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Planet Fitness, Inc.

Planet Fitness, Inc.PLNTEarnings & Financial Report

NYSE · Consumer Discretionary · Services-Membership Sports & Recreation Clubs

Planet Fitness, Inc. is an American franchisor and operator of fitness centers based in Hampton, New Hampshire. The company has around 2,715 clubs, making it one of the largest fitness club franchises by number of members and locations. The franchise has locations in the United States, Canada, Panama, Mexico, Spain and Australia. It markets itself as a "Judgement Free Zone" open to all levels of gym users.

What changed in Planet Fitness, Inc.'s 10-K — 2022 vs 2023

Top changes in Planet Fitness, Inc.'s 2023 10-K

392 paragraphs added · 409 removed · 326 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

82 edited+12 added−13 removed88 unchanged
We manage the NAF and Canadian advertising fund for franchisees and corporate-owned stores, with the goals of generating national awareness through national advertising and media partnerships, developing and maintaining creative assets to support local sale periods throughout the year, and building and supporting the Planet Fitness community via digital, social media and public relations.
We manage the NAF and Canadian advertising fund for franchisees and corporate-owned stores, with the goals of generating national awareness through advertising and media partnerships, developing and maintaining creative assets to support local sale periods throughout the year, and building and supporting the Planet Fitness community via digital, social media and public relations.
In 2020, we began introducing premium digital content, across multiple channels, but primarily through our mobile application. In 2021, we introduced content management services to the digital platform allowing us to support the delivery of various types of content in multiple languages across the digital platform and connected channels.
In 2020, we began introducing premium digital content, across multiple channels, but primarily through our mobile application. In 2021, we introduced content management services allowing us to support the delivery of various types of content in multiple languages across the digital platform and connected channels.
We generally select franchisee-owned stores for review randomly but also target underperforming stores and stores that have not performed well on previous visits from their operations team. 10 Marketing Marketing strategy Our marketing strategy is anchored by our key brand differentiators—the Judgement Free Zone, our exceptional value and our high-quality experience.
We generally select franchisee-owned stores for review randomly but also target underperforming stores and stores that have not performed well on previous visits from their operations team. Marketing Marketing strategy Our marketing strategy is anchored by our key brand differentiators—the Judgement Free Zone, our exceptional value and our high-quality experience.
Belonging to a Planet Fitness store has perks whether members select the standard membership or the premium PF Black Card membership. Every member can take advantage of specials and discount offers from third-party retail partners and gets free, unlimited fitness instruction included in their monthly membership fee.
Belonging to a Planet Fitness store has perks whether members select the standard Classic Card membership or the premium PF Black Card membership. Every member can take advantage of specials and discount offers from third-party retail partners and gets free, unlimited fitness instruction included in their monthly membership fee.
These conversations are designed to bring feedback about aspects of the business that are important to our workforce to the forefront of management’s attention, and to increase direct engagement and trust at every level of the company. Feedback is carefully reviewed by our human resources teams and shared with our executive leadership team, including our CEO.
These conversations are designed to bring feedback about aspects of the business that are important to our workforce to the forefront of management’s attention, and to increase direct engagement and trust at every level of the company. Feedback is carefully reviewed by our human resources teams and shared with our executive leadership team, including our interim CEO.
Some states and provinces have passed or have considered legislation requiring gyms and health clubs to offer a prepaid membership option at all times and/or limit the duration for which memberships can auto-renew through EFT payments, if at all.
Some states and provinces have passed or have considered legislation requiring gyms and health clubs to offer a prepaid or cash membership option at all times and/or limit the duration for which memberships can auto-renew through EFT payments, if at all.
Our broad appeal and ability to attract occasional and first-time gym users enable us to continue to target a large segment of the population in a variety of markets and geographies. 5 • Highly attractive franchise system built for growth .
Our broad appeal and ability to attract occasional and first-time gym users enable us to continue to target a large segment of the population in a variety of markets and geographies. • Highly attractive franchise system built for growth .
We expect to drive sales by attracting new members to join as a PF Black Card member as well as continuing to convert our existing members’ standard memberships to our premium PF Black Card membership.
We expect to drive sales by attracting new members to join as a PF Black Card member as well as continuing to convert our existing members’ standard Classic Card memberships to our premium PF Black Card membership.
Our current franchise agreement requires franchisees to spend 7% of their monthly EFT on local marketing to support branding efforts and promotional sale periods throughout the year. In situations where multiple ownership groups exist in a geographic area, we have the right to require franchisees to form or join regional marketing cooperatives to maximize the impact of their marketing spending.
Our current franchise agreement requires franchisees to spend 7% of their monthly dues on local marketing to support branding efforts and promotional sale periods throughout the year. In situations where multiple ownership groups exist in a geographic area, we have the right to require franchisees to form or join regional marketing cooperatives to maximize the impact of their marketing spending.
We sell equipment purchased from third-party equipment manufacturers to franchisee-owned stores in the U.S. We also have one approved supplier of tanning beds, one approved supplier of massage beds and chairs, and various approved suppliers of non-fitness equipment and miscellaneous items. These vendors arrange for delivery of products and services directly to franchisee-owned stores.
We sell equipment purchased from third-party equipment manufacturers to franchisee-owned stores in the U.S, Canada, and Mexico. We also have one approved supplier of tanning beds, one approved supplier of massage beds and chairs, and various approved suppliers of non-fitness equipment and miscellaneous items. These vendors arrange for delivery of products and services directly to franchisee-owned stores.
For the past eight years, we have sponsored “Dick Clark’s New Year’s Rockin’ Eve with Ryan Seacrest,” and have been the sole presenting sponsor of the Times Square New Year’s Eve celebration through the Times Square Alliance, allowing the brand to be featured prominently in TV broadcasts covering Times Square during the celebration.
For the past nine years, we have sponsored “Dick Clark’s New Year’s Rockin’ Eve with Ryan Seacrest,” and have been the sole presenting sponsor of the Times Square New Year’s Eve celebration through the Times Square Alliance, allowing the brand to be featured prominently in TV broadcasts covering Times Square during the celebration.
This has allowed us to showcase the Planet Fitness brand and our judgement free philosophy to an estimated over one billion TV viewers annually at a key time of year when health and wellness is top of mind for consumers.
This has allowed us to showcase the Planet Fitness brand and our judgement free philosophy to an estimated over one billion TV viewers across the globe annually at a key time of year when health and wellness is top of mind for consumers.
We utilize electronic funds transfer (“EFT”) as our primary method of collecting monthly dues and annual membership fees. Over 85% of membership fee payments to our corporate-owned and franchise stores are collected via Automated Clearing House (“ACH”) direct debit.
We utilize electronic funds transfer (“EFT”) as our primary method of collecting monthly dues and annual membership fees. Over 86% of membership fee payments to our corporate-owned and franchise stores are collected via Automated Clearing House (“ACH”) direct debit.
Outlined Planet Fitness brand elements are required to be incorporated into every new store in accordance with our Design Control Documents (DCD) and supporting design brand guidelines, and we strive for a consistent appearance across all of our stores, emphasizing clean, attractive facilities, including full-size locker rooms, and modern equipment.
Planet Fitness brand elements are required to be incorporated into every new store in accordance with our Design Control Documents (“DCD”) and supporting design brand guidelines, and we strive for a consistent appearance across all of our stores, emphasizing clean, attractive facilities, including full-size locker rooms, and modern equipment.
By outfitting our stores with more cardiovascular and light strength equipment, and a limited offering of heavy free weights, we seek to reinforce our Judgement Free Zone philosophy by discouraging what we call “Lunk” behavior, such as dropping weights and grunting, that can be intimidating to new and occasional gym users. • Distinct store experience : Because our stores are typically 20,000 square feet and we do not offer non-essential amenities such as group exercise classes, pools, day care centers and juice bars, we have more space for the equipment our members do use.
By outfitting our stores with more cardiovascular and light strength equipment, and a limited offering of heavy free 4 Table o f Contents weights, we seek to reinforce our Judgement Free Zone philosophy by discouraging what we call “Lunk” behavior, such as dropping weights and grunting, that can be intimidating to new and occasional gym users. • Distinct store experience : Because our stores are typically 20,000 square feet and we do not offer non-essential amenities such as group exercise classes, pools, day care centers and juice bars, we have more space for the equipment our members do use.
In addition, we are subject to state franchise registration and disclosure laws in approximately 14 states and various business opportunity 14 laws that regulate the offer and sale of franchises and require us, unless otherwise exempt from the applicable law, to register our franchise offering in those states prior to our making any offer or sale of a franchise in those states and to provide a FDD to prospective franchisees in accordance with such laws.
In addition, we are subject to state franchise registration and disclosure laws in approximately 14 Table o f Contents 14 states and various business opportunity laws that regulate the offer and sale of franchises and require us, unless otherwise exempt from the applicable law, to register our franchise offering in those states prior to our making any offer or sale of a franchise in those states and to provide a FDD to prospective franchisees in accordance with such laws.
Under the rule promulgated by the IRS imposing the tax, a portion of the cost of memberships that include access to our tanning services are subject to the tax. 15 Our organizational structure Planet Fitness, Inc. is a holding company, and its principal asset is an equity interest in the membership units (“Holdings Units”) in Pla-Fit Holdings, LLC (“Pla-Fit Holdings”).
Under the rule promulgated by the IRS imposing the tax, a portion of the cost of memberships that include access to our tanning services are subject to the tax. 15 Table o f Contents Our organizational structure Planet Fitness, Inc. is a holding company, and its principal asset is an equity interest in the membership units (“Holdings Units”) in Pla-Fit Holdings, LLC (“Pla-Fit Holdings”).
These computer systems include third-party hosted systems that support our real estate and construction processes, a third-party hosted financial system, third-party hosted data warehouses and business intelligence system to consolidate multiple data sources for reporting, advanced analysis, consumer insights and financial analysis and forecasting, a third-party hosted payroll system, on premise telephony systems and a third-party hosted call center software solution to manage and track member-related requests.
These computer systems include third-party hosted systems that support our franchise management, real estate, and construction processes, third-party hosted financial systems, third-party hosted data warehouses and business intelligence system to consolidate multiple data sources for reporting, advanced analysis, consumer insights and financial analysis and forecasting, a third-party hosted human resource management and payroll system, on premise telephony systems and a third-party hosted call center software solution to manage and track member-related requests.
We are subject to the FTC Franchise Rule, as amended (the “Rule”), promulgated by the FTC that regulates the offer and sale of franchises in the U.S. and its territories (including Puerto Rico) and requires us to provide to all prospective franchisees certain mandatory disclosures in a franchise disclosure document (“FDD”), unless otherwise exempt from the Rule.
We are subject to the Federal Trade Commission (the “FTC”) Franchise Rule, as amended (the “Rule”), promulgated by the FTC that regulates the offer and sale of franchises in the U.S. and its territories (including Puerto Rico) and requires us to provide to all prospective franchisees certain mandatory disclosures in a franchise disclosure document (“FDD”), unless otherwise exempt from the Rule.
As of December 31, 2022, our agency structure consists of one national and two local agencies allowing for integration and coordination of National Advertising Fund (“NAF”) and local advertising spending.
As of December 31, 2023, our agency structure consists of one national and two local agencies allowing for integration and coordination of National Advertising Fund (“NAF”) and local advertising spending.
Ongoing programs at Planet Fitness include professional level workshops led by our training department, in addition to LeadDev, our competency-based leadership development program for the accelerated development of our highest potential team members. In 2022, there were over 30,000 active users of the PF University platform across our franchise community.
Ongoing programs at Planet Fitness include professional level workshops led by our training department, in addition to LeadDev, our competency-based leadership development program for the accelerated development of our highest potential team members. In 2023, there were over 35,000 active users of the PF University platform across our franchise community.
Nearly all states and provinces have consumer protection regulations that limit the collection of monthly membership dues prior to opening, require certain disclosures of pricing information, mandate the maximum length of contracts and “cooling off” periods for members (after the purchase of a membership), set escrow and bond requirements for health clubs, govern member rights in the event of a member relocation or disability, provide for specific member rights when a health club closes or relocates or preclude automatic membership renewals.
Nearly all states and provinces have consumer protection regulations that limit the collection of monthly membership dues prior to opening, require certain disclosures of pricing information, mandate the maximum length of contracts and “cooling off” periods for members (after the purchase of a membership), set escrow and bond requirements for health clubs, govern member rights in the event of a member relocation or disability, provide for specific member rights when a health club closes or relocates, mandate the availability of online cancellation, or require advance notice of automatic membership renewals or preclude such automatic membership renewals.
Our members generally pay the following amounts (or an equivalent amount in the store’s local currency): • monthly membership dues of only $10 for our standard membership, or approximately $24.99 for PF Black Card members; • current standard annual fees of approximately $49; and • enrollment fees of approximately $0 to $59.
Our members generally pay the following amounts (or an equivalent amount in the store’s local currency): • monthly membership dues starting at only $10 for our standard Classic Card membership, or $24.99 for PF Black Card membership; • current standard annual fees of $49; and • enrollment fees of $0 to $59.
The map below shows our franchisee-owned stores by location, and the accompanying table shows our corporate-owned stores by location. Franchisee-owned store count by location Store model Our store model is designed to generate attractive four-wall EBITDA margins, strong free cash flow and high returns on invested capital for both our corporate-owned and franchisee-owned stores.
The map below shows our franchisee-owned stores by location, and the accompanying table shows our corporate-owned stores by location. 7 Table o f Contents Franchisee-owned store count by location Store model Our store model is designed to generate attractive four-wall EBITDA margins, strong free cash flow and high returns on invested capital for both our corporate-owned and franchisee-owned stores.
Under our current franchise agreement, franchisees are required to contribute 2% of their monthly membership dues and beginning in January 2023 annual fees to our NAF and Canadian 6 advertising fund.
Under our current franchise agreement, franchisees are required to contribute 2% annually of their monthly membership dues, and beginning in January 2023 annual dues, to our NAF and Canadian advertising fund.
Based on franchisee business reviews and management estimates, we believe that, on average, franchisee stores achieve four-wall EBITDA margins in line with, or higher than these corporate-owned store four-wall EBITDA margins.
Based on franchisee business reviews and management estimates, we believe that, on average, franchisee stores achieve four-wall EBITDA margins in line with these corporate-owned store four-wall EBITDA margins.
We regularly communicate and collaborate with the Independent Franchise Counsel (“IFC”) and send a weekly email communication to all franchisees with timely information related to operations, marketing, financing and equipment. Every month, a franchisee newsletter is emailed to franchisees, which generally includes a personal note from our Chief Executive Officer.
We regularly communicate and collaborate with the Independent Franchise Counsel (“IFC”) and its various sub-committees and send a weekly email communication to all franchisees with timely information related to operations, marketing and equipment. Every month, a franchisee newsletter is emailed to franchisees, which generally includes a personal note from our Chief Executive Officer.
We see Planet Fitness as a community gathering place, and the heart of our marketing strategy is to reinforce the “feel good” mental and physical benefits of exercise and create a welcoming in-store environment for our members. Marketing spending National advertising . We support our franchisees both at a national and local level.
We see Planet Fitness as a community gathering place, and the heart of our marketing strategy is to reinforce the “feel good” mental and physical benefits of exercise and create a welcoming in-store environment for our members. 10 Table o f Contents Marketing spending National advertising . We support our franchisees both at a national and local level.
As new franchisees enter our system and, generally, as current franchisees open new stores or renew their existing franchise agreements at the current royalty rate, our average system-wide royalty rate will increase. In 2022, our average royalty rate was 6.5% compared to 5.6% in 2018. • Grow sales from fitness equipment and related services.
As new franchisees enter our system and, generally, as current franchisees open new stores or renew their existing franchise agreements at the current royalty rate, our average system-wide royalty rate will increase. In 2023, our average royalty rate was 6.5% compared to 6.1% in 2019. • Grow sales from fitness equipment and related services.
Based on our internal and third-party analysis, we believe we have the potential to grow our store base to over 4,000 stores in the U.S. alone. ◦ Drive revenue growth and system-wide same store sales .
Based on our internal and third-party analyses, we believe we have the potential to grow our store base to over 5,000 stores in the U.S. alone. • Drive revenue growth and system-wide same store sales .
We will publicly disclose Equal Opportunity Employment Standard Form 100 data in our 2022 Impact Report. 13 Information technology and systems All stores use a computerized, third-party hosted store management system to process new in-store memberships, bill members, update member information, check-in members, process point of sale transactions as well as track and analyze sales, membership statistics, cross-store utilization, member tenure, amenity usage, billing performance and demographic profiles by member.
We will publicly disclose Equal Opportunity Employment Standard Form 100 data in our 2023 ESG Report. 13 Table o f Contents Information technology and systems All stores use a computerized, third-party hosted store management system to process new in-store memberships, bill members, update member information, check-in members, process point of sale transactions as well as track and analyze sales, membership statistics, cross-store utilization, member tenure, amenity usage, billing performance and demographic profiles by member.
Our low monthly membership dues combined with our non-intimidating and welcoming environment, enable us to attract a broad member demographic based on age, household income, gender and ethnicity. Our member base is approximately 50% female and our members come from both high- and low-income households.
Our low monthly membership dues combined with our non-intimidating and welcoming environment, enable us to attract a broad member demographic based on age, household income, gender and ethnicity. Our member base is approximately 50% female and our members come from households of all income levels.
The typical franchise agreement has a 10-year term. Additionally, franchisees must purchase equipment from us (or our required vendors in the case of our franchisees located in certain international markets) and generally replace the fitness equipment in their stores every five to seven years and periodically refurbish and remodel their stores.
The typical franchise agreement has a 10-year term. Additionally, franchisees must purchase equipment from us (or our required vendors in the case of our franchisees located in certain international markets) and generally replace the fitness equipment in their stores and refurbish and remodel their stores periodically.
Our current U.S. and Canadian franchise agreements require franchisees to contribute approximately 2% of their monthly EFT, and beginning in January 2023 annual fees, annually to the NAF and Canadian advertising fund, respectively.
Our current U.S. and Canadian franchise agreements require franchisees to contribute approximately 2% annually of their monthly membership dues, and beginning in January 2023 annual dues, to the NAF and Canadian advertising fund, respectively.
Our streamlined model features relatively fixed labor costs, minimal inventory, automatic billing and limited cash transactions. The attractiveness of our franchise model is further evidenced by the fact that our franchisees re-invest their capital into the brand, with over 90% of our new stores in 2022 opened by our existing franchisee base.
Our streamlined model features relatively fixed labor costs, minimal inventory, automatic billing and limited cash transactions. The attractiveness of our franchise model is further evidenced by the fact that our franchisees re-invest their capital into the brand, with substantially all of our new stores in 2023 opened by our existing franchisee base.
Members’ etiquette typically includes wiping down the equipment before and after use with our sanitization spray, which is FDA-approved to kill the COVID-19 virus on surfaces. • Exceptional value for members : In the U.S., for only $10 per month, our standard membership includes unlimited access to one Planet Fitness location and unlimited free fitness instruction to all members in small groups through our PE@PF program.
