Ladies and gentlemen, thank you for standing by. And welcome to the Planet Fitness Q2 Quarterly Earnings Call. I would now like to turn the call over to Stacey Caravella, Vice President, Investor Relations. Please go ahead.

Thank you, operator, and good morning, everyone. Speaking on today will be Planet Fitness Chief Executive Officer, Chris Rondeau; and Chief Financial Officer, Tom Fitzgerald. Chris is traveling today and will be joining us remotely. Both will be available for questions during the Q&A session following the prepared remarks. Today's call is being webcast live and recorded for replay. Before I turn the call over to Chris, I'd like to remind everyone that the language on forward-looking statements included in our earnings release also applies to our comments made during this call. Our release can be found on our website, investor.plantfitness.com, along with any reconciliation of non-GAAP financial measures mentioned on the call with their corresponding GAAP measures. Now I'll turn the call over to Chris.

Thank you, Stacey, and thank you, everyone, for joining us for the Planet Fitness Q2 earnings call. With all that's going on in the economy today, we feel really good about the demand that we are seeing for our brand. Our second quarter results reinforce that our judgment free, high-quality, and affordable fitness experience continues to resonate with consumers. We ended the quarter with more than 18.4 million members and 8.7% system-wide same-store sales growth. We added 26 stores, bringing our global store count to 2,472. I'm going to cover two topics today. First, our second quarter results that confirmed that the fundamentals of our business continue to be strong; and second, our continued belief in our long-term growth opportunity despite near-term external headwinds. During the second quarter, we grew net membership by more than 300,000. All generational groups surpassed their pre-pandemic population penetration levels in the U.S. with the Gen Z continuing to lead the way in terms of membership growth. At the end of June, 3.5% of boomers, more than 6% of Gen Xers and more than 9% millennials and Gen Zs are members of Planet Fitness. We also launched the third year of High School Summer Pass on May 15. Leading up to it, we already had more than 400,000 teams joined from last summer's program. We had more than 2.8 million high school age teams sign up for the 2023 program so far, 70% of which are first-time participants. It's incredible to me that over the past three years we've run this program, we've impacted the lives of more than six million teens. We're focused on building lifelong brand loyalty with this generation by giving them free access during the summer so they can develop long-lasting healthy habits and experience all the benefits of fitness. This…

Thanks, Chris, and good morning, everyone. First, I'm going to address how the headwinds Chris talked about are impacting our new store development, then I'll cover our second quarter results, and lastly, our current 2023 outlook. The cumulative effect of higher cost to build and higher interest rates has caused us to lower our outlook for equipment placements in new franchise stores to approximately 140 versus our previous expectation of approximately 160. To provide better insight and clarity into our business, we are also going to provide a new store opening outlook in addition to our standard franchise new store placement metric. For 2023, we expect to open approximately 160 new locations, which reflects our expectations for new franchise stores and corporate store openings this year. This also includes the franchise stores in which we placed equipment in 2022, but opened in 2023. While our new store returns are still strong, they are not back to their pre-COVID levels due primarily to higher construction costs that have stubbornly remained up 25%. To put it in perspective, the amount of CapEx required to build six stores per year in 2019 will now only build four or five depending on the situation. As Chris noted, this isn't unique to us as many multi-unit brick-and-mortar concepts are also experiencing this inflation. Additionally, the rapid increase in interest rates over the past year has had a cumulative impact on our franchisees ability to invest in new store growth. Initially, franchisees didn’t see the increase in rates as a significant dampener to their new store development plans, however, they’re more recently feeling the lag effect of higher debt service. Finally, vacancy rates for 15,000 to 25,000 square foot boxes are tighter down about 16% versus pre-COVID. At our Investor Day last year, we projected that…

[Operator Instructions] Our first question comes from the line of John Heinbockel from Guggenheim Partners. Please go ahead.

Hey, Chris, want to start with the openings of the franchisees are going to do this year and maybe that you’re saying you have visibility to early next year. I’m curious where that stands relative to their commitments under the ADAs, right? Because they had built more and then they’ve come back to I think to their commitments. Is it still do you think kind of around their commitments? And if were to fall below that, I’m curious, sort of what happens? Basically feels like you get a grace period for a while, you can’t really force people to open. So I’m curious about that and then does that – do you sort of have confidence that next year and the year after, right, we should see higher unit expansion? We don’t know how much higher, but higher than where we are this year?

