PLANET FITNESS, INC. Unless the context requires otherwise, references in this report to the "Company," "we," "us" and "our" refer toPlanet Fitness, Inc. and its consolidated subsidiaries. Overview We are one of the largest and fastest-growing franchisors and operators of fitness centers inthe United States by number of members and locations, with a highly recognized national brand. Our mission is to enhance people's lives by providing a high-quality fitness experience in a welcoming, non-intimidating environment, which we call theJudgement Free Zone , where anyone-and we mean anyone-can feel they belong. Our bright, clean stores are typically 20,000 square feet, with a large selection of high-quality, purple and yellowPlanet Fitness -branded cardio, circuit- and weight-training equipment and friendly staff trainerswho offer unlimited free fitness instruction to all our members in small groups through our PE@PF program. We offer this differentiated fitness experience at only$10 per month for our standard membership inthe United States . This exceptional value proposition is designed to appeal to a broad population, including occasional gym users and the approximately 80% of theU.S. and Canadian populations over age 14who are not gym members, particularly thosewho find the traditional fitness club setting intimidating and expensive. We and our franchisees fiercely protectPlanet Fitness' community atmosphere-a place where you do not need to be fit before joining and where progress toward achieving your fitness goals (big or small) is supported and applauded by our staff and fellow members. As ofSeptember 30, 2021 , we had more than 15.0 million members and 2,193 stores in all 50 states, theDistrict of Columbia ,Puerto Rico ,Canada ,Panama ,Mexico andAustralia . Of our 2,193 stores, 2,087 are franchised and 106 are corporate-owned. As ofSeptember 30, 2021 , we had commitments to open more than 1,000 new stores under existing ADAs. COVID-19 Impact OnMarch 11, 2020 , theWorld Health Organization declared a global pandemic related to the COVID-19 outbreak. The pandemic has caused unprecedented economic volatility and uncertainty, which negatively impacted our operating results. In response to the COVID-19 pandemic, we proactively closed all of our stores system wide inMarch 2020 . Our stores began reopening in earlyMay 2020 as local guidelines allowed, and as ofSeptember 30, 2021 , 2,189 of our 2,193 stores were open and operating, of which 2,083 were franchisee-owned stores and 106 were corporate-owned stores. As COVID-19 continues to impact areas in which our stores operate, certain of our stores have had to re-close, and additional stores may have to re-close, pursuant to local guidelines. As previously announced, members have not and will not be charged membership dues while our stores are temporarily closed and are credited for any membership dues paid for periods when our stores were closed. Compared to the periods prior toMarch 2020 , we have experienced and may continue to experience decreased new store development and remodels, as well as decreased replacement equipment sales in 2021 as a result of the COVID-19 pandemic. As stores reopened we have recognized franchise revenue and corporate-owned store revenue associated with any membership dues collected prior to temporary store closures. We may have to defer revenue in the future if stores are required to re-close. The duration of the COVID-19 pandemic and the extent of its impact on our business remains uncertain and difficult to predict. The COVID-19 pandemic may continue to negatively impact our operating results in future periods. As a result of COVID-19, we have experienced to date, and may continue to experience, a decrease in our net membership base compared to membership levels inMarch 2020 , and the COVID-19 pandemic may have an ongoing impact on consumer behavior. We took a number of actions to efficiently manage the business, as well as increase liquidity and financial flexibility in order to mitigate the impact of the COVID-19 pandemic on our business. Although the COVID-19 pandemic may continue to negatively impact the Company's operations and cash flows, based on management's current expectations and currently available information, the Company believes current cash and cash from operations will be sufficient to meet its operating cash requirements, planned capital expenditures and interest and principal payments for at least the next twelve months. 26 -------------------------------------------------------------------------------- Table of Contents Our segments We operate and manage our business in three business segments: Franchise, Corporate-owned stores and Equipment. Our Franchise segment includes operations related to our franchising business inthe United States ,Puerto Rico ,Canada ,Panama ,Mexico andAustralia , including revenues and expenses from the NAF. Our Corporate-owned stores segment includes operations with respect to all corporate-owned stores throughoutthe United States andCanada . The Equipment segment primarily includes the sale of equipment to ourUnited States franchisee-owned stores. We evaluate the performance of our segments and allocate resources to them based on revenue and earnings before interest, taxes, depreciation and amortization, referred to as Segment EBITDA. Revenue and Segment EBITDA for all operating segments include only transactions with unaffiliated customers and do not include intersegment transactions. The tables below summarize the financial information for our segments for the three and nine months endedSeptember 30, 2021 andSeptember 30, 2020 . "Corporate and other," as it relates to Segment EBITDA, primarily includes corporate overhead costs, such as payroll and related benefit costs and professional services that are not directly attributable to any individual segment. Three months ended Nine months ended September 30, September 30, (in thousands) 2021 2020 2021 2020 Revenue Franchise segment$ 75,383 $ 59,757 $ 212,293 $ 139,288 Corporate-owned stores segment 43,899 28,289 122,355 78,224 Equipment segment 34,973 17,337 68,735 55,335 Total revenue$ 154,255 $ 105,383 $ 403,383 $ 272,847 Segment EBITDA Franchise$ 52,047 $ 31,111 $ 144,983 $ 71,386 Corporate-owned stores 14,102 5,711 35,164 11,376 Equipment 7,917 2,271 15,355 9,948 Corporate and other (12,594) (9,439) (33,844) (26,470) Total Segment EBITDA(1)$ 61,472 $ 29,654 $ 161,658 $ 66,240 (1)Total Segment EBITDA is equal to EBITDA, which is a metric that is not presented in accordance withU.S. GAAP. Refer to "-Non-GAAP financial measures" for a definition of EBITDA and a reconciliation to net income (loss), the most directly comparableU.S. GAAP measure. 