet Fitness, Inc. was $25.9 million, or $0.29 per diluted share, compared to net income attributable to Planet Fitness, Inc. of $12.4 million, or $0.16 per diluted share in the prior year period.
  • Net income was $30.4 million, compared to net income of $18.0 million in the prior year period.
  • Adjusted net income(1) increased 53.3% to $33.2 million, or $0.34 per diluted share, compared to $21.7 million, or $0.22 per diluted share in the prior year period.
  • Adjusted EBITDA(1) increased 21.8% to $58.4 million from $47.9 million in the prior year period.
  • 44 new Planet Fitness franchise stores were opened during the period, bringing system-wide total stores to 1,608 as of June 30, 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.

"Our second quarter results reaffirm that Planet Fitness is a high growth company," stated Chris Rondeau. "Total revenue increased over 30% with all three operating segments up double-digits, system-wide same store sales grew 10% on top of a 9% gain a year ago, and we added 44 new franchise stores to the system to surpass 1,600 stores in total. More importantly, our unique business model and recent tax reform allowed us to translate our exceptional top-line performance into an even stronger improvement in profitability. While we are very pleased with our many recent accomplishments, we believe the future is even brighter for our Company.  There are numerous expansion opportunities for our high value, low cost non-intimidating fitness concept in the U.S. and internationally, we are pursuing exciting ways to enhance the member experience, and our strong cash generation and recent debt refinancing provide us with a high level of flexibility to return capital to shareholders.  I am excited about our prospects for continued growth as I look ahead to the second half of 2018 and longer-term."

Operating Results for the Second Quarter Ended June 30, 2018

For the second quarter 2018, total revenue increased $33.2 million or 31.0% to $140.6 million from $107.3 million in the prior year period. $11.2 million, or 10.4% of the increase, is national advertising fund revenue and is included in our franchise segment. We began reporting national advertising fund contributions as revenue in 2018 in connection with the adoption of the new U.S. GAAP revenue recognition standard. By segment:

  • Franchise segment revenue increased $20.4 million or 53.9% to $58.2 million from $37.8 million in the prior year period, which includes commission income and the above-mentioned $11.2 million of national advertising fund revenue;
  • Corporate-owned stores segment revenue increased $6.0 million or 21.1% to $34.3 million from $28.3 million in the prior year period, $4.0 million of which is from six franchisee-owned stores acquired on January 1, 2018 and four corporate-owned stores opened in late 2017; and
  • Equipment segment revenue increased $6.9 million or 16.8% to $48.1 million from $41.2 million in the prior year period.

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 5.7%.

For the second quarter of 2018, net income was $30.4 million, or $0.29 per diluted share, compared to net income of $18.0 million, or $0.16 per diluted share, in the prior year period. Adjusted net income increased 53.3% to $33.2 million, or $0.34 per diluted share, from $21.7 million, or $0.22 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 21.8% to $58.4 million from $47.9 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 $7.6 million or 23.3% to $40.0 million driven by royalties from new franchised stores opened since June 30, 2017, a higher average royalty rate and higher same store sales of 10.4%;
  • Corporate-owned stores segment EBITDA increased $1.8 million or 14.2% to $14.7 million driven primarily by an increase in same store sales, higher annual fees and the addition of six franchise owned stores acquired January 1, 2018; and
  • Equipment segment EBITDA increased by $1.6 million or 16.8% to $11.5 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

The Company announced that its Board of Directors approved an increase to the total amount of the share repurchase program to $500 million. The timing of the purchases and the amount of stock repurchased is subject to the Company's discretion and will depend on market and business conditions, the Company's general working capital needs, stock price, applicable legal requirements and other factors. Our ability to repurchase shares at any particular time is also subject to the terms of the indenture governing our outstanding notes. Purchases may be effected through one or more open market transactions, privately negotiated transactions, transactions structured through investment banking institutions, or a combination of the foregoing. Planet Fitness is not obligated under the program to acquire any particular amount of stock and can suspend or terminate the program at any time.