Members’ etiquette typically includes wiping down the equipment before and after use with our sanitization spray, which is FDA-approved to kill COVID-19 and other viruses on surfaces. • Exceptional value for members : In the U.S., generally starting at only $10 per month, our standard Classic Card membership includes unlimited access to one Planet Fitness location and unlimited free fitness instruction to all members in small groups through our PE@PF program.
In addition, we estimate that our large U.S. national advertising fund, funded by franchisees and us, together with our requirement that franchisees spend 7% of their monthly membership dues on local advertising, enabled us and our franchisees to spend over $275 million in 2022. • Exceptional value proposition that appeals to a broad member demographic .
In addition, we estimate that our U.S. national advertising fund, funded by franchisees and us, together with our requirement that franchisees spend 7% of their monthly membership dues on local advertising, enabled us and our franchisees to spend over $300 million combined in 2023. • Exceptional value proposition that appeals to a broad member demographic .
Both our standard and PF Black Card memberships are priced significantly below the 2021 industry average of $58 per month, the latest available estimate from our industry’s trade association, the International Health, Racquet & Sportsclub Association’s (“IHRSA”).
Both our standard Classic Card and PF Black Card memberships are priced significantly below the 2022 industry average of $59 per month, the latest available estimate from our industry’s trade association, the International Health, Racquet & Sportsclub Association’s (“IHRSA”).
Many of the states and provinces where we and our franchisees operate stores have health and safety regulations that apply to health clubs and other facilities that offer indoor tanning services, including certain temporary regulations related to the COVID-19 pandemic. In addition, U.S. federal law imposes a 10% excise tax on indoor tanning services.
Many of the states and provinces where we and our franchisees operate stores have health and safety regulations that apply to health clubs and other facilities that offer indoor tanning services. In addition, U.S. federal law imposes a 10% excise tax on indoor tanning services.
PF Black Card benefits extend beyond our store as well, with exclusive specials and discount offers from third-party retail partners. While some of our memberships require a cancellation fee, we offer, and require our franchisees to offer, a non-committal membership option. As of December 31, 2022, we had approximately 17.0 million members.
PF Black Card benefits extend beyond our store as well, with exclusive specials and enhanced discount offers from select third-party retail partners. While some of our memberships require a cancellation fee, we offer, and require our franchisees to offer, a non-committal membership option. As of December 31, 2023, we had approximately 18.7 million members.
While our current franchise agreement stipulates a monthly royalty rate of 7% of monthly dues and annual membership fees, as of December 31, 2022, only 47% of our stores are paying royalties at the current franchise agreement rate, primarily due to lower rates in historical agreements.
While our current franchise agreement stipulates a monthly royalty rate of 7% of monthly dues and annual membership fees, as of December 31, 2023, only 55% of our stores are paying royalties at the current franchise agreement rate, primarily due to lower rates in historical 6 Table o f Contents agreements.
We have meaningfully grown our store count over the last five years, expanding from 1,742 stores as of December 31, 2018 to 2,410 stores as of December 31, 2022. As of December 31, 2022, our franchisees have contractual obligations to open more than 1,000 additional stores, including more than 500 over the next three years.
We have meaningfully grown our store count over the last five years, expanding from 2,001 stores as of December 31, 2019 to 2,575 stores as of December 31, 2023. As of December 31, 2023, our franchisees have contractual obligations to open approximately 1,000 additional stores, including more than 500 over the next three years.
In 2022, our corporate-owned stores had a segment EBITDA margin of 37.5% and had average unit volumes (“AUVs”) of approximately $1.8 million with four-wall EBITDA margins (an assessment of store-level profitability which includes local and national advertising expense) of approximately 42.0%, or approximately 34.8% after applying the current 7% royalty rate.
In 2023, our corporate-owned stores had a segment EBITDA margin of 38.2% and had average unit volumes (“AUVs”) of approximately $1.9 million with four-wall EBITDA margins (an assessment of store-level profitability which includes local and national advertising expense) of approximately 42.7%, or approximately 35.4% after applying the current 7% royalty rate.
Our PF Black Card members as a percentage of total membership has increased from 60% as of December 31, 2018 to 62.5% as of December 31, 2022, and our average monthly dues per member have increased from $16.52 to $18.01 over the same period. • Increase brand investment to drive awareness and growth.
Our PF Black Card members as a percentage of total membership has increased from 61% as of December 31, 2019 to 62% as of December 31, 2023, and our average monthly dues per member have increased from $16.91 to $18.29 over the same period. • Increase brand investment to drive awareness and growth.
We spent $72.3 million in 2022 to support our national marketing campaigns, our social media platforms and the development of local advertising materials, of which $6.2 million was from our corporate-owned stores and included in store operations expense on our consolidated statements of operations.
We spent $78.5 million in 2023 to support our national marketing campaigns, our social media platforms and the development of local advertising materials, of which $8.4 million was from our corporate-owned stores and included in store operations expense on our consolidated statements of operations.
Copies of our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and our Proxy Statements for our annual meetings of shareholders, and any amendments to those reports, as well as Section 16 reports filed by our insiders, are available free of charge on our website as soon as reasonably practicable after we file the reports with, or furnish the reports to, the Securities and Exchange Commission (the “SEC”).The SEC maintains an Internet site (http://www.sec.gov) containing reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC. 16
Copies of our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and our Proxy Statements for our annual meetings of shareholders, and any amendments to those reports, as well as Section 16 reports filed by our insiders, are available free of charge on our website as soon as reasonably practicable after we file the reports with, or furnish the reports to, the Securities and Exchange Commission (the “SEC”).
As of December 31, 2022, 98% of all franchise stores were owned and operated by a franchisee group that owned at least three stores, and while our largest franchisee owned 186 stores, only 35% of our franchisee groups own more than ten stores.
As of December 31, 2023, approximately 98% of all franchise stores were owned and operated by a franchisee group that owned at least three stores, and while our largest franchisee owned 194 stores, only 44% of our franchisee groups own ten or more stores.
Based on strategic analysis regarding the immediate and future needs of our business and our team members, we identified three critical areas of focus: Employee Engagement and Workplace Culture, Employee Health and Safety, and Diversity, Equity and Inclusion (“DE&I”).
Based on strategic analysis regarding the immediate and future needs of our business and our team members, we identified three critical areas of focus: Employee Engagement and Workplace Culture, Employee Health and Safety, and Diversity, Equity and Inclusion (“DE&I”). We believe that focus and investment in these three areas will, in turn, generate long-term value.
In 2022, we recorded revenues of $936.8 million and system-wide sales of $3.9 billion (which we define as monthly dues and annual fees billed by us and our franchisees). We ended the year with approximately 17.0 million members and 2,410 stores in all 50 states, the District of Columbia, Puerto Rico, Canada, Panama, Mexico and Australia.
In 2023, we recorded revenues of $1.1 billion and had system-wide sales of $4.5 billion, which we define as monthly dues and annual fees billed by us and our franchisees. We ended the year with approximately 18.7 million members and 2,575 stores in all 50 states, the District of Columbia, Puerto Rico, Canada, Panama, Mexico and Australia.
In 2022, the NAF and Canadian advertising fund spent $72.3 million, of which $6.2 million was from our corporate-owned stores and included in store operations expense on the consolidated statements of operations. Local marketing .
In 2023, the NAF and Canadian advertising fund spent $78.5 million, of which $8.4 million was from our corporate-owned stores and included in store operations expense on the consolidated statements of operations. Local marketing .
Based on franchisee business reviews and management estimates since the onset of the COVID-19 pandemic, we believe that, on average, franchisee stores achieve four-wall EBITDA margins in line with, or higher than these corporate-owned store four-wall EBITDA margins.
Based on franchisee business reviews and management estimates, we believe that, on average, franchisee stores achieve four-wall EBITDA margins in line with these corporate-owned store four-wall EBITDA margins.
We are one of the largest and fastest-growing franchisors and operators of fitness centers in the world by number of members and locations, with a highly recognized national brand. • Differentiated member experience.
Our competitive strengths We attribute our success to the following strengths: • Market leader with differentiated member experience, nationally recognized brand and scale advantage . We are one of the largest and fastest-growing franchisors and operators of fitness centers in the world by number of members and locations, with a highly recognized national brand. • Differentiated member experience.
We continue to update and expand Planet Fitness University, a comprehensive training resource to help franchisees operate successful stores. Courses are delivered online, and content focuses on customer service, operational policies, brand standards, cleanliness, security awareness, crisis management and vendor product information. The core online curriculum is offered in both English and Spanish to support our Spanish-speaking employees.
Courses are delivered online, and content focuses on customer service, operational policies, brand standards, cleanliness, security awareness, crisis management and vendor product information. The core online curriculum is offered in both English and Spanish to support our Spanish-speaking employees.
For a reconciliation of segment EBITDA margin to four-wall EBITDA margin for corporate-owned stores, see “Management’s Discussion and Analysis of Results of Operations and Financial Condition.” Our growth is reflected in: • 2,410 stores as of December 31, 2022, compared to 1,742 as of December 31, 2018, reflecting a compound annual growth rate (“CAGR”) of 8.5%; • 17.0 million members as of December 31, 2022, compared to 12.5 million as of December 31, 2018, reflecting a CAGR of 8.0%; • 53 consecutive quarters of system-wide same store sales growth through the first quarter of 2020, six consecutive quarters of system-wide same store sales growth beginning in the third quarter of 2021 through the fourth quarter of 2022 (which we define as year-over-year growth solely of monthly dues from stores that have been open and for which membership dues have been billed for longer than 12 months); 4 Planet Fitness – Home of the Judgement Free Zone We bring fitness to a large, previously underserved segment of the population.
For a reconciliation of segment EBITDA margin to four-wall EBITDA margin for corporate-owned stores, see “Management’s Discussion and Analysis of Results of Operations and Financial Condition.” Our growth is reflected in: • 2,575 stores as of December 31, 2023, compared to 2,001 as of December 31, 2019, reflecting a compound annual growth rate (“CAGR”) of 6.5%; • 18.7 million members as of December 31, 2023, compared to 14.4 million as of December 31, 2019, reflecting a CAGR of 6.8%; and • 53 consecutive quarters of system-wide same store sales growth through the first quarter of 2020, which saw stores temporarily close due to the onset of the COVID-19 pandemic, and ten consecutive quarters of system-wide same store sales growth beginning in the third quarter of 2021 through the fourth quarter of 2023 (which we define as year-over-year growth solely of monthly dues from stores that have been open and for which membership dues have been billed for longer than 12 months).
Franchisees must abide by our club design standards and requirements related to finishes, fixtures, equipment, and brand design elements, including distinctive touches such as our “Lunk” alarm. We believe these elements are critical to ensure brand consistency and member experience system-wide.
Franchisees must abide by our club design standards and requirements related to finishes, fixtures, equipment, and brand design elements, including distinctive touches such as our “Lunk” alarm.
System-wide sales for 2022 include $3.5 billion attributable to franchisee-owned stores, from which we generate royalty revenue, and $395.1 million attributable to our corporate-owned stores. Of our 2,410 stores, 2,176 are franchised and 234 are corporate-owned. Under signed area development agreements (“ADAs”) as of December 31, 2022, our franchisees have committed to open more than 1,000 additional stores.
System-wide sales for 2023 include $4.0 billion attributable to franchisee-owned stores, from which we generate royalty revenue, and $475.8 million attributable to our corporate-owned stores. Of our 2,575 stores, 2,319 are franchised and 256 are corporate-owned. Under signed area development agreements (“ADAs”) and franchise agreements as of December 31, 2023, our franchisees have committed to open approximately 1,000 additional stores.
Our websites, mobile, and digital platforms are hosted by third parties, and we also rely on third-party vendors for related functions such as our system for processing and integrating new online memberships, updating member information and making online payments. We believe these systems are scalable to support our growth plans.
Our websites, mobile, and digital platforms are hosted by third parties, and we also rely on third-party vendors for related functions such as our system for managing digital content (text, images and videos), sending email and mobile messaging, and processing member digital identities. We believe these systems are scalable to support our growth plans.
To ensure that our culture is rooted in ongoing engagement with our team members, our Chief People Officer hosts ongoing small informal meetings with team members across all departments.
Employee Engagement and Workplace Culture At Planet Fitness, we believe that culture is the core of our business. To ensure that our culture is rooted in ongoing engagement with our team members, our Chief People Officer hosts ongoing small informal meetings with team members across all departments.
Some of our competitors have an established presence in local markets or name recognition in their respective countries, and some are established in markets in which we have existing stores or intend to locate new stores. This competition is more significant internationally, where we have a limited number of stores and limited brand recognition.
The number, size and strength of our competitors vary by region. Some of our competitors have an established presence in local markets or name recognition in their respective countries, and some are established in markets in which we have existing stores or intend to locate new stores.
Competition In a broad sense, because many of our members are first-time or occasional gym users, we believe we compete with both fitness and non-fitness consumer discretionary spending alternatives for members’ and prospective members’ time and discretionary resources. 11 To a great extent, we also compete with other industry participants, including: • other fitness centers; • recreational facilities established by non-profit organizations such as YMCAs and by businesses for their employees; • private studios and other boutique fitness offerings; • racquet, tennis and other athletic clubs; • amenity and condominium/apartment clubs; • country clubs; • online personal training and fitness coaching; • providers of digital fitness content; • the home-use fitness equipment industry; • local tanning salons; and • businesses offering similar services .
To a great extent, we also compete with other industry participants, including: • other fitness centers; • recreational facilities established by non-profit organizations such as YMCAs and by businesses for their employees; • private studios and other boutique fitness offerings; • racquet, tennis, pickleball and other athletic clubs; • amenity and condominium/apartment clubs; • country clubs; • online personal training and fitness coaching; • providers of digital fitness content; • the home-use fitness equipment industry; • local tanning salons; and • businesses offering similar services . 11 Table o f Contents The health club industry is highly competitive and fragmented.
Franchisee support We live and breathe the motto One Team, One Planet in our daily interactions with franchisees. We designed our franchise model to be streamlined and easy-to-operate, with efficient staffing and minimal inventory, and is supported by an active, engaged franchise operations system. We provide our franchisees with operational support, marketing materials and training resources. Training .
We designed our franchise model to be streamlined and easy-to-operate, with efficient staffing and minimal inventory, and is supported by an active, engaged franchise operations system. We provide our franchisees with operational support, marketing materials and training resources. Training . We continue to update and expand Planet Fitness University, a comprehensive training resource to help franchisees operate successful stores.
Our industry Due to our unique positioning to a broader demographic, we believe Planet Fitness has an addressable market that is significantly larger than the traditional health club industry. We view our addressable market as approximately 250 million people, representing the U.S. population over 14 years of age.
Our industry Due to our unique positioning to a broader demographic, we believe Planet Fitness has an addressable market that is significantly larger than the traditional health club industry, focused on occasional gym users and people over the age of 14 who do not belong to a gym.
Human Capital Workforce As of December 31, 2022, we employed 2,795 employees at our corporate-owned stores and 342 employees in the aggregate at our corporate headquarters located at 4 Liberty Lane West, Hampton, New Hampshire and corporate-owned store headquarters located at 1560 North Orange Avenue, Winter Park, Florida.
Human Capital Workforce As of December 31, 2023, we employed 3,411 employees at our corporate-owned stores and 386 employees in the aggregate at our corporate headquarters located at 4 Liberty Lane West, Hampton, New Hampshire and corporate-owned store headquarters located at 4798 New Broad Street, Suite 300, Orlando, Florida.
This attractive value proposition is designed to appeal to a broad population, including occasional gym users and the approximately 80% of the U.S. and Canadian populations over age 14 who do not belong to a gym, particularly those who find the traditional fitness club setting intimidating and expensive.
We offer this differentiated fitness experience starting at only $10 per month for our standard Classic Card membership. This attractive value proposition is designed to appeal to a broad population, including occasional gym users and people over the age of 14 who do not belong to a gym, particularly those who find the traditional fitness club setting intimidating and expensive.
We have not historically owned or entered into leases for Planet Fitness franchisee-owned stores and historically have generally not guaranteed franchisees’ lease agreements, although we have done so in a few certain instances.
We have not historically owned or entered into leases for Planet Fitness franchisee-owned stores and historically have generally not guaranteed franchisees’ lease agreements, although we have done so in a few certain instances. Franchising Franchising strategy We rely heavily on our franchising strategy to develop new Planet Fitness stores, leveraging the ownership of entrepreneurs with specific local market expertise.
In order to support franchisees’ growing leadership teams, we offer an operations leadership training to assist with the onboarding and training process for multi-unit leaders and executives who are new to the brand.
We offer over 85 courses through Planet Fitness University, our online training development program available to all team members. In order to support franchisees’ growing leadership teams, we offer an operations leadership training to assist with 12 Table o f Contents the onboarding and training process for multi-unit leaders and executives who are new to the brand.
We also provide our franchisees access to a web-based, third-party hosted custom franchise management system to receive informational notices, operational resources and updates, training materials and other franchisee communications.
We also provide our franchisees access to a web-based, third-party hosted custom franchise management system to receive informational notices, operational resources and updates, training materials and other franchisee communications. Our custom digital platform facilitates digital experiences across any digital channel, including mobile, online and in-store media through the exchange of data and introduction of digital products and services.
Over the years, we have seen our membership penetration rates of each successive generation increase compared to the previous generations. We continue to evolve our offerings and enhance the PE@PF Program, our proprietary small group training program to appeal to our target member base.
We continue to evolve our offerings and enhance the PE@PF Program, our proprietary small group training program to appeal to our target member base.
In addition, we believe that regularly refreshing equipment helps our franchise stores maintain a consistent, high-quality fitness experience and is one of the contributing factors that drives new member growth. In certain international markets, we earn a commission on the sale of equipment by our required vendors to franchisee-owned stores.
We expect our equipment sales to grow as our U.S. franchisees open new stores and replace used equipment as required every five to nine years. In addition, we believe that regularly refreshing equipment helps our franchise stores maintain a consistent, high-quality fitness experience and is one of the contributing factors that drives new member growth.
In addition, we provide ongoing learning and development opportunities focused on DE&I through various panel discussions and engagement opportunities with our headquarters team members and franchisees.
To assess and support our efforts, we have a DE&I Task Force responsible for addressing short and long-term priorities as well as a plan for continued engagement and progress. In addition, we provide ongoing learning and development opportunities focused on DE&I through various panel discussions and engagement opportunities with our headquarters team members and franchisees.
As a result, these “equip” and “re-equip” requirements create a predictable and growing revenue stream as our franchisees open new stores under their ADAs.
Our franchisees are obligated to purchase fitness equipment from us or our required vendor for their new stores and to replace this equipment approximately every five to nine years. As a result, these “equip” and “re-equip” requirements create a predictable and growing revenue stream as our franchisees open new stores under their ADAs.
We expect to achieve system-wide same store sales growth primarily by: • Attracting new members to existing Planet Fitness stores. As the population in the markets where we operate continue to focus on health and wellness, we believe we are well-positioned to capture a disproportionate share of these populations given our affordability and appeal to first-time and occasional gym users.
As the population in the markets where we operate continue to focus on health and wellness, we believe we are well-positioned to capture a disproportionate share of these populations given our affordability and appeal to first-time and occasional gym users. Over the years, we have seen our membership penetration rates of each successive generation increase compared to the previous generations.