27 -------------------------------------------------------------------------------- Table of Contents A reconciliation of income (loss) from operations to Segment EBITDA is set forth below: Corporate-owned Corporate and (in thousands) Franchise stores Equipment other Total Three months ended September 30, 2021 Income (loss) from operations$ 50,163 $ 5,137$ 6,698 $ (17,451) $ 44,547 Depreciation and amortization 1,884 9,045 1,261 4,058 16,248 Other income - (80) (42) 799 677 Segment EBITDA(1)$ 52,047 $ 14,102$ 7,917 $ (12,594) $ 61,472 Three months ended September 30, 2020 Income (loss) from operations$ 29,156 $ (2,088)$ 1,009 $ (12,035) $ 16,042 Depreciation and amortization 1,955 7,650 1,262 2,769 13,636 Other (expense) income - 149 - (173) (24) Segment EBITDA(1)$ 31,111 $ 5,711$ 2,271 $ (9,439) $ 29,654 Nine months ended September 30, 2021 Income (loss) from operations$ 139,317 $ 8,244$ 11,682 $ (45,038) $ 114,205 Depreciation and amortization 5,666 26,910 3,783 10,399 46,758 Other income (expense) - 10 (110) 795 695 Segment EBITDA(1)$ 144,983 $ 35,164$ 15,355 $ (33,844) $ 161,658 Nine months ended September 30, 2020 Income (loss) from operations$ 65,624 $ (10,186) $ 6,161 $ (34,011) $ 27,588 Depreciation and amortization 5,846 22,235 3,787 7,568 39,436 Other (expense) income (84) (673) - (27) (784) Segment EBITDA(1)$ 71,386 $ 11,376$ 9,948 $ (26,470) $ 66,240 (1)Total Segment EBITDA is equal to EBITDA, which is a metric that is not presented in accordance withU.S. GAAP. Refer to "-Non-GAAP Financial Measures" for a definition of EBITDA and a reconciliation to net income (loss), the most directly comparableU.S. GAAP measure. How we assess the performance of our business In assessing the performance of our business, we consider a variety of performance and financial measures. The key measures for determining how our business is performing include the number of new store openings, same store sales for both corporate-owned and franchisee-owned stores, system-wide sales, EBITDA, Adjusted EBITDA, Segment EBITDA, Adjusted net income (loss) and Adjusted net income (loss) per share, diluted. See "-Non-GAAP financial measures" below for our definition of EBITDA, Adjusted EBITDA, Adjusted net income (loss), and Adjusted net income (loss) per share, diluted and why we present EBITDA, Adjusted EBITDA, Adjusted net income (loss), and Adjusted net income (loss) per share, diluted, and for a reconciliation of our EBITDA, Adjusted EBITDA, and Adjusted net income (loss) to net income (loss), the most directly comparable financial measure calculated and presented in accordance withU.S. GAAP, and a reconciliation of Adjusted net income (loss) per share, diluted to net income (loss) per share, diluted, the most directly comparable financial measure calculated and presented in accordance withU.S. GAAP. Number of new store openings The number of new store openings reflects stores opened during a particular reporting period for both corporate-owned and franchisee-owned stores. Opening new stores is an important part of our growth strategy and we expect the majority of our future new stores will be franchisee-owned. Before we obtain the certificate of occupancy or report any revenue for new corporate-owned stores, we incur pre-opening costs, such as rent expense, labor expense and other operating expenses. Some of our stores open with an initial start-up period of higher than normal marketing and operating expenses, particularly as a percentage of monthly revenue. New stores may not be profitable and their revenue may not follow historical patterns. 28 -------------------------------------------------------------------------------- Table of Contents The following table shows the change in our corporate-owned and franchisee-owned store base for the three and nine months endedSeptember 30, 2021 and 2020: Three months ended September 30, Nine months ended September 30, 2021 2020 2021 2020 Franchisee-owned stores: Stores operated at beginning of period 2,064 1,960 2,021 1,903 New stores opened 24 27 67 86 Stores debranded, sold or consolidated(1) (1) (2) (1)
(4)
Stores operated at end of period(2) 2,087 1,985 2,087
1,985
Corporate-owned stores: Stores operated at beginning of period 106 99 103 98 New stores opened - 2 3 3 Stores operated at end of period(2) 106 101 106
101
Total stores: Stores operated at beginning of period 2,170 2,059 2,124 2,001 New stores opened 24 29 70 89 Stores acquired, debranded, sold or consolidated(1) (1) (2) (1)
(4)
Stores operated at end of period(2) 2,193 2,086 2,193 2,086 (1)The term "debrand" refers to a franchisee-owned store whose right to use the Planet Fitness brand and marks has been terminated in accordance with the franchise agreement. We retain the right to prevent debranded stores from continuing to operate as fitness centers. The term "consolidated" refers to the combination of a franchisee's store with another store located in close proximity with our prior approval. This often coincides with an enlargement, re-equipment and/or refurbishment of the remaining store. (2)The "stores operated" includes stores that have closed temporarily related to the COVID-19 pandemic. All stores were closed inMarch 2020 in response to COVID-19, and as ofSeptember 30, 2021 , 2,189 were re-opened and operating, of which 2,083 were franchisee-owned stores and 106 were corporate-owned stores. Same store sales Same store sales refers to year-over-year sales comparisons for the same store sales base of both corporate-owned and franchisee-owned stores. We define the same store sales base to include those stores that have been open and for which monthly membership dues have been billed for longer than 12 months. We measure same store sales based solely upon monthly dues billed to members of our corporate-owned and franchisee-owned stores. Several factors affect our same store sales in any given period, including the following: •the number of stores that have been in operation for more than 12 months; •the percentage mix and pricing of PF Black Card and standard memberships in any period; •growth in total net memberships per store; •consumer recognition of our brand and our ability to respond to changing consumer preferences; •overall economic trends, particularly those related to consumer spending; •our ability and our franchisees' ability to operate stores effectively and efficiently to meet consumer expectations; •marketing and promotional efforts; •local competition; •trade area dynamics; and •opening of new stores in the vicinity of existing locations. Consistent with common industry practice, we present same store sales as compared to the same period in the prior year and which is calculated for a given period by including only sales from stores that had sales in the comparable months of both years. Same store sales of our international stores are calculated on a constant currency basis, meaning that we translate the current year's same store sales of our international stores at the same exchange rates used in the prior year. Since opening new stores will be a significant component of our revenue growth, same store sales is only one measure of how we evaluate our performance. 29 -------------------------------------------------------------------------------- Table of Contents Stores acquired from or sold to franchisees are removed from the franchisee-owned or corporate-owned same store sales base, as applicable, upon the ownership change and for the 12 months following the date of the ownership change. These stores are included in the corporate-owned or franchisee-owned same store sales base, as applicable, following the 12th month after the acquisition or sale. These stores remain in the system-wide same store sales base in all periods. As a result of the temporary closure of all of our stores due to COVID-19 inMarch 2020 , a majority of the stores remained temporarily closed for a portion of the nine months endedSeptember 30, 2020 . Because less than 50% of our stores in the same store sales base had membership billings in all of the months included in the nine months endingSeptember 30, 2020 , we are not providing same store sales comparisons for the nine months endingSeptember 30, 2021 and 2020. For the three months endingSeptember 30, 2021 and 2020, since more than 50% of our stores in the same store sales base billed monthly membership dues in all three months, we have provided same store sales comparisons for those stores.
