Ladies and gentlemen, thank you for standing by, and welcome to the Planet Fitness 4th Quarter 2020 Earnings Conference Call. At this time, all participants are in a listen only mode. After Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Brendan Pray Thank you. Please go ahead.
Thank you for joining us today to discuss Planet Fitness' 4th quarter 2020 Earnings Results. On today's call are Chris Rondeau, Chief Executive Officer Dorvin Lively, President And Tom Fitzgerald, Chief Financial Officer. Following Chris and Tom's prepared remarks, we'll open the call up for questions. I would like to remind you that certain statements we will make in this presentation are forward looking statements. These forward looking statements reflect Accordingly, you should not place undue reliance on these forward looking statements.
For a more thorough discussion of the risks and uncertainties Associated with the forward looking statements to be made in this conference call and webcast, we refer you to the disclaimer regarding forward looking statements included in our Q4 2020 earnings release, which was furnished to the SEC today on Form 8 ks as well as our filings with the SEC referenced in that disclaimer. We do not undertake any obligation to update or alter any forward looking statements, whether as a result of new information, future events or otherwise. In addition, the company may refer to certain adjusted non GAAP metrics on this call. Explanation of these metrics be found in the earnings release filed earlier today. With that, I'll turn the call over to Chris Rondeau, Chief Executive Officer of Planet Fitness.
Thank you, Brendan, and thank you everyone for joining us today for Planet Fitness' Q4 earnings call. 2020 has certainly been an unprecedented year for the fitness industry and our business. With our members' health, safety and best interest at the forefront of our decisions, Combined with the strong foundation we've built with our franchisees over nearly 2 decades, Planet Fitness continues to face the ongoing challenges created by COVID-nineteen head on. I am extremely proud of how our franchisees, headquarters staff and club staff continue to be agile through this ever changing environment and rally together to In the wake of a pandemic that disproportionately impacts those with health related risk factors. While the operating environment remains fluid, we are pleased As of today, 90% of our stores are open.
The vast majority of our closed stores are in California with statewide restrictions on reopening remain in place As well as parts of Canada and Panama. We are hopeful that the entire system will be open soon as we believe that the robust safety protocols we put in place allows our stores to operate safely. These include enhanced cleaning and sanitization, touchless check-in, COVID-nineteen wellness screening questions via the Planet Fitness mobile app, Our crowd meter in the app, mandatory mask requirements and physical distancing measures. We remain committed to keeping our members and staff safe and healthy in all our stores. Our ability to successfully operate our stores and service our members relies largely on the financial health of our system.
Given the historical strength of our business model and franchisees, we have had 0 stores permanently closed due to COVID and 0 franchisee bankruptcies. While we have weathered the storm well relative to the overall gym industry, we have provided franchisees with relief in the form of a 12 month extension on all development requirements After the Q1, we have a record quarter of $1,000,000,000 in the quarter and an 18 month extension on their replacement equipment commitments. We believe this will allow franchisees to rebuild their balance sheets, while continuing to invest in marketing to drive membership growth, which is our number one priority. As we discussed on our Q3 call in November, we resumed our national sales acquisition marketing efforts in September The pandemic has negatively impacted people's physical and mental health, and we have the right environment in place to keep people motivated and robust protocols In place to keep them safe. This helped to slow the decline in total members we've experienced as a result of pent up cancellations after our stores reopened and resumed billing.
Looking back on the year, our biggest challenge in 2020 wasn't from increased cancellations due to COVID as cancellations were essentially Flat to 2019 levels on a per store basis, our challenge was the lack of gross new joints as we paused our national sales acquisition marketing for the time ever, including during certain key sign up periods of last spring early summer. On the heels of a successful national sale in September, We conducted 2 more national sales in October November, in addition to the Flash Sale in December. Overall, we are pleased with the results, Especially given the holiday season, there is slower time in terms of sign ups for the industry. We ended 2020 with approximately 13,500,000 numbers Compared to with 14,400,000 members at the end of 2019. Building off the momentum from our successful New Year's Eve sponsorship, we kicked off 2021 was our usual January promotions.
Our target audience of casual first time gym goers continue to respond favorably to our messaging and value proposition. We were unsure of what to expect for this key industry sign up period under these circumstances, and we were pleased with the results. We ended January with 13,800,000 members, up From approximately 13,500,000 members at the end of December, representing our 1st month of overall net member growth since before the pandemic. The recent uptick in membership is very encouraging and reinforces our belief that people want to return to bricks and mortar fitness. In fact, to date, 5% of our members who canceled during COVID Have already rejoined and 28% of joins overall since COVID were prior planned business members.
In addition to driving members back into our stores, we continue to accelerate our digital efforts to further engage with our members wherever they are and enhance their overall experience with our brand. In fact, Planet Fitness mobile app is currently one of the top ranked free apps in the health and fitness category for both Apple and Android, reinforcing that Planet Fitness remains A trusted source for health and wellness. Currently, 40% of our total member base has adopted the app and new joint app adoption rate continues to decline reaching 70%. In addition, we continue to add value to the app with new features like the cryo meter, which enables members to check the capacity before coming to the gym. Building upon our partnership with iFit in April, we continue to provide streaming and virtual fitness content in our mobile app.
These workouts are some of the most popular workouts content to date. We also continue to test Plus, our $5.99 per month digital only subscription membership Via the mobile app, we remain encouraged by the trends we're seeing. For example, testing results so far have shown that more than 20% of Plus subscribers Our non Planet Fitness members and more than 20% of them have since become bricks and mortar members in addition to their Plus subscription. Additionally, of our members who have subscribed, nearly 60% of them have visited their store to work out since subscribing to So the majority of subscribers are still engaging with our bricks and mortar offering and CPF Plus as a complement to their These trends reinforce our view that extend the 1 digital membership can serve as a gateway to traditional bricks and mortar membership, Not a replacement for it and provides us with an opportunity to further engage members and prospects wherever they are. We will continue to assess content engagement and usability feedback While consumers' adoption of digital fitness has accelerated given the pandemic, I truly believe that the future of fitness industry is about bricks with clicks.
