Planet Fitness - Earnings Call - Q1 2025

Executive Summary

• Q1 2025 delivered double‑digit revenue growth (+11.5% to $276.7M) and Adjusted EBITDA of $117.0M; system‑wide same club sales rose 6.1% and membership reached ~20.6M.
• Versus Wall Street consensus (S&P Global), revenue and EBITDA were modest misses (est. $279.8M*, $120.3M*) while Primary EPS was slightly below estimates (est. $0.6155* vs. actual $0.59), despite healthy underlying demand and pricing mix.
• Management reiterated FY25 growth targets across comps, revenue, EBITDA, adjusted EPS, openings, and placements; lowered CapEx growth to ~20% from ~25%—tariff exposure seen as limited and mitigated.
• Call catalysts: strong Gen Z engagement (6.7 monthly visits), 65% Black Card penetration, click‑to‑cancel rollout by May 14, and Spain outperformance with medium‑term refranchising potential.

What Went Well and What Went Wrong

What Went Well

• Strong demand and mix: system‑wide same club sales +6.1% and membership up ~900k since YE’24 to ~20.6M; Black Card penetration reached ~65% aided by March “first month free” promo.
• Broad‑based revenue growth: all segments grew in Q1 (Franchise +10.7% to $115.2M; Corporate +9.2% to $133.7M; Equipment +28.7% to $27.8M), with Equipment benefiting from higher‑margin mix and replacement sales.
• Engagement and brand momentum: 6.7 average monthly visits (highest in 5 years) and research indicating improved brand perceptions and perceived value with “We Are All Strong On This Planet” campaign.
  “Given the strength and durability of our model, we delivered this healthy growth against a backdrop of increasing volatility in the macro‑economic environment.” — CEO Colleen Keating.

What Went Wrong

• Estimate misses: revenue ($276.7M vs. $279.8M*), EBITDA ($117.0M vs. $120.3M*), and Primary EPS ($0.59 vs. $0.6155*) came in modestly below consensus, reflecting investment and mix dynamics.
• Margin mix pressure: adjusted EBITDA margin was ~42.3% vs. 42.9% prior year, with corporate costs and Spain ramp contributing; corporate club margin declined modestly (34.3% vs. 34.6%).
• Equipment placements to new clubs were lower YoY (10 vs. 14), and tariff/macro uncertainty lingered (albeit mitigated at current levels).

Transcript

Operator (participant)

Thank you for standing by for the Planet Fitness first quarter 2025 call. All lines have been placed on mute to prevent any background noise. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star followed by the number one on your touchtone phone. To withdraw your question, please press star one again. It is my pleasure to introduce your host, Ms. Stacey Caravella.

Stacey Caravella (VP of Investor Relations)

Thank you, Operator, and good morning, everyone. Speaking on today's call will be Planet Fitness Chief Executive Officer Colleen Keating and Chief Financial Officer Jay Stasz. They 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 Colleen, 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 the call. Our release can be found on our investor website along with any reconciliation of non-GAAP financial measures mentioned on the call with their corresponding GAAP measures. Now, I will turn the call over to Colleen.

Colleen Keating (CEO)

Thank you, Stacey, and thank you, everyone, for joining us for the Planet Fitness first quarter earnings call.

We were pleased to end the first quarter with 20.6 million members, an increase of approximately 900,000 from the end of 2024. We grew system-wide same club sales by 6.1% and opened 19 new clubs globally, bringing our total club count to 2,741. Given the strengths and durability of our model, we delivered this healthy growth against a backdrop of increasing volatility in the macroeconomic environment. As a leader in the high-value, low-priced fitness category, we've successfully grown our model for over 30 years while navigating a variety of different market conditions throughout our history. Before I go deeper into our first quarter performance, I'd like to highlight why we're confident that we're well-positioned to execute our strategy and deliver on our 2025 expectations. At the same time, we are mindful of the broader macroeconomic conditions, including consumer sentiment and tariff uncertainty.

During the Great Financial Crisis between 2007 and 2010, we achieved strong same club sales growth, we grew our membership, and opened new clubs. Prior to 2020, we had 53 straight quarters of positive same club sales growth. More recently, we weathered a global pandemic without one club permanently closing due to financial reasons, even though our clubs were shut down and did not collect member dues for an average of six months. We are a resilient brand and continue to strengthen our leadership position by offering consumers a place to get a high-quality workout at an incredible value in our judgment-free environments. Now, let's review the progress we've made on our four strategic imperatives during the first quarter.