The following table shows our same store sales for the three months ended
Three months ended
2021 2020
Same store sales data
Same store sales growth:
Franchisee-owned stores 7.4 % (5.6) %
Corporate-owned stores 3.1 % (6.6) %
Total stores 7.2 % (5.6) %
Number of stores in same store sales base:
Franchisee-owned stores 1,534 1,366
Corporate-owned stores 54 50
Total stores 1,588 1,416
Total monthly dues and annual fees from members (system-wide sales)
We define system-wide sales as total monthly dues and annual fees billed by us
and our franchisees. System-wide sales is an operating measure that includes
sales by franchisees that are not revenue realized by the Company in accordance
with GAAP, as well as sales by our corporate-owned stores. While we do not
record sales by franchisees as revenue, and such sales are not included in our
consolidated financial statements, we believe that this operating measure aids
in understanding how we derive royalty revenue and is important in evaluating
our performance. We review the total amount of dues we collect from our members
on a monthly basis, which allows us to assess changes in the performance of our
corporate-owned and franchisee-owned stores from period to period, any
competitive pressures, local or regional membership traffic patterns and general
market conditions that might impact our store performance. We collect monthly
dues on or around the 17th of every month. We collect annual fees once per year
from each member based upon when the member signed his or her membership
agreement. System-wide sales were $870 million and $661 million , during the
three months ended September 30, 2021 and 2020, respectively, and $2,503 million
and $1,663 million during the nine months ended September 30, 2021 and 2020,
respectively.
Non-GAAP financial measures
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. EBITDA and Adjusted EBITDA as
presented in this Quarterly Report on Form 10-Q are supplemental measures of our
performance that are neither required by, nor presented in accordance with U.S.
GAAP. EBITDA and Adjusted EBITDA should not be considered as substitutes for
U.S. GAAP metrics such as net income (loss) or any other performance measures
derived in accordance with U.S. GAAP. Also, in the future we may incur expenses
or charges such as those used to calculate Adjusted EBITDA. Our presentation of
EBITDA and Adjusted EBITDA should not be construed as an inference that our
future results will be unaffected by unusual or nonrecurring items. 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. As part of such disclosure in "Our Segments"
within Management's Discussion and Analysis of Financial Condition and Results
of Operations, the Company has provided a reconciliation from income (loss) from
operations to Total Segment EBITDA, which is equal to the Non-GAAP financial
metric EBITDA.
We define EBITDA as net income (loss) before interest, taxes, depreciation and
amortization. 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
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also uses EBITDA as a key metric to assess the performance of management. We
define Adjusted EBITDA as net income (loss) 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 net income (loss) to EBITDA and Adjusted EBITDA is set forth
below for the three and nine months ended September 30, 2021 and 2020:
Three months ended September 30, Nine months ended September 30,
2021 2020 2021 2020
(in thousands)
Net income (loss) $ 18,632 $ (3,284) $ 39,838 $ (24,886)
Interest income (233) (349) (645) (2,635)
Interest expense 20,350 20,686 60,719 61,394
Provision (benefit) for income taxes 6,475 (1,035) 14,988 (7,069)
Depreciation and amortization 16,248 13,636 46,758 39,436
EBITDA $ 61,472
72 70 269 216
Purchase accounting adjustments-rent(2) 110 130 324 400
Severance costs(3) - 830 - 990
Pre-opening costs(4) 455 699 1,302 1,214
Insurance recovery(5) - - (2,500) -
Tax benefit arrangement remeasurement(6) - - (348) (502)
Other(7) 55 598 743 691
Adjusted EBITDA $ 62,164 $ 31,981 $ 161,448 $ 69,249
(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 ADA
fees, deferred franchise fees, and deferred enrollment fees that the Company
billed and collected up front but recognizes for U.S. 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 $44 , $43 , $127 , and $124 in the three and nine months ended
September 30, 2021 and 2020, 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 $64 , $87 , $197 and $276 in the three and nine months
ended September 30, 2021 and 2020, respectively, are due to the amortization of
favorable and unfavorable leases. 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 severance expense recorded in connection with an equity award
modification.
(4)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.
(5)Represents an insurance recovery of previously recognized expenses related to
the settlement of legal claims.
(6)Represents gains related to the adjustment of our tax benefit arrangements
primarily due to changes in our effective tax rate.
(7)Represents certain other charges and gains that we do not believe reflect our
underlying business performance.
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Our presentation of Adjusted net income (loss) and Adjusted net income (loss)
per share, diluted, assumes that all net income (loss) 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 (loss) per share, diluted, is calculated by dividing
Adjusted net income (loss) by the total shares of Class A common stock
outstanding plus any dilutive options and restricted stock units as calculated
in accordance with U.S. 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 (loss) and Adjusted net income (loss)
per share, diluted, are supplemental measures of operating performance that do
not represent, and should not be considered, alternatives to net income (loss)
and earnings (loss) per share, as calculated in accordance with U.S. GAAP. We
believe Adjusted net income (loss) and Adjusted net income (loss) per share,
diluted, supplement U.S. GAAP measures and enable us to more effectively
evaluate our performance period-over-period. A reconciliation of Adjusted net
income (loss) to net income (loss), the most directly comparable U.S. GAAP
measure, and the computation of Adjusted net income (loss) per share, diluted,
are set forth below.
