Planet Fitness Inc (PLNT) Q2 2021 Earnings Call Transcript

Planet Fitness Inc  (NYSE: PLNT) Q2 2021 earnings call dated Aug. 09, 2021.

Corporate Participants:

Stacey Caravella — Vice President, Investor Relations

Chris Rondeau — Chief Executive Officer

Tom Fitzgerald — Chief Financial Officer

Analysts:

John Heinbockel — Guggenheim — Analyst

Randy Konik — Jefferies — Analyst

Oliver Chen — Cowen — Analyst

Adam Scott Kozek — Raymond James — Analyst

Jonathan Komp — Baird — Analyst

John Ivankoe — JPMorgan — Analyst

Simeon Siegel — BMO Capital Markets — Analyst

Peter Keith — Piper Sandler — Analyst

Dorvin Lively — President

Paul Golding — Macquarie — Analyst

Chris O’Cull — Stifel — Analyst

Alex Barry — Bank of America — Analyst

Presentation:

Operator

Good day, thank you for standing by, and welcome to the Planet Fitness, Inc. Second Quarter 2021 Earnings Conference Call. [Operator Instructions]

I would now like to hand the conference over to your speaker today, Ms. Stacey Caravella. The floor is yours.

Stacey Caravella — Vice President, Investor Relations

Thank you, operator, and good afternoon, everyone. Speaking on today’s call will be Planet Fitness Chief Executive Officer, Chris Rondeau; and Chief Financial Officer, Tom Fitzgerald. We also have Dorvin Lively, President of Planet Fitness on the line, who 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 would 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.planetfitness.com 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 Chris.

Chris Rondeau — Chief Executive Officer

Thank you, Stacey, and thank you, everyone for joining us today for Planet Fitness’ Q2 earnings call. It’s a testament to the strength of our brand that more than 13 million people remain committed members of Planet Fitness in the depths of the global pandemic with most of our gyms were temporarily closed. Our membership momentum continues to defy our historical seasonal patterns. And through July, we had more than 15 million members. We have regained approximately 75% with the members we lost from our peak in Q1 2020 to our low in Q4 2020. I have never seen this type of unseasonal membership growth in my nearly 30 years at Planet. In some of our larger franchisees who have been with us for a good portion of that time are also made that the positive trends that they’re seeing across their portfolios. And today, with nearly all our stores reopened, existing members are re-engaging with us and new members are joining at unprecedented rates as they all realize the importance of Fitness to their overall loans.

We’re in the business of helping people feel better and get healthy and that’s what they’re seeking right now. A community-based support system and a judgment free environment combined with an incredible membership value proposition. COVID hit the U.S. hard. The country came into the pandemic with more than 70% of adults over the age of 20 considered overweight or abuse, one of the top risk factors for severe illness in COVID. In fact, life expectancy in America fell by 1.5 years in 2020 due to the pandemic and other residual impacts, the largest single-year decline since World War II.

A Kaiser Health Study show that people regularly exercise has the best chance of beating COVID, or people who were inactive gym much worse. And most importantly, physical activity makes people feel better, not only physically, but also mentally. We believe the unseasonal momentum and our membership gains is fueled by people recognize the importance of self-care. Our messaging to consumers is about taking the first step by getting off the couch and getting into a fitness routine. Our national May sale of one month free and no commitment remove all the barriers to doing so.

As a result, total net members growth in May was 3 times our growth in May 2019. In June, we ran a Black Card flash sale into the month net member growth was nearly 20 times what we saw in June 2019, during which we ran a similar offer. For the quarter, net member growth in Q2 not only exceeded Q1 net growth, it double what we saw in Q2 in 2019. We ended Q2 with more than 14.8 million members. Exceeding 15 million members with our July national sale is truly remarkable for our brand when you consider the state of our business in the second quarter of 2020, we had approximately 30% of our stores temporarily closed and negative net membership growth. In just 12 months, our business has rebounded. And importantly, our franchisees are very excited about the trends in the future.

It’s hard to predict whether these seasonal joins will continue for the rest of the year, but we believe that people are recognizing the importance of taking better care of themselves. The trend in our business attested us. In addition to the strength of our joins in June attrition and usage are normalizing, and in some cases exceeding our 2019 level both on a regional and age demographic basis. During June, we began to see certain key metrics in our business return to nearly pre-COVID levels. National usage trending up during the quarter, ending June at nearly 90% of 2019 levels, usage in June for all demographics was nearly back to typical pre-COVID month with only boomers trailing, however, it is still trending upward for that age group. Our last group of reopenings are returning to pre-pandemic performance levels faster than those that reopened back in 2020 as people begin to return to more normal activities.

While COVID had a temporary impact on our business, there are areas that the pandemic accelerates such as our digital strategy. We shutdown our stores last year. We quickly shifted to keeping our members engaged digitally with free workouts offered via the web and our mobile app. And as we announced last quarter, we strengthened our partnership with iFit to unlock future opportunities to further accelerate our digital content strategy, app adoption by our members is nearly 60%, having grown from 40% in Q4 of 2020. During Q3, we plan to roll out a refer a friend incentive program through the app.

During the second quarter, we hired a Chief Digital Officer, Sherrill Kaplan, to meet our bricks with clicks strategy. We believe that the future of the fitness industry is about providing people with a high-quality in-person experience coupled with the ability to engage in service from outside our four walls. We’re providing them with many other benefits as well as differentiated premium content to make even easier to get the most of the membership.