As a reminder, these four strategic imperatives are redefining our brand promise and communicating it through our marketing, enhancing member experience, refining our product and optimizing our format, and accelerating new club growth. Let me start with redefining our brand. We were pleased with our first quarter net member growth, which was in line with our expectations. We kicked off the year with our new creative, a campaign that communicates that we are all strong on this planet. It focuses on our shift to a more balanced complement of equipment in our clubs, our welcoming, judgment-free atmosphere, and the supportive community that we offer all our members. Based on research we conducted during the quarter, the campaign improved brand perception across all fitness levels and enhanced the perceived value of a Planet Fitness membership.

We also saw an increase in purchase intent from former members as we highlighted the capital HV aspects of our offering, and we had a strong 30+% rejoin rate during the quarter. Looking ahead, we will augment our ability to test, learn, and make data-driven decisions as we evolve our brand. We have a pipeline of testing projects currently underway that range from pricing to changes in the physical layout of our clubs. During the first quarter, we used several different promotional strategies that tested successfully in 2024. In addition to our typical 10-day offers, we ran two Classic Card two-day flash sales and a first-month free Black Card offer, both of which contributed to our membership growth during the period.

We continue to see strong Black Card penetration with 65% of our membership at that tier as of the end of the quarter, a nearly 300 basis point increase from Q1 of last year. Consumers continue to recognize the value of the Black Card, with the gap between the Classic and Black Card memberships only $10. We will hold on a decision on a system-wide Black Card price change until after we anniversary the Classic Card price increase, which you will recall went into effect on June 28th of last year. As for member activity, our members were more engaged during the first quarter of this year and visited a club an average of 6.7 times per month, the highest quarter utilization in five years. This is an encouraging data point as we think about retention in general and in the context of our click-to-cancel rollout.

Gen Z continues to lead our membership growth and has been the fastest-growing demographic group of our membership since 2021. To further this momentum, we're excited to announce that we will be running the High School Summer Pass program again this year. This has been incredibly successful at building brand loyalty and is a cost-effective program that has yielded a mid-single-digit conversion rate to paying members over the past few years. Now to member experience and product refinement. We hold a highly differentiated position in the high-value, low-priced sector of the fitness industry. We bring a top-quality, judgment-free fitness experience to life and foster meaningful relationships with our members who span a broad spectrum of age, socioeconomic, and fitness levels. Our clubs have many stories from members who have had life-changing experiences because of their memberships.

We truly do make fitness accessible to almost everyone, having clubs within a 12-minute drive of 170 million people in the United States. We're proactively tailoring our offering to respond to evolving customer needs. Based on insights from consumer research and member behavior, we expanded our footprint of strength equipment and opened up spaces within our clubs for members to do more functional training. We believe that this move will enhance member experience, providing them with the ideal equipment mix and environment to achieve their workouts their way. As part of the research that we conducted during the quarter, we asked consumers if they thought they could get strong at Planet Fitness. The majority of respondents who had seen our ads noted that they believe that we have the equipment for building strength and that we are a gym they can grow with.

This feedback further supports our decision to expand strength equipment in our clubs. At the end of the first quarter, nearly 1,800 clubs had the more balanced mix of equipment, with the remainder of the clubs expected to have it by the end of the year. Finally, to our efforts to accelerate new club growth. During the first quarter, I continued to visit more clubs, now 125 globally, including a trip to Australia where I celebrated the opening of a new club with our Australia team and many of our members. Similar to my trips to Mexico and Spain, my biggest takeaway is that our format and brand offering resonates with fitness-minded consumers across geographies and generations. In fact, our clubs in Spain continue to have strong ramps, and we recently opened our eighth club in the country.

As evidence of their healthy performance, we believe we will be in a position to refranchise the clubs and future development rights in the medium term. We remain steadfastly focused on unit economics. We made two foundational changes in 2024, giving our franchisees the opportunity to improve club IRRs, the new growth model, and the Classic Card price increase for new members. Franchisee sentiment was positive coming into 2025 and was bolstered by strong first quarter net member growth and revenue growth that had the added rate benefit from the Classic Card price increase. As I stated earlier, we are a resilient brand and have historically emerged from prior periods of market uncertainty in an even stronger position. That said, I would be remiss if I didn't touch on tariffs.

Our teams are in discussion with our vendors and working through what potential tariff impacts mean to our business and franchisee unit economics. We are taking a thoughtful approach focused on the things we can control to continue to execute on our strategic imperatives. We are in communication with our franchisees, and at current tariff levels, do not see a material impact to our 2025 targets. As such, we are reiterating our growth targets for this year. I am pleased with the progress we've made thus far in 2025, and I am excited about the opportunities that lie ahead for Planet Fitness. I look forward to sharing more of our progress with you. Now, I will turn it over to Jay.

Jay Stasz (CFO)

Thanks, Colleen.