The powerful combination of providing a high quality in person fitness experience coupled with the complementary digital experience Consumers can experience the brand in the club and at home. Given everything we've faced in 2020, I am very pleased with how our system has weathered the storm. We opened 130 new stores in line with most recent expectations, while at the same time HRSA, Fitness Industries Trade Association, has predicted that about 25% of U. S. Gyms and studios will permanently close as a result of the pandemic.
While we have strengthened our leadership position during the pandemic, we anticipate the near term operating environment to remain volatile. Longer term, however, we are more optimistic about Our prospects for growth and we worked prior to COVID-nineteen for several reasons. This includes capitalizing on the industry consolidation and favorable real estate Benefits is well positioned to resume the growth trajectory the business was on at the start of 2020 prior to the outbreak, once the pandemic is behind us. COVID-nineteen has widened the moat around our bricks and mortar business and accelerated our digital strategy, positioning us well to serve the casual first time gym goer
year for us with 261 new stores opened. Our primary focus over the last several quarters has been reopening stores, Restarting our national acquisition marketing efforts, which we did in September. And as a reminder, as Chris said, We provided our franchisees a 12 month extension on all new store development requirements and an 18 month extension on their equipment replacement commitments. For the Q4, total revenue was $133,800,000 down 57,700,000 or 30.1 percent compared to $191,500,000 in Q4 last year. Of the $57,700,000 decline, dollars 49,000,000 or 85 percent was attributable to lower equipment revenue, which was the result of the development and replacement equipment dynamics I just mentioned.
The remainder of the year over year change in total revenue was primarily due to the impact from temporary store closures due to COVID-nineteen and the lower membership We ended December with approximately 13,500,000 members, down 900,000 from where we ended 2019. This compares to the 15,500,000 members at the end of Q1, 15,200,000 at the end of Q2 and 14,100,000 at the end of Q3. The decline in memberships was primarily a function of lower gross In fact, the average number of cancels per store in 2020 was consistent with 2019. With the decline in net membership we experienced starting in March when the pandemic forced the temporary closure of all of our stores, System wide same store sales turned negative in the 3rd quarter and declined further in Q4. For some context, we reported 53 consecutive quarters of positive system wide same store sales growth Before COVID hit in March and shut down all of our stores, the simple average of our quarterly system wide same store sales growth Over those 53 quarters was 12.0%, followed by negative system wide same store sales growth once we resumed Reporting the metric in Q3 and Q4, primarily driven by the impact of the pandemic.
Our model and historically strong same store sales results depend on the ability to continually grow net membership levels across our store base Month over month, quarter over quarter and year over year. Additionally, in our recurring revenue model, For the Q4, system wide same store sales were down 10.6% with franchise down 10 point percent and corporate owned down 11.7%. The 10.6% decline in system wide Same store sales was largely due to a decline in membership levels, slightly offset by an increase in average rate. Black Card penetration declined 40 basis points year over year to 60.5 percent with the decrease Attributable to the cumulative effect of not having any Black Card National sales in 2020 versus the 4 we had in 2019. Additionally, the impact of multiple national sales in Q4 2020 versus 1 in Q4 of 2019 increased the rate of $10 joins.
Black Card penetration in Q4 of 2020 was down 20 basis points compared with the 3rd quarter. We incorrectly disclosed back in November that Q3 Black Card penetration was 62.7%, Up 120 basis points versus Q3 of 2019. The corrected Q3 Black Card penetration is 60.7%, down 50 basis points versus the prior year period. The calculated metric we have in our system for monthly EFT member count was erroneously factoring out frozen members, Which never had a material impact in the past, but when we began to see a modest increase in frozen members in Q3, The field understated our EFT member balance enough to skew the Black Card percentage. To be clear, it was A formula error that we did not detect and is not a fundamental shift in the perceived Value of the Black Card.
Given the change in Black Card promotional cadence versus the prior year and the prolonged pandemic, We are pleased with the fact that the majority of our new members choose the Black Card option, even though it is more than Twice the $10 membership fee we predominantly advertise in our marketing. Looking ahead, the way our recurring revenue model works, Our same store sales growth will improve once the quarter to quarter growth in membership levels Therefore, we expect same store sales to decline further in Q1 compared with Q4. We would expect to see improvement during Q3 of 2021 when we cycle the prior year's most significant membership declines Depending on COVID related developments, note that we will not report a same store sales metric for Q2 Franchise segment revenue was $66,900,000 down $6,400,000 or 8.8 percent compared to the $73,300,000 in Now let me break down the components. 1st, royalty revenue, which consists of royalties on monthly membership dues And annual membership fees was $43,800,000 compared to $48,400,000 in the same quarter of last year. The $43,800,000 of revenue includes $3,300,000 attributable to catch up billing of annual membership fees that were not billed On their normal schedule due to COVID related store closures, the average royalty rate for the Q4 For the stores that drafted was 6.3%, consistent with the same period last year.
Next, our franchise and other fees were $3,400,000 compared to $4,500,000 in the prior year period. These are fees received from online new member sign ups, the recognition of fees paid to us for franchise agreements, area development agreements and the transfer of existing stores. The decrease was primarily driven by lower ADA and FA fees during the quarter. Also within franchise segment revenue is our placement revenue, which was $2,600,000 in the 4th quarter compared to 5 $600,000 a year ago. These are fees we received for the assembly and placement of equipment sales to our franchisee owned stores Within the U.