We believe that there may be an opportunity for us to aggregate other wellness categories into our app at a disruptive value all geared towards casual first-timers. We continue to pilot PF+, we made a number of stores to test price elasticity, included as a bundled offering with our Black Card membership. We expect to run this test for the balance of 2021 and look forward to sharing more on possible offerings in early 2022. In June, nearly 40% of PF+ subscribers joined our bricks-and-mortar location, underscoring that consumers want a more omnichannel fitness experience. I’m proud of the efforts our franchisees, headquarter staff and clubs staff who persevered during the pandemic to keep our system strong and I’m very excited to now have nearly all stores reopen.

There is a dislocation in the fitness industry, with 22% of the gyms have permanently closed due to the financial impact from COVID through the second quarter. While at the same time, more Americans are realizing that fitness is essential to physical, mental and emotional well being. After shut downs, quarantines, isolations they’re seeking sense of community. We believe we are a place that fills that need with our affordable non-familiar workout environment that gets people moving in confidence as they go-on-vacation again. Head back to the office or see family and friends they haven’t seen in a long time.

Importantly, our franchisees believe this as well. As a result, we now expect to be at the high-end of our 75 to 100 new store openings range for 2021, reflecting their growing confidence in the strength of our business and near-term growth prospects. Tom will get into more specifics on our outlook for the balance of the year in his remarks. We also announced today that we signed an agreement to accelerate growth in Mexico with a joint venture made up of a prominent local retail services company and one of our largest U.S. developers. The agreement is for a minimum of 18 new stores over the next five years in addition to the five stores we currently have in Mexico.

I’m extremely pleased that we have added 1.5 million members in the first seven months of this year. With nearly one-quarter all gyms closed due to COVID, I believe that the opportunity in front of us is significant. With so much potential given, the changing market dynamics and the tailwinds behind the health and wellness, the 4,000 plus long-term domestic store opportunity looks better and better. I always knew that we would come out of the pandemic even stronger, but the pace in even faster than I expected. I always come back to the fact that we are a purpose-led brand on a mission to change people’s life to better which is what the U.S. and the world needs more than ever.