We're pleased that we're starting to see results from our focus on the strategic imperatives that led to a strong first quarter performance in line with our expectations against a backdrop of increasing volatility in the macroeconomic environment. Given that we're a fitness brand that sells an experience, we are generally less impacted by tariffs, and we expect to be able to address these impacts on our equipment at the current levels without adjusting our guidance ranges at this time. We are intensely focused on our franchisee unit economics, and we're taking a thoughtful approach to rising input costs. We're working in partnership with our vendors and our franchisees to navigate potential cost increases. Due to our size and scale and our long-term vendor relationships, we have mitigated a sizable portion of our system-wide exposure to tariffs on equipment at today's levels.

We are leveraging our scale to negotiate with manufacturers to offset these costs, exploring alternative markets for producing products, and bringing equipment into the U.S. ahead of potential tariff implementation deadlines. Before I get to our first quarter results, I'd also like to address how we're approaching click-to-cancel. We remain committed to delivering a great member experience, and we want to make the cancellation process as seamless as the join process. Given that the challenge to the regulation did not result in any changes to the ruling, we're underway with rolling out online cancel functionality system-wide to meet the mandated deadline of May 14. As you may recall, more than 35% of our system had click-to-cancel before April, including all of our corporate clubs, where we enabled it more than 18 months ago.

Now, we are enabling it across the rest of our portfolio because we believe it is the right thing to do for our members. As of this week, online cancel is available to members in more than 50% of our U.S. clubs. The national rollout before the mandated deadline is included in our outlook for 2025, including our same club sales growth outlook. As a reminder, generally, the largest impact of the cancel rate occurs in the first couple of months and diminishes as time goes on. Now, to our first quarter results. All of my comments regarding our first quarter performance will be comparing Q1 2025 to Q1 of last year, unless otherwise noted. We opened 19 new clubs compared to 25. We delivered system-wide same club sales growth of 6.1% in the first quarter. Franchisee same club sales increased 6.2%, and corporate same club sales increased 5.1%.

Approximately 74% of our Q1 comp increase was driven by rate growth, with the balance being net membership growth. Black Card penetration was approximately 65% at the end of the quarter, an increase of 280 basis points from the prior year. For the first quarter, total revenue was $276.7 million compared to $248 million, an increase of 11.5%. The increase was driven by revenue growth across all three segments. A 10.7% increase in franchise segment revenue was primarily due to higher royalty revenue from increased same club sales as well as new clubs, an increase in national ad funds as well as franchise fees. For the first quarter, the average royalty rate was 6.6%, consistent year over year. The 9.2% increase in revenue in the corporate and club segment was primarily driven by increased same club sales as well as sales from new clubs.

As a reminder, we opened 21 new corporate clubs in 2024, eight of which occurred in the fourth quarter. Equipment segment revenue increased 28.7%. The increase was driven by higher revenue from replacement equipment sales, partially offset by lower revenue from new franchisee-owned club placement sales. We completed 10 new club placements this quarter compared to 14 last year. For the quarter, replacement equipment accounted for 78% of total equipment revenue compared to 58%. Our cost of revenue, which primarily relates to the cost of equipment sales to franchisee-owned clubs, amounted to $22.5 million compared to $19 million. Club operations expense, which relates to our corporate-owned clubs segment, increased 9.9% to $81.7 million from $74.4 million. The increase was primarily due to operating expenses from 24 new clubs opened since January 1st of 2024.

SG&A for the quarter was $34.3 million compared to $29.2 million, while adjusted SG&A was $32.5 million compared to $27.3 million, an increase of 19.1%. The primary driver of the increase to adjusted SG&A was higher expense due to increased compensation from recent executive hires and investment in our strategic imperatives. National advertising fund expense was $21.9 million compared to $19.8 million, an increase of 10.9% in line with our franchise segment revenue increase. Net income was $42.1 million. Adjusted net income was $50 million, and adjusted net income per diluted share was $0.59. Adjusted EBITDA was $117 million, an increase of 10.1% year over year, and adjusted EBITDA margin was 42.3% in line with our expectations compared to $106.3 million with adjusted EBITDA margin of 42.9%. By segment, franchise adjusted EBITDA was $84.9 million, and adjusted EBITDA margin increased from 73.2% to 73.7%.

Corporate club adjusted EBITDA was $45.8 million, and adjusted EBITDA margin decreased from 34.6% to 34.3%. Equipment adjusted EBITDA was $7.4 million, and adjusted EBITDA margin increased from 22.2% to 26.8%, which was driven by the change to the equipment mix that we made last year but did not go into effect until the second quarter of 2024. Now, turning to the balance sheet. As of March 31, 2025, we had total cash, cash equivalents, and marketable securities of $586.3 million compared to $529.5 million on December 31, 2024, which included $56.6 million and $56.5 million of restricted cash, respectively, in each period. In Q1 2025, we used $50 million to repurchase approximately 544,000 shares. Moving on to our 2025 outlook, which we provided in our press release this morning. As I noted earlier, our outlook assumes tariffs at the current levels.