In 2022, we expanded our mobile application to allow access to new users without first requiring new users to create a login and created a more personalized experience through featured content, improved activity tracking, expanded the workout library, and developed in-application notification capabilities.
In 2022 and 2023, we expanded our mobile application to offer a more personalized experience through featured content, improved activity tracking, expanded the collection of workouts, created a member perks platform, and released in-application notification capabilities.
We believe there are certain advantages to receiving a higher concentration of ACH payments, as compared to credit card payments, including less frequent expiration of billing information and reduced exposure to subjective chargeback or dispute claims and fees. 7 Our stores We had 2,410 stores system-wide as of December 31, 2022, of which 2,176 were franchised and 234 were corporate-owned, located in 50 states, the District of Columbia, Puerto Rico, Canada, Panama, Mexico and Australia.
We believe there are certain advantages to receiving a higher concentration of ACH payments, as compared to credit card payments, including less frequent expiration of billing information and reduced exposure to subjective chargeback or dispute claims and fees.
We view our franchisees as strategic partners in expanding the Planet Fitness store base and brand. • Predictable and recurring revenue streams with high cash flow conversion . While 2020 brought an unprecedented disruption to the general economy, our industry and our business, when operating in a normal business environment, our model provides us with predictable and recurring revenue streams.
We view our franchisees as strategic partners in expanding the Planet Fitness store base and brand. 5 Table o f Contents • Predictable and recurring revenue streams with high cash flow conversion .
Our COVID-19 policies and protocols, which we developed in consultation with national and global health experts, include: • Implementing policies to keep people safe, including adherence to local policies and regulations regarding capacity, mask wearing, and vaccination requirements; and • Equipping stores with disinfectant effective against COVID-19 on surfaces; In 2021 we adopted the recognized safety framework put forth by the International WELL Building Institute to ensure a safer and healthier environment for our employees and members across our global network.
In 2021 we adopted the recognized safety framework put forth by the International WELL Building Institute (“WELL”) to ensure a safer and healthier environment for our employees and members across our global network.
Franchising Franchising strategy We rely heavily on our franchising strategy to develop new Planet Fitness stores, leveraging the ownership of entrepreneurs with specific local market expertise. As of December 31, 2022, there were 2,176 franchised Planet Fitness stores operated by approximately 111 franchisee groups. The majority of our existing franchise operators are multi-unit operators.
As of December 31, 2023, there were 2,319 franchised Planet Fitness stores operated by 8 Table o f Contents 103 franchisee groups. The majority of our existing franchise operators are multi-unit operators.
Our PF Black Card members also have access to exclusive areas in our stores that provide amenities such as water massage beds, massage chairs, tanning equipment and more . Our competitive strengths We attribute our success to the following strengths: • Market leader with differentiated member experience, nationally recognized brand and scale advantage .
Our PF Black Card members also have access to exclusive areas in our stores that provide amenities such as water massage beds, massage chairs, tanning equipment and more . Through our mobile application and website we also provide members access to PF Perks, which gives all members access to unlock special discounts and offers from popular brands year-round.
Together with our franchisees, vendors and members, Planet Fitness has donated more than $8.4 million to support anti-bullying, pro-kindness initiatives since 2016.
Together with our franchisees, vendors and members, Planet Fitness has donated more than $9.6 million to support anti-bullying, pro-kindness initiatives since 2016. Competition In a broad sense, because many of our members are first-time or occasional gym users, we believe we compete with both fitness and non-fitness consumer discretionary spending alternatives for members’ and prospective members’ time and discretionary resources.
Training & Development A critical component of maintaining our engaged and inclusive culture is making investments in our team members at all levels. We offer 80+ courses through Planet Fitness University, our online training development program available to all team members.
In 2023, we established a focus-group committee, led by Human Resources and made up of cross functional team members at various levels, to review survey feedback and develop action items to further enhance our workplace and culture. Training & Development A critical component of maintaining our engaged and inclusive culture is making investments in our team members at all levels.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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The price of our Class A common stock could be subject to wide fluctuations in response to a number of factors, including those described elsewhere in this report and others such as: • variations in our operating performance and the performance of our competitors; • actual or anticipated fluctuations in our quarterly or annual operating results; • publication of research reports by securities analysts about us or our competitors or our industry; • the public’s reaction to our press releases, our other public announcements and our filings with the SEC; • our failure or the failure of our competitors to meet analysts’ projections or guidance that we or our competitors may give to the market; • additions and departures of key employees; • strategic decisions by us or our competitors, such as acquisitions, divestitures, spin-offs, joint ventures, strategic investments or changes in business strategy; • the passage of legislation or other regulatory developments affecting us or our industry; 39 • speculation in the press or investment community; • changes in accounting principles; • terrorist acts, acts of war or periods of widespread civil unrest; • natural disasters and severe weather events, including as a result of climate change, pandemics and other calamities; • breach or improper handling of data or cybersecurity events; and • changes in general market and economic conditions.
The price of our Class A common stock could be subject to wide fluctuations in response to a number of factors, including those described elsewhere in this report and others such as: • variations in our operating performance and the performance of our competitors; • actual or anticipated fluctuations in our quarterly or annual operating results; • publication of research reports by securities analysts about us or our competitors or our industry; • the public’s reaction to our press releases, our other public announcements and our filings with the SEC; • our failure or the failure of our competitors to meet analysts’ projections or guidance that we or our competitors may give to the market; • additions and departures of key employees; • strategic decisions by us or our competitors, such as acquisitions, divestitures, spin-offs, joint ventures, strategic investments or changes in business strategy; • the passage of legislation or other regulatory developments affecting us or our industry; • speculation in the press or investment community; • changes in accounting principles; • terrorist acts, acts of war or periods of widespread civil unrest; • natural disasters and severe weather events, including as a result of climate change, pandemics and other calamities; • breach or improper handling of data or cybersecurity events; and • changes in general market and economic conditions.
This level of debt could have significant consequences on our future operations, including: • resulting in an event of default if our subsidiaries fail to comply with the financial and other restrictive covenants contained in debt agreements, which event of default could result in all of our subsidiaries’ debt becoming immediately due and payable; • reducing the availability of our cash flow to fund working capital, capital expenditures, acquisitions and other general corporate purposes, and limiting our ability to obtain additional financing for these purposes; • limiting the Company’s flexibility in planning for, or reacting to, and increasing its vulnerability to, changes in our business, the industry in which it operates and the general economy; • placing us at a competitive disadvantage compared to our competitors that are less leveraged; • subjecting us to the risk of increased sensitivity to interest rate increases on indebtedness with respect to the Variable Funding Notes or the refinancing of the Securitized Senior Notes or the 2022 Notes; and 34 • increasing the possibility that we may be unable to generate cash sufficient for the Master Issuer to pay, when due, interest on and principal of the Securitized Senior Notes.
This level of debt could have significant consequences on our future operations, including: • resulting in an event of default if our subsidiaries fail to comply with the financial and other restrictive covenants contained in debt agreements, which event of default could result in all of our subsidiaries’ debt becoming immediately due and payable; • reducing the availability of our cash flow to fund working capital, capital expenditures, acquisitions and other general corporate purposes, and limiting our ability to obtain additional financing for these purposes; • limiting the Company’s flexibility in planning for, or reacting to, and increasing its vulnerability to, changes in our business, the industry in which it operates and the general economy; • placing us at a competitive disadvantage compared to our competitors that are less leveraged; • subjecting us to the risk of increased sensitivity to interest rate increases on indebtedness with respect to the Variable Funding Notes or the refinancing of the Securitized Senior Notes or the 2022 Notes; and • increasing the possibility that we may be unable to generate cash sufficient for the Master Issuer to pay, when due, interest on and principal of the Securitized Senior Notes.
Noncompliance with privacy laws or industry group requirements or a security breach or perceived non-compliance or breach involving the misappropriation, loss or other unauthorized disclosure of personal, sensitive or confidential information, whether by us or by one of our franchisees or vendors, could have material 22 adverse effects on our and our franchisees’ business, operations, brand, reputation and financial condition, including decreased revenue, material fines and penalties, litigation, increased financial processing fees, compensatory, statutory, punitive or other damages, adverse actions against our licenses to do business and injunctive relief by court or consent order.
Noncompliance with privacy laws or industry group requirements or a security breach or perceived non-compliance or breach involving the misappropriation, loss or other unauthorized disclosure of personal, sensitive or confidential information, whether by us or by one of our franchisees or vendors, could have material adverse effects on our and our franchisees’ business, operations, brand, reputation and financial condition, including decreased revenue, material fines and penalties, litigation, increased financial processing fees, compensatory, statutory, punitive or other damages, adverse actions against our licenses to do business and injunctive relief by court or consent order.
If we are unable to assert that our internal control over financial reporting is effective, or if our independent registered public accounting firm is unable to express an unqualified opinion as to the effectiveness of our internal control over financial reporting in future periods, investors may lose confidence in the accuracy and completeness of our financial reports, the market price of our Class A common stock could be negatively affected and we could become subject to investigations by 38 the NYSE, on which our securities are listed, the SEC or other regulatory authorities, which could require additional financial and management resources.
If we are unable to assert that our internal control over financial reporting is effective, or if our independent registered public accounting firm is unable to express an unqualified opinion as to the effectiveness of our internal control over financial reporting in future periods, investors may lose confidence in the accuracy and completeness of our financial reports, the market price of our Class A common stock could be negatively affected and we could become subject to investigations by the NYSE, on which our securities are listed, the SEC or other regulatory authorities, which could require additional financial and management resources.
We compete with the following industry participants: other health and fitness clubs; physical fitness and recreational facilities established by non-profit organizations and businesses for their employees; private studios and other boutique fitness offerings; racquet, tennis and other athletic clubs; amenity and condominium/apartment clubs; country clubs; online personal training and fitness coaching; delivery of digital fitness content; the home-use fitness equipment industry; local tanning salons; businesses offering similar services; and other businesses that rely on consumer discretionary spending.
We compete with the following industry participants: other health and fitness clubs; physical fitness and recreational facilities established by non-profit organizations and businesses for their employees; private studios and other boutique fitness offerings; racquet, tennis, pickleball and other athletic clubs; amenity and condominium/apartment clubs; country clubs; online personal training and fitness coaching; delivery of digital fitness content; the home-use fitness equipment industry; local tanning salons; businesses offering similar services; and other businesses that rely on consumer discretionary spending.
The actual amounts may materially differ from these hypothetical amounts, as potential future reductions in tax payments for us, and tax receivable agreement payments by us, will be calculated using the market value of our Class A common stock at the time of the sale and 35 the prevailing tax rates applicable to us over the life of the tax receivable agreements and will be dependent on us generating sufficient future taxable income to realize the benefit.
The actual amounts may materially differ from these hypothetical amounts, as potential future reductions in tax payments for us, and tax receivable agreement payments by us, will be calculated using the market value of our Class A common stock at the time of the sale and the prevailing tax rates applicable to us over the life of the tax receivable agreements and will be dependent on us generating sufficient future taxable income to realize the benefit.
Pursuant to the limited liability company agreement of Pla-Fit Holdings that was amended and restated in connection with our initial public offering, as amended on July 1, 2017 (the “LLC Agreement”), Pla-Fit Holdings makes cash distributions to the owners of Holdings Units for purposes of funding their tax obligations in respect of the income of Pla-Fit Holdings that is allocated to them, to the extent other distributions from Pla-Fit Holdings have been insufficient.
Pursuant to the limited liability company agreement of Pla-Fit Holdings that was amended and restated in connection with our initial public offering (the “IPO”), as amended on July 1, 2017 (the “LLC Agreement”), Pla-Fit Holdings makes cash distributions to the owners of Holdings Units for purposes of funding their tax obligations in respect of the income of Pla-Fit Holdings that is allocated to them, to the extent other distributions from Pla-Fit Holdings have been insufficient.
We may need to expand our information systems to support newer and emerging forms of payment methods, which may be time-consuming and expensive, and may not realize a return on our investment. 30 We are subject to risks associated with leasing property subject to long-term non-cancelable leases. All but one of our corporate-owned stores are located on leased premises.
We may need to expand our information systems to support newer and emerging forms of payment methods, which may be time-consuming and expensive, and may not realize a return on our investment. We are subject to risks associated with leasing property subject to long-term non-cancelable leases. All but one of our corporate-owned stores are located on leased premises.
The Securitized Senior Notes were issued in securitization transactions pursuant to which substantially all of our revenue-generating assets in the United States are held by the Master Issuer and certain other limited-purpose, bankruptcy remote, 33 wholly-owned direct and indirect subsidiaries of the Master Issuer that act as guarantors of the Securitized Senior Notes and that have pledged substantially all of their assets to secure the Securitized Senior Notes.
The Securitized Senior Notes were issued in securitization transactions pursuant to which substantially all of our revenue-generating assets in the United States are held by the Master Issuer and certain other limited-purpose, bankruptcy remote, wholly-owned direct and indirect subsidiaries of the Master Issuer that act as guarantors of the Securitized Senior Notes and that have pledged substantially all of their assets to secure the Securitized Senior Notes.
Risks related to our Class A common stock • Provisions of our corporate governance documents could make an acquisition of our Company more difficult and may prevent attempts by our stockholders to replace or remove our current management, even if beneficial to our stockholders. • Our organizational structure, including the tax receivable agreements, confers certain benefits upon the TRA Holders and the Continuing LLC Owners that do not benefit Class A common stockholders to the same extent as it will benefit the TRA Holders and the Continuing LLC Owners. • If our internal control over financial reporting or our disclosure controls and procedures are not effective, we may not be able to accurately report our financial results, prevent fraud or file our periodic reports in a timely manner, which may cause investors to lose confidence in our reported financial information and may lead to a decline in our stock price. • Our certificate of incorporation designates courts in the State of Delaware as the sole and exclusive forum for certain types of actions and proceedings that may be initiated by our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers or employees. • Our stock price could be extremely volatile, and, as a result, stockholders may not be able to resell shares at or above their purchase price. • Because we do not currently pay any cash dividends on our Class A common stock, you may not receive any return on investment unless you sell your Class A common stock for a price greater than that which you paid for it. • We cannot guarantee that our share repurchase program will be fully consummated or that such program will enhance the long-term value of our share price. • Financial forecasting may differ materially from actual results. 18 Risks related to our business and industry Our success depends substantially on the value of our brand.
Risks related to our Class A common stock • Provisions of our corporate governance documents could make an acquisition of our Company more difficult and may prevent attempts by our stockholders to replace or remove our current management, even if beneficial to our stockholders. • Our organizational structure, including the tax receivable agreements, confers certain benefits upon the TRA Holders and the Continuing LLC Owners that do not benefit Class A common stockholders to the same extent as it will benefit the TRA Holders and the Continuing LLC Owners. • If our internal control over financial reporting or our disclosure controls and procedures are not effective, we may not be able to accurately report our financial results, prevent fraud or file our periodic reports in a timely manner, which may cause investors to lose confidence in our reported financial information and may lead to a decline in our stock price. • Our certificate of incorporation designates courts in the State of Delaware as the sole and exclusive forum for certain types of actions and proceedings that may be initiated by our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers or employees. • Our stock price could be extremely volatile, and, as a result, stockholders may not be able to resell shares at or above their purchase price. • Because we do not currently pay any cash dividends on our Class A common stock, you may not receive any return on investment unless you sell your Class A common stock for a price greater than that which you paid for it. • We cannot guarantee that our share repurchase program will be fully consummated or that such program will enhance the long-term value of our share price. • Financial forecasting may differ materially from actual results. 18 Table o f Contents Risks related to our business and industry Our success depends substantially on the value of our brand.
There has been a substantial increase in the use and popularity of email, social media and other consumer-oriented technologies, including v-logs, blogs, chat platforms, social media websites and applications, and other forms of internet-based communication, which has increased the speed and accessibility of information dissemination and broadened the pool of consumers and other interested persons.
There has been a substantial increase in the use and popularity of email, social media and other consumer-oriented technologies, including v-logs, blogs, podcasts, chat platforms, social media websites and applications, and other forms of internet-based communication, which has increased the speed and accessibility of information dissemination and broadened the pool of consumers and other interested persons.
Under the Indenture, Master Issuer had approximately $2.0 billion of outstanding debt as of December 31, 2022. Additionally, Master Issuer has the ability to borrow amounts from time to time on a revolving basis, up to an aggregate principal amount of $75 million pursuant to the 2022 Variable Funding Notes.
Under the Indenture, Master Issuer had approximately $2.0 billion of outstanding debt as of December 31, 2023. Additionally, the Master Issuer has the ability to borrow amounts from time to time on a revolving basis, up to an aggregate principal amount of $75 million pursuant to the 2022 Variable Funding Notes.
We and our franchisees currently operate stores in 50 states, the District of Columbia, Puerto Rico, Canada, Panama, Mexico and Australia, and we and our franchisees plan to open many new stores in the future, some of which will be in existing markets and may be located in close proximity to stores already in those markets.
We and our franchisees currently operate stores in all 50 states, the District of Columbia, Puerto Rico, Canada, Panama, Mexico and Australia, and we and our franchisees plan to open many new stores in the future, some of which will be in existing markets and may be located in close proximity to stores already in those markets.
The potential increase in cost of complying with these regulations could have a negative impact on our profit margins. 29 The continuation of our tanning services is dependent upon the public’s sustained belief that the benefits of utilizing tanning services outweigh the risks of exposure to ultraviolet light.
The potential increase in cost of complying with these regulations could have a negative impact on our profit margins. The continuation of our tanning services is dependent upon the public’s sustained belief that the benefits of utilizing tanning services outweigh the risks of exposure to ultraviolet light.
Financial forecasting may differ materially from actual results. Due to the inherent difficulty of predicting future events and results, our forecasted financial and operational results may differ materially from actual results. Discrepancies between forecasted and actual results could cause a decline in the price of our stock. 40 Item 1B. Unresolved Staff Comments. None.
Financial forecasting may differ materially from actual results. Due to the inherent difficulty of predicting future events and results, our forecasted financial and operational results may differ materially from actual results. Discrepancies between forecasted and actual results could cause a decline in the price of our stock. Item 1B. Unresolved Staff Comments None.
Negative or false commentary about us may be posted on social media platforms or similar devices at any time and may harm our business, brand, reputation, marketing partners, financial condition, and results of 21 operations, regardless of the information’s accuracy.
Negative or false commentary about us may be posted on social media platforms or similar devices at any time and may harm our business, brand, reputation, marketing partners, financial condition, and results of operations, regardless of the information’s accuracy.
These and other such negative factors could reduce franchise stores’ revenues, impact payments to us from franchisees under 27 the franchise agreements and could have a material adverse effect on our revenues, which in turn may materially and adversely affect our business.
These and other such negative factors could reduce franchise stores’ revenues, impact payments to us from franchisees under the franchise agreements and could have a material adverse effect on our revenues, which in turn may materially and adversely affect our business.
We are subject to a number of risks related to ACH, credit card, debit card, and digital payment options we accept. We and our franchisees accept payments through ACH, credit card, debit card and digital payment transactions. For such transactions, we and our franchisees pay interchange and other fees, which may increase over time.
We are subject to a number of risks related to ACH, credit card, debit card, and digital payment options we accept. We and our franchisees accept payments through ACH, credit card, debit card and certain digital payment transactions. For such transactions, we and our franchisees pay interchange and other fees, which may increase over time.