I’ll now turn the call over to Tom. Thanks, Chris, and good afternoon, everyone. Before I get into the review of our financials, I want to touch on a couple of key topics starting with store expansion. During the quarter, we opened 24 new stores bringing our total count to 2,170. As Chris said, we now expect to be at the top end of the 75 to 100 new store range for the year, reflecting the growing confidence of our franchisees to accelerate their development plans. It also reflects the strengthening of their balance sheets. Several franchisee groups are taking advantage of the increased supply of real estate. As a reminder, we don’t typically go after the real estate from gyms that have closed, we look for big-box retailers that occupy a 20,000 Square foot space. We believe we’re even more attractive to landlords given that no Planet Fitness locations permanently closed because of the pandemic, which strengthened our position as a tenant of choice. We’re not necessarily seeing rents come down yet, but we are hearing from franchisees that landlords are sometimes offering more tenant improvement dollars. In general, we are seeing a more favorable real estate market and historically unseasonable membership trends, which have been the catalyst for some of our franchisees to accelerate their development pipelines. I would categorize franchisee sentiment as bullish as membership levels continue to climb. Next, I want to elaborate on Chris’ comments about the state of our business last year in the second quarter. As previously mentioned on last quarter’s call, we are not reporting a Q2 system-wide same-store sales growth number due to the fact that the majority of our stores were not building in the prior-year period. We assume we will resume reporting system-wide same-store sales in the third quarter. As a reminder, our same-store sales results are a function of the change in membership trends over the trailing 12-months compared to the year-ago period. As of the end of Q2, we had six consecutive months of sequential net member growth, but our membership levels were still below prior year. Black Card penetration increased to 62.6%, up 191 basis points to last year contributing to continued growth in average monthly rate. Now I will turn to our Q2 financial results. Total revenue increased $97 million or 241.1% to $137.3 million from $40.2 million in the prior-year period. The increase was driven by revenue growth across all three segments. The increase in franchise segment revenue was primarily due to growth in royalties, NAF, and franchise and other fees primarily attributable to COVID-related temporary store closures in Q2 last year. The increase in revenue in the corporate store segment was also primarily due to COVID-related temporary store closures, as well as the impact of seven new corporate stores opened compared to Q2 2020. Equipment segment revenue increases were driven by higher equipment sales to new and existing franchisee-owned stores due in part to temporary store closures related to COVID last year. Our cost of revenue, which primarily relates to the direct cost of equipment sales to new and existing franchisee-owned stores amounted to $18.5 million compared to $8.5 million a year ago. Store operation expenses which relate to our corporate-owned store segment were $28.4 million compared to $14.7 million in Q2 last year. The increase was primarily attributable to lower operating and payroll expenses last year with the COVID-related temporary closures along with higher expenses with the new stores we opened in the last 12 months. SG&A for the quarter was $21.8 million compared to $15.9 million a year ago. The increase was driven by higher incentive and stock-based compensation, travel expenses, and expenses associated with our mobile app compared with the prior-year period. National advertising fund expense was $13.5 million compared to $10.9 million in the prior-year period. Adjusted EBITDA was $55.6 million compared to a loss of $9.3 million in the prior-year period. A reconciliation of adjusted EBITDA to GAAP net income or loss can be found in the earnings release. By segment, franchise adjusted EBITDA was $51.8 million, corporate store adjusted EBITDA was 10.4 million, and equipment adjusted EBITDA was 5.6 million. Adjusted net income was $18.2 million and adjusted net income per diluted share was $0.21. Now turning to the balance sheet. As of June 30, 2021, we had total cash of $527.4 million compared to $515.8 million on December 31, 2020. This was comprised of cash and cash equivalents of $469.1 million compared to $439.5 million and $58.2 million and $76.3 million of restricted cash, respectively in each period. Total long-term debt excluding financing cost was $1.78 billion as of June 30 consisting of our three tranches of securitized debt and $75 million of variable funding notes. Our securitized debt structure is covenant light. We have two maintenance covenants a debt service coverage ratio and a total systemwide sales threshold. These are both tested quarterly, calculated on a trailing 12-month basis, and reported on a roughly two-month lag. In our most recent debt covenant reporting period of June 5, 2021, we had a 13% and an 81% cushion to the first triggering event for our debt service coverage ratio and system-wide sales covenant, respectively. We believe we have sufficient headroom for our two maintenance covenants, especially now with nearly all of our stores open. Additionally, I’d like to point out that this was the final reporting period with Q2 2020 included in our trailing 12-month calculation. This was our toughest quarter financially last year, and as a result, we believe it was a trough from a DSCR standpoint. Now to our outlook for the balance of 2021. With vaccines readily available across the nation, strong membership growth trends, and just under five months remaining in this year, we have better insight into what we believe our performance will be across key metrics. However, I’d like to note that our current view for 2021 assumes there is no major resurgence of COVID that causes member disruptions whether via shutdowns or more stringent masks mandates that result in a significant change in membership trends, particularly as the delta variant is causing case counts spike across the U.S. We have already discussed that we expect to be at the high end of our 75 to 100 new store opening range. As a reminder, last quarter we noted that we expect equipment replacement to be approximately 50% of our total equipment revenue this year. We continue to believe this will be the case. With respect to our corporate store segment, it’s important to note that our corporate clubs are primarily in markets that were most impacted by temporary shutdowns from COVID and were in the group stores that were temporarily closed the longest, which as we’ve said is the biggest factor impacting our stores recovery to pre-COVID levels. Additionally, the vast majority of our corporate stores are mature stores. Therefore, we expect lower revenue and profit for the balance of this year and into next year for our corporate store segment compared to 2019 levels. We still believe in the strategic importance and viability of our corporate store portfolio it will just take a longer period of time for those stores to return to the previous financial performance levels. Now let’s turn to SG&A there are two drivers for increased SG&A spend versus 2019. First, our investments into future growth engines for the business, including our bricks with clicks strategy, IT infrastructure and franchise marketing. For example, as Chris mentioned on digit, we have a new Chief Digital Officer who is leading our efforts for an omnichannel experience for our members. From a marketing perspective, we have invested to promote our app, support California’s store reopenings and participate in lobbying efforts for the fitness industry. The second driver is compensation, including having additional leadership positions as well as typical compensation growth. So when you take all of this together, we believe that our full-year revenue will be between $530 million and $540 million. We expect SG&A to be in the low $90 million range. We adjusted EBITDA will be between $200 million and $210 million. And we expect that adjusted earnings per share will be between $0.65 and $0.70. Finally, our pace of recovery has been faster than we expected and our membership growth is highly encouraging. As I mentioned earlier, our same-store sales results are a function of the change in membership levels over the trailing 12-months compared to the prior-year period. We cycle the most significant member declines in Q3. We expect that our same-store sales will become positive given our expectation that Q3 membership growth and membership levels will exceed that of last year. However, I want to reiterate that this outlook assumes there is not another prolonged operational setback, whether through mask mandates, temporary shutdowns, or other less tangible ways that COVID can affect the American psyche and in turn our business. But we know that our business model is resilient and while the near-term is somewhat difficult to predict, we believe that we are well-positioned financially and strategically to capitalize on the value creating opportunities emerging as the country comes out of the pandemic. And with that, I will turn it over to the operator for Q&A.

Questions and Answers:

Operator

[Operator Instructions] Your first question comes from John Heinbockel from Guggenheim. Your line is now open.

John Heinbockel — Guggenheim — Analyst

Chris, given what’s happening with membership, what do you think about promotional activity that you’re going to run between now and year-end? The — are you more inclined to be more promotional, because members would responder, can you be less because they were naturally coming back?

Chris Rondeau — Chief Executive Officer

Yes, good question. Yeah, right now we have nothing outside of the norm from a marketing standpoint of scheduling. It looks pretty similar to last 12 month, last year, years in the past. So regular cadence, but what’s really interesting you kind of mentioned on your question is that what’s more intriguing actually is the kind of the natural organic demand we’re seeing on off promo days, it’s quite remarkable. Something I wouldn’t ever seen before. It’s even off promo days, the demand is just there regardless. So it’s — so we’ll do a normal cadence of marketing, but the membership is extremely strong right now and in all generations.

John Heinbockel — Guggenheim — Analyst

And maybe secondly, right, when you think about the Black Card pricing test, you’re are going about that pretty deliberately, I think compared to the last two increases, right? I think you tested it for a couple of months and then went with it. Is that because of COVID or is that because you’re trying to figure out whether people will pave the digital content and whether you want to include it in the Black Card pricing or do it separately?