We continue to expect between 160-170 new clubs, which includes both franchise and corporate locations. We expect that the quarterly cadence will be weighted towards the second half and the fourth quarter of 2025, similar to 2024. We also continue to expect between 130-140 equipment placements in new franchise clubs, and again, we expect that quarterly cadence will be weighted like 2024. We expect that re-equip sales will make up approximately 70% of total equipment segment revenue for the full year. As I noted earlier, we are reiterating our guidance targets with the exception of CapEx, which we are bringing down slightly. The following targets represent growth over fiscal year 2024 results.

System-wide same club sales growth to be between 5%-6%, revenue to grow approximately 10%, adjusted EBITDA to grow approximately 10%, adjusted net income to increase in the 8%-9% range, adjusted net income per diluted share to grow in the 11%-12% range based on adjusted diluted weighted average shares outstanding of approximately $84.5 million, inclusive of approximately 1 million shares we expect to repurchase in 2025 in line with what we've previously communicated. We also expect 2025 net interest expense of approximately $86 million, inclusive of the annualized impact of our 2024 refinancing. Lastly, we continue to expect DNA to be flat to 2024, and we now expect CapEx to be up approximately 20%. I will now turn the call back to the operator to open it up for Q&A.

Operator (participant)

Ladies and gentlemen, at this time, we will be conducting a question-and-answer session.

To ask a question, you may press Star 1 on your touchstone phone, and to withdraw your question, please press Star 1 again. Our first question comes from the line of Simeon Siegel from BMO. Please go ahead.

Simeon Siegel (Senior Managing Director and Senior Analyst)

Thanks. Hey, good morning, everyone. Nice job. Hope you're all doing well.

Colleen Keating (CEO)

Morning.

Simeon Siegel (Senior Managing Director and Senior Analyst)

Colleen, 65% Black Card penetration is a pretty wild jump. Anything one-time-ish we should consider about this quarter, or do you think, I guess, absent any potential price decisions, that that's a new base? Jay, just maybe pricing versus new memberships within the comp, how do you think about that over the year? Any way to think about or help us think about what's the new $15 price impact versus, again, this really impressive Black Card penetration jump on overall company-level pricing? Thanks, guys.

Colleen Keating (CEO)

Sure. Good morning. Good to hear from you.

On the Black Card penetration, as we've talked about, this is the narrowest gap we've had between the Classic Card pricing and the Black Card pricing since the inception of the Black Card at roughly $10.99. So we've been trending with increased Black Card penetration over the past couple of quarters, Q3, Q4 of last year, as well as Q1. One difference that we'll call out for Q1 was that in March, we ran a Black Card first-month free promotion that was quite successful. We tested this in Q4. This was one of the marketing tests that we ran last year in Q4. It performed successfully, so we ran it again in March of this year. Yeah.

Jay Stasz (CFO)

And Simeon, this is Jay. Good morning. Good to hear from you. In terms of your question, obviously, we've reiterated the guidance. We've reiterated the comp of 5%-6%.

In the quarter, we had a nice split on the rate, roughly 74%, driving 74% of the comp and volume being 26%. As we think about anniversary and the Classic Card price increase on June 28th, right, the beauty of our subscription model is that we will continue to get rate benefit after that point because of the tenure of our membership, as well as the continued—and we just talked about it—the increase on the Black Card penetration that we're seeing. As we think about the comp for the year in the future quarters, certainly, we would expect the next quarter to be roughly comparable, 70/30, kind of a split between rate and volume. That might drift down slightly in the back half, just again, as we anniversary that June 28th, but not a material change.

Probably 65% to 70% driven by rate and a little bit of an uptick on volume.

Simeon Siegel (Senior Managing Director and Senior Analyst)

That's great. Thanks, guys. Thanks. Best of luck for the rest of the year. Thank you.

Operator (participant)

Thank you. Our next question comes from the line of Sharon Zackfia from William Blair.

Sharon Zackfia (CFA, Partner and Group Head)

Hi. Good morning. Thanks for taking the question. I know your business has always been very insulated from the macro environment, and it certainly seems like you had a healthy first quarter this year despite some crazy weather during the high member sign-up season. Can you talk, though, about kind of any signs of any macro volatility impacting your business, or if you're seeing anything change on the competitive environment as maybe some of your peers that are less well-positioned are trying to scramble in a more volatile consumer climate? Thank you. Yeah. I'll start maybe first.