Our franchise business model subjects us to a number of risks, any one of which may impact our royalty revenues collected from our franchisees, may harm the goodwill associated with our brand, and may materially and adversely impact our business and results of operations. Bankruptcy of franchisees.
Our franchise business model subjects us to a number of risks, any one of which may impact our revenues collected from our franchisees, may harm the goodwill associated with our brand, and may materially and adversely impact our business and results of operations. Bankruptcy of franchisees.
For several years prior to the COVID-19 pandemic, we have experienced growth in our business activities and operations, including a significant increase in the number of system-wide stores.
For several years prior to the COVID-19 pandemic, we experienced growth in our business activities and operations, including a significant increase in the number of system-wide stores.
Under the first of those agreements, we are generally required to pay to certain existing and previous equity owners of Pla-Fit Holdings, LLC (the “TRA Holders”) 85% of the applicable cash savings, if any, in U.S. federal and state income tax that we are deemed to realize as a result of certain tax attributes of their Holdings Units sold to us (or exchanged in a taxable sale) and that are created as a result of (i) the sales of their Holdings Units for shares of our Class A common stock and (ii) tax benefits attributable to payments made under the tax receivable agreement (including imputed interest).
Under the first of those agreements, we are generally required to pay to certain existing and previous equity owners, or their successors-in-interest, of Pla-Fit Holdings, LLC 85% of the applicable cash savings, if any, in U.S. federal and state income tax that we are deemed to realize as a result of certain tax attributes of their Holdings Units sold to us (or exchanged in a taxable sale) and that are created as a result of (i) the sales of their Holdings Units for shares of our Class A common stock and (ii) tax benefits attributable to payments made under the tax receivable agreement (including imputed interest).
Item 1A. Risk Factors. We could be adversely impacted by various risks and uncertainties. If any of these risks actually occurs, our business, financial condition, operating results, cash flow and prospects may be materially and adversely affected. As a result, the trading price of our Class A common stock could decline.
Item 1A. Risk Factors We could be adversely impacted by various risks and uncertainties. If any of these risks actually occur, our business, financial condition, operating results, cash flow and prospects may be materially and adversely affected. As a result, the trading price of our Class A common stock could decline.
These provisions include: • the division of our board of directors into three classes and the election of each class for three-year terms; • advance notice requirements for stockholder proposals and director nominations; • the ability of the board of directors to fill a vacancy created by the expansion of the board of directors; • the ability of our board of directors to issue new series of, and designate the terms of, preferred stock, without stockholder approval, which could be used to, among other things, institute a rights plan that would have the effect of significantly diluting the stock ownership of a potential hostile acquirer, likely preventing acquisitions that have not been approved by our board of directors; • limitations on the ability of stockholders to call special meetings and to take action by written consent; and • the required approval of holders of at least 75% of the voting power of the outstanding shares of our capital stock to adopt, amend or repeal certain provisions of our certificate of incorporation and bylaws or remove directors for cause.
These provisions include: • the division of our board of directors into three classes and the election of each class for three-year terms; • advance notice requirements for stockholder proposals and director nominations; • the ability of the board of directors to fill a vacancy created by the expansion of the board of directors; 37 Table o f Contents • the ability of our board of directors to issue new series of, and designate the terms of, preferred stock, without stockholder approval, which could be used to, among other things, institute a rights plan that would have the effect of significantly diluting the stock ownership of a potential hostile acquirer, likely preventing acquisitions that have not been approved by our board of directors; • limitations on the ability of stockholders to call special meetings and to take action by written consent; and • the required approval of holders of at least 75% of the voting power of the outstanding shares of our capital stock to adopt, amend or repeal certain provisions of our certificate of incorporation and bylaws or remove directors for cause.
A principal component of our marketing program has been to partner with high-profile marketing partners, such as our sponsorship of ABC’s “Dick Clark’s New Year’s Rockin’ Eve with Ryan Seacrest 2023,” to help us extend the reach of our brand.
A principal component of our marketing program has been to partner with high-profile marketing partners, such as our sponsorship of ABC’s “Dick Clark’s New Year’s Rockin’ Eve with Ryan Seacrest 2024,” to help us extend the reach of our brand.
These risks include, among others: • inadequate brand infrastructure within foreign countries to support our international activities; • inconsistent regulation or sudden policy changes by foreign agencies or governments; • the collection of royalties from foreign franchisees; • difficulty of enforcing contractual obligations of foreign franchisees; • increased costs in maintaining international franchise and marketing efforts; • franchisees’ difficulty in raising adequate capital; • problems entering international markets with different cultural bases and consumer preferences; • political and economic instability of foreign markets, including as a result of war or conflict; • compliance with laws and regulations applicable to our international operations, such as the Foreign Corrupt Practices Act and regulations promulgated by the Office of Foreign Asset Control; • fluctuations in foreign currency exchange rates; and • operating in new, developing or other markets in which there are significant uncertainties regarding the interpretation, application and enforceability of laws and regulations relating to contract and intellectual property rights.
These risks include, among others: • inadequate brand infrastructure within foreign countries to support our international activities; • inconsistent regulation or sudden policy changes by foreign agencies or governments; • maintaining non-U.S. employees; • the collection of royalties from foreign franchisees; • difficulty of enforcing contractual obligations of foreign franchisees; • increased costs in maintaining international franchise and marketing efforts; • franchisees’ difficulty in raising adequate capital; • problems entering international markets with well established competitors and different cultural bases and consumer preferences; • political and economic instability of foreign markets, including as a result of war or conflict; • compliance with laws and regulations applicable to our international operations, such as the Foreign Corrupt Practices Act and regulations promulgated by the Office of Foreign Asset Control; • fluctuations in foreign currency exchange rates; and • operating in new, developing or other markets in which there are significant uncertainties regarding the interpretation, application and enforceability of laws and regulations relating to contract and intellectual property rights.
In addition, our trade secrets and confidential information could be compromised through misappropriation or unauthorized disclosure, including through a cyber incident, and, despite our reasonable efforts to protect our confidential information and trade secrets, and to maintain the proprietary status thereof, the information could be disclosed 20 or a court could rule that legal protections provided to trade secrets are no longer enforceable, which could have a material adverse effect on our business, results of operations, financial condition and cash flow.
In addition, our trade secrets and confidential information could be compromised through misappropriation or unauthorized disclosure, including through a cyber incident, and, despite our reasonable efforts to protect our confidential information and trade secrets, and to maintain the proprietary status thereof, the information could be disclosed 20 Table o f Contents or a court could rule that legal protections provided to trade secrets are no longer enforceable, which could have a material adverse effect on our business, results of operations, financial condition and cash flow.
Our franchisees may incur rising costs related to construction of new stores and maintenance of existing stores, which could adversely affect the attractiveness of our franchise model, and in turn our business, results of operations and financial condition. Corporate-owned stores require significant upfront and ongoing investment, including periodic remodeling and equipment replacement.
Our franchisees have incurred and may in the future incur rising costs related to construction of new stores and maintenance of existing stores, which could adversely affect the attractiveness of our franchise model, and in turn our business, results of operations and financial condition. Corporate-owned stores require significant upfront and ongoing investment, including periodic remodeling and equipment replacement.
Summary of Risk Factors Risks related to our business and industry • Our success depends substantially on the value of our brand, which could be materially and adversely affected by the high level of competition in the health and fitness industry, our ability to anticipate and satisfy consumer preferences, shifting views of health and fitness and our ability to obtain and retain high-profile strategic partnership arrangements. • Our and our franchisees’ stores may be unable to attract and retain members, which would materially and adversely affect our business, results of operations and financial condition. • Our intellectual property rights, including trademarks, trade names, copyrights and trade dress, may be infringed, misappropriated or challenged by others. • We and our franchisees rely heavily on information systems, including the use of email marketing, mobile application and social media, and any material failure, interruption or weakness may prevent us from effectively operating our business, damage our reputation or subject us to potential fines or other penalties. • If we fail to properly maintain the confidentiality and integrity of our data, including member credit card, debit card, bank account information and other personally identifiable information, our reputation and business could be materially and adversely affected. • The occurrence of cyber incidents, or a deficiency in cybersecurity, could negatively impact our business by causing a disruption to our operations, a compromise or corruption of confidential information, and/or damage to our employee and business relationships and reputation, all of which could harm our brand and our business. • If we fail to successfully implement our growth strategy, which includes new store development by existing and new franchisees, our ability to increase our revenues and operating profits could be adversely affected. • Our planned growth and changes in the industry could place strains on our management, employees, information systems and internal controls, which may adversely impact our business. • If we cannot retain our key employees and hire additional highly qualified employees, we may not be able to successfully manage our businesses and pursue our strategic objectives. • Economic, political and other risks associated with our international operations could adversely affect our profitability and international growth prospects. • Our financial results are affected by the operating and financial results of, our relationships with and actions taken by our franchisees. • We are subject to a variety of additional risks associated with our franchisees, such as potential franchisee bankruptcies, franchisee changes in control, franchisee turnover rising costs related to construction of new stores and maintenance of existing stores, including rising costs due to inflation and supply chain disruptions, which could adversely affect the attractiveness of our franchise model, and in turn our business, results of operations and financial condition. • We and our franchisees could be subject to claims related to health and safety risks to members that arise while at both our corporate-owned and franchise stores. • Our business is subject to various laws and regulations including, among others, those governing indoor tanning, electronic funds transfer, ACH, credit card, debit card, digital payment options, auto-renewal contracts, membership cancellation rights and consumer protection more generally, and changes in such laws and regulations, failure to comply with existing or future laws and regulations or failure to adjust to consumer sentiment regarding these matters, could harm our reputation and adversely affect our business. • We are subject to risks associated with leasing property subject to long-term non-cancelable leases. • If we and our franchisees are unable to identify and secure suitable sites for new franchise stores, our revenue growth rate and profits may be negatively impacted. • Opening new stores in close proximity may negatively impact our existing stores’ revenues and profitability. • Our franchisees may incur rising costs related to construction of new stores and maintenance of existing stores, including rising costs due to inflation, supply chain disruptions and other market conditions, which could adversely affect the attractiveness of our franchise model, and in turn our business, results of operations and financial condition. 17 • Our dependence on a limited number of suppliers for equipment and certain products and services could result in disruptions to our business and could adversely affect our revenues and gross profit. • Our business and results of operations have been and may in the future be materially impacted by the ongoing COVID-19 pandemic, and could be impacted by similar events in the future.
Summary of Risk Factors Risks related to our business and industry • Our success depends substantially on the value of our brand, which could be materially and adversely affected by the high level of competition in the health and fitness industry, our ability to anticipate and satisfy consumer preferences, shifting views of health and fitness and our ability to obtain and retain high-profile strategic partnership arrangements. • Our and our franchisees’ stores may be unable to attract and retain members, which would materially and adversely affect our business, results of operations and financial condition. • Our intellectual property rights, including trademarks, trade names, copyrights and trade dress, may be infringed, misappropriated or challenged by others. • We and our franchisees rely heavily on information systems, including the use of email marketing, mobile application and social media, and any material failure, interruption or weakness may prevent us from effectively operating our business, damage our reputation or subject us to potential fines or other penalties. • If we fail to properly maintain the confidentiality and integrity of our data, including member credit card, debit card, bank account information and other personally identifiable information, our reputation and business could be materially and adversely affected. • The occurrence of cyber incidents, or a deficiency in cybersecurity, could negatively impact our business by causing a disruption to our operations, a compromise or corruption of confidential information, and/or damage to our employee and business relationships and reputation, all of which could harm our brand and our business. • If we fail to successfully implement our growth strategy, which includes new store development by existing and new franchisees, our ability to increase our revenues and operating profits could be adversely affected. • Our planned growth and changes in the industry could place strains on our management, employees, information systems and internal controls, which may adversely impact our business. • If we cannot retain our key employees and hire additional highly qualified employees, we may not be able to successfully manage our businesses and pursue our strategic objectives. • Economic, political and other risks associated with our international operations could adversely affect our profitability and international growth prospects. • Our financial results are affected by the operating and financial results of, our relationships with and actions taken by our franchisees. • We are subject to a variety of additional risks associated with our franchisees, such as potential franchisee bankruptcies, franchisee changes in control, franchisee turnover, rising costs related to construction of new stores and maintenance of existing stores, including rising costs due to inflation and supply chain disruptions, which could adversely affect the attractiveness of our franchise model, and in turn our business, results of operations and financial condition. • We and our franchisees could be subject to claims related to health and safety risks to members that arise while at both our corporate-owned and franchise stores. • Our business is subject to various laws and regulations including, among others, those governing indoor tanning, electronic funds transfer, ACH, credit card, debit card, digital payment options, auto-renewal contracts, membership cancellation rights and consumer protection more generally, and changes in such laws and regulations, failure to comply with existing or future laws and regulations or failure to adjust to consumer sentiment regarding these matters, could harm our reputation and adversely affect our business. • Our failure to address evolving environmental, social and governance (“ESG”) issues may have an adverse effect on our business, financial condition and results of operations. • We are subject to risks associated with leasing property subject to long-term non-cancelable leases. • If we and our franchisees are unable to identify and secure suitable sites for new franchise stores, our revenue growth rate and profits may be negatively impacted. • Opening new stores in close proximity may negatively impact our existing stores’ revenues and profitability. 17 Table o f Contents • Our franchisees may incur rising costs related to construction of new stores and maintenance of existing stores, including rising costs due to inflation, supply chain disruptions and other market conditions, which could adversely affect the attractiveness of our franchise model, and in turn our business, results of operations and financial condition. • Our dependence on a limited number of suppliers for equipment and certain products and services could result in disruptions to our business and could adversely affect our revenues and gross profit.
Our certificate of incorporation provides that, subject to limited exceptions, the Court of Chancery of the State of Delaware will be the sole and exclusive forum for: • any derivative action or proceeding brought on our behalf; • any action asserting a claim of breach of a fiduciary duty owed by any of our directors, officers or other employees to us or our stockholders; • any action asserting a claim against us arising pursuant to any provision of the DGCL, our certificate of incorporation or our bylaws; • any action to interpret, apply, enforce or determine the validity of our certificate of incorporation or bylaws; or • any other action asserting a claim against us that is governed by the internal affairs doctrine (each, a “Covered Proceeding”).
Our certificate of incorporation provides that, subject to limited exceptions, the Court of Chancery of the State of Delaware will be the sole and exclusive forum for: • any derivative action or proceeding brought on our behalf; • any action asserting a claim of breach of a fiduciary duty owed by any of our directors, officers or other employees to us or our stockholders; • any action asserting a claim against us arising pursuant to any provision of the DGCL, our certificate of incorporation or our bylaws; • any action to interpret, apply, enforce or determine the validity of our certificate of incorporation or bylaws; or 38 Table o f Contents • any other action asserting a claim against us that is governed by the internal affairs doctrine (each, a “Covered Proceeding”).
Some of these incidents may relate to our policies, the way we manage our relationships with our franchisees, our growth strategies, our development efforts or the ordinary course of our, or our franchisees’, businesses.
Some of these incidents may relate to our policies, the way we manage our relationships with our members and franchisees, our growth strategies, our development efforts or the ordinary course of our, or our franchisees’, businesses.
The Federal Trade Commission and other authorities are likewise imposing standards for the collection, use, dissemination and security of personal information under consumer protection laws. Additionally, in the United States, laws in all 50 states require businesses to provide notice to individuals whose personally identifiable information has been disclosed as a result of a data breach.
The FTC and other authorities are likewise imposing standards for the collection, use, dissemination and security of personal information under consumer protection laws. Additionally, in the United States, laws in all 50 states require businesses to provide notice to individuals whose personally identifiable information has been disclosed as a result of a data breach.
In addition, under certain circumstances where we are unable to make timely payments under the tax receivable agreements, the tax receivable agreements provide for interest to accrue on unpaid payments, at a rate equal to one-year LIBOR plus 500 basis points. Payments under the tax receivable agreements will be based on the tax reporting positions that we determine.
In addition, under certain circumstances where we are unable to make timely payments under the tax receivable agreements, the tax receivable agreements provide for interest to accrue on unpaid payments, at a rate equal to one-year SOFR plus 571 basis points. Payments under the tax receivable agreements will be based on the tax reporting positions that we determine.
As laws and regulations, including Federal Trade Commission (the “FTC”) enforcement, rapidly evolve to govern the use of these platforms and devices, the failure by us, our employees, our franchisees, our spokespeople and brand ambassadors or other third parties acting at their direction to abide by applicable laws and regulations in the use of these platforms and devices could adversely impact our and our franchisees’ business, financial condition and results of operations or subject us to fines or other penalties.
As laws and regulations, including FTC enforcement, rapidly evolve to govern the use of these platforms and devices, the failure by us, our employees, our franchisees, our spokespeople and brand ambassadors or other third parties acting at their direction to abide by applicable laws and regulations in the use of these platforms and devices could adversely impact our and our franchisees’ business, financial condition and results of operations or subject us to fines or other penalties.
Although we believe we generally maintain positive working relationships with our franchisees, disputes with franchisees have occurred in the past and may occur in the future. Such disputes could damage our brand image and reputation and our relationships with our franchisees generally. 25 We are subject to a variety of additional risks associated with our franchisees.
Although we believe we generally maintain positive working relationships with our franchisees, disputes with franchisees have occurred in the past and may occur in the future. Such disputes could damage our brand image and reputation and our relationships with our franchisees generally. 25 Table o f Contents We are subject to a variety of additional risks associated with our franchisees.
Many states and provinces have consumer protection regulations that may limit the collection of membership dues or fees prior to opening, require certain disclosures of pricing information, 28 mandate the maximum length of contracts and “cooling off” periods for members (after the purchase of a membership), set escrow and bond requirements for stores, govern member rights in the event of a member relocation or disability, provide for specific member rights when a store closes or relocates, require us to offer specific mechanisms for membership cancellation, or preclude automatic membership renewals.
Many states and provinces have consumer protection regulations that may limit the collection of membership dues or fees prior to opening, require certain disclosures of pricing information, mandate the maximum length of contracts and “cooling off” periods for members (after the purchase of a membership), set escrow and bond requirements for stores, govern member rights in the event of a member relocation or disability, provide for specific member rights when a store closes or relocates, require us to offer specific mechanisms for membership cancellation, require advance notice before automatically renewing certain memberships or preclude automatic membership renewals.
Some of the factors that could lead to a decline in membership levels include changing desires and behaviors of consumers or their perception of our brand, a shift to digital fitness versus our core bricks and mortar fitness offerings, changes in discretionary spending trends and general economic conditions, such as inflation, changes in customer behavior resulting from the COVID-19 pandemic, market maturity or saturation, a decline in our ability to deliver quality service at a competitive price, an increase in monthly membership dues due to inflation, direct and indirect competition in our industry and a decline in the public’s interest in health and fitness, among other factors.
Some of the factors that could lead to a decline in membership levels include changing desires and behaviors of consumers or their perception of our brand, a shift to digital fitness versus our core bricks and mortar fitness offerings, changes in discretionary spending trends and general economic conditions, such as inflation, changes in customer behavior as a result of public health or other concerns, market maturity or saturation, a decline in our ability to deliver quality service at a competitive price, an increase in monthly membership dues due to inflation, direct and indirect competition in our industry and a decline in the public’s interest in health and fitness, among other factors.