Well, actually thanks John and Tom feel free to add to it. Yes, I think what we’re seeing now is, what was more unexpected is that more of the franchisees are using the grace periods to your point, kind of waiting to see if costs do come down next year. Now, they do have the ability to earn a grace period back, which is a good thing because that means they developing stores faster again. But again, once they use them up, then they use them up and they have to start opening stores again. So that does – it does kind of come back to that point that you just mentioned that once they use them up then they are obligated to do it or they do lose their ADA. And like we talked about, once you lose the ADA, the value of that business is quite a bit lower than one with runway. But Tom, do you want to add to that?

Yes. John, I would just say to your question about the following years what does it mean. We’re not really going to comment on that at the moment as we talked about. The thing – and the principle reason for that is, if we step back, we feel good about the model, at a store level, the ability to earn strong four wall margins. You see that in our Corporate Store segment, how those margins are improving, the flow through from the same-store sales growth, all that is really quite good and sustainable because a lot of the – the vast majority of the top line growth is member driven and we don’t see anything really standing in the way of that continuing. But clearly, costs are higher as we’ve talked about. They’ve stayed higher, although, some have thought they would be lower by now or the inflation would have moderated by now. And it is a tighter real estate market. So I think we just want to take some time and let it play out, monitor those sort of external headwinds and also see how our pipeline comes together before we project further. So we think it makes sense to take a more thought – take a thoughtful approach, see how that plays out, and then when we provide our outlook for next year to then update how we see the following year to sort of come back to that Investor Day target that we put out. So that’s how we see it. And it is kind of a volatile situation and part of the reason why we’re providing the new store metric is to help provide some clarity there both in terms of placements, new stores and the timing of both.

All right. Maybe just as a follow-up, right. Because you’re at about 10% corporate ownership, right? I think you’re comfortable going higher, right, probably a good amount higher than 10%. What’s the thought philosophically near-term? And I guess more intermediate to longer of stepping up your own growth? Because obviously you have the ability to fund it, maybe some other franchisees don’t. Is that a thought or are you limited sort of geographically? Because you’re going to – you’re not going to go into new markets, so it’s really only fill in for you.

I’ll try that, Tom, and if you want to add to it. When we bought Sunshine, John, as you recall, one of the reasons for that purchase is they had a lot more runway than we did with our old legacy markets, especially in the Northeast. So that does give us some more runway to go. As you said, we opened about 15 this year, which is about Sunshine was typically opening before we owned it. So yes, we have the capital. But again, real estate is tight, same issues franchisees are. But you’re right, if we find sites, then there’s no sense in us waiting to do them either, right?

Okay. Thank you.

Our next question comes from the line of Randy Konik from Jefferies. Please go ahead.

Yes, thanks guys and good morning. I guess, Tom, really all – I guess, everyone wants to understand is just with the 160 number, is that kind of the floor from your perspective? Like, we don’t need to get specifics on the actual, what we should see in the out years? But would you anticipate that the 160 is kind of like the actual floor or close to the floor? Give us your thoughts there?

Yes. Randy, it’s kind of similar to maybe how we thought about it last quarter. And as you know, in our business by now we have a much clearer picture of what’s going to happen and what’s not going to happen, and we did some – see some deals that we thought were going to go to lease just didn’t materialize. So I think we feel good about the approximately 160 new stores across our entire system for the year and then the similar view on placements. And with our best guess and all of our – ours and the individual franchisees who are building the stores, how long the permitting takes, so, it’s – things can always happen with an individual store, but I think when we look at the collective view based on where we sit now versus where we were three months ago, it’s what all of our experience tells us will materialize in our pipeline in the new environment that we’re in. So I wouldn’t say it’s a floor, I wouldn’t say it’s a ceiling. I think it’s our best guess of what it will be. And we’re saying approximately 160, so might be a couple above and a couple below, but it’s our best guess of what we think will happen.

And then just to follow-up on that, would you anticipate – again, we know that we’re going to get an updated guide in a couple quarters for the out year. But just if we had to think about just in the years ahead, would we be thinking around this numbers more of a floor per year? I guess that’s what the market’s trying to figure out, right? There’s no questions around the business model at all. It’s just people are just trying to get a handle or try to get a sense of how many units are kind of going to be opened per year over the next few years. Just kind of just getting your sense of where we are versus this current guide of 160 would be very helpful.