S. And Canada, the decrease reflects fewer new store and re equipped placements executed in the quarter compared with a year ago. I'll discuss the number of new equipment placements later when I discuss equipment revenues. Finally, national advertising fund revenue was At 0.25% that our franchisees approved as a temporary rate increase and was in effect from the start of September through the end of 2020. Our corporate owned store segment revenue was $38,900,000 compared with $41,200,000 in the prior year period.
The $2,300,000 decrease was due to lower membership fees from temporary COVID related store closures and lower membership levels, Partially offset by revenue from 9 new stores that opened since the beginning of Q4 2019 and 12 stores that were acquired in December of 2019. Turning to our equipment segment, revenue decreased $49,000,000 or 63.7 percent 28,000,000 from 77,000,000. The decrease was driven by both the reduced new store openings versus last year that I mentioned earlier in the call, along with lower replacement equipment sales to existing franchisee owned stores. Replacement equipment sales in Q4 were $8,400,000 compared to $20,600,000 in Q4 last year. In the Q4, we had 45 new store equipment placements, which was down 63 from the prior year period.
An additional driver of the decline was the 15% discount offer we launched beginning in Q2 on all equipment orders to Our new store development and replacement orders. This offer applied to all equipment purchased and placed by the end of 2020. Our cost of revenue, which primarily relates to direct cost of equipment sales to new and existing franchisee owned stores, amounted to $25,300,000 compared to $59,400,000 a year ago, a decrease of 50 7.3%, similar to the equipment segment revenue decrease I previously discussed. Store operation expenses, which are associated with our corporate owned stores, increased to 25.6 associated with 9 new stores opened since the beginning of Q4 2019 and the 12 stores that were acquired in December of 2019. SG and A for the quarter was $17,400,000 compared to $20,900,000 a year ago.
The decrease was primarily driven by lower compensation and expenses partially offset by higher marketing expense. National advertising fund expense was $15,000,000 compared to 13 point October through December that was recognized in the Q4. Adjusted EBITDA, which is defined as net income before interest, taxes, Appreciation and amortization adjusted for the impact of certain non cash and other items that are not considered The evaluation of ongoing operating performance was $51,100,000 compared to $76,600,000 in the prior year period. A reconciliation of adjusted EBITDA to GAAP net income or loss can be found in the earnings release. I'll now summarize Q4 adjusted EBITDA by segment.
Franchise adjusted EBITDA was $43,600,000 down 7 point 3,000,000 or 14.3 percent. Corporate store adjusted EBITDA was $12,700,000 down $5,100,000 or 28.9 percent and equipment adjusted EBITDA was $3,100,000 down $15,500,000 or 83.2%. Adjusted net income was $15,100,000 and adjusted net income per diluted share was $0.17 down from $0.44 per diluted share in the year ago period. Now let me turn to the balance sheet. As of December 31, 2020, we had $515,800,000 in total cash with cash and cash equivalents of $439,500,000 compared to $419,700,000 on September 30, 2020.
In addition, we ended the quarter with $76,300,000 of restricted cash compared to $81,900,000 at the end of Q3. We took some aggressive measures in 2020 to bolster our liquidity and are pleased with our cash position at the end of 2020, Which should allow us to weather continued uncertainty related to COVID, but to also be able to invest in growth opportunities where appropriate. Total long term debt, excluding deferred financing cost was $1,800,000,000 as of December 31, 2020, Consisting of our 3 tranches of securitized debt and $75,000,000 of variable funding notes. Our securitized debt structure is covenant light. We have 2 maintenance covenants, a debt service coverage ratio and a total system wide sales threshold.
Both of these are tested quarterly, calculated on a trailing 12 month basis and reported on roughly a 2 month lag. In our most recent debt covenant reporting period of December 5, 2020, we had a 32% and a 98% cushion We believe we have sufficient headroom for our 2 maintenance covenants. While we are refraining from providing guidance Due to the uncertainty surrounding the evolving nature of the pandemic, we do want to share current thoughts on development for 2021. As we announced last May, we provided franchisees with a 12 month extension on all their development requirements. With 130 stores opening in 2020, the vast majority of which signed leases prior to the outbreak of COVID, There are very few stores required to open in 2021.
Until there is more certainty that there will not be further large .committed temporary gym closures, franchisees are proceeding cautiously on development. Once conditions normalize, We expect franchisees to capitalize on the industry consolidation and more favorable real estate trends that are starting to emerge. Based on ADA schedules and the number of leases currently signed, combined with the fact that it takes between 6 to 9 months to open a store once a lease is signed, our current view The new store openings will likely be in the range of 75 to 100 for 2021. Near term development is still a very fluid situation due to the pandemic, so we will update this view as the year progresses. While new development will be modest this year based on what we have heard regarding vaccines, we believe we will get back to 200 plus New store openings per year that we experienced for the last few years pre COVID.
We think it's just a question of when, not if. While the near term is difficult to predict, we believe that we are well positioned financially and strategically compared to the rest of the industry to Capitalize on the many value creating opportunities we believe will emerge over the mid to long term as the country comes out of the pandemic. And as the country collectively navigates towards a new normal, we believe that eventually the post pandemic future will be Similar and possibly better compared to the pre pandemic levels as it relates to the strong margins and the returns on investment our model produces. I'll now turn the call back to the operator for questions.
Your first question comes from Oliver Chen from Cowen.
Regarding
We'll look forward for new member adds. The membership compares are still fairly tough in Q1, Q2. What are the dynamics you see happening with new member And how that may interplay with your decisions around marketing investments. I would also just love your take on the Black Card view ahead And how we should think about year over year BlackGuard changes in terms of how that may impact modeling as we go forward? Thank you.