2018 Outlook

For the year ending December 31, 2018, the Company expects:

  • Total revenue increase of approximately 26% as compared to the year ended December 31, 2017;
  • System-wide same store sales growth in the 9% to 10% range; and
  • Adjusted net income and adjusted net income per diluted share to increase approximately 33% as compared to the year ended December 31, 2017, which includes the impact of increased interest expense from the Company's recent debt refinancing.

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 August 9, 2018 to discuss the news announced in this press release. A live webcast of the conference call will be accessible at www.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 June 30, 2018, Planet Fitness had approximately 12.1 million members and 1,608 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.

Forward-Looking Statements

This press release contains "forward-looking statements" within the meaning of the federal securities laws, which involve risks and uncertainties.  Forward-looking statements include the Company's statements with respect to expected future performance presented under the heading "2018 Outlook," those attributed to the Company's Chief Executive Officer in this press release and other statements, estimates and projections that do not relate solely to historical facts. Forward-looking statements can be identified by words such as "expect," "goal," plan," "will," "prospects," "future," "strategy" and similar references to future periods, although not all forward-looking statements include these identifying words.  Forward-looking statements are not assurances of future performance. Instead, they are based only on the Company's current beliefs, expectations and assumptions regarding the future of the business, future plans and strategies, projections, anticipated events and trends, the economy and other future conditions. Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict and many of which are outside of the Company's control. Actual results and financial condition may differ materially from those indicated in the forward-looking statements. Important factors that could cause our actual results to differ materially include risks and uncertainties associated with competition in the fitness industry, the Company's and franchisees' ability to attract and retain new members, changes in consumer demand, changes in equipment costs, the Company's ability to expand into new markets domestically and internationally, operating costs for the Company and franchisees generally, availability and cost of capital for franchisees, acquisition activity, developments and changes in laws and regulations, our substantial increased indebtedness as a result of our refinancing and securitization transactions and our ability to incur additional indebtedness or refinance that indebtedness in the future; our future financial performance and our ability to pay principal and interest on our indebtedness, our corporate structure and tax receivable agreements, general economic conditions and the other factors described in the Company's annual report on Form 10-K for the year ended December 31, 2017, and the Company's other filings with the Securities and Exchange Commission. In light of the significant risks and uncertainties inherent in forward-looking statements, investors should not place undue reliance on forward-looking statements, which reflect the Company's views only as of the date of this press release. Except as required by law, neither the Company nor any of its affiliates or representatives undertake any obligation to provide additional information or to correct or update any information set forth in this release, whether as a result of new information, future developments or otherwise.


Planet Fitness, Inc. and subsidiaries

Consolidated Statements of Operations

(Unaudited)

(Amounts in thousands, except per share amounts) 




For the three months ended
June 30,


For the six months ended
June 30,



2018


2017


2018


2017

Revenue:









Franchise


$

45,417



$

32,791



$

87,579



$

63,072


Commission income


1,575



5,003



3,563



11,519


National advertising fund revenue


11,158





21,620




Corporate-owned stores


34,252



28,285



66,959



55,326


Equipment


48,148



41,237



82,161



68,501


Total revenue


140,550



107,316



261,882



198,418


Operating costs and expenses:









Cost of revenue


36,744



31,452



63,244



52,576


Store operations


18,047



14,604



36,403



29,788


Selling, general and administrative


17,210



14,768



34,831



28,588


National advertising fund expense


11,158





21,620




Depreciation and amortization


8,619



7,894



17,084



15,845


Other loss (gain)


(39)



348



971



316


Total operating costs and expenses


91,739



69,066



174,153



127,113


Income from operations


48,811



38,250



87,729



71,305


Other expense, net:









Interest expense, net


(8,628)



(9,028)



(17,361)



(17,791)


Other expense


(502)



(933)



(310)



(251)


Total other expense, net


(9,130)



(9,961)



(17,671)



(18,042)


Income before income taxes


39,681



28,289



70,058



53,263


Provision for income taxes


9,263



10,285



16,146



17,393


Net income


30,418



18,004



53,912



35,870


Less net income attributable to non-controlling interests


4,544



5,592



8,157



14,616


Net income attributable to Planet Fitness, Inc.