Three months
ended
2021 2020 2021 2020
Net income (loss) $ 18,632
6,475 (1,035) 14,988 (7,069)
Purchase accounting adjustments-revenue(1) 72 70 269 216
Purchase accounting adjustments-rent(2) 110 130 324 400
Severance costs(3) - 830 - 990
Pre-opening costs(4) 455 699 1,302 1,214
Insurance recovery(5) - - (2,500) -
Tax benefit arrangement remeasurement(6) - - (348) (502)
Other(7) 55 598 743 691
Purchase accounting amortization(8) 4,159 4,211 12,477 12,635
Adjusted income (loss) before income taxes $ 29,958
7,969 595 17,847 (4,371)
Adjusted net income (loss) $ 21,989 Adjusted net income (loss) per share, diluted$ 0.25
Adjusted weighted-average shares outstanding(10) 87,204 86,512 87,194 86,618 (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 deferredADA fees, deferred franchise fees, and deferred enrollment fees that the Company billed and collected up front but recognizes forU.S. 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$44 ,$43 ,$127 , and$124 in the three and nine months endedSeptember 30, 2021 and 2020, respectively, reflect the difference between the higher rent expense recorded in accordance withU.S. GAAP since the acquisition and the rent expense that would have been recorded had the 2012 Acquisition not occurred. Adjustments of$64 ,$87 ,$197 and$276 in the three and nine months endedSeptember 30, 2021 and 2020, respectively, are due to the amortization of favorable and unfavorable leases. 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 severance expense recorded in connection with an equity award modification. 32 -------------------------------------------------------------------------------- Table of Contents (4)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. (5)Represents an insurance recovery of previously recognized expenses related to the settlement of legal claims. (6)Represents gains related to the adjustment of our tax benefit arrangements primarily due to changes in our effective tax rate. (7)Represents certain other charges and gains that we do not believe reflect our underlying business performance. (8)Includes$3,096 ,$3,096 ,$9,288 and$9,288 of amortization of intangible assets, for the three and nine months endedSeptember 30, 2021 and 2020, respectively, recorded in connection with the 2012 Acquisition, and$1,063 ,$1,115 ,$3,189 and$3,346 of amortization of intangible assets for the three and nine months endedSeptember 30, 2021 and 2020, respectively, recorded in connection with historical acquisitions of franchisee-owned stores. The adjustment represents the amount of actual non-cash amortization expense recorded, in accordance withU.S. GAAP, in each period. (9)Represents corporate income taxes at an assumed effective tax rate of 26.6% for the three and nine months endedSeptember 30, 2021 and 26.8% for the three and nine months endedSeptember 30, 2020 , applied to adjusted income (loss) before income taxes. (10)Assumes the full exchange of all outstanding Holdings Units and corresponding shares of Class B common stock for shares of Class A common stock ofPlanet Fitness, Inc. A reconciliation of net income (loss) per share, diluted, to Adjusted net income (loss) per share, diluted is set forth below for the three and nine months endedSeptember 30, 2021 and 2020: For the three months ended For the three months ended September 30, 2021 September 30, 2020 Net income Net loss per (in thousands, except per share per share, share, amounts) Net Income Weighted Average Shares diluted Net loss Weighted Average Shares diluted Net income (loss) attributable to Planet Fitness, Inc.(1)$ 17,443 83,879$ 0.21 $ (3,111) 80,221$ (0.04) Assumed exchange of shares(2) 1,189 3,325 (173) 6,291 Net income (loss) 18,632 (3,284)
Adjustments to arrive at adjusted
income (loss) before income taxes(3) 11,326 5,503 Adjusted income (loss) before income taxes 29,958 2,219 Adjusted income tax expense (benefit)(4) 7,969 595 Adjusted net income (loss)$ 21,989 87,204$ 0.25 $ 1,624 86,512$ 0.02 (1)Represents net income (loss) attributable toPlanet 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 ofPlanet Fitness, Inc. Also assumes the addition of net income (loss) 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 (loss) before income taxes. (4)Represents corporate income taxes at an assumed effective tax rate of 26.6% and 26.8% for the three months endedSeptember 30, 2021 and 2020, respectively, applied to adjusted income (loss) before income taxes. 33
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For the nine months ended For the nine months ended
September 30, 2021 September 30, 2020
Net income Net loss per
(in thousands, except per share per share, share,
amounts) Net income Weighted Average Shares diluted Net loss Weighted Average Shares diluted
Net income (loss) attributable to
Planet Fitness, Inc.(1) $ 37,034 83,808 $ 0.44 $ (23,681) 79,763 $ (0.30)
Assumed exchange of shares(2) 2,804 3,386 (1,205) 6,855
Net income (loss) 39,838 (24,886)Adjustments to arrive at adjusted
income (loss) before income taxes(3) 27,255 8,575 Adjusted income (loss) before income taxes 67,093 (16,311) Adjusted income tax expense (benefit)(4) 17,847 (4,371) Adjusted net income (loss)$ 49,246 87,194$ 0.56 $ (11,940) 86,618$ (0.14) (1)Represents net income (loss) attributable toPlanet 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 ofPlanet Fitness, Inc. Also assumes the addition of net income (loss) 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 (loss) table above to arrive at adjusted income (loss) before income taxes. (4)Represents corporate income taxes at an assumed effective tax rate of 26.6% and 26.8% for the nine months endedSeptember 30, 2021 and 2020, respectively, applied to adjusted income (loss) before income taxes. 34 -------------------------------------------------------------------------------- Table of Contents Results of operations The following table sets forth our condensed consolidated statements of operations as a percentage of total revenue for the three and nine months endedSeptember 30, 2021 and 2020: Three months ended September 30, Nine months ended September 30, 2021 2020 2021 2020 Revenue: Franchise revenue 39.9 % 44.8 % 43.0 % 41.2 % Commission income - % - % 0.1 % 0.2 % National advertising fund revenue 8.9 % 11.9 % 9.5 % 9.7 % Franchise segment 48.8 % 56.7 % 52.6 % 51.1 % Corporate-owned stores 28.5 % 26.8 % 30.4 % 28.7 % Equipment 22.7 % 16.5 % 17.0 % 20.2 % Total revenue 100.0 % 100.0 % 100.0 % 100.0 % Operating costs and expenses: Cost of revenue 17.6 % 14.5 % 13.3 % 16.7 % Store operations 18.0 % 20.3 % 20.3 % 22.8 % Selling, general and administrative 14.9 % 17.4 % 16.7 % 18.7 % National advertising fund expense 10.1 % 19.1 % 10.4 % 16.9 % Depreciation and amortization 10.5 % 12.9 % 11.6 % 14.5 % Other (gain) loss - % 0.6 % (0.6) % 0.2 % Total operating costs and expenses 71.1 % 84.8 % 71.7 % 89.8 % Income from operations 28.9 % 15.2 % 28.3 % 10.2 % Other income (expense), net: Interest income 0.2 % 0.3 % 0.2 % 1.0 % Interest expense (13.2) % (19.6) % (15.1) % (22.5) % Other income (expense) 0.4 % - % 0.2 % (0.3) % Total other expense, net (12.6) % (19.3) % (14.7) % (21.8) % Income (loss) before income taxes 16.3 % (4.1) % 13.6 % (11.6) % Provision (benefit) for income taxes 4.2 % (1.0) % 3.7 % (2.6) % Net income (loss) 12.1 % (3.1) % 9.9 % (9.0) % Less net income (loss) attributable to non-controlling interests 0.8 % (0.2) % 0.7 % (0.4) % Net income (loss) attributable toPlanet Fitness , Inc. 11.3 % (2.9) % 9.2 % (8.6) % 35