Thanks, Al. This is Chris. Yes, as you see here, as I mentioned in January and as I talked about on Q3 We anticipated a slowdown in the decrease in member base here in Q4, which we saw. So we Had the $1,200,000 negative in Q3 and then a $600,000 negative here in Q4. And as I mentioned, now we're So seeing the 1st turnaround, I guess, if you will, hitting that trough of cancels, it seems like it was added 300,000 net members in January and continuing to see Some net growth here in February as well.
So some good news there. And naturally, the January wasn't as strong as we Normally we would see in January, but I think the fact that we're finally turning the corners is a good sign. The NAFT and marketing budget for the local advertising The plan is set for the year pretty similar to what we normally see from sale days for the rest of this year set today. So, but it does beg the Do we think we should add extra dollars to it like we did here in Q4 to help bolster the marketing efforts? No plan yet to do so.
But there's depending on what we see here, the big question Oliver is, as the vaccine is broadly distributed here for the next, call few months do we begin to see more demand in the summer and fall than we typically would see just because people are feeling less angst out there. So that would definitely probably Make us feel more confident, maybe putting extra dollars to work if we start to see that trend. But we're really just laser focused right now Sequential member growth month to month. Hopefully, this is the beginning here we're seeing of that turnaround. As far as the Black Card percentage, actually we had no Black Card sales.
In the Q4, we had a Black Card Sale in December of 2019, which we did not have. So some of it is the decrease of the stall of the growth in the Black Card Just because of lack of Black Card sales as well as an increase in regular $10 a month sales because every time we advertise $10 a month, we compress the Black acquisition some during those periods. So we had more white card flash white card sale days in the Q4 than we typically had. So that kind of didn't help as well, but we're not seeing any increase in cancel rate of the Black Cardboard, that's for sure. So that's some good news.
Okay. Finally, Chris, on usage, just love your take on what you've been noticing with usage trends and if it's relevant To know about how that's been trending by different vintages of the gym base and any usage thoughts
Thanks, Oliver. Yes, the usage we ended December was about 75% of last year's workouts, Which is up from about, I think it was mid-60s here at the end of Q3. So it did continue to climb in Q4. The January usage was about 70% of last year's workouts, But that was mostly impacted by the decrease in new joins, which typically use the club a lot more when they first join off. So We didn't really see it.
That was a number of really an impact of just what's going on in the world. It's more just the new joint volume was down, so the usage came back. But we did see in Q4 continue to go up as time goes. We haven't seen anything that I can call out that is Vaccinations related that the usage is picking up at the vintage stores like the 1st May cohort that opened up, which has been opened the longest, which we've talked a lot about the last couple of quarters here. The longer the stores are open, the more normal they act in almost all aspects.
And those stores are accomplishing north of 80% of last year's workout. So, the longer they're open, the more normal they act.
Thank you very much.
Thank you.
Your next question comes from Jonathan Komp from Baird.
Yes. Hi. Thank you. Maybe just one question going back. When you look at the member trends implies a few more cancellations in November December.
So just wanted to ask about that if there's anything unique to those months. And then when you look forward Curious if there's any observations from the demographics within the sign ups that you're seeing that And any thoughts going forward once the vaccine rolls out?
Yes. On the cancels, you're right. Yes, October was about a little over 100,000 We reported last time. No big callouts is what was the big increase like it wasn't breakouts in different states or anything like that. But One thing that was attributed to the increase in cancels from like that Q1 report or October report would have been The billing cancellations, meaning like involuntary cancels, John, where if somebody's checking account doesn't go through for a number of months, We give it 6 months and then we involuntary just canceled the member because we're not going to keep trying the bank account.
So because of the May summertime openings, we began to circle Process. So then December, we had to clean those out. So that was really the only thing that caused that in there. For the vaccine, I think hopefully, I mean time will tell, but it probably extends the reason that as it becomes more broadly distributed and more People of all ages are getting it that, like I said, with Oliver, I think we could feel We'll see better trends from a joining perspective in months that we typically wouldn't come summer or fall because people are now just With normal life, so the time will tell. And I think that will also, like I said earlier, probably be more determining factor if we put more marketing dollars to work Capitalize on that and also capitalize on more gym closures.
The industry has reported roughly about 17% of the gyms have permanently closed already. And as I mentioned in my opening remarks that the industry trade organization is saying about 25%, they think could close This is all said and done. So, we're seeing right now about 4% of our new joins are coming from a gym that they're reporting Old gym closed permanently and they're coming to us. So we're starting to just barely see the reap the benefits of the gym consolidation.
Okay, great. And then just one follow-up on the unit development comments. Any thoughts on how we should think about the year progressing? And then just With the return to net member growth here, how much of a role do you think that plays in the franchisee overall morale and Really nice to start to think about that reacceleration forward looking on the development side.
Yes. John, this is Dorvin. One of the things I think we talked about at this point is As we were going into the pandemic and stores closing, we still had a lot of stores in the pipeline At various stages of construction and so we ended up opening the 130 in 2020. But towards The summertime period, when most of our stores were closed, we weren't putting a lot of new projects or sites into the pipeline. And a lot of that filtered on out towards the end of the year.