Chris Rondeau — Chief Executive Officer

I’d say a little bit of both. I mean, it’s in pilot for that reason so we can test, whether is the $24.99 the right number, is it more, is it less, is digital driving some acquisition, higher acquisition or not, or at least maintaining the same Black Card percentage through the higher increase in rate. So, a little bit of all that, John, but I think we’ll always have the PF+ digital separate and apart from the Black Card bundle. I think for few reasons, I think one, we’ve seen that people are doing PF+ and then migrating into bricks and mortar and about 40% of the non-bricks-and-mortar members of who have subscribed to PF+ have gone on to join bricks-and-mortar after. So it’s definitely kind of their tipping their toe in the water and they are converting bricks-and-mortar after the fact which is encouraging, it’s really one of the marketing vehicle for us, but it also sets a bar of perceived value so that when you get the bundle, it look like be a better deal was bundled, because you see the off street price. So I think we’ll always have both.

John Heinbockel — Guggenheim — Analyst

Okay, thank you.

Chris Rondeau — Chief Executive Officer

Thank you.

Operator

Next question is from the line of Randy Konik from Jefferies. Your line is now open.

Randy Konik — Jefferies — Analyst

Yeah, thanks a lot. So I have a question one for Chris and one for Tom. I guess, Chris in the press release you talk about having confidence in meeting and possibly exceeding your long-term target of 4,000 locations in the United States. So can you elaborate a little bit more do you think you’re getting more kind of bullish about the long-term unit potential especially as your competitors are closing? So just more color there would be super helpful.

And I guess Tom, when I look at the EBITDA dollar guidance at the high end for the year, it implies an EBITDA margin of about 39% I believe, and your prior peak in EBITDA margin, I believe was in 2017 at 43%. So just want to get some color on how we should be thinking about a little bit more into the medium term around where the EBITDA margin should really sit for the business? And to know if the elevated SG&A in 2021 will subsiding growth rate in 2022, i.e. we should see some EBITDA margin expansion next year. Just curious on that? Thanks guys.

Chris Rondeau — Chief Executive Officer

Sure. Thanks, Randy, this is Chris. The 4,000 potential, you probably have heard us talk in the past, even pre-COVID where we were — most of our new unit sales for franchise development were in existing territories that we had already sold probably years ago. We might have sold it for 10 stores in the county and we know a lot lot more now than we did back then and franchisees are coming to us and we thought it hold 10 and now it holds 14 based on what we know today. So we were always — already thinking that the 4,000 might be on the lower side of what the potential is now coming out of COVID, I think we — quite a few things going on. On top of the 22% of the industry were shut down, which is amazing out of the 41,000 stores. I think 22% have shut down and that does skew higher in the boutique arena as opposed to full service gyms. It’s about 14% of gyms of close about 27% of boutiques have closed. So it does skew higher boutiques, but nonetheless this 22% of gyms are no longer in business. So you have that on top of — I think what we’re seeing here with the organic growth, I mentioned is just — it’s just the demand I think coming out of COVID of people realizing everything you see points to the fact to COVID that being overweight or out of the shape, you want taking care of your health is one of contributing factors of customization and unfortunate death.

So I think people really pay attention to their health and wellness more so coming out of this. So I think the industry has a huge tailwind coming out of this price for many years ahead. I think it’s — I think we are going to see some that probably the industry hasn’t seen before. So I think your question, I think there’s no doubt when gyms closed down, the strength of our model. The fact that we’re going after casual first-timers and 40% of our joins still today have never gone to a gym in their life, and that holds true for the second quarter. So we’re really getting people off the couch for the first time, and those are the people need the most help.

And also, as we all know and less fortunate neighborhoods they are also more affected by COVID and 25% of our gyms are in neighborhoods that the government classifies as low income. So we’re definitely feeling a need here and I believe the 4,000 probably is on the light side. So I think once all this does settles especially we’re going to have to study up on to see where we think the potential is — when it does settles out of this.

Tom Fitzgerald — Chief Financial Officer

And hey, Randy, on the P&L question I think as we come through this with the different puts and takes, by segment. We talked about the corporate stores segment being in the markets that were affected longer, so that certainly has an impact there. And also the franchise segment, our membership levels while rebounding, are still — have been rebounding more recently. Where in 2019 they were kind of pretty strong right from the start. So it’s a bit of a timing based on the subscription model. But we don’t see anything, kind of in the near-term, longer term that structurally inhibits us from getting back to our 2019 EBITDA margin levels of 43%. It is a little bit of kind of the depressed revenues in the near-term and some of the changes across our 3 segments.

I think when you think about SG&A though, we do — as Chris mentioned here, we have made some incremental investments both in terms of people, systems and marketing to support our app back to our bricks and clicks strategy. I think in the main, we run the business with a pretty frugal mindset, but where we think there is an opportunity to invest in we’re going to do that. So I think it’s a balance of being frugal where we should and also being thoughtful about the investments we need to make to really power up, which is a big opportunity.

Randy Konik — Jefferies — Analyst

Thanks, guys.

Chris Rondeau — Chief Executive Officer

Thank you.

Operator

The next question is from Oliver Chen from Cowen. Your line is now open.

Oliver Chen — Cowen — Analyst

Hi, thank you. Chris and Tom, it sounded like the membership trends were running better than you expected, given your prepared remarks. What drove that upside, relative to your expectations? And then second on the bricks and click strategy, what are you most excited about, why was now the right time for a Chief Digital Officer? And how might this impact the models and membership and/or churn, and just what generally is on the road map? Thank you.