I think the fact that we reiterated our comp guidance is indicative of what we've seen with the consumer coming through the quarter. As I mentioned, even during the GFC, our business performed really well with very strong member growth and revenue growth. Again, we feel like we've got a very resilient business, very durable cash flows, and we reach a very broad spectrum of membership. We span a pretty broad income demographic as well. The other thing we've talked about is with Gen Zs and millennials being such a substantial proportion of our membership, and really Gen Zs continuing to be the greatest proportion of our member joins, fitness is really a part of their lifestyle. As we've seen a little bit of the consumer sentiment and pullback in consumer spending, what we've generally seen is less spending on product but maintained spending on experiences.

When we think about Gen Zs and millennials, not only are we an experience, we are really a part of their lifestyle. We are feeling confident about the consumer and our member, and that is reflected in the reiteration of our guidance.

Jay Stasz (CFO)

Yeah. Sharon, just a couple of points. I mean, obviously, this business continues to be a great value to the members and potential members. We are excited about that. We think it fits in well with the current macro environment. To put a finer point on Colleen's information, right, during the great financial crisis, strong same club sales growth. We also built our membership and opened stores during that time. We feel good about that. In this kind of environment, we could benefit from a trade-down from some of the high

er-priced clubs. Thank you.

Operator (participant)

Our next question comes from the line of John Heinbockel from Guggenheim.

Please go ahead.

John Heinbockel (Managing Director)

Colleen, I'm curious. How do you think philosophically about Black Card pricing? I know you're going to punt on it right until after you cycle White Card, but is there a member opportunity to go after, particularly in this macro? You push pricing out a little bit further, particularly with Black Card penetration performing as well as it has. I mean, how do you think about that? I don't know. I know you were testing $27.99 and $29.99. Was there any material difference in how members reacted to those?

Colleen Keating (CEO)

I think as we evaluate what we've seen coming through the test, we're really looking at what's most accretive to the AUV of the club.

As I indicated in my remarks, we're not going to make a call or announce a decision on it until after we anniversary the Classic Card price increase so that we're not coming through the front half of this year with an increase on both Classic and Black. At the same time, we've seen great Black Card penetration with the narrowed delta between Classic and Black. I will say, historically, we have taken price on Black Card every several years. Every few years, we've taken price on Black Card. That will continue to be kind of our perspective that Classic's the anchor and the entry point, and that there's probably more price elasticity in Black. In the testing, we haven't seen a significant difference between the $27.99 test and the $29.99 test when we were testing both last year.

Currently, we're only testing the $29.99 now.

John Heinbockel (Managing Director)

Thank you.

Operator (participant)

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

Max Rakhlenko (CFA and Equity Research Analyst)

Great. Thanks a lot. And congrats on a really nice quarter. First, one piece, typically about 60% of the year's net adds. How do you think about that again for this year? Do you think that that'll be the case, or given some of the easy compares, could that even be a little bit lower?

Jay Stasz (CFO)

No, Max. This is Jay. Yeah, historically, right, I think we've talked about that 60%. Post-COVID, right, we haven't really seen that relationship hold true. I would not anchor to that. I would say that we do not guide to membership count specifically, but that relationship, that percent's higher, I would say, generally, not lower. It is not the 60%. Got it.

Max Rakhlenko (CFA and Equity Research Analyst)

Okay. And then how should we think about the cadence over the next few quarters just in the context of Click-to-cancel rolling out fully in Q2? Could we see a bit of a pickup in churn as I think you've previously talked about sort of each 12 weeks? Or how are you just thinking about the model here for the next few quarters?

Jay Stasz (CFO)

Yeah, Matt. This is Jay. And I'll start on the Click-to-cancel. I mean, certainly, a couple of data points. We have a plan to roll it out on a prorated, on a consistent basis between now and the deadline of May 14th. We've started that process. And just for backdrop, right, previous to this, we had about 35% of our system was on Click-to-cancel.

That included a handful of states that were already mandated, as well as 100% of our corporate clubs, which we did about 18 months ago. We are in the process of rolling out the remainder of our clubs to be fully compliant by the May 14th deadline. As of today, we have about 50% of our system with Click-to-cancel functionality. We have contemplated this in our outlook and our guidance that we started last year and that we've just reiterated. It is contemplated in there. To your point, as we do the rollout, the largest impact is typically in the first month or two when that optionality is rolled out, but then we see it normalize in the weeks and months after that. Any impact potentially on joins as the customer experience improves?

We've heard that maybe it actually helps joins a little bit as an offset.

Colleen Keating (CEO)

Yeah. I'll talk about that. In a fairly small test, we did see an uptick in conversion when we added the Quick to Cancel or one-click cancellation option in the join flow. We do think once it's rolled out across the entire estate, we could see, potentially could see, again, based on a fairly small test, we could see some lift in join conversion because of consumer confidence that they can cancel as easily as they join.

Max Rakhlenko (CFA and Equity Research Analyst)

Great. Thanks a lot and best regards. Sure. Thank you.