Yes, Chris, I can start that and you may want to add. But I think part of it too, Randy is, what’s happening in the broader context of real estate. We all probably see the same kind of information where vacancy rates are and what the builds have been in strip centers and the kind of spaces we target. And they’re kind of at their historic lows. Does that accelerate now? Going forward, does that pace pick up or does it remain the same? I think those are some of the things we want to factor in. So we’re not really providing any updates or outlook at this time. But I think if you look back and say, geez, we opened quite a few stores during the worst of the pandemic and there was a lot more uncertainty then. Now rates are lower, but costs were starting to climb and we still took down a bunch of real estate. And we talked about even for 2022, if you look at the total real estate that was leased, at least the work we’ve done with some outside help, I think there are only two brands who leased more total square footage than us, it’s Dollar General and TJX. So we’re still taking down a lot of real estate. It’s just kind of hard to – we want to see how some of these other factors play out before we really recast what we think the outlook is for new store growth. But to your point, the model strong, the generational trends that we’re seeing, it’s just – it’s a little more difficult to predict in this environment than it was pre-COVID. And we just want to make sure we’re thoughtful and take an approach that that is as informed as possible versus doing a quick update to it that may not be as informed as we’d like it to be. We’re just not going to do that.

Understood. Thanks guys.

Okay. Thanks.

Thanks Randy.

Our next question comes from the line of Max Rakhlenko from TD Cowen. Please go ahead.

Hey, good morning guys. This is Bradley on for Max. So looking at that long-term 600 number, can you please remind us how many of those are contractually obligated under the ADA versus the mix of those that might have been franchisees opening ahead of schedule?

Tom, you want to take that?

Yes, sure thing. Hey, Bradley. So I think or to answer your question directly, what we said historically was in the K is over the next three years, this being year one, there was over 500 – there were over 500 obligations that franchisees had in their ADAs. And then you add to that corporate stores and then plus any further international expansion that is not currently – and countries we’re currently not in, excuse me. And that’s how we thought about the 600. But I think – and to your question before or the other part of your question, pre-COVID about 15% to 20% of the new units that were built were built ahead of schedule. So as we said on the last call, we didn’t see very much of that, if any happening this year where people are building ahead of their schedule. That may change next year and the following year, but at least that’s how we see it today. And to Chris’ point earlier, within that five – over 500 franchise obligations, they do have the ability in the current year, in the future years to use grace periods that they haven’t used to push obligations forward. And we’re seeing more of that usage now than we had previously. So that’s a little bit of why we want to take some time and see how this plays out for the next few months before we recast it. But that’s the long and the short of it in terms of the numbers and how the grace periods could affect that both this year and in the future years.

Great. Thanks. And then my follow-up is, can you speak to some of the ways that you guys can continue to help out franchisees given the difficult macro backdrop at the moment? And then what would your thoughts be on reopening the system to either new franchisees or potentially former partners who have sold out?

Sure. Max this is Chris. Yes, as you know that the one franchisee that we took back the exclusivity that they had in some territories, we’ve sold a good amount of those units already and all but one with two existing franchisees in the system. So, which is great sign for everybody to know because franchisees is so bullish about the business because they see the business itself, trends are great, right? So they’ve already bought some of those units. We did have one, ex-franchisee has now reentered the system and bought some of those units as well. So now bringing a complete newbie to the system, we’re not opposed to that naturally to fulfill the need to it. But again, to grow with our existing franchisees or an ex-franchisee that was a proven partner of ours and we really look at them as partners and they know the business, they know the system, they know how to run the playbook. And in the space they’ve helped us grow exponentially over the last five, six, seven years here. So it is better to grow with them than without them. So I’d rather try to grow with them in the future, but not that I am – not that I’m necessarily opposed to bringing new blood in.

Great. Thanks for the color guys.

Thanks.

Our next question comes from the line of Simeon Siegel from BMO Capital Markets. Please go ahead.

Thanks. Hey, everyone. Good morning. Hope you’re having a nice summer?

Good morning.