Chris Rondeau — Chief Executive Officer

Sure, thanks, Oliver. On the growth in the membership, what’s really driving this today and what we typically see — after — really after the month of April, honestly mature stores, mature stores would typically not grow at all pretty much the rest of the year after the winter growth months and in a lot of cases Oliver the mature stores have actually declined slightly throughout the rest of the year. So what we’re seeing now, which is something that we’ve never seen before is that the mature stores are growing in a time of the year that they typically don’t really. So they add a lot of new members in the first quarter call it even through April and then they either maintain or retract some over the rest of the year, but for the year, they’re ahead, but they lose some throughout the rest of the year.

We’re not seeing that right now, we’re actually seeing that even the mature stores continue to grow in months that they typically don’t grow. So that’s why it was driving that. So that organic demand in the sale periods are extremely strong, which is something you’ll see in the month of June or July they grow like that, it’s just something we’ve never — usually this industry we hold on, but they’re light in the summer time, honestly and it’s amazing to see something this time of the year.

I think with the bricks and clicks and it’s really still in infancy stage here, but I think it has many years to follow, but — and I said this in the previous calls. If you think about this industry, we open our doors and we turn the lights on and let somebody use the facility. We don’t offer them anything. They pay us every month. We don’t give them any service outside the four walls. So I think in any way we can provide them some level of service and engagement outside our four walls, as well as inside, but outside the four walls can only help a customer satisfaction and ultimately only help with retention and stickiness.

So — and that’s why it’s a great platform as it is now, but it’s really just the beginning of a platform that is built to be able to add more and more to it, and now it’s strictly just exercise but this nutrition I’ve always mentioned and the meditation is a self-help, it help us sleeping and goes on and on with the platform. But even just way people are engaging with us, I mean the way they are joining now it’s 65% to 70% of our joins our digitally either through the website or through the app. In 2019 that number was 30%, 35%. So even just the way people are joining is much, much higher than we’ve seen in years passed by, by over double. So people are just — the world has changed and I think this is something is going to stick around with us.

So — and now we’re offering the upgrades in the app and we’re offering refer a friend in the app which is a nationwide promotion going with that we’re — a formal way that a member can refer somebody through the app and get credit for that referral and we reward them for that referral, which is something that never existed before, and so we had this app and launched this platform. So it’s just the way I think for us to be able to engage our members and provide them more and get more. It can only help I think with satisfaction as the customer goes and only drive stickiness longer term.

Oliver Chen — Cowen — Analyst

Thank you, Chris. And lastly usage, how has usage trended and what are your expectations there and what you’re seeing national indoor regionally? Thank you.

Tom Fitzgerald — Chief Financial Officer

Yeah. We ended June with about 90% of 2019 levels. So almost back to normal. Many of the generations are back to pre-COVID, the boomers are still lagging some, but they are trending in the right direction now, which is great. So we’re almost back to what we normally see. And usage is about the same too, the average member uses about 6-times per month.

Oliver Chen — Cowen — Analyst

Okay, perfect. Thank you. Thank you very much. Best regards.

Chris Rondeau — Chief Executive Officer

Thanks, Oliver.

Tom Fitzgerald — Chief Financial Officer

Thanks, Oliver.

Operator

Next is from the line of Joe Altobello from Raymond James. You may ask your questions.

Adam Scott Kozek — Raymond James — Analyst

Hey, guys. This is actually Adam on for Joe. I know you mentioned that the guidance assumes nothing unexpected in the form of like shutdowns or mass mandates, etc. All that being quite unpredictable dynamic. That said, have you seen any impact on membership so far? And I know it’s early from delta in recent weeks either the pace of new joins or cancels maybe two recent even be able to pick up on those trends, but have you guys seen anything on that regard?

Chris Rondeau — Chief Executive Officer

Yes, no, we haven’t, but watching it closely. We did see some of that reaction back to the member fee call last summer when some of the things are spiking in August and so we saw some of the market react to that, but we’re not seeing that with the delta virus nationally or regionally.

Adam Scott Kozek — Raymond James — Analyst

Okay. That’s encouraging. And one more if I could. I believe, New York City proposed a rule requiring a proof of vaccination antigens, do you think that prospect might slow membership or store growth in any way in the near-term?

Chris Rondeau — Chief Executive Officer

I mean, it could we haven’t seen it yet, but it definitely a little bit of a hurdle here for people to work out, but good question is how long it goes on for you though. But we haven’t seen it affect things yet. Out of the entire portfolio, we only have about 95 clubs that have masks all the time, and about 31 clubs that are masked not while exercising but while walking around. So it’s not as broad as you might think that’s in the Northeast is all you hear.

Adam Scott Kozek — Raymond James — Analyst

Got it. Thanks, Chris. And congrats on the encouraging membership trends.

Chris Rondeau — Chief Executive Officer

Thank you.

Operator

Next is from John Komp. Please also state your company name. Your line is now open.

Jonathan Komp — Baird — Analyst

Yeah. Hi, thanks. It’s John Komp from Baird. I want to follow up maybe a little bit of a bigger picture question, but as you look at the momentum and the membership you’re seeing and the bullish tone that you cited. How do you think about whether you’re doing enough to stay ahead of some of your competition? I know you cited some of the metrics for gyms that have closed, but there is other of your peers that are seeing similar trends. So maybe just do you think you’re doing enough to stay ahead and as you think about plans to stay ahead, how should you share those costs or those investments between Planet and your franchisees?