$

25,874



$

12,412



$

45,755



$

21,254


Net income per share of Class A common stock:









Basic


$

0.30



$

0.16



$

0.52



$

0.30


Diluted


$

0.29



$

0.16



$

0.52



$

0.30


Weighted-average shares of Class A common stock outstanding:









Basic


87,693



79,154



87,565



71,679


Diluted


88,105



79,193



87,931



71,713


 


Planet Fitness, Inc. and subsidiaries
Consolidated Balance Sheets
(Unaudited)

(Amounts in thousands, except per share amounts)




June 30,


December 31,



2018


2017

Assets





Current assets:





Cash and cash equivalents


$

147,784



$

113,080


Accounts receivable, net of allowance for bad debts of $20 and $32 at June 30, 2018 and
December 31, 2017, respectively


14,932



37,272


Due from related parties




3,020


Inventory


3,193



2,692


Restricted assets – national advertising fund


73



499


Deferred expenses – national advertising fund


1,648




Prepaid expenses


3,796



3,929


Other receivables


23,343



9,562


Other current assets


5,916



6,947


Total current assets


200,685



177,001


Property and equipment, net of accumulated depreciation of $44,676, as of June 30, 2018 and
$36,228 as of December 31, 2017


87,570



83,327


Intangible assets, net


237,092



235,657


Goodwill


191,038



176,981


Deferred income taxes


406,699



407,782


Other assets, net


1,637



11,717


Total assets


$

1,124,721



$

1,092,465


Liabilities and stockholders' deficit





Current liabilities:





Current maturities of long-term debt


$

7,185



$

7,185


Accounts payable


16,268



28,648


Accrued expenses


14,715



18,590


Equipment deposits


9,001



6,498


Restricted liabilities – national advertising fund


73



490


Deferred revenue, current


23,186



19,083


Payable pursuant to tax benefit arrangements, current


25,578



31,062


Other current liabilities


436



474


Total current liabilities


96,442



112,030


Long-term debt, net of current maturities


693,957



696,576


Deferred rent, net of current portion


7,700



6,127


Deferred revenue, net of current portion


23,255



8,440


Deferred tax liabilities


1,389



1,629


Payable pursuant to tax benefit arrangements, net of current portion


391,876



400,298


Other liabilities


1,350



4,302


Total noncurrent liabilities


1,119,527



1,117,372


Stockholders' equity (deficit):





Class A common stock, $.0001 par value - 300,000 authorized, 87,932 and 87,188 shares
issued and outstanding as of June 30, 2018 and December 31, 2017, respectively


9



9


Class B common stock, $.0001 par value - 100,000 authorized, 10,471 and 11,193 shares
issued and outstanding as of June 30, 2018 December 31, 2017, respectively


1



1


Accumulated other comprehensive loss


(385)



(648)


Additional paid in capital


14,744



12,118


Accumulated deficit


(94,348)



(130,966)


Total stockholders' deficit attributable to Planet Fitness Inc.


(79,979)



(119,486)


Non-controlling interests


(11,269)



(17,451)


Total stockholders' deficit


(91,248)



(136,937)


Total liabilities and stockholders' deficit


$

1,124,721



$

1,092,465


 

 


Planet Fitness, Inc. and subsidiaries
Consolidated Statements of Cash Flows
(Unaudited)

(Amounts in thousands, except per share amounts)




For the six months ended June 30,



2018


2017

Cash flows from operating activities:





Net income


$

53,912



$

35,870


Adjustments to reconcile net income to net cash provided by operating activities:





Depreciation and amortization


17,084



15,845


Amortization of deferred financing costs


973



942


Amortization of favorable leases and asset retirement obligations


186



184


Amortization of interest rate caps


446



954


Deferred tax expense


13,300



14,589


Loss on extinguishment of debt




79


Third party debt refinancing expense




1,021


Gain on re-measurement of tax benefit arrangement


(354)