So Chris might be a weird question. Good morning. So it might be a weird question, but any help you can provide on details of maybe the previously planned opening that won’t be happening. So just trying to think through within the reduction, is it a specific region? Is it specific partners? Because you’re not going to zero, you still have 140 that’s a lot of new franchisee openings. So I’m just trying to think through the common denominators between the stores that you do still expect to be opened versus those that you don’t. And again, I don’t know if it’s regional, if it’s a partner, if it’s contractually committed versus not. Just thinking out loud, but obviously this is going to be a focus for investors. So any further contextual you provide is probably helpful.

Sure. Sure, Simeon and thank you. And Tom, feel free to add to as well. Yes, I think like as I mentioned earlier, most of it now is, we see have more visibility now for the rest of the remainder of the year, which three months ago we don’t have quite as much visibility, especially in the fourth quarter, which we do today. And weren’t quite sure where the franchisees were. We started using the grace period because they generally in the past they’re going to do a ground up, which take a lot longer than they anticipated, so they use a grace period for something like that or they really were holding out in a particular market for like a real eight, eight plus space. So generally their grace periods are considered like gold to them. So they weren’t generally using them for seeing if costs come down for example or now there’s a little bit of lack of real estate. So I think now we’re just seeing that they’re just using grace periods to see if costs come down in the future and putting them off to the next year or two. So that’s more what it comes down to today. So I don’t see – it’s not like a lack of bullishness about the business at this point. And they see – like I said, they see the business terms. It’s more – to Tom’s point, they’re budgeting a certain amount of money and now it’s costing an amount of six stores to build five stores. And a lot of these franchisees we were building – some of them were building eight, 10, or 15 stores a year, which that’s like building 20 almost today. So I think it’s just more like how fast they bring up the cash. And again, the system’s not 100% back there yet to pre-COVID membership or revenue. So it’s a little bit of that as well.

And Simeon, we’re not seeing anything regionally or anything in particular other than that one franchisee that we discussed where they lost some exclusivity that Chris gave an update on. That’s playing its way through. Won’t affect this year, should affect next year and potentially the following year.

Great. That’s very helpful guys. And then just Tom, how are you thinking about Black Card penetration going forward? Is that mid-62% range? Is that a fair way to think about it?

I think we’re definitely seeing the impact as we’ve discussed from the generational shift with Gen Zs being a big part of the join mix. We think it – and for the first time Simeon, we’re seeing a little bit of softness across all the age generations year-on-year. That might be a little bit of – it’s not so much on the cancel side, but more on the join side. So the biggest impact by far is the Gen Z mix within our membership base increasing more dramatically. The second piece is a little bit of softening in the other generation, so it may be just a little bit of external macro environment, inflationary, recessionary pressure on the consumer. Don’t know, we’ll see how it plays out. But I think we just need a little bit more time because we weren’t seeing those kind of results when we were testing it, and we certainly didn’t see it after rolling it out in May of last year where Black Card penetration was continuing to increase. So we need – we’re monitoring that and thinking about ways to boost Black Card penetration with promotional activity as well. But it was the first time we really saw that in the quarter.

Got it. Thanks a lot guys. Best of luck for the rest of the year.

Okay. Thanks.

Our next question comes from the line of Sharon Zackfia from William Blair. Please go ahead.

Hi. Good morning. Kind of going back to the franchisee unit level profitability. Are there other kind of strategies you’re exploring to maybe bolster that profitability, whether it’s implementing other member tiers or potentially even giving back some of the ad fund contribution as you talked about before, you’re very efficient with your ad fund now. I’m just trying to think of ways that might help them feel better about the profitability that then would translate to accelerated growth.

Tom, you want to try that and then I’ll add to it?