Chris Rondeau — Chief Executive Officer

Yeah, good question. You may recall, last — tail end of last year we actually put in about $10 million of corporate marketing dollars just to reinforce the NAF and kind of super charge to get it going. We don’t see the need to do that just yet right now, not that we wouldn’t government keep the optionality open there. But I don’t see — right now with the membership trend is heading and how fast it’s growing and as your know, Jonathan, the NAF in the spend and actually advertising fund local advertising is 90% of the membership dollars. So the faster that the membership increases the quicker those dollars replenishing here larger so right now we see no reason to do that just yet. And there is no doubt that our excitement about the membership growth is definitely shared with the franchisees, the amount text messages I get and emails about people saying they couldn’t believe what they’re seeing in the month of July or June. So that’s really what we’ve said this all along that’s really what the franchisee need to see to get replenish their balance sheet, but also feel confident enough that it’s time to start moving here and start to start negotiating leases and get clubs open.

So — which hence why we went to the high range of our 75 to 100 which as this holds true and put the delta virus aside of us for a minute because who knows what happens I don’t feel that it will go crazy on us. But as long as it hold true, there is no reason why we shouldn’t start seeing some really good growth here and utilize next few years here. Now that franchisees are out looking at roasting.

Jonathan Komp — Baird — Analyst

Yeah, that’s great. Maybe one follow-up then as we think about trying to model out the equipment revenue in the years ahead. Just thinking 2019, I think it was close to $250 million. Any broad stroke thoughts about how we should think about next year for that?

Tom Fitzgerald — Chief Financial Officer

Yeah, John, it’s Tom. We’re really not commenting on 2022 at this point. We’ll do that on our year-end call. But I think once all of these extensions have kind of run their course, we expect that at some time in 2022 we’ll be back on kind of a normal rhythm assuming there is no disruption with COVID. But sometime in 2022 back on a normal rhythm in terms of both store development and reequip cycles.

Jonathan Komp — Baird — Analyst

Okay, thank you very much.

Tom Fitzgerald — Chief Financial Officer

You bet.

Chris Rondeau — Chief Executive Officer

Thanks, John.

Operator

Next is from John Ivankoe from JPMorgan. Your line is now open.

John Ivankoe — JPMorgan — Analyst

Hi, thank you. Maybe the increase or to the top end of the unit development range to some extent is the answer. But can you comment on how year one volumes are doing? I mean, if you were to look at, for example, the stores that are open in the last 12 months, how they’ve been doing relative to previous years and I’m especially interested on the 2021 openings specifically how those have comped relative to the years past?

Tom Fitzgerald — Chief Financial Officer

Yeah. Hey, John, it’s Tom. I’ll start and maybe others will add. So I think in terms of — if we wanted to clock back the stores that opened last year, we’re clearly soft to any historical norms. The stores that opened more in Q4 started to get closer to what we would normally expect and the stores that we opened this year are above expectations when it comes to the first year — first months in the first year ramp. So, very encouraging and again it’s yet another kind of green signal that our franchisees are seeing that gets I’m very bullish.

John Ivankoe — JPMorgan — Analyst

And above expectations, I mean, would that mean that you are, for example, higher than your 2019 class or there are still some drag in the new unit volume?

Tom Fitzgerald — Chief Financial Officer

Higher.

John Ivankoe — JPMorgan — Analyst

Okay. That’s fantastic. Thank you.

Operator

Next is from Simeon Siegel from BMO Capital Markets. Your line is now open.

Simeon Siegel — BMO Capital Markets — Analyst

Thank you, everyone. Congrats on the ongoing progress. Chris, sorry if I missed it, I think you touched on it, but can you speak to the composition of the new members has it changed versus pre-COVID? I think you mentioned 40% first-timers, but can you maybe speak to the percent coming from competitor closures or reactivations from maybe around COVID lapsed customers? And then Tom, did you guys give the average royalty rate? I think you normally give that, sorry if I missed that. Thanks.

Chris Rondeau — Chief Executive Officer

Yeah, rejoins are still running. They were in first quarter, about 30% of our joins are rejoins, so the members of us in the past that have coming back, and that typically runs about 20%. So it’s quite a bit higher than what we’ve seen in the years past. About 3% of the joins are coming from close competition today and you’re right about 40% are first-timers coming to us from the couch essentially. And the Gen-Z population is definitely still joining at a rate that we haven’t seen ever in the past quite a bit elevated the Gen-X and Millennials about the same boomers are slightly behind.

Tom Fitzgerald — Chief Financial Officer

And yes, I mean the royalty rate for the quarter was 6.3% versus 6.4% last year and that’s really just mix of stores that were open and billing last year compared to this year. No fundamental structural change or anything.

Simeon Siegel — BMO Capital Markets — Analyst

Perfect, thank you. And then any — just any notable difference in economics for Mexico versus the U.S. as you roll that out?

Chris Rondeau — Chief Executive Officer

No, not really, no the royalty rates and all the development the 80 stores over five years. It’s a good group out of Mexico and it partnered with one of our largest here U.S. franchisees who has almost 100 locations. The — you may view the press release, but the group there has brought forever ’21 or maybe as well to the Mexico. So I think it’ll be a great partnership that has a lay of the land there.

Simeon Siegel — BMO Capital Markets — Analyst

Great. Best of luck for rest of the year, guys. Thanks.

Chris Rondeau — Chief Executive Officer

Thank you.

Tom Fitzgerald — Chief Financial Officer

Thanks, Siemon.