(541)


Provision for bad debts


(8)



28


Loss on reacquired franchise rights


350




Loss (gain) on disposal of property and equipment


547



(323)


Equity-based compensation


2,687



1,012


Changes in operating assets and liabilities, excluding effects of acquisitions:





Accounts receivable


22,281



11,542


Due to and due from related parties


3,375



(289)


Inventory


(501)



355


Other assets and other current assets


(3,109)



(3,239)


National advertising fund


(1,634)




Accounts payable and accrued expenses


(16,884)



(14,144)


Other liabilities and other current liabilities


(2,908)



(33)


Income taxes


131



(406)


Payable to related parties pursuant to tax benefit arrangements


(21,706)



(7,909)


Equipment deposits


2,503



5,390


Deferred revenue


6,229



1,826


Deferred rent


1,594



245


Net cash provided by operating activities


78,494



62,998


Cash flows from investing activities:





Additions to property and equipment


(8,136)



(14,127)


Acquisition of franchises


(28,503)




Proceeds from sale of property and equipment


134




Net cash used in investing activities


(36,505)



(14,127)


Cash flows from financing activities:





Principal payments on capital lease obligations


(23)




Repayment of long-term debt


(3,592)



(3,592)


Payment of deferred financing and other debt-related costs




(1,278)


Premiums paid for interest rate caps




(366)


Proceeds from issuance of Class A common stock


400



26


Dividend equivalent payments


(138)



(139)


Distributions to Continuing LLC Members


(3,503)



(5,592)


Net cash used in financing activities


(6,856)



(10,941)


Effects of exchange rate changes on cash and cash equivalents


(429)



198


Net increase in cash and cash equivalents


34,704



38,128


Cash and cash equivalents, beginning of period


113,080



40,393


Cash and cash equivalents, end of period


$

147,784



$

78,521


Supplemental cash flow information:





Net cash paid for income taxes


$

2,929



$

2,914


Cash paid for interest


$

16,795



$

15,890


Non-cash investing activities:





Non-cash additions to property and equipment


$

2,072



$

988


 

Planet Fitness, Inc. and subsidiaries
Non-GAAP Financial Measures

(Unaudited)
(Amounts in thousands, except per share amounts)

To supplement its consolidated financial statements, which are prepared and presented in accordance with GAAP, the Company uses the following non-GAAP financial measures: EBITDA, Total Segment EBITDA, Adjusted EBITDA, Adjusted net income and Adjusted net income per share, diluted (collectively, the "non-GAAP financial measures"). The Company believes that these non-GAAP financial measures, when used in conjunction with GAAP financial measures, are useful to investors in evaluating our operating performance. These non-GAAP financial measures presented in this release 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 unusual or nonrecurring items.

EBITDA, Segment EBITDA and Adjusted EBITDA

We refer to EBITDA and Adjusted EBITDA as we use these measures to evaluate our operating performance and we believe these measures provide useful information to investors in evaluating our performance. We have also disclosed Segment EBITDA as an important financial metric utilized by the Company to evaluate performance and allocate resources to segments in accordance with ASC 280, Segment Reporting. We define EBITDA as net income before interest, taxes, depreciation and amortization. Segment EBITDA sums to Total Segment EBITDA which is equal to the Non-GAAP financial metric EBITDA. We believe that EBITDA, which eliminates the impact of certain expenses that we do not believe reflect our underlying business performance, provides useful information to investors to assess the performance of our segments as well as the business as a whole. Our Board of Directors also uses EBITDA as a key metric to assess the performance of management. We define Adjusted EBITDA as net income before interest, taxes, depreciation and amortization, adjusted for the impact of certain additional non-cash and other items that we do not consider in our evaluation of ongoing performance of the Company's core operations. These items include certain purchase accounting adjustments, stock offering-related costs, and certain other charges and gains. We believe that Adjusted EBITDA is an appropriate measure of operating performance in addition to EBITDA because it eliminates the impact of other items that we believe reduce the comparability of our underlying core business performance from period to period and is therefore useful to our investors in comparing the core performance of our business from period to period.