-------------------------------------------------------------------------------- Table of Contents The following table sets forth a comparison of our condensed consolidated statements of operations for the three and nine months endedSeptember 30, 2021 and 2020: Three months ended September 30, Nine months ended September 30, 2021 2020 2021 2020 (in thousands) Revenue: Franchise revenue$ 61,481 $ 47,171 $ 173,419 $ 112,296 Commission income 39 48 381 483 National advertising fund revenue 13,863 12,538 38,493 26,509 Franchise segment 75,383 59,757 212,293 139,288 Corporate-owned stores 43,899 28,289 122,355 78,224 Equipment 34,973 17,337 68,735 55,335 Total revenue 154,255 105,383 403,383 272,847 Operating costs and expenses: Cost of revenue 27,097 15,302 53,579 45,625 Store operations 27,751 21,371 82,088 62,209 Selling, general and administrative 22,969 18,295 67,248 51,143 National advertising fund expense 15,586 20,157 41,868 46,240 Depreciation and amortization 16,248 13,636 46,758 39,436 Other (gain) loss 57 580 (2,363) 606 Total operating costs and expenses 109,708 89,341 289,178 245,259 Income from operations 44,547 16,042 114,205 27,588 Other income (expense), net: Interest income 233 349 645 2,635 Interest expense (20,350) (20,686) (60,719) (61,394) Other income (expense) 677 (24) 695 (784) Total other expense, net (19,440) (20,361) (59,379) (59,543) Income (loss) before income taxes 25,107 (4,319) 54,826 (31,955) Provision (benefit) for income taxes 6,475 (1,035) 14,988 (7,069) Net income (loss) 18,632 (3,284) 39,838 (24,886) Less net income (loss) attributable to non-controlling interests 1,189 (173) 2,804 (1,205) Net income (loss) attributable toPlanet Fitness , Inc.$ 17,443
Comparison of the three months endedSeptember 30, 2021 and three months endedSeptember 30, 2020 Revenue Total revenues were$154.3 million in the three months endedSeptember 30, 2021 , compared to$105.4 million in the three months endedSeptember 30, 2020 , an increase of$48.9 million , or 46.4%. Franchise segment revenue was$75.4 million in the three months endedSeptember 30, 2021 , compared to$59.8 million in the three months endedSeptember 30, 2020 , an increase of$15.6 million , or 26.1%. Franchise revenue was$61.5 million in the three months endedSeptember 30, 2021 compared to$47.2 million in the three months endedSeptember 30, 2020 , an increase of$14.3 million or 30.3%. Included in franchise revenue is royalty revenue of$53.1 million , franchise and other fees of$5.7 million , and placement revenue of$2.6 million for the three months endedSeptember 30, 2021 , compared to royalty revenue of$43.1 million , franchise and other fees of$2.6 million , and placement revenue of$1.5 million for the three months endedSeptember 30, 2020 . The franchise revenue increases in the three months endedSeptember 30, 2021 as compared to the three months endedSeptember 30, 2020 were primarily due to temporary store closures as a result of COVID-19 in the prior year period. National advertising fund revenue was$13.9 million in the three months endedSeptember 30, 2021 , compared to$12.5 million in the three months endedSeptember 30, 2020 . The$1.3 million increase in national advertising fund revenue was primarily due to temporary store closures as a result of COVID-19 in the prior year period. 36 -------------------------------------------------------------------------------- Table of Contents Revenue from our corporate-owned stores segment was$43.9 million in the three months endedSeptember 30, 2021 , compared to$28.3 million in the three months endedSeptember 30, 2020 , an increase of$15.6 million , or 55.2%. The increase was primarily due to temporary store closures as a result of COVID-19 in the prior year period, as well as the opening of seven new corporate-owned stores sinceJuly 1, 2020 . Equipment segment revenue was$35.0 million in the three months endedSeptember 30, 2021 , compared to$17.3 million in the three months endedSeptember 30, 2020 , an increase of$17.6 million , or 101.7%. The increase was driven by higher equipment sales to existing franchisee-owned stores in the three months endedSeptember 30, 2021 compared to the three months endedSeptember 30, 2020 . Also contributing to the increase was the 15% discount provided to franchisees on equipment sales in the prior year as a result of the COVID-19 pandemic. Cost of revenue Cost of revenue was$27.1 million in the three months endedSeptember 30, 2021 compared to$15.3 million in the three months endedSeptember 30, 2020 , an increase of$11.8 million , or 77.1%. Cost of revenue, which primarily relates to our equipment segment, increased as a result of higher equipment sales to existing franchisee-owned stores in the three months endedSeptember 30, 2021 compared to the three months endedSeptember 30, 2020 . Store operations Store operation expenses, which relate to our corporate-owned stores segment, were$27.8 million in the three months endedSeptember 30, 2021 compared to$21.4 million in the three months endedSeptember 30, 2020 , an increase of$6.4 million , or 29.9%. The increase was primarily attributable to lower operating and payroll expenses in the prior year period as a result of COVID-19 related temporary closures, and higher expenses as a result of the opening of seven new corporate-owned stores sinceJuly 1, 2020 . Selling, general and administrative Selling, general and administrative expenses were$23.0 million in the three months endedSeptember 30, 2021 compared to$18.3 million in the three months endedSeptember 30, 2020 , an increase of$4.7 million , or 25.5%. The$4.7 million increase was primarily driven by higher incentive and stock-based compensation during the three months endedSeptember 30, 2021 compared to the prior year quarter. National advertising fund expense National advertising fund expense was$15.6 million in the three months endedSeptember 30, 2021 compared to$20.2 million in the three months endedSeptember 30, 2020 , due to higher advertising and marketing expenses in the prior year period as a result of increased marketing efforts related to the reopening of stores following COVID-19 temporary closures. Depreciation and amortization Depreciation and amortization expense consists of the depreciation of property and equipment, including leasehold and building improvements and equipment. Amortization expense consists of amortization related to our intangible assets, including customer relationships and non-compete agreements. Depreciation and amortization expense was$16.2 million in the three months endedSeptember 30, 2021 compared to$13.6 million in the three months endedSeptember 30, 2020 , an increase of$2.6 million , or 19.2%. The increase was primarily attributable to the opening of seven new corporate-owned stores sinceJuly 1, 2020 and depreciation of new information systems assets. Other (gain) loss Other (gain) loss was a loss of$0.1 in the three months endedSeptember 30, 2021 compared to a loss of$0.6 in the three months endedSeptember 30, 2020 . Interest income Interest income was$0.2 million in the three months endedSeptember 30, 2021 , compared to$0.3 million in the three months endedSeptember 30, 2020 , primarily as a result of lower interest rates in the three months endedSeptember 30, 2021 compared to the three months endedSeptember 30, 2020 . Interest expense Interest expense primarily consists of interest on long-term debt as well as the amortization of deferred financing costs. Interest expense was$20.4 million in the three months endedSeptember 30, 2021 and$20.7 million in the three months endedSeptember 30, 2020 . 