To the extent that we are unable to make payments under the tax receivable agreements for any reason, such payments will be deferred and will accrue interest at a rate equal to one-year LIBOR plus 500 basis points until paid.
To the extent that we are unable to make payments under the tax receivable agreements for any reason, such payments will be deferred and will accrue interest at a rate equal to one-year SOFR plus 571 basis points until paid.
Our franchisees face many challenges in opening new stores, including: • availability and cost of financing; • selection and availability of suitable store locations; • competition for store sites; • negotiation of acceptable lease and financing terms; • disruptions in the supply chain for required build out equipment and materials; • securing required domestic or foreign governmental permits and approvals; • health and fitness trends in new geographic regions and acceptance of our offerings; 23 • employment, training and retention of qualified employees; • ability to open new stores during the timeframes we and our franchisees expect; and • general economic and business conditions.
Our franchisees face many challenges in opening new stores, including: • availability and cost of financing; • selection and availability of suitable store locations; • competition for store sites; • negotiation of acceptable lease and financing terms; • inflationary pressures on build out costs; • disruptions in the supply chain for required build out, equipment and materials; • securing required domestic or foreign governmental permits and approvals; • health and fitness trends in new geographic regions and acceptance of our offerings; • employment, training and retention of qualified employees; • ability to open new stores during the timeframes we and our franchisees expect; and 23 Table o f Contents • general economic and business conditions.
In connection with such Series 2022-1 Issuance, the Master Issuer repaid the outstanding principal amount (and all accrued and unpaid interest thereon) of the Class A-2-I Notes, and the Master Issuer also entered into a new revolving financing facility that allows for the issuance of up to $75 million in Series 2022-1 Variable Funding Senior Notes, Class A-1 (the “2022 Variable Funding Notes”, and such Class A-1 note facilities in effect from time to time, the “Variable Funding Notes”) and certain Letters of Credit.
In connection with such Series 2022-1 Issuance, the Master Issuer repaid the outstanding principal amount (and all accrued and unpaid interest thereon) of the Class A-2-I Notes, and the Master Issuer also entered into a new revolving financing facility that allows for the issuance of up to $75 million in Series 2022-1 Variable Funding Senior Notes, Class A-1 (the “2022 Variable Funding Notes”, and such Class A-1 note facilities in effect from time to time, the “Variable Funding Notes”) and certain Letters of Credit, which were undrawn as of December 31, 2023.
Despite our efforts, the handling of personally identifiable information may not be in compliance with applicable law, or this information could be disclosed or lost due to a hacking event or unauthorized access to our information system, or through publication or improper disclosure, any of which could affect the value of our brand.
Despite our efforts, the handling of personally identifiable information may not be in compliance with applicable law, or this information could be 22 Table o f Contents disclosed or lost due to a hacking event or unauthorized access to our information system, or through publication or improper disclosure, any of which could affect the value of our brand.
In addition, any such costs, which may arise in the future as a result of changes to the legislation and regulations or in their interpretation, could individually or in the aggregate cause us to change or limit our business practice, which may make our business model less attractive to our franchisees and our and their members.
In addition, any such costs, which may arise in the future as a result of changes to the legislation and 30 Table o f Contents regulations or in their interpretation, could individually or in the aggregate cause us to change or limit our business practice, which may make our business model less attractive to our franchisees and our and their members.
In addition, social media platforms provide users with access to such a broad audience that collective action against our stores, such as boycotts, can be more easily organized. If such actions were organized, we could suffer reputational damage as well as physical damage to our stores.
In addition, social media platforms provide users with access to 21 Table o f Contents such a broad audience that collective action against our stores, such as boycotts, can be more easily organized. If such actions were organized, we could suffer reputational damage as well as physical damage to our stores.
Any decision to declare and pay dividends in the future will be made at the discretion of our board of directors and will depend on, among other things, our results of operations, financial condition, cash requirements, contractual restrictions and other factors that our board of directors may deem relevant.
Any decision to declare and pay dividends in the future will be made at the discretion of our board of directors and will depend on, among other things, our results of operations, financial condition, cash 39 Table o f Contents requirements, contractual restrictions and other factors that our board of directors may deem relevant.
If a franchisee is unable or unwilling to satisfy any of the foregoing conditions, the expiring franchise agreement will terminate upon expiration of its term. If not renewed, a franchise agreement and the related payments 26 will terminate.
If a franchisee is unable or unwilling to satisfy any of the foregoing conditions, the expiring 26 Table o f Contents franchise agreement will terminate upon expiration of its term. If not renewed, a franchise agreement and the related payments will terminate.
Although such growth was temporarily slowed by measures put in place in response to the COVID-19 pandemic and the resulting temporary closure of stores and accompanying decrease in membership, we are resuming the implementation of our expansion strategy, in line with prior plans for growth.
Although such growth was temporarily slowed by measures put in place in response to the COVID-19 pandemic and the resulting temporary closure of stores and accompanying decrease in membership, we have resumed our expansion strategy, in line with prior plans for growth.
Payments under the tax receivable agreements may give rise to certain additional tax benefits attributable to either further increases in basis or in the form of deductions for imputed interest (generally calculated using one-year LIBOR), depending on the tax receivable agreements and the circumstances.
Payments under the tax receivable agreements may give rise to certain additional tax benefits attributable to either further increases in basis or in the form of deductions for imputed interest (generally calculated using one-year SOFR plus 71 basis points), depending on the tax receivable agreements and the circumstances.
In addition to regulations imposed on the indoor tanning industry, medical opinions and opinions of commentators in the general public regarding negative health effects of indoor tanning services could adversely impact the value of our PF Black Card memberships and our future revenues and profitability.
In addition to regulations imposed on the indoor tanning industry, medical opinions and opinions of commentators in the general public regarding negative health effects of indoor tanning services could adversely impact the value of our PF Black Card memberships and our future revenues and 29 Table o f Contents profitability.
In addition, we rely on third-party suppliers to manage and maintain our websites and online join processes, and in 2022 approximately 74% of our new members joined either online through our websites or through our mobile application.
In addition, we rely on third-party suppliers to manage and maintain our websites and online join processes, and in 2023 approximately 81% of our new members joined either online through our websites or through our mobile application.
If our subsidiaries are unable to implement one or more of these alternatives, they may not be able to meet debt payment and other obligations. The securitization imposes certain restrictions on our activities or the activities of our subsidiaries.
If our subsidiaries are unable to implement one or more of these alternatives, they may not be able to meet debt payment and other obligations. 33 Table o f Contents The securitization imposes certain restrictions on our activities or the activities of our subsidiaries.
Some states have passed or have considered legislation requiring gyms and health clubs to offer a prepaid membership option at all times, provide notice to members in advance of automatic renewals, and/or limit the duration for which gym memberships can auto-renew through EFT payments, if at all.
Some states have passed or have considered legislation requiring gyms and health clubs to offer a prepaid or cash membership option at all times, provide notice to members in advance of automatic renewals, make online cancellation available to some or all members in a particular jurisdiction, and/or limit the duration for which gym memberships can auto-renew through EFT payments, if at all.
Any such benefits are covered by the tax receivable agreements and will increase the amounts due thereunder. The tax receivable agreements provide for interest, at a rate equal to one-year LIBOR, accrued from the due date (without extensions) of the corresponding tax return to the date of payment specified by the tax receivable agreements.
Any such benefits are covered by the tax receivable agreements and will increase the amounts due thereunder. The tax receivable agreements provide for interest, at a rate equal to one-year SOFR plus 71 basis points, accrued from the due date (without extensions) of the corresponding tax return to the date of payment specified by the tax receivable agreements.
Since our initial public offering (the “IPO”) through December 31, 2022, the price of our Class A common stock, as reported by the NYSE, has ranged from a low of $13.23 on February 11, 2016 to a high of $99.60 on November 5, 2021. In addition, in recent years the stock market in general has been highly volatile.
Since our IPO through December 31, 2023, the price of our Class A common stock, as reported by the NYSE, has ranged from a low of $13.23 on February 11, 2016 to a high of $99.60 on November 5, 2021. In addition, in recent years the stock market in general has been highly volatile.
The quality of existing franchisee operations may be diminished by factors beyond our control, including franchisees’ failure or inability to hire or retain qualified managers and other personnel. Training of managers and other personnel may be inadequate.
The 27 Table o f Contents quality of existing franchisee operations may be diminished by factors beyond our control, including franchisees’ failure or inability to hire or retain qualified managers and other personnel. Training of managers and other personnel may be inadequate.
Under such scenario, we would be required to pay the other parties to the tax receivable agreements 85% of such amount, or $564.6 million, over the applicable period under the tax receivable agreements.
Under such scenario, we would be required to pay the other parties to the tax receivable agreements 85% of such amount, or $517.5 million, over the applicable period under the tax receivable agreements.
We will not be reimbursed for any payments made to the TRA Holders or the Direct TSG Investors under the tax receivable agreements in the event that any tax benefits are disallowed.
We will not be reimbursed for any payments made to the TRA Holders under the tax receivable agreements in the event that any tax benefits are disallowed.
We can provide no assurance that our business will generate sufficient cash flow from operations, that currently anticipated cost savings and operating improvements will be realized or that future borrowings will be available to us in an amount sufficient to enable us to satisfy our respective obligations under our indebtedness or to fund our other needs.
We can provide no assurance that our business will generate sufficient cash flow from operations, that currently anticipated cost savings and operating improvements will be realized or that future borrowings will be available to us in an amount and at reasonable rates sufficient to enable us to satisfy our respective obligations under our indebtedness or to 34 Table o f Contents fund our other needs.
While our franchisee revenues are not concentrated among one or a small number of parties, the success of our franchise model depends in large part on our ability to maintain contractual relationships with franchisees in profitable stores. A typical franchise agreement has a ten-year term.
While our franchisee revenues are not concentrated among one or a small number of parties, the success of our franchise model depends in large part on our ability to maintain contractual relationships with franchisees in profitable stores. Under our new growth model, a typical franchise agreement has a term of between ten and twelve years.
In particular, assuming no further material changes in the relevant tax law and that we earn sufficient taxable income to realize all tax benefits that are subject to the tax receivable agreements, we expect that the reduction in tax payments for us associated with all past and future exchanges and sales of Holdings Units as described above would aggregate to approximately $664.3 million over the remaining term of the tax receivable agreements based on a price of $78.80 per share of our Class A common stock (the closing price per share of our Class A common stock on the New York Stock Exchange (“NYSE”) on December 31, 2022) and assuming all future sales had occurred on such date.
In particular, assuming no further material changes in the relevant tax law and that we earn sufficient taxable income to realize all tax benefits that are subject to the tax receivable agreements, we expect that the reduction in tax payments for us associated with all past and future exchanges and sales of Holdings Units as described above would aggregate to approximately $608.9 million over the remaining term of the tax receivable agreements based on a price of $73.00 per share of our Class A common stock (the closing price per share of our Class A common stock on the New York Stock Exchange (“NYSE”) on the last trading day for the fiscal year ending December 31, 2023) and assuming all future sales had occurred on such date.
As a result, our financial results are largely dependent upon the operational and financial results of our franchisees. As of December 31, 2022, we had approximately 111 franchisee groups operating 2,176 stores.
As a result, our financial results are largely dependent upon the operational and financial results of our franchisees. As of December 31, 2023, we had 103 franchisee groups operating 2,319 stores.
Our largest franchisee group accounts for approximately 7.7% of our total stores and another large franchisee group accounts for approximately 6.2% of our total stores as of December 31, 2022.
Our largest franchisee group accounts for approximately 8% of our total stores and another large franchisee group accounts for approximately 6% of our total stores as of December 31, 2023.
It is also possible that competitors could introduce new products and services that negatively impact consumer preference for our business model, or that consumers could prefer health and fitness opportunities outside of the gym that do not align with our business model. 19 Failure to predict and respond to changes in public opinion, public research and consumer preferences could adversely impact our business.
It is also possible that competitors could introduce new products and services that negatively impact consumer preference for our business model, or that consumers could prefer health and fitness opportunities outside of the gym that do not align with our business model.
In addition, if a franchisee is unwilling or unable to acquire the necessary financing to invest in the maintenance and upkeep of its stores, including periodic remodeling and replacement of equipment, the quality of its stores could deteriorate, which may have a negative impact on our brand image and our ability to attract and maintain members, which in turn may have a negative impact on our revenues. 31 Our dependence on a limited number of suppliers for equipment and certain products and services could result in disruptions to our business and could adversely affect our revenues and gross profit.
In addition, if a franchisee is unwilling or unable to acquire the necessary financing to invest in the maintenance and upkeep of its stores, including periodic remodeling and replacement of equipment, the quality of its stores could deteriorate, which may have a negative impact on our brand image and our ability to attract and maintain members, which in turn may have a negative impact on our revenues.
The higher level of invested capital at these stores may require higher operating margins and higher net income per store to produce the level of return we or our franchisees and potential franchisees expect. Failure to provide this level of return could adversely affect our results of operations and financial condition.
The higher level of invested capital at these stores may require higher operating margins and higher net income per store to produce the level of return we or our franchisees and potential franchisees expect.
For example, if we had elected to terminate the tax receivable agreements as of December 31, 2022, based on a share price of $78.80 per share of our Class A common stock (based on the closing price of our Class A common stock on the NYSE as of December 31, 2022) and a discount rate equal to 6.5%, we estimate that we would have been required to pay $395.3 million in the aggregate under the tax receivable agreements.
For example, if we had elected to terminate the tax receivable agreements as of December 31, 2023, based on a share price of $73.00 per share of our Class A common stock (based on the closing price of our Class A common stock on the NYSE on the last trading day for the fiscal year ending December 31, 2023) and a discount rate equal to 7.1%, we estimate that we would have been required to pay $352.3 million in the aggregate under the tax receivable agreements.
Pla-Fit Holdings is treated as a partnership for U.S. federal income tax purposes and, as such, is generally not subject to U.S. federal income tax. Instead, taxable income is allocated to holders of its Holdings Units, including us.
Pla-Fit Holdings is treated as a partnership for U.S. federal income tax purposes and, as such, is generally not subject to U.S. federal income tax.
Certain future and past exchanges of Holdings Units for shares of our Class A common stock (or cash) are expected to produce and have produced favorable tax attributes for us. We are a party to two tax receivable agreements.
Certain future and past exchanges of Holdings Units for shares of our Class A common stock (or cash) are expected to produce and have produced favorable tax attributes for us. We are a party to two tax receivable agreements, pursuant to which we are required to make payments to certain holders of equity interests or their successors-in-interest (the “TRA Holders”).
To the extent we do not distribute such cash balances as dividends on our Class A common stock and instead, for example, hold such cash balances or lend them to Pla-Fit Holdings, the Continuing LLC Owners would benefit from any value attributable to such accumulated cash balances as a result of their ownership of Class A common stock following an exchange of their Holdings Units. 37 Risks related to our Class A common stock Provisions of our corporate governance documents could make an acquisition of our Company more difficult and may prevent attempts by our stockholders to replace or remove our current management, even if beneficial to our stockholders.
To the extent we do not distribute such cash balances as dividends on our Class A common stock and instead, for example, hold such cash balances or lend them to Pla-Fit Holdings, the Continuing LLC Owners would benefit from any value attributable to such accumulated cash balances as a result of their ownership of Class A common stock following an exchange of their Holdings Units.
In addition, actions we have taken or may take, or decisions we have made or may make, as a consequence of the COVID-19 pandemic may result in legal claims or litigation against us, including legal claims related to alleged exposure to COVID-19 at corporate-owned stores and franchise stores. We may not be able to successfully defend such claims.
In addition, actions we have taken or may take, or decisions we have made or may make, in response to the COVID-19 pandemic or other public health emergencies may result in legal claims or litigation against us, including legal claims related to alleged exposure to COVID-19 or other highly prevalent viruses at corporate-owned stores and franchise stores.
Our or our franchisees’ failure to comply fully with these rules or requirements may subject us or our franchisees to fines, penalties, damages and civil liability, result in membership contracts being void or voidable, or otherwise harm our brand or reputation. In addition, states or provinces may update these laws and regulations.
The FTC has recently proposed new regulations intended to make recurring subscriptions and memberships easy to cancel. Our or our franchisees’ failure to comply fully with these rules or requirements may subject us or our franchisees to fines, penalties, damages and civil liability, result in membership contracts being void or voidable, or otherwise harm our brand or reputation.
Nevertheless, if the claimed tax benefits from the tax basis adjustments and/or deductions are disallowed, our payments under the tax receivable agreements could exceed our actual tax savings, and we may not be able to recoup payments under the tax receivable agreements that were calculated on the assumption that the disallowed tax savings were available. 36 Unanticipated changes in effective tax rates or adverse outcomes resulting from examination of our income or other tax returns could adversely affect our financial condition and results of operations.
Nevertheless, if the claimed tax benefits from the tax basis adjustments and/or deductions are disallowed, our payments under the tax receivable agreements could exceed our actual tax savings, and we may not be able to recoup payments under the tax receivable agreements that were calculated on the assumption that the disallowed tax savings were available.
Our international operations are subject to a number of risks inherent to operating in foreign countries, and any expansion of our international operations will increase the impact of these risks.
We currently have stores operating in certain other countries around the world, including Canada, Panama, Mexico and Australia. Our international operations are subject to a number of risks inherent to operating in foreign countries, and any expansion of our international operations will increase the impact of these risks.
We and our franchisees have experienced, and may in the future experience, increased costs due to inflation and supply chain disruptions brought on by the COVID-19 pandemic, adverse weather conditions, including due to climate change, and other factors. If our franchisees’ costs are greater than expected, franchisees may need to outperform their operational plan to achieve their targeted return.
We and our franchisees have experienced, and may in the future experience, increased costs due to inflation and supply chain disruptions brought on by COVID-19 or future public health emergencies, adverse weather conditions, including due to climate change, and other factors.
Some of this data is sensitive and could be an attractive target of a criminal attack by malicious third parties with a wide range of motives and expertise, including lone wolves, organized criminal groups, “hacktivists,” disgruntled current or former employees and others. The integrity and protection of member, prospective member and employee data is critical to us.
Our mobile application tracks exercise and activity-related data, which may in the future track other personal information. Some of this data is sensitive and could be an attractive target of a criminal attack by malicious third parties with a wide range of motives and expertise, including lone wolves, organized criminal groups, “hacktivists,” disgruntled current or former employees and others.
As a result, in certain circumstances, payments could be made under the tax receivable agreements in excess of the benefits that we are deemed to realize in respect of the attributes to which the tax receivable agreements relate.
As a result, in certain circumstances, payments could be made under the tax receivable agreements in excess of the benefits that we are deemed to realize in respect of the attributes to which the tax receivable agreements relate. 35 Table o f Contents In certain cases, payments under the tax receivable agreements to our TRA Holders may be accelerated and/or significantly exceed the actual benefits we realize in respect of the tax attributes subject to the tax receivable agreements.
Accordingly, we incur income taxes on our allocable share of any taxable income of Pla-Fit Holdings, and also incur expenses related to our operations.