Operator

Next question is from Peter Keith from Piper Sandler. Your line is now open.

Peter Keith — Piper Sandler — Analyst

Hey. Thanks, everyone, and my congratulations as well on the continued progress. Chris, quick question I guess for the revenue guide that you’ve provided of $5.30 to $5.40, what would you have roughly for a year-end member count to get to that range?

Tom Fitzgerald — Chief Financial Officer

Hey, Peter, it’s Tom. We actually don’t provide guidance on the member outlook. And as you know things are still kind of fluid. But in a typical year, we’ve seen very unseasonable trends in membership this year as Chris alluded to. And on our last call, it was a couple of data points now it’s more data points as we’ve come through the quarter and into July. And typically a store would lose some members in the back half of the year. So we try to put our best thinking and taking in a typical year versus what typically happens in store all that together to come up with how we guided revenue, but unfortunately, we don’t provide membership outlook.

Peter Keith — Piper Sandler — Analyst

Okay, fair enough. And my follow-up question is just on the the pace gym — new gym openings you’ve guided us to the high end of the range for 2021. I know you’re not guiding for 2022, but I guess I’m interested in how the conversations with franchisees are evolving? I think in the past you’ve talked about franchisees maybe wanted to get through that January selling season before making go or no-go decisions on ’22 openings. Is that changing based on this faster member recovery path that you’re seeing, could we see gyms open up sooner in ’22 based on the comments you’re getting?

Chris Rondeau — Chief Executive Officer

Yes, I’ll go — go ahead, Dorvin. Go ahead.

Dorvin Lively — President

Yes, Peter. I think the way we look at it is when things shut down back early last year and when it became apparent this is going to last for a while. As we mentioned on some previous calls the franchisees really shut down all their development activities, furloughing even some of the real estate folks on the team because they really weren’t — they didn’t know when they’d get back into kind of building new stores and as you — as we progress throughout 2021 and quite frankly coming into — 2020, and then coming into 2021 with all the concerns around what would happen after the holidays, with respect to the COVID-19 and then the vaccination rates. We’re just starting, the vaccines were just becoming available and it’s obviously it’s still continuing to increase some states better than others, in terms of the vaccination rates and people more likely to kind of get out and try to get about their daily lives and quite frankly, as Chris said earlier, I think it’s the reasons we’re seeing some of the trends we’re having today.

So when you take all that into consideration, obviously franchisees with their own portfolio of stores, they see what’s going on with their business. We obviously give them updates in terms of the system and the encouragement that not only we have at corporate, but they have in their own individual market or markets, they see these trends real-time as well. And that’s why, as Tom indicated in our guidance that we believe we’ll be at the high end of that range that we had previously put out. So franchisees are clearly out there, starting to do their deals again.

The issue obviously is the timeframe. Beginning to end in kind of a normal timeline circumstance. It’s about nine months from the time that you say, okay, I want to try to find a location in this particular market and you start working with your real estate team internally, your commercial real estate brokers, with our team, our corporate team that we have to try to put a number of sites out there for consideration and then start negotiating LOIs and how much tenant improvement allowances they will give you, etc. It’s a nine month process to ultimately get it open.

And so here we are now in the back half of the year. Franchisees clearly are out in the markets now and starting to do deals certainly starting to get LOIs going. At this point we’re clearly not back at that run rate, we were, when this all kind of came down last year in March. And a lot of that is just frankly the timeline to get there. I think you’ve heard us say before and we’re certainly saying it again is that, we’ve got a ton of confidence in the model. And what has happened in terms of the recovery to this point and it gives us a lot of confidence. So we can get back into the kind of growth that we had before. It’s just a matter of when and not if. And so at this point, as Tom said we’re not commenting on 2022, but we can say that clearly the franchisees’ willingness to get out there and start surfacing site is certainly better than it was even 60-90 days ago.

Peter Keith — Piper Sandler — Analyst

All right, that’s great, very helpful. Thanks so much guys.

Chris Rondeau — Chief Executive Officer

Thank you.

Tom Fitzgerald — Chief Financial Officer

Thanks, Peter.

Dorvin Lively — President

Thanks.

Operator

Next question is from Paul Golding from Macquarie. Your line is now open.

Paul Golding — Macquarie — Analyst

Yeah, thanks for taking my question. My first question is if you have any update on Australia and the rollout there, given the prolonged snap lockdowns that we’ve seen over the last several weeks?

Tom Fitzgerald — Chief Financial Officer

Yes, sure, so I think we just have a few stores there, but we get an update from our franchisees and it is sort of on-again, off-again it’s tough, but I think overall when they’re open the trends that they see are still encouraging them and they are forging ahead with their development plans for the future.

Paul Golding — Macquarie — Analyst

So that 35 unit estimate over the next several years is still the target for now.

Chris Rondeau — Chief Executive Officer

Yes.

Tom Fitzgerald — Chief Financial Officer

Yes.

Chris Rondeau — Chief Executive Officer

Yeah, I think four of the five is closed right now, it should be opening maybe by the end of the month, but that’s a moving target.

Tom Fitzgerald — Chief Financial Officer

Yes.

Paul Golding — Macquarie — Analyst

Got it. And then on PF+, were there any other engagement stats you could give with respect to number of workouts in a particular month that unique might be doing, just to get a sense of the uptake there? And any sense, I guess as a follow on to Oliver’s question around, is this intended to be top of funnel, do you see it evolving into more of a stand-alone, maybe with its own branding and marketing? How should we think about that in the model?