There's a handful of franchisees that are out there doing deals now in markets where Real estate is very attractive and they're getting some good deals. But by and large, A lot of the franchisees have been kind of waiting to see with all of the concerns around When that might get to a point where more and more of the population are just kind of getting out and doing normal things, including So that pipeline period of development from beginning to end, about a 6 to 9 month process, By the time that you start looking for a real estate deal and negotiating and permitting and a lot of those kinds of things are for permitting to you name it, tradesman skills, etcetera. So I think where we stand now and the comments that Tom made somewhere between say 75 to 100 stores for 'twenty one is kind of how we see it at the moment. Obviously, there's a lot of months to go over the balance of the year and we'll certainly provide updates As we do our quarterly calls, I think maybe just tying that in to Chris' comment, which I think was part of your question is that obviously As if we start to see more and more people joining the gyms and people feeling more comfortable because of What's going on in their everyday lives and then to the extent that we also believe the competition has It's had a more severe impact than we had.
I think that all of those are the kinds of things that will allow the franchisees to really start filling up the pipeline, but the deals that are being done now are certainly very attractive and there's quite a bit of those stay out there. So it gives us a lot of confidence and It's just a matter of when, it's not yet.
Your next question comes from Sharon Zackfia from William Blair.
Hi, good afternoon. I'd actually like to talk about Plus And kind of understanding of still in test, really what the gating factors are, as you look at that towards a broader rollout? And then how would you anticipate the revenue share there to really break out between yourselves, iFit and your
Yes, that question there. We're not releasing any I'm scratching numbers just yet, but what we're seeing in some trends there, as I mentioned in my opening remarks, we've seen about the same trend we saw from the free content assumption is that the plus subscription, the $5.99 about 20% of those are non Planet Fitness members And about 25% of those have gone on to join bricks and mortar and keep their PF Plus even after that, which is a great sign as we talk about our gateway to Gateway to bricks and mortar. Also, we're seeing about 75% of all the subscriptions to date are actually current Black Card members. And many of them have been members for 2, 3, 4 years and actually opting to pay more for something else, which is a great sign I think for us, We've talked about in the past, is there a situation where we wrap in the PF Plus in a bundle for the Black Card and maybe get a little bit more price or acquisition for the Black Card. So Just a lot of learnings around that piece of it.
As far as a broader more marketing push around the PF Plus, we are taking this time to really just figure out what Content people are consuming the most, what trainers they like the most, was really driving the consumption and who people are really Taken to it, so we know who to market to and what to market. So, real time learning going on with it, but like the Trends that we're seeing with it as we continue to evolve the
content and release more stuff in the app real time. I guess one follow-up question too. I don't recall you guys having given January member ads before. Having said that, I mean, what percent of Typical Q1 adds come in January.
Yes, we usually do actually January is a big part of it. About 10% of the annual ads, I believe, are in the month of January. But we have and usually the following quarter is usually in the single low single digits So January Q1 is big for us, but we do add generally throughout the year, but Q1 is the largest. Real quick too on the revenue share for the app, Right now, we haven't nailed exactly down how we're going to revenue share with the franchisees. But in everything we've done and have done in the past, We always look to do what's in the best interest of the franchisees and it's a win win for both of us because we want them to push the app as well.
So there will definitely be a revenue share, All or a portion of, for sure. And then drive their ultimate profitability at the store level within always leads to the fact and the question we get all the time is, Could you ever raise royalty again in the future? And no plans now to do so, but the more profitable we can make the franchisees and the ability we have in the future to do something like
Your next question comes from Peter Keith from Piper Jaffray.
Hi, thanks. Good afternoon, everyone. I wanted to just ask about the equipment sales. And I believe you're saying there's an 18 month grace period. I was wondering if that was extended and that was 6 months Recently, I seem to remember or recall previously, I think it was at 12 months.
And then furthermore, it sounds like 15% discount has expired here as we got into the New Year. So is it possible that the equipment sales actually get a little bit worse On a year on year basis before they get better as potentially some sales have pulled forward into Q4?
Yes. Hey, Peter, it's Tom. I'll take that and Dorvin may add to it. Yes. So the 15% discount that we offered expired at the end of the year as we talked about.
And I think it was at ICR that we disclosed that we had extended the initial 12 month extension on The equipment re equips essentially to 18 months. And again, it was just more of a reflection of our discussions, ongoing discussions with franchisees. We kept the 12 month extension in place for the new stores in the ADA development agreement, but we did elect to add that 6 months on, and I'm pretty sure that's where we disclosed it was at ICR. And I don't think that we typically have A couple of periods during the year where we do offer a slight discount on the equipment that's kind of, you know, Pre COVID, we've been doing it for a long time that way, and we'll continue to do that. We sort of stopped the 15% at the end of the year and kind of more back on our normal And we'll talk more about where that equipment business goes on our Q1 call.
But, clearly, there are still franchisees who are going to re equip their stores because they want to take care of their current member base Make sure, especially in stores that have a lot of members, that the equipment gets pretty beat up over 5, 6 years that they give those members a great So they're going to protect their asset and make the investment where it makes sense.
Okay. That's helpful, Tom. And then Maybe a competitive question for Chris. You talked about 25%
of gyms closing. I think you said 17%,
You think it's closed thus far? Do you have any perspective on timing? We've heard that there's maybe a lot of closures as of late as Jim didn't get the normal January sign up. So I guess broadly speaking, are you seeing acceleration of closures in '21 and do you see that continuing?
I mean, anecdotal, I think what we're going to see is probably over the next 12 months. I believe Stores have reopened, probably waiting to see what happens with the summer joint I mean the winter joint period, right, as kind of to your point. But I think also what's going to happen here is as stores reopen, a lot of this deferred rent that the landlords were Accommodating through this close period, now you're opening up with less revenue and you're opening up with more expense, right? Now your rent is rent Plus 50% or something like that to make up for your months of background and maybe also with your lenders as well. So I think that's when you're you'll make a go of it.