Sure thing, Sharon. Thank you for the question. I think the best enhancer of profitability is member growth. And we’re seeing that in our own corporate stores and particularly the mature stores. So now we have a full quarter of the Sunshine stores in this year and last year, and we’re quite pleased with the way the same-store sales growth is translating to four wall growth and margin expansion. It’s pretty healthy because the model is – and in that we treat ourselves like a franchisee with a synthetic royalty. So it’s more of an apples to apples comparison. The margin expansion is quite healthy. So that’s the primary one. And I think while our marketing spend has gotten – we’ve gotten some learnings, I think we’ll be on a never ending quest to make that money be more efficient and drive more membership growth. I think we’ll also experiment with how do we get more credit for the value that we offer in our promotional messaging and different things. And also what – as Chris has said, what are we not saying to people to get them off the couch? The 140 million people who live near a gym that don’t – that live pretty close to a Planet Fitness, but don’t belong to any gym. We think the actions we took to increase the annual fee to $49 is certainly accretive to the franchisees. We’re not really considering that we should reduce the local ad spending that franchisees contribute. There’s still so many more people to get off the couch and the payback on those investments is so, so great. The contract value of somebody who joins is many orders of magnitude greater than the cost of acquiring that member. So we think just more time, but we’re certainly not close-minded to the ideas. But we think overall the model is strong and more member growth will really drive that margin improvement. So Chris, I don’t know if there’s anything else you want to add to it.

Yes. I think the only thing I’d probably just reiterate is, with the corporate stores, as you see the same-stores of the corporate stores, is that we generally spend a little bit more than the 9% that’s required from franchisees, and some franchisees do as well Sharon. And even though not all franchisees are all back to pre-COVID revenue or membership, some are quite a bit ahead of where that is. So point it’s just time. And in some ways you can buy time by just spending more marketing dollars to get more people off the couch and get people to join. And the fact that our same-store sales just like pre-COVID is majority member growth, which means it’s working and it’s doing exactly what it should. And I think with the business itself, we don’t want to cheapen the brand or the experience to the member. And being in a $10 membership club forever essentially at this point, we’ve been value concentrated forever as far as how do we build things better but still keep value and we don’t want to really cheapen the brand. But we’re always looking at ways to cut costs if we don’t ruin the experience ever.

That’s really helpful.

Sorry, Sharon. Maybe one other thing I’d add is, as you know, over the years we basically have had three price tiers in our business the $10, we’ve had a $15 option that people can offer, and then the Black Card option. And we continue to price and test things. So we’re looking at ways in one of the test to capture more of that $15 price during the non-promotional periods, but still be a $10 price during the sale period. So we're continuing to test those kinds of things as well as some other things across our markets, as I was referring to before, to try to get more credit for the value that we do offer, and ultimately make our sales more impactful. It's all with the intent to drive more member growth, which is the name of the game for us. So it is a multifaceted thing, and we're continuing to experiment with things and take what works to the rest of the system. So hopefully, that helps add a little more color.

Yes. And I know that you've kind of talked about the uncertainty with the U.S. franchise growth. But I think that 600 target also included accelerating international expansion. I mean, how much of that 600 was overseas? And is that still intact? Or is that facing the same headwinds as U.S. development?

We didn't give any guidance on how much of that would be international, but we were going from doing maybe one a year or one every two years as far as a new country, and now are hopefully looking to do at least two to three maybe a year going forward. So – but if we do it internationally, if we sign it today, it's going to take, at least a year to really get it rolling and rolling and probably really start to contribute in 2025 at this point.

Okay, thank you.

Thanks Sharon.

Our next question comes from the line of Jonathan Komp from Baird. Please go ahead.

Yes. Hi, thank you. Good morning. It's a bit of a follow-up question, but I wanted to just ask maybe a little more directly if you have insight, Tom. Thinking about unit economics, you cited strong levels qualitatively, but can you be any more specific, just how you're thinking about average franchisee cash-on-cash returns when you think of the 2023 or 2024 class relative to pre-pandemic levels?

Yes, Jon, it's a good point. And so I think what we feel really good about is, as you've heard us say, the stores that were opened even in 2019 didn't really have two successive, three successive strong first quarters. So the ramps of those stores built in those years were 80%, 85% of what we would typically see pre-COVID. What we're seeing this year is the stores that are open this year are much closer to the 2019 ramps, which is really good to see, which certainly helps some of that cash-on-cash and how fast they get to maturity and where they get to and so on. So clearly, it's extended by the increased cost to build, and it's very situational dependent. We look at our own stores, so we really can't speak for the system, but the new stores that we look at and either approved or don't for our corporate clubs, we still think the returns are strong. The expected maturity four-wall margins are still very strong. It's just harder for us to speak to individual franchisees. But it goes back to the four-wall aspects of the model are very strong. The increased cost to build and equipment is a little more expensive. So when they have to reequip, that's more – that's going to hurt the overall returns from where they were pre-COVID and maybe the cash-on-cash metrics are extended a little bit further in terms of the payback period, but still attractive. And we still have quite a bit of – we've got a transaction in our system now from somebody from the outside and experienced operator that we may have mentioned last time, but it's near closing. It's still attractive to people externally. I think it's just a bit of an adjustment period for people who are in the system and used to the old returns and smarting from having to pay 25% more for things that they didn't have to. So – but overall, we feel good about the four-wall margins, but periods of payback and cash-on-cash returns are extended and somewhat lower. But the other good news is, as you know, the stores built this year and prior here since we took the price up on Black Card last May, all those new stores are taking the new members on Black Card at $24.99, and everyone is paying the higher annual fee, which – and with our math, depending on the mix of Black Card, it's going to add 300 to 400 basis points to what it would have been from a four-wall standpoint. So back to Sharon's question, trying to do things that improve the overall economics for our system and it's a long-winded answer, but hopefully, I answered your question?