Instead, taxable income is allocated to holders of its Holdings Units, including us. 36 Table o f Contents Accordingly, we incur income taxes on our allocable share of any taxable income of Pla-Fit Holdings, and also incur expenses related to our operations.
Risks related to our indebtedness Substantially all of the assets of certain of our subsidiaries are security under the terms of securitization transactions that were completed on August 1, 2018, December 3, 2019 and February 10, 2022.
If any of these events occurs, it could have a material adverse effect on our business and operating results. 32 Table o f Contents Risks related to our indebtedness Substantially all of the assets of certain of our subsidiaries are security under the terms of securitization transactions that were completed on August 1, 2018, December 3, 2019 and February 10, 2022.
We also may not be able to maintain our general liability insurance on acceptable terms in the future or maintain a level of insurance that would provide adequate coverage against potential claims. Depending upon the outcome, these matters may have a material adverse effect on our results of operations, financial condition and cash flows.
We may not be able to successfully defend such claims. We also may not be able to maintain our general liability insurance on acceptable terms in the future or maintain a level of insurance that would provide adequate coverage against potential claims.
The CPRA has further established a new enforcement agency dedicated to consumer privacy. Additionally, comprehensive privacy laws akin to the CPRA have recently gone into effect or will go into effect this year in Virginia, Colorado, Connecticut and Utah, and it is quite possible that other U.S. states, Federal agencies, or the U.S. Congress will follow suit.
Additionally, comprehensive privacy laws akin to the CPRA have recently gone into effect in Virginia, Colorado, Connecticut and Utah, others will go into effect in the next two years in Florida, Oregon, Texas Montana, Delaware, Iowa, Tennessee and Indiana, and it is quite possible that other U.S. states, Federal agencies, or the U.S. Congress will follow suit.
Our form franchise agreement requires each franchisee to maintain certain insurance types and levels. Losses arising from certain extraordinary hazards, however, may not be covered, and insurance may not be available (or may be available only at prohibitively expensive rates) with respect to many other risks, or franchisees may fail to procure the required insurance.
Losses arising from certain extraordinary hazards, such as extreme weather events brought on by climate change, however, may not be covered, and insurance may not be available (or may be available only at prohibitively expensive rates) with respect to many other risks, or franchisees may fail to procure the required insurance.
(the “Direct TSG Investors”) 85% of the amount of cash savings, if any, that we are deemed to realize as a result of the tax attributes of the Holdings Units that we held in respect of the Direct TSG Investors’ prior interest in us, which resulted from the Direct TSG Investors’ purchase of interests in our 2012 acquisition (the “2012 Acquisition”) by investment funds affiliated with TSG Consumer Partners, LLC (“TSG”), and certain other tax benefits.
Under the second tax receivable agreement, we are generally required to pay 85% of the amount of cash savings, if any, that we are deemed to realize as a result of tax attributes of certain equity interests previously held by affiliates of TSG Consumer Partners (“TSG”) that resulted from TSG’s purchase of interests in our 2012 acquisition (the “2012 Acquisition”), and certain other tax benefits.

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Item 2. Properties

Properties — owned and leased real estate

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In addition, the Company has a corporate-owned stores headquarters located in Winter Park, Florida, which consists of 11,726 sq. ft. of leased office space. Corporate-Owned Stores We lease all but one of our corporate-owned stores. Our store leases typically have initial terms of ten years with two five-year renewal options, exercisable in our discretion.
In addition, the Company has a corporate-owned stores headquarters located in Orlando, Florida, which consists of 8,168 sq. ft. of leased office space. Corporate-Owned Stores We lease all but one of our corporate-owned stores. Our store leases typically have initial terms of ten years with two five-year renewal options, exercisable in our discretion.
As of December 31, 2022, we had 2,176 franchisee-owned stores in 50 states, the District of Columbia, Puerto Rico, Canada, Panama, Mexico and Australia.
As of December 31, 2023, we had 2,319 franchisee-owned stores in all 50 states, the District of Columbia, Puerto Rico, Canada, Panama, Mexico and Australia.
The following table lists all of our corporate-owned store counts by state or province as of December 31, 2022: State/Province Store Count Florida 54 New York 34 South Carolina 30 Pennsylvania 20 Georgia 20 New Hampshire 18 New Jersey 15 North Carolina 14 California 8 Delaware 5 Alabama 5 Massachusetts 4 Maine 4 Ontario 2 Vermont 1 Franchisee Stores Franchisees own or directly lease from a third-party each Planet Fitness franchise location.
The following table lists all of our corporate-owned store counts by state or province as of December 31, 2023: 41 Table o f Contents State/Province Store Count Florida 61 New York 35 South Carolina 34 Pennsylvania 22 Georgia 21 New Hampshire 20 New Jersey 16 North Carolina 16 California 8 Alabama 6 Delaware 5 Massachusetts 4 Maine 4 Ontario 2 Vermont 2 Franchisee Stores Franchisees own or directly lease from a third-party each Planet Fitness franchise location.
As of December 31, 2022, we had 234 corporate-owned store locations.
As of December 31, 2023, we had 256 corporate-owned store locations.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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See Note 18 - Commitments and Contingencies to the audited consolidated financial statements included elsewhere in this Annual Report on Form 10-K. Item 4. Mine Safety Disclosures. None. 41 PART II
See Note 18 - Commitments and Contingencies to the audited consolidated financial statements included elsewhere in this Annual Report on Form 10-K. Item 4. Mine Safety Disclosures None. PART II

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. Market Information for Class A Common Stock Shares of our Class A common stock trade on the NYSE under the symbol “PLNT.” Holders of Record As of February 24, 2023, there were 30 stockholders of record of our Class A common stock.
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Market Information for Class A Common Stock Shares of our Class A common stock trade on the NYSE under the symbol “PLNT.” Holders of Record As of February 22, 2024, there were 35 stockholders of record of our Class A common stock.
A substantially greater number of holders of our Class A common stock are held in “street name” and held of record by banks, brokers and other financial institutions. As of February 24, 2023, there were 18 stockholders of record of our Class B common stock, and there is no public market for these shares.
A substantially greater number of holders of our Class A common stock are held in “street name” and held of record by banks, brokers and other financial institutions. As of February 22, 2024, there were 11 stockholders of record of our Class B common stock, and there is no public market for these shares.
The declaration, amount and payment of any future dividends on shares of our Class A common stock will be at the sole discretion of our board of directors, which may take into account general economic conditions, our financial condition and results of operations, our available cash and current and anticipated cash needs, capital requirements, contractual, legal, tax and regulatory restrictions, the implications of the payment of dividends by us to our stockholders or by our subsidiaries to us, and any other factors that our board of directors may deem relevant. 42 Performance Graph The following graph and table depict the total return to shareholders from December 31, 2017 through December 31, 2022, relative to the performance of the S&P 500 Index and the Russell 2000, and the Invesco Dynamic Leisure and Entertainment ETF (“PEJ”).
The declaration, amount and payment of any future dividends on shares of our Class A common stock will be at the sole discretion of our board of directors, which may take into account general economic conditions, our financial condition and results of operations, our available cash and current and anticipated cash needs, capital requirements, contractual, legal, tax and regulatory restrictions, the implications of the payment of dividends by us to our stockholders or by our subsidiaries to us, and any other factors that our board of directors may deem relevant. 42 Table o f Contents Performance Graph The following graph and table depict the cumulative total shareholder return for our Class A common stock, the S&P 500 Index, the Russell 2000 Index, and the Invesco Dynamic Leisure and Entertainment ETF (“PEJ”) for the five years ended December 31, 2023.
Issuer Purchases of Equity Securities Period Total Number of Shares Purchased Average Price Paid Per Share Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs Approximate Dollar Value of Shares that May Yet be Purchased Under the Plans or Programs (1) 10/01/22 - 10/30/22 — $ — — $105,686,343 11/01/22 - 11/30/22 — $ — — $500,000,000 12/01/22 - 12/31/22 — $ — — $500,000,000 Total — $ — — (1) On November 5, 2019, our board of directors approved a share repurchase program of $500,000,000.
Issuer Purchases of Equity Securities The following table provides information regarding purchases of shares of our Class A common stock by us and our “affiliated purchasers” (as defined in Rule 10b-18(a)(3) under the Exchange Act) during the three months ended December 31, 2023. 43 Table o f Contents Issuer Purchases of Equity Securities Period Total Number of Shares Purchased Average Price Paid Per Share Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs Approximate Dollar Value of Shares that May Yet be Purchased Under the Plans or Programs (1) 10/01/23 - 10/30/23 — $ — — $374,970,426 11/01/23 - 11/30/23 — $ — — $374,970,426 12/01/23 - 12/31/23 — $ — — $374,970,426 Total — $ — — (1) On November 5, 2019, our board of directors approved a share repurchase program of $500,000,000.
As a Continuing LLC Owner exchanges Holdings Units for shares of Class A common stock, the number of Holdings Units held by Planet Fitness, Inc. is correspondingly increased as it acquires the exchanged Holdings Units, and a corresponding number of shares of Class B common stock are canceled. 43 Issuer Purchases of Equity Securities The following table provides information regarding purchases of shares of our Class A common stock by us and our “affiliated purchasers” (as defined in Rule 10b-18(a)(3) under the Exchange Act) during the three months ended December 31, 2022.
As a Continuing LLC Owner exchanges Holdings Units for shares of Class A common stock, the number of Holdings Units held by Planet Fitness, Inc. is correspondingly increased as it acquires the exchanged Holdings Units, and a corresponding number of shares of Class B common stock are canceled.
The performance graph and table are not intended to be indicative of future performance.
The graph and table assume that $100 was invested at the market close on the last trading day for the fiscal year ending December 31, 2018. The performance graph and table are not intended to be indicative of future performance.
The performance graph and table shall not be deemed “soliciting material” or to be “filed” with the SEC for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the Exchange Act”), or otherwise subject to the liabilities under that Section, and shall not be deemed to be incorporated by reference into any of the Company’s filings under the Securities Act of 1933 or the Exchange Act.
The performance graph and table shall not be deemed “soliciting material” or to be “filed” with the SEC for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the Exchange Act”), or otherwise subject to the liabilities under that Section, and shall not be deemed to be incorporated by reference into any of the Company’s filings under the Securities Act of 1933 or the Exchange Act. 2018 2019 2020 2021 2022 2023 Planet Fitness, Inc. $ 100.00 $ 139.28 $ 144.78 $ 168.93 $ 146.96 $ 136.14 S&P 500 Index $ 100.00 $ 128.88 $ 149.83 $ 190.13 $ 153.16 $ 190.27 Russell 2000 (Total Return) Index $ 100.00 $ 123.72 $ 146.44 $ 166.50 $ 130.60 $ 150.31 Invesco Dynamic Leisure and Entertainment ETF (PEJ) $ 100.00 $ 113.82 $ 102.11 $ 125.22 $ 93.44 $ 108.15 Unregistered Sales of Equity Securities There were no unregistered sales of equity securities during the fourth quarter of the year ended December 31, 2023.
Removed
In 2022, the Company elected to include PEJ. While the Company is not a component of PEJ, this fund was added because it represents a diverse group of companies within the same broad industry classification as the Company. The graph and table assume $100 invested at the closing price of $34.63 on December 29, 2017.
Removed
December 31, 2017 December 31, 2018 December 31, 2019 December 31, 2020 December 31, 2021 December 31, 2022 Planet Fitness, Inc. $ 100.00 $ 154.84 $ 215.65 $ 224.17 $ 261.57 $ 227.55 S&P 500 Index 100.00 93.76 120.84 140.49 178.27 143.61 Russell 2000 (Total Return) Index 100.00 87.82 108.66 128.61 146.23 114.70 Invesco Dynamic Leisure and Entertainment ETF (PEJ) 100.00 90.07 102.10 90.59 110.84 82.39 Unregistered Sales of Equity Securities There were no unregistered sales of equity securities during the fourth quarter of the year ended December 31, 2022.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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See “—Non-GAAP Financial Measures” below for our definition of EBITDA, Adjusted EBITDA, four-wall EBITDA, royalty adjusted four-wall EBITDA, Adjusted net income, and Adjusted net income per share, diluted and why we present EBITDA, Adjusted EBITDA, four-wall EBITDA, royalty-adjusted four-wall EBITDA, Adjusted net income, and Adjusted net income per share, diluted, and for a reconciliation of our EBITDA, Adjusted EBITDA, and Adjusted net income to net income, the most directly comparable financial measure calculated and presented in accordance with GAAP, and a reconciliation of Adjusted net income per share, diluted to net income per share, diluted, the most directly comparable financial measure calculated in accordance with GAAP.
See “—Non-GAAP Financial Measures” below for our definition of EBITDA, Adjusted EBITDA, four-wall EBITDA, royalty adjusted four-wall EBITDA, Adjusted net income, and Adjusted net income per share, diluted and why we present EBITDA, Adjusted EBITDA, four-wall EBITDA, royalty-adjusted four-wall EBITDA, Adjusted net income, and Adjusted net income per share, diluted, and for a reconciliation of our EBITDA, Adjusted EBITDA, and Adjusted net income to net income, the most directly comparable financial measure calculated and presented in accordance with GAAP, and a reconciliation of Adjusted net income per share, diluted to net income per share, diluted, the most directly comparable financial measure calculated and presented in accordance with GAAP.
Adjusted net income assumes all net income is attributable to Planet Fitness, Inc., which assumes the full exchange of all outstanding Holdings Units for shares of Class A common stock of Planet Fitness, Inc., adjusted for certain non-cash and other items that we do not believe directly reflect our core operations.
Adjusted net income assumes that all net income is attributable to Planet Fitness, Inc., which assumes the full exchange of all outstanding Holdings Units for shares of Class A common stock of Planet Fitness, Inc., adjusted for certain non-cash and other items that we do not believe directly reflect our core operations.
In connection with the 2012 Acquisition, it was determined that the carrying amount of deferred revenue was greater than the fair value assessed in accordance with ASC 805—Business Combinations, which resulted in a write-down of the carrying value of the deferred revenue balance upon application of acquisition push-down accounting under ASC 805.
In connection with the 2012 Acquisition, it was determined that the carrying amount of deferred revenue was greater than the fair value assessed in accordance with ASC 805—Business Combinations, which resulted in a write-down of the carrying value of the deferred revenue balance upon application of acquisition push-down accounting under ASC 805.
In accordance with guidance in ASC 805—Business Combinations, in connection with the 2012 Acquisition, the Company’s deferred rent liability was required to be written off as of the acquisition date and rent was recorded on a straight-line basis from the acquisition date through the end of the lease term.
In accordance with guidance in ASC 805—Business Combinations, in connection with the 2012 Acquisition, the Company’s deferred rent liability was required to be written off as of the acquisition date and rent was recorded on a straight-line basis from the acquisition date through the end of the lease term.
This resulted in higher overall rent expense each period than would have otherwise been recorded had the deferred rent liability not been written off as a result of the acquisition push down accounting applied in accordance with ASC 805.
This resulted in higher overall rent expense each period than would have otherwise been recorded had the deferred rent liability not been written off as a result of the acquisition push down accounting applied in accordance with ASC 805.
Several factors affect our same store sales in any given period, including the following: • the number of stores that have been in operation for more than 12 months; • the percentage mix and pricing of PF Black Card and standard memberships in any period; • growth in total net memberships per store; • consumer recognition of our brand and our ability to respond to changing consumer preferences; • overall economic trends, particularly those related to consumer spending; • our and our franchisees’ ability to operate stores effectively and efficiently to meet consumer expectations; • marketing and promotional efforts; • local competition; • trade area dynamics; and • opening of new stores in the vicinity of existing locations.
Several factors affect our same store sales in any given period, including the following: • the number of stores that have been in operation for more than 12 months; • the percentage mix and pricing of PF Black Card and standard Classic Card memberships in any period; • growth in total net memberships per store; • consumer recognition of our brand and our ability to respond to changing consumer preferences; • overall economic trends, particularly those related to consumer spending; • our and our franchisees’ ability to operate stores effectively and efficiently to meet consumer expectations; • marketing and promotional efforts; • local competition; • trade area dynamics; and • opening of new stores in the vicinity of existing locations.
Our statements of operations do not include, and we are not responsible for, any costs associated with operating franchisee-owned stores. • Selling, general and administrative expenses : Consists of costs associated with administrative, corporate-owned store and franchisee support functions related to our existing business as well as growth and development activities, including certain costs to support equipment placement and assembly services.
Our statements of operations do not include, and we are not responsible for, any costs associated with operating franchisee-owned stores. • Selling, general and administrative expenses : Consists of costs primarily associated with administrative, corporate-owned store and franchisee support functions related to our existing business as well as growth and development activities, including certain costs to support equipment placement and assembly services.
EBITDA, Adjusted EBITDA, four-wall EBITDA and royalty adjusted four-wall EBITDA should not be considered as substitutes for 52 GAAP metrics such as net income or any other performance measures derived in accordance with GAAP. Also, in the future we may incur expenses or charges such as those added back to calculate Adjusted EBITDA.
EBITDA, Adjusted EBITDA, four-wall EBITDA and royalty adjusted four-wall EBITDA should not be considered as substitutes for GAAP metrics such as net income or any other performance measures derived in accordance with GAAP. Also, in the future we may incur expenses or charges such as those added back to calculate Adjusted EBITDA.
Our franchisees are responsible for maintaining the membership billing records and collection of member dues for their respective stores through the point-of-sale system. Our royalties are based on monthly and annual membership billings for the franchisee-owned stores without regard to the collections of those billings by our franchisees.
Our franchisees are responsible for maintaining the membership billing records and collection of member dues for their respective stores through the point-of-sale system. Our royalties are generally based on monthly and annual membership billings for the franchisee-owned stores without regard to the collections of those billings by our franchisees.
We believe that Adjusted EBITDA is an appropriate measure of operating performance in addition to EBITDA because it eliminates the impact of other items that we believe reduce the comparability of our underlying core business performance from period to period and is therefore useful to our investors in comparing the core performance of our business from period to period.
We believe that Adjusted EBITDA is an appropriate measure of operating performance in addition to EBITDA because it eliminates the impact of other items that we believe reduce the comparability of our underlying core business performance from period to period and is therefore useful to our investors.
At the time of the 2012 Acquisition, the Company maintained a deferred revenue account, which consisted of deferred area 53 development agreement fees, deferred franchise fees, and deferred enrollment fees that the Company billed and collected up front but recognizes for GAAP purposes at a later date.
At the time of the 2012 Acquisition, the Company maintained a deferred revenue account, which consisted of deferred area development agreement fees, deferred franchise fees, and deferred enrollment fees that the Company billed and collected up front but recognizes for GAAP purposes at a later date.
Refer to “—Non-GAAP Financial Measures” for a definition of EBITDA and a reconciliation to net income, the most directly comparable GAAP measure. 49 How We Assess the Performance of Our Business In assessing the performance of our business, we consider a variety of performance and financial measures.
Refer to “—Non-GAAP Financial Measures” for a definition of EBITDA and a reconciliation to net income, the most directly comparable GAAP measure. How We Assess the Performance of Our Business In assessing the performance of our business, we consider a variety of performance and financial measures.