37 -------------------------------------------------------------------------------- Table of Contents Other income (expense) Other income was$0.7 million in the three months endedSeptember 30, 2021 compared to zero in the three months endedSeptember 30, 2020 . Provision (benefit) for income taxes Provision for income taxes was$6.5 million in the three months endedSeptember 30, 2021 , compared to a benefit of$1.0 million in the three months endedSeptember 30, 2020 , an increase of$7.5 million . The increase in the provision for income taxes was primarily attributable to higher income before income taxes in the three months endedSeptember 30, 2021 as compared to a loss before income taxes in the three months endedSeptember 30, 2020 . Segment results Franchise Segment EBITDA for the franchise segment was$52.0 million in the three months endedSeptember 30, 2021 compared to$31.1 million in the three months endedSeptember 30, 2020 , an increase of$20.9 million . The franchise segment EBITDA increase in the three months endedSeptember 30, 2021 as compared to the three months endedSeptember 30, 2020 was primarily due to a$10.0 million increase in franchise royalty revenue, a$1.3 million increase in NAF revenue, and a$3.2 million increase in franchise and other fees, primarily attributable to temporary store closures as a result of COVID-19 in the prior year period. Additionally, NAF expense was$4.6 million lower in the three months endedSeptember 30, 2021 due to higher advertising and marketing expenses in the prior year period as a result of increased marketing efforts related to the reopening of stores following COVID-19 temporary closures. Depreciation and amortization was$1.9 million in both the three months endedSeptember 30, 2021 and the three months endedSeptember 30, 2020 . Corporate-owned stores Segment EBITDA for the corporate-owned stores segment was$14.1 million in the three months endedSeptember 30, 2021 compared to$5.7 million in the three months endedSeptember 30, 2020 , an increase of$8.4 million . The corporate-owned store segment EBITDA increase was primarily a result of temporary store closures related to COVID-19 in the prior year period, as well as the opening of seven new corporate-owned stores sinceJuly 1, 2020 . Depreciation and amortization was$9.0 million and$7.7 million for the three months endedSeptember 30, 2021 and 2020, respectively. The increase in depreciation and amortization was primarily attributable to the seven stores opened sinceJuly 1, 2020 . Equipment Segment EBITDA for the equipment segment was$7.9 million in the three months endedSeptember 30, 2021 compared to$2.3 million in the three months endedSeptember 30, 2020 , an increase of$5.6 million . The increase was driven by higher equipment sales to existing franchisee-owned stores in the three months endedSeptember 30, 2021 compared to the three months endedSeptember 30, 2020 . Also contributing to the increase was the 15% discount provided to franchisees on equipment sales in the prior year as a result of the COVID-19 pandemic. Depreciation and amortization was$1.3 million for both the three months endedSeptember 30, 2021 and 2020. Comparison of the nine months endedSeptember 30, 2021 and nine months endedSeptember 30, 2020 Revenue Total revenues were$403.4 million in the nine months endedSeptember 30, 2021 , compared to$272.8 million in the nine months endedSeptember 30, 2020 , an increase of$130.5 million , or 47.8%. Franchise segment revenue was$212.3 million in the nine months endedSeptember 30, 2021 , compared to$139.3 million in the nine months endedSeptember 30, 2020 , an increase of$73.0 million , or 52.4%. Franchise revenue was$173.4 million in the nine months endedSeptember 30, 2021 compared to$112.3 million in the nine months endedSeptember 30, 2020 , an increase of$61.1 million or 54.4%. Included in franchise revenue is royalty revenue of$152.2 million , franchise and other fees of$16.0 million , and placement revenue of$5.1 million for the nine months endedSeptember 30, 2021 , compared to royalty revenue of$98.6 million , franchise and other fees of$9.3 million , and placement revenue of$4.3 million for the nine months endedSeptember 30, 2020 . The franchise revenue increases in the nine months endedSeptember 30, 2021 as compared to the nine months endedSeptember 30, 2020 were primarily due to temporary store closures related to COVID-19 beginning inMarch 2020 . National advertising fund revenue was$38.5 million in the nine months endedSeptember 30, 2021 , compared to$26.5 million in the nine months endedSeptember 30, 2020 . The increase in national advertising fund revenue in the nine months endedSeptember 30, 2021 compared to the nine months endedSeptember 30, 2020 was primarily a result of the temporary closures related to COVID-19 beginning inMarch 2020 . 38 -------------------------------------------------------------------------------- Table of Contents Revenue from our corporate-owned stores segment was$122.4 million in the nine months endedSeptember 30, 2021 , compared to$78.2 million in the nine months endedSeptember 30, 2020 , an increase of$44.1 million , or 56.4%. The increase was primarily attributable to temporary store closures related to COVID-19 beginning inMarch 2020 , as well as the opening of eight new corporate-owned stores sinceJanuary 1, 2020 . Equipment segment revenue was$68.7 million in the nine months endedSeptember 30, 2021 , compared to$55.3 million in the nine months endedSeptember 30, 2020 , an increase of$13.4 million , or 24.2%. The increase was driven by higher replacement equipment sales to existing franchisee-owned stores, partially offset by lower equipment sales to new franchisee-owned stores in the nine months endedSeptember 30, 2021 compared to the nine months endedSeptember 30, 2020 . Also contributing to the increase was the 15% discount provided to franchisees on equipment sales in the prior year as a result of the COVID-19 pandemic. Cost of revenue Cost of revenue was$53.6 million in the nine months endedSeptember 30, 2021 compared to$45.6 million in the nine months endedSeptember 30, 2020 , an increase of$8.0 million , or 17.4%. Cost of revenue, which primarily relates to our equipment segment, increased as a result of higher replacement equipment sales to existing franchisee-owned stores, partially offset by lower equipment sales to new franchisee-owned stores in the nine months endedSeptember 30, 2021 compared to the nine months endedSeptember 30, 2020 . Store operations Store operation expenses, which relate to our corporate-owned stores segment, were$82.1 million in the nine months endedSeptember 30, 2021 compared to$62.2 million in the nine months endedSeptember 30, 2020 , an increase of$19.9 million , or 32.0%. The increase was primarily attributable to lower operating and corporate store marketing expenses as a result of COVID-19 related temporary closures beginning inMarch 2020 , partially offset by higher expenses as a result of the opening of eight new corporate-owned stores sinceJanuary 1, 2020 . Selling, general and administrative Selling, general and administrative expenses were$67.2 million in the nine months endedSeptember 30, 2021 compared to$51.1 million in the nine months endedSeptember 30, 2020 , an increase of$16.1 million , or 31.5%. The$16.1 million increase was primarily driven by higher incentive and stock-based compensation, local marketing support for ourCalifornia re-openings, and expenses associated with our mobile app during the nine months endedSeptember 30, 2021 compared to the prior year quarter. National advertising fund expense National advertising fund expense was$41.9 million in the nine months endedSeptember 30, 2021 compared to$46.2 million in the nine months endedSeptember 30, 2020 , due to higher advertising and marketing expenses in the prior year period as a result of increased marketing efforts related to the reopening of stores following COVID-19 temporary closures. Depreciation and amortization Depreciation and amortization expense consists of the depreciation of property and equipment, including leasehold and building improvements and equipment. Amortization expense consists of amortization related to our intangible assets, including customer relationships and non-compete agreements. Depreciation and amortization expense was$46.8 million in the nine months endedSeptember 30, 2021 compared to$39.4 million in the nine months endedSeptember 30, 2020 , an increase of$7.3 million , or 18.6%. The increase was primarily attributable to the opening of corporate-owned stores sinceJanuary 1, 2020 and depreciation of new information systems assets. Other (gain) loss Other gain was$2.4 in the nine months endedSeptember 30, 2021 compared to a loss of$0.6 million in the nine months endedSeptember 30, 2020 . In the nine months endedSeptember 30, 2021 , this includes a gain of$2.5 million from an insurance recovery related to the settlement of legal claims. Interest income Interest income was$0.6 million in the nine months endedSeptember 30, 2021 compared to$2.6 million in the nine months endedSeptember 30, 2020 , primarily as a result of lower interest rates in the nine months endedSeptember 30, 2021 compared to the nine months endedSeptember 30, 2020 . Interest expense Interest expense primarily consists of interest on long-term debt as well as the amortization of deferred financing costs. 