 

A reconciliation of Adjusted EBITDA to net income, the most directly comparable GAAP measure, is set forth below.



Three months ended June 30,


Six months ended June 30,



2018


2017


2018


2017

(in thousands)









Net income


$

30,418



$

18,004



$

53,912



$

35,870


Interest expense, net


8,628



9,028



17,361



17,791


Provision for income taxes


9,263



10,285



16,146



17,393


Depreciation and amortization


8,619



7,894



17,084



15,845


EBITDA


$

56,928



$

45,211



$

104,503



$

86,899


Purchase accounting adjustments-revenue(1)


(30)



444



414



780


Purchase accounting adjustments-rent(2)


168



191



350



387


Loss on reacquired franchise rights(3)






350




Transaction fees(4)




1,021





1,021


Stock offering-related costs(5)




329





937


Severance costs(6)


352





352




Pre-opening costs(7)


461





483




Early lease termination costs(8)




719





719


Other(9)


502





702



(573)


Adjusted EBITDA


$

58,381



$

47,915



$

107,154



$

90,170


 

(1)

Represents the impact of revenue-related purchase accounting adjustments associated with the acquisition of Pla-Fit Holdings on November 8, 2012 by TSG (the "2012 Acquisition"). At the time of the 2012 Acquisition, the Company maintained a deferred revenue account, which consisted of deferred area development agreement fees, deferred franchise fees, and deferred enrollment fees that the Company billed and collected up front but recognizes for GAAP purposes at a later date. In connection with the 2012 Acquisition, it was determined that the carrying amount of deferred revenue was greater than the fair value assessed in accordance with ASC 805—Business Combinations, which resulted in a write-down of the carrying value of the deferred revenue balance upon application of acquisition push-down accounting under ASC 805. These amounts represent the additional revenue that would have been recognized in these periods if the write-down to deferred revenue had not occurred in connection with the application of acquisition pushdown accounting.

(2)

Represents the impact of rent-related purchase accounting adjustments. In accordance with guidance in ASC 805 – Business Combinations, in connection with the 2012 Acquisition, the Company's deferred rent liability was required to be written off as of the acquisition date and rent was recorded on a straight-line basis from the acquisition date through the end of the lease term. This resulted in higher overall recorded rent expense each period than would have otherwise been recorded had the deferred rent liability not been written off as a result of the acquisition push down accounting applied in accordance with ASC 805. Adjustments of $77, $104, $167 and $207 in the three and six months ended June 30, 2018 and 2017, respectively, reflect the difference between the higher rent expense recorded in accordance with U.S. GAAP since the acquisition and the rent expense that would have been recorded had the 2012 Acquisition not occurred. Adjustments of $92, $88, $183 and $181 in the three and six months ended June 30, 2018 and 2017, respectively, are due to the amortization of favorable and unfavorable lease intangible assets. All of the rent related purchase accounting adjustments are adjustments to rent expense which is included in store operations on our consolidated statements of operations.

(3)

Represents the impact of a one-time, non-cash loss recorded in accordance with ASC 805 - Business Combinations related to our acquisition of six franchisee-owned stores on January 1, 2018. The loss recorded under GAAP represents the difference between the fair value of the reacquired franchise rights and the contractual terms of the reacquired franchise rights and is included in other (gain) loss on our consolidated statements of operations.

(4)

Represents transaction fees and expenses related to the amendment of our credit facilities.

(5)

Represents legal, accounting and other costs incurred in connection with offerings of the Company's Class A common stock.

(6)

Represents severance expense recorded in connection with an equity award modification.

(7)

Represents costs associated with new corporate-owned stores incurred prior to the store opening, including payroll-related costs, rent and occupancy expenses, marketing and other store operating supply expenses.