You'll have a weak winter And then your expenses are higher and into the summer months, really, time will tell. And I think the other side of that too is, as I mentioned, our usage now is That 70% here in the month of January and we ended December with 75% of last year's workouts. Most of this industry Survives part of the revenue, about 30% roughly is from ancillary services. So each member visit coming in, they're banking on people Buying personal training and buying a juice bar drink and buying daycare hours and so on. So not only is their membership down, but now their usage is down.
So they're not selling their ancillary profit centers either. So their
Your next question comes from Randy Kine from Jefferies.
Chris, I want to focus my questions around the bricks with clicks kind of commentary. How do you think about the ultimate long term vision? Obviously, you've got the stores, you've got the PF Plus in beta And the free content, just how are you what's your vision, I mean, like how it all kind of comes together down the Yes. What would you see as the ultimate scenario of how this would kind of look in your eyes for the industry?
Sure. Yes. I think and back you might have heard me talk about how we right now we're top 5 in the iOS store as well as the Android as far as apps, Fitness app. So, we think about with our now at 13,000,000 in 13,500,000 members, we have about 41% of our total member base As of yet today, on the new joins, though, we're getting about a 70% half adoption of new joins. So, we're just driving people to the app Constantly because of the bricks and mortar part of our component to this.
So we're not trying to compete with necessarily other apps in the app store. We're actually driving usage just because they're as part of their membership, longer term, we think we have a platform now where we have other content, which is exercise content and we have live classes as well and we continue to grow that library. The platform is built in that and cooking and all kinds of other stuff that you can now build off of, so that hopefully now we can start not only Service the members inside the facility, but also at home and also their full circle wellness journey, right? We really were was hopefully they run through the They happen to go search for it themselves, right, and they have 4 different apps or what have you to close that circle on their wellness journey, whether it's meditation or outdoor running With a bricks and mortar and diet and nutrition, and I think we can close the circle and just be a one stop shop. Coupled with the fact is most of the industries, especially in the digital space, It's about the fit getting fitter, which is just like the bricks and mortar.
The Gold's Gym, the LA Fitness, the CrossFit, the Orange Theory, they are not catering to the 80% of the population that doesn't have a gym membership To our fact, the 40% of the members that joined that never longer term in our life. So we're really getting people off the couch for the first time and the content is geared towards them too. So I think we can really be not only the nutrition component is the first timers, people really try to get healthy for the first time. We can close that circle to them and make it easy for them because they don't really know where to Quite honestly, we want to ease the burden of having to be out on their own and do that. And then with the PF Plus subscription, we can leverage And also, we haven't gotten into merchandise and nutrition as far as nutrition drinks or At home rubber bands and things that traders are using at home that we can sell product through the app.
I mean, it's just a boatload of things we can do Within the app itself and acquisition is always a key component of the app and right now between the referrals we are seeing are great and the only time you have Big slew of joints coming through. The members are referring their friends to join. We are seeing referral joints come through with a great conversion rate. We are Black Card upgrades come through the app. The Black Card guests are now logged in there.
Black Card guests come through the app and we can market to them. So a lot of low hanging fruit now that Didn't really exist even a year ago that we're able to leverage to continue to grow members. And from a competitive event, if you think Back to talking about the competition with Peter a minute ago, I mean, they're just trying to keep their lights on at this point and our digital acceleration is so much further ahead of what everybody else is doing in bricks and mortar that we just again build a stronger modem. They'll get wider mode from our competition once they finally are able to determine how to keep
Right. And so it's clear that the membership is obviously inflected and you're building this member base of having The app is just under, I think, over 30% and you'll have the app. How do you think about basically the next leg of Because you have the digital capability, changing the type of equipment you have in the gym, I think I went to the 1 gym or one of the 2 gyms that has the equipment where it kind of tracks what I'm doing on the treadmill and then throws it into MyPlanet Fitness app, can you kind of elaborate on that? And then I've always seen clear opportunity for you guys to attack The insurance companies or employers directly brought more of a B2B relationship and drive that value add to Everyone want to get more fit and well. How do you guys think about attacking those different angles going forward?
Thanks guys.
Good question. So, yes, so even from the cardio standpoint in the app and then the business of checking in the front desk in your business are also in the app, Which you then can export in PDF to your insurance company for reimbursement. And on top of that, you may have noticed any of the QR codes on the equipment and the strength So now the QR code reader that's in the app so that members can learn how to use different apparatus within the store, we're now able to track what people are doing By age and gender, what machines they're scanning the most, what people like the most, so that we can, one, make sure we have the right makeup of equipment But also now begin to see what journeys different people are taking of different market segments and what's driving results and what's driving tenure based on what they're doing. So they're getting The better exercise are there more you have more fun in the gym because they're teaching and learning more things. So now the next time somebody joins, We know exactly the journey to put them on and what to recommend in the app because we know what people like at certain ages and genders, for example.
So it's going to be really interesting to be able to now Coach people the right way on what people are doing because so many members are using the equipment now and what we know they like so we know how to get people on a journey because this industry, somebody joins, We don't know what makes people stay necessarily or leave. We don't know what they're doing in the facility. Now we can even see what they're doing in the facility And see what's driving tender longer term. So that's going to be an interesting thing that will happen over the future, but it's really interesting to see. In terms of your insurance question, we reimburse for insurance just like most other clubs in the industry, but all we are able to tell insurance companies Somebody checked in.
We have no idea how long you were there. We don't know what equipment you use. We don't know how many calories you burn. We don't know what your heart rate was and so on. So Capturing all that data, we might be the only at this point, probably the only gym company in the country that can actually supply insurance companies with the data that really matters, Right.