39 -------------------------------------------------------------------------------- Table of Contents Interest expense was$60.7 million in the nine months endedSeptember 30, 2021 compared to$61.4 million in the nine months endedSeptember 30, 2020 . Other income (expense) Other income was$0.7 million in the nine months endedSeptember 30, 2021 and expense of$0.8 million in the nine months endedSeptember 30, 2020 . Provision (benefit) for income taxes The provision for income taxes was$15.0 million in the nine months endedSeptember 30, 2021 , compared to a benefit of$7.1 million in the nine months endedSeptember 30, 2020 . The increase in the provision for income taxes was primarily attributable to the Company's net income before income taxes in the nine months endedSeptember 30, 2021 as compared to a net loss before income taxes for the nine months endedSeptember 30, 2020 , primarily as a result of COVID-19 related temporary closures beginning inMarch 2020 . Segment results Franchise Segment EBITDA for the franchise segment was$145.0 million in the nine months endedSeptember 30, 2021 compared to$71.4 million in the nine months endedSeptember 30, 2020 , an increase of$73.6 million , or 103.1%. The franchise segment EBITDA increase in the nine months endedSeptember 30, 2021 compared to the nine months endedSeptember 30, 2020 was primarily due to a$53.6 million increase in royalty revenue and a$12.0 million increase in NAF revenue, both as a result of COVID-19 related temporary store closures beginning inMarch 2020 . Additionally, NAF expense was$4.4 million lower in the nine months endedSeptember 30, 2021 due to higher advertising and marketing expenses in the prior year period as a result of increased marketing efforts related to the reopening of stores following COVID-19 temporary closures. Depreciation and amortization was$5.7 million and$5.8 million for the nine months endedSeptember 30, 2021 and 2020, respectively. Corporate-owned stores Segment EBITDA for the corporate-owned stores segment was$35.2 million in the nine months endedSeptember 30, 2021 compared to$11.4 million in the nine months endedSeptember 30, 2020 , an increase of$23.8 million , or 209.1%. The corporate-owned store segment EBITDA increase was primarily attributable to temporary store closures related to COVID-19 beginning inMarch 2020 , as well as the opening of eight new corporate-owned stores sinceJanuary 1, 2020 . Depreciation and amortization was$26.9 million and$22.2 million for the nine months endedSeptember 30, 2021 and 2020, respectively. The increase in depreciation and amortization was primarily attributable the opening of corporate-owned stores sinceJanuary 1, 2020 . Equipment Segment EBITDA for the equipment segment was$15.4 million in the nine months endedSeptember 30, 2021 compared to$9.9 million in the nine months endedSeptember 30, 2020 , an increase of$5.4 million , or 54.4%, primarily as a result of higher equipment sales to existing franchisee-owned stores in the nine months endedSeptember 30, 2021 compared to the nine months endedSeptember 30, 2020 . Depreciation and amortization was$3.8 million for both the nine months endedSeptember 30, 2021 and 2020. Liquidity and capital resources As ofSeptember 30, 2021 , we had$527.3 million of cash and cash equivalents. We require cash principally to fund day-to-day operations, to finance capital investments, to service our outstanding debt and tax benefit arrangements and to address our working capital needs. Based on our current level of operations, we believe that with the available cash balance, the cash generated from our operations, and amounts we have drawn under our Variable Funding Notes will be adequate to meet our anticipated debt service requirements and obligations under the tax benefit arrangements, capital expenditures and working capital needs for at least the next 12 months. We believe that we will be able to meet these obligations even if we continue to experience impacts to sales and profits as a result of the COVID-19 pandemic. Our ability to continue to fund these items and continue to reduce debt could be adversely affected by the occurrence of any of the events described under "Risk Factors" in the Annual Report. There can be no assurance that our business will generate sufficient cash flows from operations or otherwise to enable us to service our indebtedness, including our Securitized Senior Notes, or to make anticipated capital expenditures. Our future operating performance and our ability to service, extend or refinance our indebtedness will be subject to future economic conditions and to financial, business and other factors, many of which are beyond our control, including potential future impacts related to the COVID-19 pandemic. 40 -------------------------------------------------------------------------------- Table of Contents The following table presents summary cash flow information for the nine months endedSeptember 30, 2021 and 2020: Nine months endedSeptember 30 , (in thousands) 2021
2020
Net cash provided by (used in): Operating activities $ 149,490$ (2,115) Investing activities (66,772) (36,437) Financing activities (13,025) 61,753 Effect of foreign exchange rates on cash (19) (394) Net increase in cash $ 69,674$ 22,807 Operating activities For the nine months endedSeptember 30, 2021 , net cash provided by operating activities was$149.5 million compared to net cash used in operating activities of$2.1 million in the nine months endedSeptember 30, 2020 , an increase of$151.6 million . Of the increase,$94.3 million is due to higher net income after adjustments to reconcile net income to net cash provided by operating activities in the nine months endedSeptember 30, 2021 as compared to the nine months endedSeptember 30, 2020 , and$57.3 million is due to favorable changes in working capital primarily from accounts payable and accrued expenses, other assets, equipment deposits and payments pursuant to tax benefit arrangements partially offset by an unfavorable change in accounts receivable, each of which was primarily due to temporary store closures related to COVID-19 in the prior year period. Investing activities Cash flow used in investing activities related to the following capital expenditures for the nine months endedSeptember 30, 2021 and 2020: Nine months ended September 30, (in thousands) 2021 2020
New corporate-owned stores and corporate-owned stores not yet opened
$ 8,825 $ 11,071 Existing corporate-owned stores 12,350 15,456 Information systems 10,445 9,853 Corporate and all other 171 339 Total capital expenditures