(8)

Represents charges and expenses incurred in connection with the early termination of the lease for our previous headquarters.

(9)

Represents certain other charges and gains that we do not believe reflect our underlying business performance. In the three and six months ended June 30, 2018, this amount includes $342 related to the reversal of a tax indemnification receivable. In the six months ended June 30, 2018 and 2017, this amount includes a gain of $354 and $541, respectively, related to the adjustment of our tax benefit arrangements primarily due to changes in our effective tax rate. Additionally, in the six months ended June 30, 2018, this amount includes expense of $590 related to the write off of certain assets that were being tested for potential use across the system.

 

A reconciliation of Segment EBITDA to Total Segment EBITDA is set forth below.



Three months ended June 30,


Six months ended June 30,



2018


2017


2018


2017

Segment EBITDA









Franchise


$

40,041



$

32,487



$

76,719



$

64,519


Corporate-owned stores


14,666



12,840



26,837



23,533


Equipment


11,457



9,809



18,925



15,904


Corporate and other


(9,236)



(9,925)



(17,978)



(17,057)


Total Segment EBITDA(1)


$

56,928



$

45,211



$

104,503



$

86,899



(1) Total Segment EBITDA is equal to EBITDA.

 

Adjusted Net Income and Adjusted Net Income per Diluted Share

As a result of the recapitalization transactions that occurred prior to our IPO, the limited liability company agreement of Pla-Fit Holdings that was amended and restated (the "LLC Agreement") designated Planet Fitness, Inc. as the sole managing member of Pla-Fit Holdings. As sole managing member, Planet Fitness, Inc. exclusively operates and controls the business and affairs of Pla-Fit Holdings, LLC. As a result of the recapitalization transactions and the LLC Agreement, Planet Fitness, Inc. now consolidates Pla-Fit Holdings, and Pla-Fit Holdings is considered the predecessor to Planet Fitness, Inc. for accounting purposes. Our presentation of Adjusted net income and Adjusted net income per share, diluted, gives effect to the consolidation of Pla-Fit Holdings with Planet Fitness, Inc. resulting from the recapitalization transactions and the LLC Agreement as if they had occurred on January 1, 2017. In addition, Adjusted net income assumes that all net income is attributable to Planet Fitness, Inc., which assumes the full exchange of all outstanding Holdings Units for shares of Class A common stock of Planet Fitness, Inc., adjusted for certain non-recurring items that we do not believe directly reflect our core operations. Adjusted net income per share, diluted, is calculated by dividing Adjusted net income by the total shares of Class A common stock outstanding plus any dilutive options and restricted stock units as calculated in accordance with GAAP and assuming the full exchange of all outstanding Holdings Units and corresponding Class B common stock as of the beginning of each period presented. Adjusted net income and Adjusted net income per share, diluted, are supplemental measures of operating performance that do not represent, and should not be considered, alternatives to net income and earnings per share, as calculated in accordance with GAAP. We believe Adjusted net income and Adjusted net income per share, diluted, supplement GAAP measures and enable us to more effectively evaluate our performance period-over-period. A reconciliation of Adjusted net income to net income, the most directly comparable GAAP measure, and the computation of Adjusted net income per share, diluted, are set forth below.



Three months ended June 30,


Six months ended June 30,

(in thousands, except per share amounts)


2018


2017


2018


2017

Net income


$

30,418



$

18,004



$

53,912



$

35,870


Provision for income taxes, as reported


9,263



10,285



16,146



17,393


Purchase accounting adjustments-revenue(1)


(30)



444



414



780


Purchase accounting adjustments-rent(2)


168



191



350



387


Loss on reacquired franchise rights(3)






350




Transaction fees(4)




1,021





1,021


Stock offering-related costs(5)




329





937


Severance costs(6)


352





352




Pre-opening costs(7)


461





483




Early lease termination costs(8)




912





1,143


Other(9)


502





702



(573)


Purchase accounting amortization(10)