Chris Rondeau — Chief Executive Officer

Yes, sure. So still a lot of testing to be had here, we haven’t released any subscription numbers yet, but I think there’s a couple ways to look at it too is that there is also a lot of app holders that aren’t even PF+ subscribers. So to your comment about being top of funnel you’re exactly right. So as long as they engage with the app as unpaying members that convert to bricks and mortar and then convert to PF+ first. So it’s kind of top of the funnel and it really the home of the marketing vehicle for us. But we have seen other people that were subscribers to PF+ that were non-bricks and mortar members. It was 40% now have converted to bricks and mortar, first quarter was 30% and the fourth quarter was 20%.

So you see how people are engaging with PF+ and then becoming bricks and mortar members after the fact and also 70% of the members who have PF+ have also used bricks and mortar at the same time. So they’re definitely engaged and about 80% of the subscribers are actually current Planet Fitness members who have gone on to pay more for more and the majority of it was Black Card members, which is hence why we’re doing the test with the bundle as well, to see if we can get more price out of just all Black Card members, not just people who opt in for it.

So a lot of learnings to be had, but I think it’s just how we look at the top of funnel out of all the app holders about 12 million downloads 9 million on them members, the other 3 million or non-members or lapsed members that still have the app, that we are able to engage with or engage with the app. So lot more to be had there and to be learn from, but we do have a lot of people. I just have the app they’re not even paid subscribers that we can convert as well. So, still a lot more engagement to be had and to learn from.

Paul Golding — Macquarie — Analyst

Great, thanks so much for that Chris. Appreciate it.

Chris Rondeau — Chief Executive Officer

Yes, welcome.

Operator

Next question is from Chris O’Cull from Stifel. Your line is now open.

Chris O’Cull — Stifel — Analyst

Thanks, good afternoon, guys. Tom, I apologize if I missed this, but how much of the equipment revenue this quarter was reequipped? And how should we think about the ramp in replacement equipment revenue through the balance of the year?

Tom Fitzgerald — Chief Financial Officer

Yeah. Hey, Chris. Sure, thanks. So in Q2, it was 60% of revenue, brings the first half to about 45% of total equipment revenue. And so, we said that for the full year, we’re staying with what we said on the last call, which is the reequips would constitute about 50% of our full year equipment revenue.

Chris O’Cull — Stifel — Analyst

Okay, that’s helpful. And then is the net off season growth you’re seeing from either — is it from higher gross sign ups or lower cancellations or both? And I’m just curious if you’ve seen retention changed at all from the May-June promos, after the initial months compared to maybe similar type of promos that you ran prior to COVID?

Chris Rondeau — Chief Executive Officer

Yeah, it is both actually and would you see in — it’s almost like the year is upside down our May — June was 20 times, June of 2019 and our May expiration on our sale was the highest net member growth day even, outside of January this year. So definitely demand is upside down and people are coming in higher now than they did maybe in the first quarter certainly last year, that’s for sure. So yeah, I think it just people are out about in resurging the business is just totally different than what we’ve ever seen before. So I think there’s a lot of factors between closings, people paying more attention to their health and wellness and I think time will tell if anything happens crazy in the world with delta variant. But I think it could be a long-term trend that we see for the years ahead.

Chris O’Cull — Stifel — Analyst

Okay, thanks guys.

Chris Rondeau — Chief Executive Officer

Thank you.

Operator

Last question is from Alex Barry from Bank of America. Your line is now open.

Alex Barry — Bank of America — Analyst

Hi, thanks for taking my question. Chris, I think in the prepared remarks, you made a comment that it’s hard to see whether those unseasonal joins will continue. Maybe could you talk through the cancellation rate of new joins within the first few months versus normalized levels, especially with — there is some no commitment promos you guys have been running? Thanks.

Chris Rondeau — Chief Executive Officer

Yeah, we haven’t see any change in any kind of retention or attrition or increased attrition with no — without any kind of commitments or anything like that. So nothing there has changed. So that’s all good news. One of the things that we’ve seen in a lot of consumer studies is the no commitment messaging, it’s almost more important than the actual roaming fee discount. People just want to know that if they can get out, they can and a lot of our members — 40% of the ones who gym their life, they are already thinking about how do I cancel this thing before they even join, and it’s unfortunate, but that’s kind of the — this industry is kind of been notoriously bad for cancellation policies and we want to make it — breaking all those barriers. So the good news is we haven’t seen any increased attrition, with those sort of offers.

Alex Barry — Bank of America — Analyst

Perfect. That’s really helpful. Best of luck going forward.

Chris Rondeau — Chief Executive Officer

Thank you.

Tom Fitzgerald — Chief Financial Officer

Thanks, Alex.

Operator

That ends our question and answer session. I’ll turn the call back over to the presenters for closing remarks.

Chris Rondeau — Chief Executive Officer

Thank you, operator. Thanks everyone for joining us today. It’s — as you can tell in our tone we couldn’t be more excited with the momentum the business has, something that I’ve never seen in my almost 30 years here. And excited as well that not only our staff here, but our franchisees feel the same sentiment. And I think this is what we were all hoping that was going to happen. And quite frankly higher than we expected that it will be. We knew it was going to come back that psyche of the customer they just want to get back and get back to health and fitness and now more than ever. So all good news, and I look forward to both the franchisees and getting back to development growth and getting more people off the couch. So thank you all.

Operator

[Operator Closing Remarks]