For the nine months endedSeptember 30, 2021 , net cash used in investing activities was$66.8 million compared to$36.4 million in the nine months endedSeptember 30, 2020 , an increase of$30.3 million . The primary driver for the increase in cash used in investing activities was$35.0 million of cash used for investments in the nine months endedSeptember 30, 2021 , partially offset by$4.9 million of lower capital expenditures in the current year period. Financing activities For the nine months endedSeptember 30, 2021 , net cash used for financing activities was$13.0 million compared to net cash provided by financing activities of$61.8 million in the nine months endedSeptember 30, 2020 , a decrease of$74.8 million . The primary driver of the decrease was the Company's incurrence of$75.0 million of borrowings under its Variable Funding Notes in the nine months endedSeptember 30, 2020 . Securitized Financing Facility OnAugust 1, 2018 , the Master Issuer, a limited-purpose, bankruptcy remote, wholly-owned indirect subsidiary ofPla-Fit Holdings, LLC , entered into the 2018 Indenture under which the Master Issuer may issue multiple series of notes. On the same date, the Master Issuer issued the 2018 Class A-2-I Notes with an initial principal amount of$575 million and the 2018 Class A-2-II Notes with an initial principal amount of$625 million . In connection with the issuance of the 2018 Notes, the Master Issuer also entered into the Variable Funding Notes that allow for the incurrence of up to$75 million in revolving loans and/or letters of credit, which the Company fully drew down onMarch 20, 2020 . OnDecember 3, 2019 the Master Issuer issued the 2019 Notes with an initial principal amount of$550 million . The 2019 Notes were issued under the Indenture. The Securitized Senior Notes were issued in a securitization transaction pursuant to which most of the Company's domestic revenue-generating assets, consisting principally of franchise-related agreements, certain corporate-owned store assets, equipment supply agreements and intellectual property and license agreements for the use of intellectual property, were assigned to the Master Issuer and certain other limited-purpose, bankruptcy remote, wholly-owned indirect subsidiaries of the 41 -------------------------------------------------------------------------------- Table of Contents Company (the "securitization entities") that act as guarantors of the Securitized Senior Notes and that have pledged substantially all of their assets to secure the Securitized Senior Notes. Interest and principal payments on the Notes are payable on a quarterly basis. The requirement to make such quarterly principal payments on the Notes is subject to certain financial conditions set forth in the Indenture. The legal final maturity date of the 2018 Notes is inSeptember 2048 , but the Anticipated Repayment Dates of the 2018 Class A-2-I Notes and the 2018 Class A-2-II Notes areSeptember 2022 andSeptember 2025 respectively, unless earlier prepaid to the extent permitted under the Indenture. The legal final maturity date of the 2019 Notes is inDecember 2049 , but it is anticipated that, unless earlier prepaid to the extent permitted under the Indenture, the 2019 Notes will be repaid inDecember 2029 . If the Master Issuer has not repaid or refinanced the Notes prior to the respective Anticipated Repayment Dates, additional interest will accrue pursuant to the Indenture. The Variable Funding Notes will accrue interest at a variable interest rate based on (i) the prime rate, (ii) overnight federal funds rates, (iii) theLondon interbank offered rate forU.S. Dollars, or (iv) with respect to advances made by conduit investors, the weighted average cost of, or related to, the issuance of commercial paper allocated to fund or maintain such advances, in each case plus any applicable margin and as specified in the Variable Funding Notes. There is a commitment fee on the unused portion of the Variable Funding Notes of 0.5% based on utilization. It is anticipated that the principal and interest on the Variable Funding Notes will be repaid in full on or prior toSeptember 2023 , subject to two additional one-year extension options. Following the anticipated repayment date (and any extensions thereof) additional interest will accrue on the Variable Funding Notes equal to 5.0% per year. In connection with the issuance of the 2018 Notes and 2019 Notes, the Company incurred debt issuance costs of$27.1 million and$10.6 million , respectively. The debt issuance costs are being amortized to "Interest expense" through the Anticipated Repayment Dates of the Notes utilizing the effective interest rate method. The Securitized Senior Notes are subject to covenants and restrictions customary for transactions of this type, including (i) that the Master Issuer maintains specified reserve accounts to be used to make required payments in respect of the Securitized Senior Notes, (ii) provisions relating to optional and mandatory prepayments and the related payment of specified amounts, including specified make-whole payments in the case of the Notes under certain circumstances, (iii) certain indemnification payments in the event, among other things, the assets pledged as collateral for the Securitized Senior Notes are in stated ways defective or ineffective, (iv) a cap on non-securitized indebtedness of$50 million (provided that the Company may incur non-securitized indebtedness in excess of such amount, subject to the leverage ratio cap described below, under certain conditions, including if the relevant lenders execute a non-disturbance agreement that acknowledges the bankruptcy-remote status of the Master Issuer and its subsidiaries and of their respective assets), (v) a leverage ratio cap on the Company of 7.0x (calculated without regard for any indebtedness subject to the$50 million cap) and (vi) covenants relating to recordkeeping, access to information and similar matters. Pursuant to a parent company support agreement, we have agreed to cause our subsidiary to perform each of its obligations (including any indemnity obligations) and duties under the Management Agreement and under the contribution agreements entered into in connection with the securitized financing facility, in each case as and when due. To the extent that our subsidiary has not performed any such obligation or duty within the prescribed time frame after such obligation or duty was required to be performed, we have agreed to either (i) perform such obligation or duty or (ii) cause such obligations or duties to be performed on our behalf. The Securitized Senior Notes are also subject to customary rapid amortization events provided for in the Indenture, including events tied to failure to maintain stated debt service coverage ratios, certain manager termination events, an event of default, and the failure to repay or refinance the Notes on the applicable scheduled Anticipated Repayment Dates. The Securitized Senior Notes are also subject to certain customary events of default, including events relating to non-payment of required interest, principal, or other amounts due on or with respect to the Securitized Senior Notes, failure to comply with covenants within certain time frames, certain bankruptcy events, breaches of specified representations and warranties, failure of security interests to be effective, and certain judgments. In accordance with the Indenture, certain cash accounts have been established with the Trustee for the benefit of the trustee and the noteholders, and are restricted in their use. The Company holds restricted cash which primarily represents cash collections held by the Trustee, interest, principal, and commitment fee reserves held by the Trustee related to the Securitized Senior Notes. As ofSeptember 30, 2021 , the Company had restricted cash held by the Trustee of$42.1 million . Restricted cash has been combined with cash and cash equivalents when reconciling the beginning and end of period balances in the consolidated statements of cash flows. 42
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Table of Contents Off-balance sheet arrangements As ofSeptember 30, 2021 , our off-balance sheet arrangements consisted of guarantees of lease agreements for certain franchisees up to a maximum period of ten years with earlier expiration dates possible if certain conditions are met. Our maximum total obligation under these lease guarantee agreements is approximately$6.9 million and would require payment only upon default by the primary obligor. The estimated fair value of these guarantees as ofSeptember 30, 2021 was not material, and no accrual has been recorded for our potential obligation under these arrangements. Critical accounting policies and use of estimates There have been no material changes to our critical accounting policies and use of estimates from those described under "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in our Annual Report.
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