3,920



4,622



7,841



9,244


Adjusted income before income taxes


$

45,054



$

35,808



$

80,550



$

66,202


Adjusted income taxes(11)


11,849



14,144



21,185



26,150


Adjusted net income


$

33,205



$

21,664



$

59,365



$

40,052











Adjusted net income per share, diluted


$

0.34



$

0.22



$

0.60



$

0.41











Adjusted weighted-average shares outstanding(12)


98,810



98,391



98,760



98,459




(1)

Represents the impact of revenue-related purchase accounting adjustments associated with the 2012 Acquisition. At the time of the 2012 Acquisition, the Company maintained a deferred revenue account, which consisted of deferred area development agreement fees, deferred franchise fees, and deferred enrollment fees that the Company billed and collected up front but recognizes for GAAP purposes at a later date. In connection with the 2012 Acquisition, it was determined that the carrying amount of deferred revenue was greater than the fair value assessed in accordance with ASC 805—Business Combinations, which resulted in a write-down of the carrying value of the deferred revenue balance upon application of acquisition push-down accounting under ASC 805. These amounts represent the additional revenue that would have been recognized in these periods if the write-down to deferred revenue had not occurred in connection with the application of acquisition pushdown accounting.

(2)

Represents the impact of rent-related purchase accounting adjustments. In accordance with guidance in ASC 805 – Business Combinations, in connection with the 2012 Acquisition, the Company's deferred rent liability was required to be written off as of the acquisition date and rent was recorded on a straight-line basis from the acquisition date through the end of the lease term. This resulted in higher overall recorded rent expense each period than would have otherwise been recorded had the deferred rent liability not been written off as a result of the acquisition push down accounting applied in accordance with ASC 805. Adjustments of $77, $104, $167 and $207 in the three and six months ended June 30, 2018 and 2017, respectively, reflect the difference between the higher rent expense recorded in accordance with U.S. GAAP since the acquisition and the rent expense that would have been recorded had the 2012 Acquisition not occurred. Adjustments of $92, $88, $183 and $181 in the three and six months ended June 30, 2018 and 2017, respectively, are due to the amortization of favorable and unfavorable lease intangible assets. All of the rent related purchase accounting adjustments are adjustments to rent expense which is included in store operations on our consolidated statements of operations.

(3)

Represents the impact of a one-time, non-cash loss recorded in accordance with ASC 805 - Business Combinations related to our acquisition of six franchisee-owned stores on January 1, 2018. The loss recorded under GAAP represents the difference between the fair value of the reacquired franchise rights and the contractual terms of the reacquired franchise rights and is included in other (gain) loss on our consolidated statements of operations.

(4)

Represents transaction fees and expenses related to the amendment of our credit facilities.

(5)

Represents legal, accounting and other costs incurred in connection with offerings of the Company's Class A common stock.

(6)

Represents severance expense recorded in connection with an equity award modification.

(7)

Represents costs associated with new corporate-owned stores incurred prior to the store opening, including payroll-related costs, rent and occupancy expenses, marketing and other store operating supply expenses.

(8)

Represents charges and expenses incurred in connection with the early termination of the lease for our previous headquarters. In the three and six months ended June 30, 2017, this amount includes expense of $193 and $424, respectively, related to accelerated depreciation expense taken on our headquarters in preparation for moving to a new building.

(9)

Represents certain other charges and gains that we do not believe reflect our underlying business performance. In the three and six months ended June 30, 2018, this amount includes $342 related to the reversal of a tax indemnification receivable. In the six months ended June 30, 2018 and 2017, this amount includes a gain of $354 and $541, respectively, related to the adjustment of our tax benefit arrangements primarily due to changes in our effective tax rate. Additionally, in the six months ended June 30, 2018, this amount includes expense of $590 related to the write off of certain assets that were being tested for potential use across the system.