Yes, that's really helpful.

I think, Jon, the only thing I'd add to it as you probably recall, I mentioned in the last call is that, to Tom's point, the first quarter is so important to us. And the three-year ramp is where a lot of the – where the growth comes from – or the three first quarters that come back to back to back where the stores that opened up in 2019 and during COVID, this is like this past first quarter was the first real one that had fully right. And I mentioned in the last call that stores that were already mature pre-COVID and already experienced their three year ramp pre-COVID, those stores on average are all ahead of their pre-COVID membership and revenue on average. So it's these stores that opened like just prior to COVID or during COVID that they're just not experiencing that three year ramp, because the first quarters have just been so wacky.

Yes, thank you both for that. And Chris, if I could just ask a follow-up on pricing. And Obviously, pricing is a nice lever for new unit economics. Just curious, sentiment from franchisees, are they on board with keeping price – the White Card price where it is and prioritizing volume and just thinking about all the inflation around you, certainly other non-gym concepts that are value have raised prices over the last year or two. And even the $15 a month spread between White Card and Black Card is pretty wide these days. So any updated thoughts on $10 a month remaining the floor forever? And if it is, are you concerned about competitive pressures or just any thinking there? Thank you.

Yes. Thanks, Jon. I would say, I think to Tom's earlier point with that $15 middle care membership we offered in the past, and we call it three tier. So it's the $10 to $15 and $24.99, $10 and $15 is essentially the same membership as a White Card, but it's – the $10 would have a commitment, $15 would have no commitment or the $10 would have a bigger enrollment fee than the $15, so people can either pay up for to get a cheaper membership monthly if they choose to make that kind of investment, right. So I think it's a little bit more maybe discipline around that pricing structure so that hopefully, we can – during off-sale periods, drive a little higher average ticket with the $15, which is still a great deal for White Card membership anyway, right. But I think the – and the beauty with our business is that the amount of people with our gym memberships, for example, we don't – we're not always trying to steal customers from competitors, and we need to get as much from every member as we can because there's no more to go get off the couch, which with this business and this industry, 70%, 80% of the U.S. population doesn't have a gym membership, for us, it's always about market share, right. And for every $10 membership I have, or member I have, it's another $20 or $30 or $40 membership my competition doesn't have. And I believe truly threatened to do and with the judgment-free zone and getting people off the couch and get them healthy and again, almost 40% of our members are first-time gym members, I still think it's really the right thing to do to drive volume, but some of the pricing structure that I talked about to drive some average ticket over the course of the year.

And is that something that could benefit 2024 already? And that was my last question. Thank you.

Yes. I think it's something we're looking at now. We always have it out there, but I think we're getting more disciplined now maybe with how to use it during off-sale periods to drive some average ticket. So because they take some time to have influenced it to $24.99. But again, every additional member with an extra couple of bucks here does help.

Our next question comes from the line of Joe Altobello from Raymond James. Please go ahead.

Good morning. This is Martin on for Joe. Most of my questions have been answered, but I was just wondering if we can get a little bit updates about the share repurchases for the remainder of the year, considering how many you've done for this quarter?