Not that you checked in, but we know all the other stats for you that could get to the point where reimbursement comes from insurance. You have to go to a clinic because nobody else can really Supply of the data that we really want, and no one has the money to put resources to put together to develop it from the other gym companies. So More to come on that, but it could be interesting that we're able to give insurance companies true data that shows true results for their subscribers.
Your next question comes from Simeon Siegel from BMO Capital Markets. Thanks.
Hey, guys. Hope you're all doing well. Chris, just given that Black Card conversation, any change around your thoughts around how you're going to approach Black Card sales and any view on where the penetration should trend over the year? And then Tom, just to your point, can you help us what percent of members are on frozen memberships now versus Thanks.
Yes. I think in the BC percentage, we weren't pushing Black sales, because we want to try to drive more volumes, so we were doing just $10 sales through the second half of last year. We'll begin probably to start testing some Black Card sales Flashlight look we have in previous years here coming up. So I don't think I think it should I'm not sure it's going to surge forward, but I think we should probably hold our own here For 2021?
Yes, Simeon. On the frozen side, and I think we talked about this But we typically would only allow people to freeze for medical reasons or if they were deployed in the military. And with all the pandemic, We were much more forgiving, if you will, on if people weren't comfortable coming back to the gym to freeze their membership once And really it's still an insignificant component of our membership base. It's just that The way the math works in that particular calculation, it moved enough to throw it off. But it's still and it certainly climbed in Q3 and then into Q4 As a percentage of the member base as the virus resurged and thankfully all the numbers are going in the right direction now, but back then they were going in the wrong direction in cases and deaths across the country.
So while they were up, they were still a low single digit percentage of our member base. And we're encouraged to see now in January that the percent of frozen members, the percent of membership that's frozen is declining. So but Still, it's relatively insignificant, low single digit. It's just spiked up from what it had been historically. Perfect.
Thanks. And then appreciate the unit color. You might just want to pass on this, but just given a lot of the moving pieces and The cost to run the gym is different than it was pre COVID. Any help at all with how you're thinking about any of the different expense line items over the next year? Anything we should keep in mind?
In terms of us as a franchisor or you mean for the franchisees and their units?
Sure. The way you want to approach it, I guess. I'm just trying to think through as we think about the way the four wall and as we run Flow through the business, has any of the COVID what sticks and what goes away? What are the extra savings? What are the Just anything to keep in mind as we
Oh, I got you. I got you. Yes. Thanks for clarifying. Yes, the incremental costs, I think way back when we were first in this, We talked about what the impact could be in sort of 100 bps on 4 wall profit.
I think we might have said 100, 150 bps. And we were still at that point not really fully reopened by any means or there was a small percentage of club stores that were reopened. So we were kind of estimating at the time. Now that we've got 90% of the system reopened for a while now and 80%, 90%. We've got much more of a usage pattern.
And those costs are really pretty de minimis, thankfully, in part because The costs have come down for some of those things that we were buying early and paying high prices when everyone was trying to buy them, and we were doing all that we could to just make sure we could secure it So we could reopen the club and implement our playbook that we established. So thankfully, it's pretty de minimis.
Your next question comes from John Ivankoe from JPMorgan.
I wanted to talk about the 75 to 100 stores that were guided to open this year? If you I guess, if we were to add that In store growth to 'twenty, you would have something actually pretty close to a normal Planet Fitness development year, just kind of adding '2021, so first, I mean, is there a reason I shouldn't think about it like that? I mean, in other words, the units that were Being opened in 'twenty one are the units that were basically planned to be opened in 2020? And really the context of the question is, Do you see a meaningful pipeline beyond that $75,000,000 to $100,000,000 or after that? Is it possible that that's where the relatively short term Pause might come whether from the franchisee visa intentions or perhaps even the lenders that have recently given some waivers.
John, I don't see a correlation to, let's say, deferred stores But maybe would have opened earlier or got pushed out. There should be a little bit of that, but it wouldn't be obviously spread out all Throughout 2021, so maybe we had some stores open in January that would have opened Without COVID, could have opened in November, December or something like that. So there could be a handful of that. But If you go back to the comments we've been making at least for the last two quarters and some of the comments I made earlier, What franchisees, they just didn't go out and kept putting new sites into the pipeline. And so what we saw in 2020 was a slowdown in adding more sites into The development pipeline and then ultimately, obviously not opening and slowing down a little bit on some of the development.
They weren't going to open stores in June or July if Their fleet were closed, they couldn't have any members come into a gym. So naturally, things just Got kind of pushed out and pushed out or deferred aways. But in general, most all of the sites that were in development or most all of the sites that they get opened, we're in development or certainly on the drawing boards pre COVID. So that's why I wouldn't correlate these together. But what I would say though in terms of you obviously did the math and it does get back to what maybe a normal year would have been is that it's just that there's a handful of franchisees out there that are looking at sites.
There's Some leases already signed, so commitments are being made. It's not like every single franchisee and every single market Where they could put a potential location that they've already identified as a potential planet site, it's not like that they're working them all, but We're also looking at some of them. And so we just see it as a here we are in with 1 month, 1.5 months into the year Now that would be for September, October, November kind of timeframe, we don't have the same level of insight and the same level of activity going on by franchisees. Now, one thing I didn't say earlier, if we get into let's just say we get into the summer And all of a sudden, the majority of the people that are going to be vaccinated with The medications are out there and they're immunized, will franchisees then and things are looking normal as normal can be In everyday life, if they really started working sites really hard, the risk we have when you get past June, July, August is It's going to be very difficult to get those open by the end of December. So if the pipeline really starts to fill up later in the year, A lot of those sites then will fall into 2022.
So that's I think hopefully I answered your question, John.