(10)

Includes $3,096, $4,086, $6,192 and $8,172 of amortization of intangible assets, other than favorable leases, for the three and six months ended June 30, 2018 and 2017, respectively, recorded in connection with the 2012 Acquisition, and $825, $536, $1,650 and  $1,072 of amortization of intangible assets for the three months ended June 30, 2018 and 2017, respectively, recorded in connection with the historical acquisitions of franchisee-owned stores. The adjustment represents the amount of actual non-cash amortization expense recorded, in accordance with U.S. GAAP, in each period.

(11)

Represents corporate income taxes at an assumed effective tax rate of 26.3% and 39.5% for the three and six months ended June 30, 2018 and 2017, respectively, applied to adjusted income before income taxes.

(12)

Assumes the full exchange of all outstanding Holdings Units and corresponding shares of Class B common stock for shares of Class A common stock of Planet Fitness, Inc.

 

A reconciliation of net income per share, diluted, to Adjusted net income per share, diluted is set forth below for the three and six months ended June 30, 2018 and 2017:



For the three months ended
June 30, 2018


For the three months ended
June 30, 2017



Net income


Weighted Average Shares


Net income per share, diluted


Net income


Weighted Average Shares


Net income per share, diluted

Net income attributable to Planet Fitness, Inc.(1)


$

25,874



88,105



$

0.29



$

12,412



79,193



$

0.16


Assumed exchange of shares(2)


4,544



10,705





5,592



19,198




Net Income


30,418







18,004






Adjustments to arrive at adjusted income 
     
before income taxes(3)


14,636







17,804






Adjusted income before income taxes


45,054







35,808






Adjusted income taxes(4)


11,849







14,144






Adjusted Net Income


$

33,205



98,810



$

0.34



$

21,664



98,391



$

0.22




(1)

Represents net income attributable to Planet Fitness, Inc. and the associated weighted average shares, diluted of Class A common stock outstanding.

(2)

Assumes the full exchange of all outstanding Holdings Units and corresponding shares of Class B common stock for shares of Class A common stock of Planet Fitness, Inc. Also assumes the addition of net income attributable to non-controlling interests corresponding with the assumed exchange of Holdings Units and Class B common shares for shares of Class A common stock.

(3)

Represents the total impact of all adjustments identified in the adjusted net income table above to arrive at adjusted income before income taxes.

(4)

Represents corporate income taxes at an assumed effective tax rate of 26.3% and 39.5% for the three months ended June 30, 2018 and 2017, respectively, applied to adjusted income before income taxes.

 

 



For the six months ended
June 30, 2018


For the six months ended
June 30, 2017



Net income


Weighted Average Shares


Net income per share, diluted


Net income


Weighted Average Shares


Net income per share, diluted

Net income attributable to Planet Fitness, Inc.(1)


$

45,755



87,931



$

0.52



$

21,254



71,713



$

0.30


Assumed exchange of shares(2)


8,157



10,829





14,616



26,746




Net Income


53,912







35,870






Adjustments to arrive at adjusted income
     
before income taxes(3)


26,638







30,332






Adjusted income before income taxes


80,550







66,202






Adjusted income taxes(4)


21,185







26,150






Adjusted Net Income


$

59,365



98,760



$

0.60



$

40,052



98,459



$

0.41




(1)

Represents net income attributable to Planet Fitness, Inc. and the associated weighted average shares, diluted of Class A common stock outstanding.

(2)

Assumes the full exchange of all outstanding Holdings Units and corresponding shares of Class B common stock for shares of Class A common stock of Planet Fitness, Inc. Also assumes the addition of net income attributable to non-controlling interests corresponding with the assumed exchange of Holdings Units and Class B common shares for shares of Class A common stock.

(3)

Represents the total impact of all adjustments identified in the adjusted net income table above to arrive at adjusted income before income taxes.

(4)

Represents corporate income taxes at an assumed effective tax rate of 26.3% and 39.5% for the six months ended June 30, 2018 and 2017, respectively, applied to adjusted income before income taxes.

 

Planet Fitness logo. (PRNewsFoto/Planet Fitness)

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SOURCE Planet Fitness, Inc.