Operator (participant)

Thank you. Our next question comes from the line of Shan He from BNP Paribas. Please go ahead.

Shan He (Economist)

Hi, guys. Thanks for the question.

Understanding that some franchisees might have wanted to wait a little bit to see how pricing would play out in the key kind of one quarter, first quarter ad period before leaning into new openings. It seems like one Q ads were really solid considering a tough macro. Maybe could you give some color on how franchisees are evaluating that ad period and maybe if they're sounding more positive on openings going forward?

Colleen Keating (CEO)

Maybe I'll start. I think when you look at our guidance, openings guidance for this year versus where we finished last year, I think that's reflective of a franchisee sentiment around openings. As in years past, similar to last year, our openings are back-end loaded, back-end loaded in the year with the heaviest quarter for openings still being Q4.

I think that's less reflective of questions around pricing and more reflective of wanting to get open ahead of the highest join quarter of the year. Getting clubs open in Q4 sets them up for very favorable ramp in coming into the first quarter.

Shan He (Economist)

Okay. Got it. Thanks. On the comps, nice growth in first quarter. How much do you think, I guess, new formats and the strength allocation is helping there and also the new advertising efforts? How do you kind of balance some of the or evaluate which drivers are kind of the biggest ones?

Colleen Keating (CEO)

You want to start? No.

Jay Stasz (CFO)

Yeah. I can start. I mean, look, we don't bifurcate that. It's difficult to do that. We feel good about the comps that we had.

We did run that Black Card first-month free promotion in March, which had a bit of a headwind to our comp, which we expect to get back within the year and have a slight benefit to the comps in Qs 2 through 4. I think, look, like we said, we're pleased with the quarter. We landed where we expected, and we're starting to see the green shoots from all the work that the teams are doing, certainly in the repositioning of the brand and the focus on strength and getting stronger together. We're optimistic.

Colleen Keating (CEO)

Maybe I'll add on that from a format standpoint. We gave our franchisees who were opening clubs in 2025 coming into the year the opportunity to look at the traditional equipment layout or equipment mix and the new equipment mix. Not one franchisee chose the more traditional.

They all took the new rebalanced mix of equipment with a balance of strength and cardio. I think that discretionary choice is really reflective of their buy-in and what they're seeing and hearing from their membership, what our members are looking for in our clubs. This new mix, this new equipment mix and new layout is answering that call.

Shan He (Economist)

Great. Thanks, guys, and good luck.

Colleen Keating (CEO)

Thank you.

Operator (participant)

Thank you. Our next question comes from the line of Rahul Krotthapalli from JPMorgan. Please go ahead.

Rahul Krotthapalli (VP and Equity Reseacrh)

Good morning, guys. Colleen, you have had a tremendous exposure to private equity industry throughout your career. There has been a lot of talk and content around private equity pain and assets getting repriced in this macro.

Can you discuss how you see the landscape shaking out, especially in the context of franchise ownership, and how you see the mix of ownership of the clubs change or evolve over time? The follow-up is on the advertising costs. A lot has been discussed, again, in how low advertising costs could get, especially as agencies given to AI models and then large brands in the consumer and internet industry are catching up on this. How is the organization thinking about this strategy given this is such a critical driver for brands' growth going forward?

Colleen Keating (CEO)

Yeah. Two separate questions. I'll take the first one, which is kind of the PE landscape. We have a nice complement, I would say, among our franchise base, among our club ownership of individual owners as well as PE. We see new interest maybe from kind of family office as well.

At the end of the day, our PE owners have been great owners and have developed a lot of clubs with us, generally have been well capitalized, and are smart owners as well. We are pleased with the balance of, again, of individual owners and PE in the portfolio today. I will shift to kind of ad costing and ad costs and marketing strategy. We certainly see an opportunity to continue to leverage the breadth of our spend. As you know, as our revenue increases, so too do our ad funds. Our very robust ad fund is growing every year. We do see opportunity to leverage that spend and look at how we are procuring the advertising in a more efficient way.

Of course, we're always doing work to test the effectiveness of the advertising and make sure that we're being not only efficient but also effective in how we're spending it. As you know, Brian Povanelli joined as our new CMO in mid-February. He's been out engaging with our franchisees, with our agencies, and with our marketing committees. We, again, see an opportunity to continue a good success coming through Q1 with the new brand messaging. It landed well, and we saw favorability in visits to our website, favorability in search, and the effectiveness of how that marketing messaging landed, as I referenced in my remarks. More to come as Brian kind of gets his arms around it as well. Appreciate the color.

Operator (participant)

Thank you. Our next question comes from the line of Martin Mitela and Raymond James. Please go ahead.

Martin Mitela (Senior Equity Research Associate)

Good morning.