You did. Thank you, Doreen. We previously talked about new unit volumes. That's not An easy calculation anymore for obvious reasons like store closures, memberships being frozen, just the difficulty, as you've Effective new members, which is something different than your cancellations, which are in line. So can you comment either qualitatively or quantitatively Just kind of how the fiscal 2020 development class has been.
I mean, I know gyms are at 70% of previous usage system wide and 80% 65% or 70%, whatever you want to say, 80% for the markets that opened in May. How are those new unit volumes You're trending in, I guess, as the path would break even for those stores, has it materially changed based
on where the new unit volumes might be?
Yes, I'll take a stab at this first and then maybe Tom can add to it. If you go back and look at the sites we opened in Majority of all Q1 last year because COVID really didn't happen till right around the middle of March or Our stores reopened late Q4 of 'nineteen and the majority of Q1 of We're following very similar patterns to what it had been historically. So no change in the model. And then when we got into shutdown and all the clubs are closed, and you very well know the rolling The opening schedules that we had throughout the year and still now California is still closed, The stores that we opened throughout the year, they certainly opened up with fewer members than what they had historically because in a lot of cases, We didn't even do presales. And that's a key marketing tactics that we have used in the past where You would typically get into a virtual pre sale anywhere from 60, 75 days pre opening And you continue that virtual presale all the way to opening, but you typically roll into a physical presale About 30 days of opening, and we didn't do that in very many cases at all last year Just because of COVID and what was going on and the execution and ability to be able to do that.
Now, what from the conversations that we have with franchisees and the data we look at, we still believe that there is A significant return to the investment. But if you look at the commentary that we've been making and some of the comments that Chris had made Earlier, on his remarks and some of the ones Tom made is that the amount of usage in the club, The amount of member growth is certainly different than it had been historically. January is a great example or even if you go back and look at the last half of 2020, but from conversations that we have with franchisees of deploying capital, This is not a situation of not opening stores to get the return. It's a matter of
Your next question comes from Paul Golding from Macquarie Capital.
Thanks so much for taking my question. I guess the first one goes back to The cadence of any cancellations, I know in the past you've talked about how there may be a pop from California reopening and we're still Cancellations when California reopens? And then I have a
follow-up along the same lines.
Yes. Based on all of the different opening cohorts we saw throughout 2020, we would expect in California, it's finally allowed though we'd probably see the same when the billing resumes. The question is if it's the middle of February March, for example, or April, is it still because it's more of winter months and not before we were opening clubs in the middle of July, right? So Maybe some seasonality could help them a little bit, but I would imagine once the billing resumes, we would see that spike there. Granted It's 150 or so stores.
It's not a big 500 club pop like we saw when the other cohorts were opened by chunks.
Yeah. And I maybe would just add one thing on that one is, we have seen more cancellations during the closure period in California than In the other states during their closure period, I think part of that is because unfortunately in our Scanning of the market, most of our competitors are not following the guidelines to remain closed. We are. And so we've seen we believe some of our cancellations are probably going to gyms where they're running and operating even though they're against local guidelines, which is unfortunate, that the state can't enforce the the mandates they put out.
Interesting. Appreciate that color. And then my second question is around, I guess, in part the expectation of maybe 75 to 100 stores, but also just the financial impact of maybe a pause in new ads from The extreme weather we've seen lately, have you modeled that into some of these expectations? Is there anything that we should be considering when Look at that as far as whether being inclement and giving some sort of Difficulty to net adds in the period?
Yes, We haven't seen it in the next few Texas has had some clubs closed down there because the weather left no power or have just frozen. We haven't seen any big number changes that's drastic at this point from Jones.
Paul, if your question goes to does that affect our outlook on the 75 to 100, the answer
And your last question comes from Joe Altobello from Raymond James. Thanks. Hey, guys. Good afternoon. So first question, I just wanted to clarify something that I think you said earlier, Chris.
I think you said 10% Annual net adds are typically occurring in January. Is that the right number?
It's about a third for the year in q1, and the highest month of the quarter is January
Okay. And then in terms of overall membership, I think you guys have said in the past that the hope was to get back to year end levels, call it the $14,400,000 sometime in early 2021. And I'm curious if that's still the case or does 75 to 100 new stores this year impacted at all, the timing of that?
I mean, that would be the hope, but I think it's probably still too early in the year to figure out where things all pan out Definitely get there. We are finally adding members per store, as you mentioned, and finally going in the right direction. I think as long as we have Sequential member growth, which is the ultimate goal, we'd really like to get back there as soon as we can. I don't know if we'll make it this year, but That's going to be our goal, but I don't think it depends. Again, it depends what happens when California opens and adds to it or if we get to reshot down.
But I think being here just February, it's hard to really predict it just yet. Okay,
great. Thank you.
Great, Joe.
And I will now turn the call over to Chris Rondeau for closing comments.
Well, thank you everybody for dialing in today. And 2020 was definitely a trying year for the industry for sure, but I'm extremely happy with our franchisees and club staff and our corporate staff for staying strong and getting us through it and Couldn't be happy with that. The strength of this model has gotten us to through that year and into from Q1 here without any closures because of COVID, which You're a testament to the strength of our franchisees and the business model at hand. And I think that question is not a matter of if, but when. And our competitive advantage coming out of this with more closures in the industry and cleansing the industry here of a lot of different players out there will just give More runway and more room to queue to grow to that 4,000 unit potential and possibly more in time.
So I do believe that COVID will definitely people will walk out of this with definitely a more appreciation for health and wellness and taking better care of themselves in the future and the fact that only 20% of the U. S. Even has a gym membership and that's only moved 5% in 25 years. I think it's a good chance this could all pan out and move this 5% in the next 5 or 10 years. So I think it could accelerate that greatly.
So thanks again for dialing in and I look forward to