Yes, Martin, thanks for the question. So we had – as you may know at our Investor Day, we committed to over the three-year period, this being year one, that we would purchase a minimum of one million shares a year just so people could count on a consistent level of repurchases. And so we're well above that for this year. And so we're not necessarily guiding on what we're going to do for the rest of the year. But we'll see how things play out. The good news is we have plenty of cash. But we thought it was appropriate given what was happening with the stock price to move – to buy more on the early side of it and above what we – above that minimum. So we feel good about where we are, and we feel good about our ability to take action if we think it makes sense or sit out the rest of the year. We'll just have to see how things play out.

Understood. Thank you.

Thanks Martin.

Our next question comes from the line of Rahul Krotthapalli from JP Morgan. Please go ahead.

Hey, guys. Thanks for taking my question. Chris, can you elaborate further on your comment around the white spaces from the retail availability standpoint? You said it's becoming a little difficult for the franchises. Is it because they're unable to meet the return threshold given competition wouldn't really be a reason, right. So I'm just curious if you have any more comments there to elaborate. And also, it would be great if you can give us a sense of what's the total time from identifying the site to store opening today versus, say, pre-COVID?

Sure. Thanks, Rahul, and Tom, could add to it as well. I would say the – on the real estate availability, it's more it's just that there's not as much inventory out there to go to negotiate. So it's not that they're not the right deals, it's just lack of available space to get in. Now feedback and beyond situation does help us some. But more of that would be better beneficial. This is less of inventory today than it was pre-COVID. The timeline today, I'd say, to negotiate leases and get store open, pre-COVID, but it was about, call it, five or six months or so. So I'll take you two or three months to negotiate the lease, once you sign the lease, it would take you about three or four months to get it open. Today, with what's else going on, you negotiate the lease, once you find the location, which is – the bigger issue is finding a location first, and negotiate a lease. Negotiating a lease is about the same timeline. And then the construction issues, we have HVAC, which they have to plan on, which they've gotten better for sure on planning that ahead of time before they send lease in an order the HVAC for that location. Today, because of the 30 or 40-week lead time on HVAC, they actually have to order lease, they have to order HVAC before they even know where they're going to put it, so which is a little bit odd, naturally. And I guess the other thing, too, is the municipalities, even in permitting, for example, even though COVID seems like it was quite a fun time ago, to municipalities, the building inspectors, for example, they're still working from home where there's just not as much – they aren't around as much as getting these permits signed and CEOs typically have occupancies issued. So it's just everything just takes longer than it did pre-COVID. So now it's I'd say don't know Tom, it's probably in nine to 12 – nine-month time probably nine, 12?

I think from when you first see the site. And to your point, there are situations where certain jurisdictions, it's much longer either on the permitting side or even the local – I guess, the local requirements of what needs to be done locally versus through the GC.

Understood. And just on following up here on the franchisee cash flow conversion, I think you guys talked about some levers around ad fund contribution and other things earlier. I'm just curious on one of the items I was going through on FDD is the mandated remodel spend. Is there any color you can provide there? I think the document talks about having $250,000 to $1 million every five years. Is there any discretionary component here that can be flexible on your end to just reduce the capital intensity on the franchise system as more of the system will be up for remodels for the next five to 10 years?

Tom, you want to take that.

Sure thing. Yes. Thanks, Rahul. So I think typically, what happens is in the life cycle of a store, as you know, – now if they're built after five years, there's a cardio reequip, after three years, there's a strength reequip. And then typically, at the end of the 10 years, there's a remodel requirement. Now in some cases, folks will want to relocate and get a better location because that's just the right thing to do. We do some of that in our corporate stores. Or alternatively, it is a good location. I want to stay in it, then there's a remodel requirement. So it's not so much in the – and maybe the language in the FTD is a little bit more general, so to speak, in terms of that. But that's typically what happens, what I'm describing. And we are looking at ways to make that remodel less capital intensive. We clearly want the store to come up to our current standards in ways that our customer member facing because it's going to be that way for the next 10 years, right. So we're always looking at ways to try to lessen that burden, but it is an important thing to do, particularly some of the older stores that may not have had quite as robust of a Black Card spa area and making an investment in that will enhance the Black Card percentage, and that's very accretive. So it is a little bit of a case-by-case basis in some of the stores that are coming up or have come up are some of the older vintage, which there's a bit more spend where the newer vintages, there would be less of a spend when they come up on their 10 years. So I hope that helps.