This is Martin on for Joe Altobello. I was just wondering about 900,000 ads this quarter. Was that sort of within expectations or just trying an idea around there?

Jay Stasz (CFO)

Yeah. That was within our expectations. We felt good about that result. And as Colleen has alluded, right, I think the franchisees were pleased with the first quarter and the cadence and effectiveness of the promotion. Yeah, we feel good about where we're at, and not only on the member trends, but the entire P&L.

Martin Mitela (Senior Equity Research Associate)

Thanks. And can you just speak to churn? I mean, not necessarily about the Click-to-cancel, but given the price increase.

Jay Stasz (CFO)

Yeah. I mean, churn continues to run in line with our expectations and gotten down to kind of historical norms after the price increased pretty quickly last year. We're continuing to see those trends.

We're in line with our expectations and pretty consistent year over year.

Martin Mitela (Senior Equity Research Associate)

Great. Thank you very much and good luck. Thank you.

Operator (participant)

Thank you. Our next question comes from the line of Alex Ferry from Bank of America. Please go ahead.

Lucas Hudson (Research Analyst)

Hi. This is Lucas Hudson on for Alex. Thanks for taking my questions. Are you guys considering any other changes to the club format? You recently added strength equipment, which was met with positive reception. Are you considering any new equipment ads?

Colleen Keating (CEO)

I'll start. We're testing a couple of different formats and different levels of amenities in some clubs. As well, we added the minimal three pieces of plate loaded across 65% of the estate last year. We've got a number of clubs that have augmented the number of pieces of plate loaded and continuing to test other strength modalities in a number of clubs.

We believe it's important that we continue to be kind of a test-and-learn environment. We're always testing new pieces of equipment and in communication with our equipment manufacturers to understand kind of what are the hottest pieces, following trends, listening to our consumers and our members. We'll continue to test, again, be a test-and-learn environment. Very helpful. A quick follow-up, if I may. Are you guys going to change any of the Black Card offering or looking at adding any other premium offerings for the Black Card members? I'll talk a little bit about that. We have, in a number of our clubs, added some red light that has performed quite well. We've tested spray tanning in some of our clubs and in certain geographies, and some of that has been well received as well.

We're looking at some other, without signaling all of the things that we're looking at, there are some other amenities that we're evaluating for the optimization of the Black Card spot.

Lucas Hudson (Research Analyst)

Perfect. Good luck in the quarter. Thank you.

Operator (participant)

Our last question comes from the line of JP Moreland from Roth Capital Partners. Please go ahead.

Great. Good morning. Thanks for taking my questions. If we could just start, two quick questions on development. One, could you just kind of touch on big box availability? I've been somewhat challenged recently. The second one is sort of a follow-up to an earlier question, but I would assume that kind of with the development guide, most of those units are whether under construction or at least kind of in the process.

I'm wondering, just given the macro environment and kind of tariff concerns, how much are you having conversations with franchisees about future pipeline and maybe some hesitancy there?

Colleen Keating (CEO)

Maybe I'll start, and then Jay can get into some of the specifics on tariff. From a big box availability standpoint, it really is a tale of different geographies. There are some geographies where we're seeing availability ease, and then there are other geographies that have remained a bit tighter. There have been a number of big box retailers that have announced closures. We've talked about that on prior calls. I think it was a JLL article a couple of months ago that talked about kind of a forecast of 9,900 significant retail closures on the horizon, and we're continuing to see retail bankruptcies.

We do believe that there will be more and more second-generation space coming available based on what we're reading, both consumer sentiment and what we're seeing in the broader retail sector. That's just a touch on the macro. As far as bigger box availability, we do have some franchisees that are traditionally building larger than a 20,000 sq ft club, maybe upwards of a 30,000 sq ft club. Again, the availability really varies by geography. I'll let Jay get into some of the specifics. As I mentioned in my remarks, from a tariff impact standpoint, given what we have line of sight to today, tariffs at the current levels, we don't see a material impact. That gave us the confidence to reiterate our openings guidance for this year. Jay, I don't know if you want to.

Jay Stasz (CFO)

Yeah.

Jay, yeah, just to follow up on that. I mean, the tariffs, and certainly one of the biggest impacts is the equipment, and that, I mean, the team has done great work across the board to mitigate the impact. Certainly on the equipment at tariff levels, at the current levels that they're at, we feel good and not overly material. That's embedded in the guidance that we've reiterated. We do have line of sight kind of to your question around or top of mind is the build-out costs. To your point, for 2025, we've reiterated the development plans, and many of the franchisees are very far down the path in terms of leases and construction.

That said, the team also is working on certain build-out materials to work with the vendors, whether that's HVAC or other things, to really do what we can to offset the impact of the tariff. That's another body of work that the team is doing today. We've got a little bit less line of sight to exactly how it's all going to flow down from a GC cost impact. Again, it's something that we think we can manage through and work to offset in 2025. As we think about it, we haven't provided long-term guidance at this point. We are expecting to have an investor day later in the year where we'll give more color on that.