(8) Represents costs associated with legal matters in which the Company is a defendant. In 2022, this represents an $8.6 million legal reserve related to the Preliminary Settlement Agreement and a $1.2 million reserve against an indemnification receivable related to a legal matter.
(7) Represents costs associated with legal matters in which the Company is a defendant. In 2022, this represents an $8.6 million legal reserve related to the Preliminary Settlement Agreement and a $1.2 million reserve against an indemnification receivable related to a legal matter.
An increase or a decrease in the allowance for expected credit losses is recorded through other gain (loss) as a credit loss expense or a reversal thereof. The allowance for expected credit losses is presented as a deduction from the amortized cost of the held-to-maturity securities.
An increase or a decrease in the allowance for expected credit losses is recorded through other gain (loss) as a credit loss expense or a reversal thereof. The allowance for expected credit losses is presented as a deduction from the amortized cost of the held-to-maturity debt securities.
Critical Accounting Estimates Our discussion and analysis of operating results and financial condition are based upon our consolidated financial statements included elsewhere in this Form 10-K.
Critical Accounting Policies and Estimates Our discussion and analysis of operating results and financial condition are based upon our consolidated financial statements included elsewhere in this Form 10-K.
Discussions of fiscal 2020 items and year-to-year comparisons between fiscal 2021 and fiscal 2020 that are not included in this Form 10-K can be found in “Management's Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of our annual report on Form 10-K for the fiscal year ended December 31, 2021.
Discussions of fiscal 2021 items and year-to-year comparisons between fiscal 2022 and fiscal 2021 that are not included in this Form 10-K can be found in “Management's Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of our annual report on Form 10-K for the fiscal year ended December 31, 2022.
We have varying royalty fee structures with our franchisee base, ranging from a tiered monthly fee to a royalty of 7.0% of total monthly EFT and annual membership fees across our franchisee base. Our royalty fee in the U.S. and Canada has increased over time to a current rate of 7.0% and 6.59%, respectively, for new franchisees.
We have varying royalty fee structures with our franchisee base, ranging from a tiered monthly fee to a royalty of 7.0% of total monthly dues and annual membership fees across our franchisee base. Our royalty fee in the U.S. and Canada has increased over time to a current rate of 7.0% and 6.59%, respectively, for new franchisees.
(7) Represents costs associated with legal matters in which the Company is a defendant. In 2022, this represents an $8.6 million legal reserve related to a preliminary settlement agreement of terms for a settlement agreement between the Company and a franchisee in Mexico (“Preliminary Settlement Agreement”) and a $1.2 million reserve against an indemnification receivable related to a legal matter.
(7) Represents costs associated with legal matters in which the Company is a defendant. In 2022, this represents an $8.6 million legal reserve related to preliminary terms of a settlement agreement with a franchisee in Mexico (the “Preliminary Settlement Agreement”) and a $1.2 million reserve against an indemnification receivable related to a legal matter.
A held-to-maturity investment security and its allowance for expected credit losses is written off when deemed uncollectible. 67
A held-to-maturity investment security and its allowance for expected credit losses is written off when deemed uncollectible.
See Note 11 to the consolidated financial statements. Sunshine Acquisition On February 10, 2022, the Company and Pla-Fit Holdings acquired 100% of the equity interests of franchisee Sunshine Fitness, which operated 114 locations in Alabama, Florida, Georgia, North Carolina, and South Carolina.
See Note 11 to the consolidated financial statements. Sunshine Acquisition On February 10, 2022, the Company and Pla-Fit Holdings acquired 100% of the equity interests of franchisee Sunshine Fitness, which operated 114 locations in Alabama, Florida, Georgia, North Carolina, and South Carolina (the “Sunshine Acquisition”).
For the majority of our equipment purchase obligations, our policy is to require the franchisee to provide us with either a deposit or proof of a committed financing arrangement. Off-Balance Sheet Arrangements As of December 31, 2022, our off-balance sheet arrangements consisted of guarantees of lease agreements for certain franchisees.
For the majority of our equipment purchase obligations, our policy is to require the franchisee to provide us with either a deposit or proof of a committed financing arrangement. Off-Balance Sheet Arrangements As of December 31, 2023, our off-balance sheet arrangements consisted of guarantees of lease agreements for certain franchisees.
On February 10, 2022, we borrowed in the full amount of the $75 million 2022 Variable Funding Notes and used such proceeds to repay the outstanding principal amount (together with all accrued and unpaid interest thereon) of the 2018 Variable Funding Notes in full, and subsequently repaid the 2022 Variable Funding Notes in full on May 9, 2022.
On February 10, 2022, the Company borrowed in the full amount of the $75 million 2022 Variable Funding Notes and used such proceeds to repay the outstanding principal amount (together with all accrued and unpaid interest thereon) of the 2018 Variable Funding Notes in full, and subsequently repaid the 2022 Variable Funding Notes in full on May 9, 2022.
This was evaluated as an unsettled forward contract indexed to our own stock, with $60.0 million classified as a reduction to retained earnings at the original date of payment. During the year ended December 31, 2022, the Company purchased 1,528,720 shares of Class A common stock for a total cost of $94.3 million. All purchased shares were retired.
This was evaluated as an unsettled forward contract indexed to our own stock, with $60.0 million classified as a reduction to retained earnings at the original date of payment. During the year ended December 31, 2022, the Company purchased 1,528,720 shares of Class A common stock for a total cost of $94.3 million.
We capture all membership changes daily through our point-of-sale system. We monitor a combination of membership growth, average members per store, average monthly EFT and transfers from or to an individual store location.
We capture all membership changes daily through our point-of-sale system. We monitor a combination of membership growth, average members per store, average monthly dues and transfers from or to an individual store location.
The loss recorded under GAAP represents the difference between the fair value of the reacquired franchise rights and the contractual terms of the reacquired franchise rights and is included in other (gain) loss on our consolidated statements of operations. (4) Represents transaction fees and acquisition-related costs incurred in connection with our acquisition of franchisee-owned stores.
The loss recorded under GAAP represents the difference between the fair value of the reacquired franchise rights and the contractual terms of the reacquired franchise rights and is included in other losses, net on our consolidated statements of operations. (4) Represents transaction fees and acquisition-related costs incurred in connection with our acquisition of franchisee-owned stores.
Adjustments of $0.2 million, $0.2 million and $0.1 million in the years ended December 31, 2022, 2021 and 2020, respectively, reflect the difference between the higher rent expense recorded in accordance with GAAP since the acquisition and the rent expense that would have been recorded had the 2012 Acquisition not occurred.
Adjustments of $0.1 million and $0.2 million in the years ended December 31, 2023 and 2022, respectively, reflect the difference between the higher rent expense recorded in accordance with GAAP since the acquisition and the rent expense that would have been recorded had the 2012 Acquisition not occurred.
(3) Represents the impact of a non-cash loss recorded in accordance with ASC 805—Business Combinations related to our acquisition of franchisee-owned stores.
(3) Represents the impact of a non-cash loss recorded in accordance with ASC 805—Business Combinations related to our acquisitions of franchisee-owned stores.
We believe this was primarily a result of the COVID-19 pandemic, and 2022 returned to a pattern more consistent with years prior to the COVID-19 pandemic. 47 Our Segments We operate and manage our business in three business segments: Franchise, Corporate-owned stores and Equipment.
We believe this was primarily a result of the COVID-19 pandemic, and 2022 and 2023 have returned to a pattern more consistent with years prior to the COVID-19 pandemic. Our Segments We operate and manage our business in three business segments: Franchise, Corporate-owned stores and Equipment.
(1) $ 99,402 84,544 $ 1.18 Assumed exchange of shares (2) 11,054 5,867 Net income 110,456 Adjustments to arrive at adjusted income before income taxes (3) 89,987 Adjusted income before income taxes 200,443 Adjusted income taxes (4) 51,915 Adjusted net income $ 148,528 90,411 $ 1.64 (1) Represents net income attributable to Planet Fitness, Inc. for the year ended December 31, 2022 and the associated weighted average shares of Class A common stock outstanding (see Note 16 to our consolidated financial statements included elsewhere in this Form 10-K).
(1) $ 99,402 84,544 $ 1.18 Assumed exchange of shares (2) 11,054 5,867 Net income 110,456 Adjustments to arrive at adjusted income before income taxes (3) 89,987 Adjusted income before income taxes 200,443 Adjusted income taxes (4) 51,915 Adjusted net income $ 148,528 90,411 $ 1.64 (1) Represents net income attributable to Planet Fitness, Inc. and the associated weighted average shares of Class A common stock outstanding (see Note 16 to our consolidated financial statements included elsewhere in this form 10-K).
The $5.1 million loss in 2022 is primarily the result of an $8.6 million legal reserve due to the Preliminary Settlement Agreement, a $1.2 million loss on unfavorable reacquired franchise rights in connection with the Sunshine Acquisition and a $1.2 million reserve against an indemnification receivable related to a legal matter, partially offset by a $2.5 million gain from the reduction in the Company’s allowance for expected credit losses, a $2.1 million gain from the settlement of preexisting contracts in connection with the Sunshine Acquisition, and a $1.3 million gain on the sale of corporate-owned stores.
The loss in 2022 was primarily the result of an $8.6 million legal reserve, a $1.2 million loss on unfavorable reacquired franchise rights in connection with the Sunshine Acquisition and a $1.2 million reserve against an indemnification receivable related to a legal matter, partially offset by a $2.5 million gain from the reduction in the Company’s allowance for expected credit losses, a $2.1 million gain from the settlement of preexisting contracts in connection with the Sunshine Acquisition, and a $1.3 million gain on the sale of corporate-owned stores.
(18) Assumes the full exchange of all outstanding Holdings Units and corresponding shares of Class B common stock for shares of Class A common stock of Planet Fitness, Inc.
(17) Assumes the full exchange of all outstanding Holdings Units and corresponding shares of Class B common stock for shares of Class A common stock of Planet Fitness, Inc.
Our maximum total commitment under these agreements is approximately $5.9 million and would only require payment upon default by the primary obligor. The estimated fair value of these guarantees at December 31, 2022 was not material, and no accrual has been recorded for our potential obligation under these arrangements.
Our maximum total commitment under these agreements is approximately $5.2 million and would only require payment upon default by the primary obligor. The estimated fair value of these guarantees at December 31, 2023 was not material, and no accrual has been recorded for our potential obligation under these arrangements.
Provided our stores are open, we bill monthly dues on or around the 17 th of every month and bill annual fees once per year from each member based upon when the member signed his or her membership agreement. System-wide sales were $3.9 billion, $3.4 billion and $2.4 billion, during the years ended December 31, 2022, 2021 and 2020, respectively.
Provided our stores are open, we bill monthly dues on or around the 17 th of every month and bill annual fees once per year from each member based upon when the member signed his or her membership agreement. System-wide sales were $4.5 billion and $3.9 billion during the years ended December 31, 2023 and 2022, respectively.
Favorable and unfavorable operating leases are recorded based on differences between contractual rents under the respective lease agreements and prevailing market rents at the lease acquisition date, and are recorded as a component of the ROU asset. Real and personal property asset valuation is determined using the replacement cost approach.
Favorable and unfavorable operating leases are recorded based on differences between contractual rents under the respective lease agreements and prevailing market rents at the lease acquisition date, and are recorded as a component of the right-of-use (“ROU”) asset. Real and personal property asset valuation is determined using the replacement cost approach.
As of December 31, 2022, the Company has provided a valuation allowance of $4.0 million against the portion of its deferred tax assets that would generate capital losses for which the Company does not have sufficient positive evidence to support its recoverability.
As of December 31, 2023, the Company has provided a valuation allowance of $4.9 million against the portion of its deferred tax assets that would generate capital losses for which the Company does not have sufficient positive evidence to support its recoverability.
As part of such disclosure in “Our Segments” within Management’s Discussion and Analysis of Financial Condition and Results of Operations, the Company has provided a reconciliation from income from operations to Total Segment EBITDA, which is equal to the Non-GAAP financial metric EBITDA. We define EBITDA as net income before interest, taxes, depreciation and amortization.
As part of such disclosure in “Our Segments” within Management’s Discussion and Analysis of 50 Table o f Contents Financial Condition and Results of Operations, the Company has provided a reconciliation from income from operations to Total Segment EBITDA, which is equal to the Non-GAAP financial metric EBITDA. We define EBITDA as net income before interest, taxes, depreciation and amortization.
The amount and timing of the collection of royalties and membership dues and fees at corporate-owned stores is, therefore, generally fairly predictable. Our corporate-owned stores also historically generate strong operating margins and cash flows, as a significant portion of our costs are fixed or semi-fixed such as rent and labor.
The amount and timing of the collection of royalties and membership dues and fees at corporate-owned stores is, therefore, generally fairly predictable. 45 Table o f Contents Our corporate-owned stores also historically generate strong operating margins and cash flows, as a significant portion of our costs are fixed or semi-fixed, such as rent and labor.
Adjustments of $0.3 million, $0.3 million and $0.4 million for the years ended December 31, 2022, 2021 and 2020, respectively, are due to the amortization of favorable and unfavorable lease intangible assets. All of the rent related purchase accounting adjustments are adjustments to rent expense which is included in store operations on our consolidated statements of operations.
Adjustments of $0.5 million and $0.3 million for the years ended December 31, 2023 and 2022, respectively, are due to the amortization of favorable and unfavorable lease intangible assets. All of the rent related purchase accounting adjustments are adjustments to rent expense which is included in store operations on our consolidated statements of operations.
Adjustments of $0.3 million, $0.3 million and $0.4 million for the years ended December 31, 2022, 2021 and 2020, respectively, are due to the amortization of favorable and unfavorable lease intangible assets. All of the rent related purchase accounting adjustments are adjustments to rent expense which is included in store operations on our consolidated statements of operations.
Adjustments of $0.5 million and $0.3 million for the years ended December 31, 2023 and 2022, respectively, are due to the amortization of favorable and unfavorable lease intangible assets. All of the rent related purchase accounting adjustments are adjustments to rent expense which is included in store operations on our consolidated statements of operations.
In projecting future taxable income, we consider our historical results and incorporate certain assumptions. As of December 31, 2022, we recognized $494.5 million of liabilities relating to our obligations under the tax benefit arrangements. We concluded that we would have sufficient future taxable income to utilize all of the related tax benefits generated by all transactions that occurred.
In projecting future taxable income, we consider our historical results and incorporate certain assumptions. As of December 31, 2023, we recognized $495.7 million of liabilities relating to our obligations under the tax benefit arrangements. We concluded that we would have sufficient future taxable income to utilize all of the related tax benefits generated by all transactions that occurred.
Our cost of revenue changes primarily based on equipment sales volume. • Store operations : Includes the direct costs associated with our corporate-owned stores, primarily rent, utilities, payroll, marketing, maintenance and supplies. The components of store operations remain relatively stable for each store.
Our cost of revenue changes primarily based on equipment sales volume. • Store operations : Includes the direct costs associated with our corporate-owned stores, primarily payroll, rent, utilities, supplies, maintenance, insurance, and local and national advertising. The components of store operations remain relatively stable for each store.
Contractual Obligations and Commitments The following table presents contractual obligations and commercial commitments as of December 31, 2022.
Contractual Obligations and Commitments The following table presents contractual obligations and commercial commitments as of December 31, 2023.
Since opening new stores will be a significant component of our revenue growth, same store sales is only one measure of how we evaluate our performance. 51 Stores acquired from or sold to franchisees are removed from the franchisee-owned or corporate-owned same store sales base, as applicable, upon the ownership change and for the twelve months following the date of the ownership change.
Since opening new stores is a significant component of our revenue growth, same store sales is only one measure of how we evaluate our performance. 49 Table o f Contents Stores acquired from or sold to franchisees are removed from the franchisee-owned or corporate-owned same store sales base, as applicable, upon the ownership change and for the twelve months following the date of the ownership change.
(15) Includes $12.4 million of amortization of intangible assets, other than favorable leases, for each of the years ended December 31, 2022, 2021 and 2020, recorded in connection with the 2012 Acquisition, and $27.9 million, $4.3 million and $4.5 million of amortization of intangible assets for the years ended December 31, 2022, 2021 and 2020, respectively, created in connection with historical acquisitions of franchisee-owned stores.
(15) Includes $12.4 million of amortization of intangible assets, other than favorable leases, for each of the years ended December 31, 2023 and 2022, recorded in connection with the 2012 Acquisition, and $39.1 million and $27.9 million of amortization of intangible assets for the years ended December 31, 2023 and 2022, respectively, created in connection with historical acquisitions of franchisee-owned stores.
Adjusted net income and Adjusted net income per share, diluted, are supplemental measures of operating performance that do not represent and should not be considered alternatives to net income and earnings per share, as determined by GAAP.
Adjusted net income and Adjusted net income per share, diluted, are supplemental measures of operating performance that do not represent and should not be considered alternatives to net income and earnings per share, as calculated in accordance with by GAAP.
Estimating future taxable income is inherently uncertain and requires judgment. As of December 31, 2022, we had $453.1 million of net deferred tax assets, net of valuation allowances. We expect to realize future tax benefits related to the utilization of these assets.
Estimating future taxable income is inherently uncertain and requires judgment. As of December 31, 2023, we had $502.5 million of net deferred tax assets, net of valuation allowances. We expect to realize future tax benefits related to the utilization of these assets.
Our franchise segment revenue comprised 35%, 50% and 51% of our total revenue for the years ended December 31, 2022, 2021 and 2020, respectively. • Corporate-owned store segment revenue : Includes monthly membership dues, enrollment fees, annual fees and prepaid fees paid by our members as well as retail sales.
Our franchise segment revenue comprised 36.2% and 35.2% of our total revenue for the years ended December 31, 2023 and 2022, respectively. • Corporate-owned store segment revenue : Includes monthly membership dues, enrollment fees, annual fees and prepaid fees paid by our members as well as retail sales.
Equipment sales to new and existing franchisee-owned stores also generate significant cash flows. Franchisees generally either pay in advance or provide evidence of a committed financing arrangement for such equipment.
Equipment sales to new and existing franchisee-owned stores also generate significant cash flows. Franchisees generally pay in advance, provide evidence of a committed financing arrangement for such equipment or provide evidence of availability under an existing credit facility.
Expenses We primarily incur the following expenses: • Cost of revenue : Primarily includes the direct costs associated with equipment sales to new and existing franchisee-owned stores in the U.S., Canada and Mexico. Cost of revenue also includes the cost of retail sales at our corporate-owned stores, which is immaterial.
Expenses We primarily incur the following expenses: • Cost of revenue : Primarily includes the direct costs associated with equipment sales, including freight costs, to new and existing franchisee-owned stores in the U.S., Canada and Mexico. Cost of revenue also includes the cost of retail merchandise sold at our corporate-owned stores.
The 2022 Variable Funding Notes are undrawn as of December 31, 2022 due to repayment in full on May 9, 2022 using cash on hand. Except as described above, there were no material changes to the terms of any debt obligations since December 31, 2021. The Company was in compliance with its debt covenants as of December 31, 2022.
The 2022 Variable Funding Notes are undrawn as of December 31, 2023 due to repayment in full on May 9, 2022 using cash on hand. There were no material changes to the terms of any debt obligations in the year ended December 31, 2023. The Company was in compliance with its debt covenants as of December 31, 2023.