Understood. That's really helpful. Thanks a lot. And just like one last thing. This could be a stretch, but I'm very curious if you guys were ever thinking about like co-investing with franchises, say, new stores or equipment or anything, is there – are there any discussions? Or is there any thought about it at any time, even, if not now, in the future?

I wouldn't think that – go ahead, Tom.

No, please.

Yes. I don't think – I wouldn't think that – I would say it's – I won't say no, but I don't really see with our corporate store portfolio and our management team now that's in place running corporate stores, I don't know necessarily that it would be anything that we would do. But – and a lot of now have some of the private equity groups and a lot of them so large now. It's not necessarily that they're lacking capital to do the development. It's not like onesie, twosies in a large situations where they need capital to make financing, for example.

Understood. Thanks a lot for answering the questions, guys.

Of course, thanks Rahul.

Our final question comes from the line of Chris O'Cull from Stifel. Please go ahead.

Yes, thanks for taking my question. Chris, I had a follow-up question on the stores that opened in 2019. Given those gyms have seen low membership levels because they haven't enjoyed that January period until this year, I guess, is the company doing anything to help those gyms build membership or at least improve their profitability?

Yes. No, I think it's – as I mentioned, I mean, it's really same-store sales is the fastest way to get there. And you can market your way out of it or spending a little bit more 9% and as Tom has planned a little bit earlier. I mean the cost per joint compared to the lifetime value, I mean it’s light years apart. So it's just a matter of time really to get there. I mean as far as anything else, I mean there's always a low royalty you reduce equipment margin and so on and so forth. But at the end of the day, it's not fixing the issue, it’s masking the issue in our eyes and which is really just getting the membership back to where it used to be and getting ahead of where it used to be. And there was nothing we had 63 straight quarters of positive comps for COVID and everything was pointing to the situation where that was just going to continue if COVID never happened, and now we're back on the same-store sales bandwagon than we were pre-COVID. So it really is just time and every member after breakeven is about 84% flow through the rate to the bottom line because it's really fixed cost and all you're really paying is a royalty and ad dollars on that incremental number. So it's really just a matter of time to get there and then exceed those numbers.

Sorry, Chris, just if I could add one thing. Even in our own corporate stores, we have some of those stores that you're describing. And we are spending above the 7% minimum for the year. And some of that money is going to those stores that we want to sort of boost with additional marketing spend to get them cranked up because they didn't have those periods. Now we'd want to probably skew more of that during the key period in Q1, but having some more pressure throughout the year also makes sense to us. So that's – we think franchisees may want to make the same decision because it is so accretive to invest incremental dollars to drive the member growth.

Okay. That's helpful. And just my last one, Tom. Has the company considered offering or done any analysis to see if it makes sense to offer new development incentives to franchisees to help them improve their new unit returns and encourage more development?

Yes, I'll start that one, Chris may add. I think we've looked at some things, Chris. But if you go across a $3 million – $2.5 million, $3 million build and the number of units that are opening per year, it's hard for us to do anything meaningful that would dramatically affect that initial investment. I mean that's – I think that's the long and the short of it, right. It's – and again, once the stores open, the margins and the four-wall economics are very compelling. It's just that initial investment of being higher, there's a little bit we could do, but we don't think it would necessarily turn a decision to maybe wait versus go now. So we'll continue to evaluate that and think about it, but that's how we've – that's how we've analyzed it and come to the conclusions thus far.

Thank you.

I would now like to turn the call over to Chris Rondeau for closing remarks.

Thank you, everybody, for joining us today, and appreciate you all dialing in. I think you mentioned in my opening remarks, I'm still externally excited with the overall fundamentals of the business, the member growth, the member growth in all generations, the improvement in cancel rates for eight straight quarters in a row on both White Card and Black Card, even regardless of the price increase. And I think the – unfortunately, the pressures we're failing on construction costs and even cost of capital. I guess, it's unfortunate as it is, but it is also not Planet specific, and it's not even industry specific. And I'm just happy that our moat is continuing to grow relative to everybody else's and not seeing that slowing down even though it's not back to that 200-plus units a year. We had, I think, 160 openings is still a pretty solid number. It's roughly three million square feet of real estate. We're still developing even on these external pressures. So but anyway, I'm very happy we dialed in and thank you and look forward to the next call. Thank you.

Thank you, ladies and gentlemen. This does conclude today's call. Thank you for your participation. You may now disconnect.