Colleen Keating (CEO)

Maybe just add two other points on that. Again, if there's greater tariff impact in other sectors and building slows in other sectors, that could have some favorability.

Again, it's speculative at this point, but that could have some favorability on construction, construction labor costs, GC costs, and trades and subs. The other thing I'll say is this is a pretty low OpEx model, so we're not burdened with a heavy OpEx impact from tariffs. Lastly, the most important thing to unit economics is the top line. As we're seeing our marketing messaging land, we saw good join volume coming out of the quarter, and our format, the newly optimized format, is resonating with consumers. I think the top line is the most important component. We're keenly focused on that.

Understood. I appreciate the color there. If I could just one follow-up on member rejoins. I know over the last few quarters, you've talked about it being strong. One, does that strength continue through your strong winter season?

Any comments on how you're seeing Black Card in terms of members rejoining?

We do internally, but we do not share a bifurcation of Black Card rejoin versus Classic rejoin. We shared last year Q3, we had a 38% rejoin rate, Q4, 37% rejoin rate. It was a little bit lower in Q1, but keep in mind it is on a higher base of joins, right? Still very, very strong mid-30% rejoin rate in Q1.

Perfect. Appreciate the color and best of luck going forward. Thank you.

Operator (participant)

Our last question comes from the line of Randy Konik from Jefferies.

Please go ahead.

Randal Konik (Managing Director)

Hey, guys. How are you? Sorry, I have been dealing with a ton of calls this morning. I apologize if you kind of addressed this.

Maybe Colleen, just talk through, give us an update on not just Spain, but kind of other markets or how you're thinking about international development beyond, and not just this year, but in the next few years, how do we think about that part of the model going forward? Thanks.

Colleen Keating (CEO)

Yeah. Thanks for the question, Randy, and good to hear from you. Our Spain clubs are performing very well. We're seeing ramps on those clubs that are equal to, or in some cases, even slightly favorable to our domestic ramps. I'm really encouraged about how the brand is resonating in our first European market. While we're not ready to talk about which markets we'll go to next, I guess you can glean from that that the brand's performing well in our first European market.

I spent some time in Australia this past quarter and great performance, great club performance there. Participated in a grand opening with the team and had an opportunity to talk to not only some members, but one of the largest retail landlords in Australia. Spent some time with a couple of representatives from that organization. Again, brand is resonating really well. Numbers are very strong. We continue to see international as part of our growth roadmap.

Randal Konik (Managing Director)

Super helpful. I do not know if you addressed this, but I'll ask it. We had heard in the pipeline that I think franchisees were happy with, as you change the white card to $15, it gets closer in price point to the Black Card, almost encouraging a new member to kind of join the Black Card relative to the white card, giving them a better relative value.

Maybe kind of update us on that kind of framework if that is happening. If that is, how do you think about the cadence of Black Card price change again over the next few years? How should we think about that? Thanks.

Colleen Keating (CEO)

Yeah. I did touch on this a little bit earlier, but it had been when you were on another call. We're going to anniversary the Classic Card price increase before we make a decision to move on Black Card. What we have seen, again, looking at what's most accretive to AUVs, we have seen significant favorability in Black Card penetration with the narrow gap now, roughly $10, $9.99 between Classic and Black. We are no longer running the $27.99 test and the $29.99. We've maintained $29.99 in a number of the geographies.

We sunset $27.99 because we were not seeing a material difference between the $27.99 and the $29.99. The other thing I touched on is we are looking at the Black Card spa offerings. We started some things like red light therapy and cryo, spray tanning. We are continuing to evaluate the Black Card offerings and what is resonating most with consumers. All of that will help inform when is the right time to make a move on Black Card pricing. The other thing I said earlier is that we have traditionally taken price on Black Card with more frequency, where we have anchored to kind of Classic as the entry price point for a longer span. You will continue to see us take a look at Black Card pricing and take Black Card pricing on a periodic basis.

Randal Konik (Managing Director)

Super helpful. Thanks, guys.

Jay Stasz (CFO)

Thanks, Randy. Thank you.

Operator (participant)

This concludes our question and answer session. I would like to turn the call back over to Colleen for closing remarks. Thank you.

Colleen Keating (CEO)

Thank you, operator.

Thank you for the thoughtful questions. I'll just close by saying that I'm quite encouraged by our performance during the first quarter of 2025. We continue to be focused on boosting the economic value proposition for all our stakeholders as a franchisor, franchisees, and members to ultimately deliver even more value for our shareholders. Thank you.

Operator (participant)

Please conclude today's conference. You may now disconnect.