Franchisee-owned stores are generally required to replace their equipment every five to seven years. This source of revenue comprised 24%, 22% and 20% of our total revenue for the years ended December 31, 2022, 2021 and 2020, respectively. See Item 8: Financial Statements and Supplementary Data - Note 2(e) for further discussion on our revenue streams and revenue recognition policies.
Franchisee-owned stores are generally required to replace their equipment every five to nine years. This source of revenue comprised 21.9% and 24.3% of our total revenue for the years ended December 31, 2023 and 2022, respectively. See Item 8: Financial Statements and Supplementary Data - Note 2(e) for further discussion on our revenue streams and revenue recognition policies.
The adjustment represents the amount of actual non-cash amortization expense recorded, in accordance with GAAP, in each period. (16) Represents corporate income taxes at an assumed effective tax rate of 25.9%, 27.0% and 26.6% for the years ended December 31, 2022, 2021 and 2020, respectively, applied to adjusted income before income taxes.
The adjustment represents the amount of actual non-cash amortization expense recorded, in accordance with GAAP, in each period. (16) Represents corporate income taxes at an assumed effective tax rate of 25.9% for both the years ended December 31, 2023 and 2022, applied to adjusted income before income taxes.
Adjustments of $0.2 million, $0.2 million and $0.1 million in the years ended December 31, 2022, 2021 and 2020, respectively, reflect the difference between the higher rent expense recorded in accordance with GAAP since the acquisition and the rent expense that would have been recorded had the 2012 Acquisition not occurred.
Adjustments of $0.1 million and $0.2 million in the years ended December 31, 2023 and 2022, respectively, reflect the difference between the higher rent expense recorded in accordance with GAAP since the acquisition 51 Table o f Contents and the rent expense that would have been recorded had the 2012 Acquisition not occurred.
National advertising fund expense National advertising fund expense was $66.1 million in the year ended December 31, 2022, compared to $59.4 million in the year ended December 31, 2021, an increase of $6.7 million as a result of higher advertising and marketing expenditures in 2022 as compared to 2021 primarily due to higher national advertising revenue as described above.
National advertising fund expense National advertising fund expense was $70.1 million in the year ended December 31, 2023, compared to $66.1 million in the year ended December 31, 2022, an increase of $4.0 million, or 6.0%. This increase was primarily a result of higher advertising and marketing expenditures due to higher national advertising revenue as described above.
As of December 31, 2022, over 90% of our members paid their monthly dues by EFT, while the remainder prepaid annually in advance. 45 • Equipment segment revenue : Includes equipment revenue for new franchisee-owned stores as well as replacement equipment for existing franchisee-owned stores, in the U.S., Canada and Mexico.
As of December 31, 2023, approximately 95% of members at our corporate stores paid their monthly dues by EFT, while the remainder prepaid annually in advance. • Equipment segment revenue : Includes equipment revenue for new franchisee-owned stores as well as replacement equipment for existing franchisee-owned stores, in the U.S., Canada and Mexico.
Adjusted net income per share, diluted, is calculated by dividing Adjusted net income by the total weighted-average shares of Class A common stock outstanding assuming the full exchange of all outstanding Holdings Units and corresponding Class B common stock as of the beginning of each period presented.
Adjusted net income per share, diluted, is calculated by dividing Adjusted net income by the total weighted-average shares of Class A common stock outstanding plus any dilutive options and restricted stock units as calculated in accordance with GAAP and assuming the full exchange of all outstanding Holdings Units and corresponding Class B common stock as of the beginning of each period presented.
Partially offsetting these increases was a reduction of $1.7 million related to the sale of six Colorado corporate-owned stores in 2022. Equipment segment revenue was $227.7 million in the year ended December 31, 2022, compared to $129.1 million in the year ended December 31, 2021, an increase of $98.7 million, or 76.4%.
Partially offsetting these increases was a reduction of $6.2 million related to the sale of six Colorado corporate-owned stores in 2022. Equipment segment revenue was $234.1 million in the year ended December 31, 2023, compared to $227.7 million in the year ended December 31, 2022, an increase of $6.4 million, or 2.8%.
For the years ended December 31, 2022, 2021 and 2020, these amounts represent the additional revenue that would have been recognized in those years if the write-down to deferred revenue had not occurred in connection with the application of acquisition pushdown accounting. (2) Represents the impact of rent related purchase accounting adjustments.
These amounts represent the additional revenue that would have been recognized if the write-down to deferred revenue had not occurred in connection with the application of acquisition pushdown accounting. (2) Represents the impact of rent related purchase accounting adjustments.
For the years ended December 31, 2022, 2021 and 2020, these amounts represent the additional revenue that would have been recognized in those years if the write-down to deferred revenue had not occurred in connection with the application of acquisition pushdown accounting. (2) Represents the impact of rent related purchase accounting adjustments.
These amounts represent the additional revenue that would have been recognized if the write-down to deferred revenue had not occurred in connection with the application of acquisition pushdown accounting. (2) Represents the impact of rent related purchase accounting adjustments.
Our future operating performance and our ability to service, extend or refinance our indebtedness will be subject to future economic conditions and to financial, business and other factors, many of which are beyond our control, including potential future impacts related to the COVID-19 pandemic.
Our future operating performance and our ability to service, extend or refinance our indebtedness will be subject to future economic conditions and to financial, business and other factors, many of which are beyond our control.
A reconciliation of net income (loss) per share, diluted, to Adjusted net income per share, diluted, is set forth below for the years ended December 31, 2022, 2021 and 2020: Year Ended December 31, 2022 (in thousands, except per share amounts) Net income Weighted Average Shares Net income per share, diluted Net income attributable to Planet Fitness, Inc.
A reconciliation of net income per share, diluted, to Adjusted net income per share, diluted, is set forth below: (in thousands, except per share amounts) Net income Weighted Average Shares Net income per share, diluted Year Ended December 31, 2023 Net income attributable to Planet Fitness, Inc.
(5) Represents a gain on settlement of deferred revenue from existing contracts with acquired franchisee-stores recorded in accordance with ASC 805 – Business Combinations, and is included in other (gains) losses, net on our consolidated statement of operations. (6) Represents severance expense recorded in connection with a reduction in force in 2020.
(5) Represents a gain on settlement of deferred revenue from existing contracts with acquired franchisee-stores recorded in accordance with ASC 805 – Business Combinations, and is included in other losses, net on our consolidated statements of operations.
The following table shows our same store sales for the years ended December 31, 2022, 2021 and 2020: Year Ended December 31, 2022 2021 2020 Same store sales growth: Franchisee-owned stores 11.2 % NC NC Corporate-owned stores 13.1 % NC NC System-wide stores 11.4 % NC NC Number of stores in same store sales base: Franchisee-owned stores 2,004 Corporate-owned stores 104 Total stores 2,226 Net member growth per store Net member growth per store refers to the net change in total members in relation to total stores over time.
The following table shows our same store sales: Years Ended December 31, 2023 2022 Same store sales growth: Franchisee-owned stores 8.5 % 11.2 % Corporate-owned stores 10.1 % 13.1 % System-wide stores 8.7 % 11.4 % Number of stores in same store sales base: Franchisee-owned stores 2,144 2,004 Corporate-owned stores 231 104 Total stores 2,384 2,226 Net member growth per store Net member growth per store refers to the net change in total members in relation to total stores over time.
Store operations Store operation expenses, which relates to our Corporate-owned stores segment, were $219.4 million in the year ended December 31, 2022 compared to $110.7 million in the year ended December 31, 2021, an increase of $108.7 million, or 98.2%.
Store operations Store operation expenses, which relates to our Corporate-owned stores segment, were $253.6 million in the year ended December 31, 2023 compared to $219.4 million in the year ended December 31, 2022, an increase of $34.2 million, or 15.6%.
The allowance for expected credit losses estimate reflects a lifetime loss estimate and is based on historical loss information for assets with similar risk characteristics, adjusted for management’s expectations.
We reserve for expected credit losses on our held-to-maturity debt securities through the allowance for expected credit losses. The allowance for expected credit losses estimate reflects a lifetime loss estimate and is based on historical loss information for assets with similar risk characteristics, adjusted for management’s expectations.
(6) Represents a gain on settlement of deferred revenue from existing contracts with acquired franchisee-stores recorded in accordance with ASC 805 – Business Combinations, and is included in other (gains) losses, net on our consolidated statement of operations. (7) Represents severance expense recorded in connection with a reduction in force in 2020.
(5) Represents a gain on settlement of deferred revenue from existing contracts with acquired franchisee-stores recorded in accordance with ASC 805 – Business Combinations, and is included in other losses, net on our consolidated statements of operations.
Interest expense Interest expense primarily consists of interest on long-term debt as well as the amortization of deferred financing costs. Interest expense was $88.6 million in the year ended December 31, 2022 compared to $81.2 million in the year ended December 31, 2021, an increase of $7.4 million, or 9.1%.
Interest expense Interest expense primarily consists of interest on long-term debt as well as the amortization of deferred financing costs. Interest expense was $86.6 million in the year ended December 31, 2023, compared to $88.6 million in the year ended December 31, 2022, a decrease of $2.1 million, or 2.3%.
The following table shows the growth in our corporate-owned and franchisee-owned store base for the years ended December 31, 2022, 2021 and 2020: 50 Year Ended December 31, 2022 2021 2020 Franchisee-owned stores: Stores operated at beginning of period 2,142 2,021 1,903 New stores opened 144 125 125 Stores acquired from the Company 6 — — Stores debranded, sold or consolidated (1) (116) (4) (7) Stores operated at end of period (2) 2,176 2,142 2,021 Corporate-owned stores: Stores operated at beginning of period 112 103 98 New stores opened 14 7 5 Stores sold to franchisees (6) — — Stores acquired from franchisees 114 2 — Stores operated at end of period (2) 234 112 103 Total stores: Stores operated at beginning of period 2,254 2,124 2,001 New stores opened 158 132 130 Stores debranded, sold or consolidated (1) (2) (2) (7) Stores operated at end of period (2) 2,410 2,254 2,124 (1) The term “debranded” refers to a franchisee-owned store whose right to use the Planet Fitness brand and marks has been terminated in accordance with the franchise agreement.
The following table shows the growth in our corporate-owned and franchisee-owned store base: 48 Table o f Contents Year Ended December 31, 2023 2022 Franchisee-owned stores: Stores operated at beginning of period 2,176 2,142 New stores opened 147 144 Stores acquired from the Company 5 6 Stores debranded, sold or consolidated (1) (9) (116) Stores operated at end of period 2,319 2,176 Corporate-owned stores: Stores operated at beginning of period 234 112 New stores opened 18 14 Stores sold to franchisees (5) (6) Stores acquired from franchisees 9 114 Stores operated at end of period 256 234 Total stores: Stores operated at beginning of period 2,410 2,254 New stores opened 165 158 Stores debranded, sold or consolidated (1) — (2) Stores operated at end of period 2,575 2,410 (1) The term “debranded” refers to a franchisee-owned store whose right to use the Planet Fitness brand and marks has been terminated in accordance with the franchise agreement.
We report same store sales for a given period as long as more than 50% of the stores in our same store sales base were open for every month in both the current period and corresponding prior year period. All of our stores were closed for a portion of the year ended December 31, 2020 due to the COVID-19 pandemic.
We report same store sales for a given period as long as more than 50% of the stores in our same store sales base were open for every month in both the current period and corresponding prior year period.
Revenue from our corporate-owned stores segment was $379.4 million in the year ended December 31, 2022, compared to $167.2 million in the year ended December 31, 2021, an increase of $212.2 million, or 126.9%.
Revenue from our corporate-owned stores segment was $449.3 million in the year ended December 31, 2023, compared to $379.4 million in the year ended December 31, 2022, an increase of $69.9 million, or 18.4%.
In the year ended December 31, 2022, we had equipment sales to 153 new franchisee-owned stores compared to 128 in the prior year. Cost of revenue Cost of revenue was $177.2 million in the year ended December 31, 2022 compared to $101.0 million in the year ended December 31, 2021, an increase of $76.2 million, or 75.5%.
In the year ended December 31, 2023, we had equipment sales to 135 new franchisee-owned stores compared to 153 in the prior year. Cost of revenue Cost of revenue was $190.0 million in the year ended December 31, 2023, compared to $177.2 million in the year ended December 31, 2022, an increase of $12.8 million, or 7.2%.
For the 2012 Acquisition, intangible assets consisted of trade and brand names, member relationships, franchisee relationships related to both our franchise and equipment segments, non-compete agreements, order backlog and favorable and unfavorable leases. For other 65 acquisitions, which consist of acquisitions of stores from franchisees, intangible assets generally consist of member relationships, re-acquired franchise rights, and favorable and unfavorable leases.
For the 2012 Acquisition, intangible assets consisted of trade and brand names, member relationships, franchisee relationships related to both our franchise and equipment segments, non-compete agreements, order backlog and favorable and unfavorable leases.
Cost of revenue, which primarily relates to our equipment segment, increased as a result of higher equipment sales to new and existing franchisee-owned stores in the year ended December 31, 2022, as compared to the year ended December 31, 2021 as described above.
Cost of revenue, which primarily relates to our equipment segment, increased $7.9 million as a result of higher equipment sales to existing franchisee-owned stores, partially offset by lower equipment sales to new franchisee-owned stores in the year ended December 31, 2023, as described above.
Franchise segment revenue was $329.6 million in the year ended December 31, 2022 compared to $290.7 million in the year ended December 31, 2021, an increase of $38.9 million, or 13.4%.
Franchise segment revenue was $387.9 million in the year ended December 31, 2023 compared to $329.6 million in the year ended December 31, 2022, an increase of $58.3 million, or 17.7%.
Changes in the projected liability under these tax benefit arrangements are and will be recorded as a component of other income (expense) each period. The projection of future taxable income involves 66 significant judgment. Actual taxable income may differ from estimates, which could significantly impact the liability under the tax benefit arrangements and the Company’s consolidated results of operations.
Changes in the projected liability under these tax benefit arrangements are and will be recorded as a component of other income (expense) each period. The projection of future taxable income involves significant judgment.
This source of revenue comprised 41%, 28%, and 29% of our total revenue for the years ended December 31, 2022, 2021 and 2020, respectively.
This source of revenue comprised 41.9% and 40.5% of our total revenue for the years ended December 31, 2023 and 2022, respectively.
(2) Timing of payments under tax benefit arrangements is estimated. (3) As of December 31, 2022, we had advertising purchase commitments of approximately $77.9 million, including commitments for the NAF. (4) Purchase obligations consists of $22.0 million for open purchase orders primarily related to equipment to be sold to franchisees.
(2) Timing of payments under tax benefit arrangements is estimated. (3) Advertising purchase commitments include commitments for the NAF. (4) Purchase obligations consists of open purchase orders primarily related to equipment to be sold to franchisees.
Included in franchise revenue is royalty revenue of $228.7 million, franchise and other fees of $24.5 million, and placement revenue of $17.1 million for the year ended December 31, 2022, compared to royalty revenue of $205.9 million, franchise and other fees of $21.7 million, and placement revenue of $10.0 million for the year ended December 31, 2021.
Included in franchise revenue is royalty revenue of $260.7 million, franchise and other fees of $32.7 million, and placement revenue of $19.8 million for the year ended December 31, 2023, compared to royalty revenue of $228.7 million, franchise and other fees of $24.2 million, and placement revenue of $17.1 million for the year ended December 31, 2022.
Depreciation and amortization expense was $124.0 million in the year ended December 31, 2022 compared to $62.8 million in the year ended December 31, 2021, an increase of $61.2 million, or 97.5%.
Depreciation and amortization Depreciation and amortization expense was $149.4 million in the year ended December 31, 2023, compared to $124.0 million in the year ended December 31, 2022, an increase of $25.4 million, or 20.5%.
Depreciation and amortization was $7.4 million in the year ended December 31, 2022 and $7.5 million in the year ended December 31, 2021. Corporate-owned stores Corporate-owned stores segment EBITDA was $142.1 million in the year ended December 31, 2022 compared to $49.2 million in the year ended December 31, 2021, an increase of $92.9 million, or 188.8%.
Depreciation and amortization was $7.4 million for both the years ended December 31, 2023 and 2022. Corporate-owned stores Corporate-owned stores segment EBITDA was $171.5 million in the year ended December 31, 2023, compared to $142.1 million in the year ended December 31, 2022, an increase of $29.4 million, or 20.7%.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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Inflation risk Given the recent rise in inflation rates in fiscal 2021 and 2022, there have been and may continue to be increases in shipping, labor and equipment costs which could impact our profitability and that of our franchisees.
Inflation risk Given the recent rise in inflation rates in fiscal 2023 and 2022, there have been and may continue to be increases in shipping, labor and equipment costs which could impact our profitability and that of our franchisees.
As of December 31, 2022, a 10% increase or decrease in the exchange rates of the U.S. dollar and foreign currencies to which we are exposed would increase or decrease net income by a negligible amount.
As of December 31, 2023, a 10% increase or decrease in the exchange rates of the U.S. dollar and foreign currencies to which we are exposed would increase or decrease net income by a negligible amount.
Quantitative and Qualitative Disclosure about Market Risk Interest rate risk The securitized financing facility includes the Series 2018-1 Senior Class A-2-II Notes and the Series 2022-1 Senior Class A-2 Notes, which are comprised of fixed interest rate notes, and the 2022 Variable Funding Notes, which allow for the incurrence of up to $75.0 million in revolving loans and/or Letters of Credit under the 2022 Variable Funding Notes.
Long-term debt The securitized financing facility includes the Series 2018-1 Senior Class A-2-II Notes and the Series 2022-1 Senior Class A-2 Notes, which are comprised of fixed interest rate notes, and the 2022 Variable Funding Notes, which allow for the incurrence of up to $75.0 million in revolving loans and/or Letters of Credit under the 2022 Variable Funding Notes.
An increase in the effective interest rate applied to borrowings under the 2022 Variable Funding Notes of 100 basis points would result in a $0.8 million increase in pre-tax interest expense on an annualized basis.
A 100 basis point increase in the effective interest rate applied to borrowings under the 2022 Variable Funding Notes, if they were fully drawn, would result in a $0.8 million increase in pre-tax interest expense on an annualized basis.
We may or may not be able to offset cost increases in the future. 68
We may or may not be able to offset cost increases in the future. 63 Table o f Contents
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ITEM 7A. Quantitative and Qualitative Disclosure about Market Risk Interest rate risk Marketable securities The market interest risk in our financial instruments and our financial positions represents the potential loss arising from adverse changes in interest rates.
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As of December 31, 2023, we had investments in short and long-term marketable securities of $125.8 million, primarily consisting of commercial paper, corporate debt securities, U.S. treasury securities, and U.S. government agency securities, respectively.
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A 100 basis point increase in the general level of U.S. interest rates relative to interest rates as of December 31, 2023 would decrease the fair value of our marketable security investments by approximately $1.0 million. This estimate is based on a sensitivity model that measures market value changes when changes in interest rates occur.
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Such decrease in fair value would only be realized if we sold the investments prior to maturity.
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As of December 31, 2023, the 2022 Variable Funding Notes remain undrawn, but the Company would be exposed to interest rate increases on any borrowings under the 2022 Variable Funding Notes.

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