Planet Fitness, Inc. (PLNT) Q2 2015 Earnings Report, Transcript and Summary

Good afternoon, ladies and gentlemen and thank you for standing by. Welcome to the Planet Fitness Second Quarter 2015 Earnings Conference Call. At this time, all participants are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session, instructions will be provided at that time for you to queue up to questions. [Operator Instructions] I would like to remind everyone that this conference call is being recorded. I’ll now turn the call over to Brendon Frey, Managing Director of ICR.

Thank you and thank you for joining us on today’s call to discuss Planet Fitness’ second quarter 2015 earnings results. On today’s call are Chris Rondeau, President and CEO and Dorvin Lively, Chief Financial Officer. A copy of today’s press release is available on the Investor Relations section of Planet Fitness’ Web site at planetfitness.com. I would like to remind you that certain statements we will make in this presentation are forward-looking statements. These forward-looking statements reflect Planet Fitness’ judgment and analysis only as of today and actual results may differ materially from current expectations based on a number of factors affecting Planet Fitness’ business. Accordingly, you should not place undue reliance on these forward-looking statements. For a more thorough discussion of the risk and uncertainties associated with the forward-looking statements to be made in this conference call and webcast we refer you to the disclaimer regarding forward-looking statements that is included in our second quarter 2015 earnings release which was furnished to the SEC today on Form 8-K as well as our filings with the SEC referenced in that disclaimer. We do not undertake any obligation to update or alter any forward-looking statements whether as a result of new information, future events or otherwise. In addition the company may refer to certain pro forma non-GAAP metrics on this call, explanation of these metrics can be found in the earnings release filed earlier today. With that I will turn the call over to Chris Rondeau, Planet Fitness’ President and Chief Executive Officer. Chris?

Thanks Brendon and thank you everyone for joining us for our first earnings call as a public company. Having been with Planet Fitness for over 20 years, it was incredibly rewarding to recently complete our IPO and begin the next chapter in the company's dynamic history. For the past two decades we have evolved Planet Fitness into one of largest and fastest growing franchise owners and operators of fitness centers in the U.S. with over 7 million members and more than 1,000 stores in the U.S. The winning formula has been the ability to provide a welcoming, non-intimidating environment at an exceptional value. Our differentiated fitness concept, nationally recognized brand, easy to operate store model have created significant growth opportunities for our company and network of franchisee. We believe we’ll continue to deliver highly profitable recurring revenue for years to come. Thanks to our unique approach to fitness the market opportunity for our brand is much larger than the competition. We primarily target the 8% of North America that does not want to for various reasons join health clubs because the environment is too intimidating. I often say that our membership growth hasn’t been driven by the affordable price point, rather the judgment free atmosphere that we’ve cultivated which appeals to so many first time gym users and casual exercisers. I am confident that we’re well positioned to attract much more of the target market for Planet Fitness expanding our footprint across a wide range of new and existing markets and continuing to drive membership growth at existing stores. We just opened our 1,000th store in June and we believe that we have runway to eventually quadruple our footprint in the U.S. alone. Based on our current year redevelopment agreements for ADAs, we have more than 1,000 committed store openings over the next seven years, half of which are scaled to open within the next three years. New store growth is the biggest but not the only driver of growth across our three revenue segments, which is franchise, Corporate owned stores and Equipment. Starting with franchise as that is growing into the most profitable segment, but the vast majority of our revenues consists of recurrent revenue streams mainly royalties on monthly dues. As franchises open more stores roughly 200 per year monthly dues along with the annual fees will grow at a solid pace as our average members per store continue to increase on an annual basis. We've been successful at attracting new members through increased brand awareness and engaging existing members using digital and social platform. Since 2011 we and our franchises have collectively spent over $150 million system wide on national and local advertising. This is a powerful competitive advantage that no one else in our space can come to replicating. At the same time we have the ability to increase the average monthly dues per member through higher penetration of our Black Card membership. Black Card membership will cost $19.99 per month compared to $10 per month for our standard membership, providing access to all Planet Fitness locations, come-with-guest privileges along with in-store amenities such as use of our HydroMassage beds, tanning and affinity partnerships with national retail brands. Percentage of Black Card members have increased to 55% in 2014 from 38% in 2010, by enchanting the values of the Back Card through additional in-store features and growing the number of store locations we believe we could steadily increase the percentage of Black Card members overtime. Finally, our franchise segment will continue to benefit from increase in royalty rates on monthly dues and annual fees. This will occur naturally as more stores open at the current 5% royalty rate and existing franchise agreements renew and reset at the then current rate. Today only about 30% of our franchise stores are paying the current franchise agreement rate, so as you can see there is significant opportunities to grow this high margin revenue stream without a lot of heavy lifting. Looking on to corporate owned stores. We currently have 58 corporate stores including the first two stores in Canada we opened early this year with tremendous results. Then with the franchise revenue the segment is driven by new store expansion and increased memberships at existing locations. While the vast majority of our unit growth will come from franchisee, we plan to open a couple of corporate stores each year going forward. And in addition to providing a highly profitable recurring income stream operating stores allows us to sharper our tactics and test new ideas that we can eventually implement system wide to further improve the in-store experience for our members. Now to the equipment segment. In 2004 we introduced high quality Planet Fitness brand in cardio strength equipments in order to create a consistent look and feel across our store base. We partnered with the leading vendors in the industry to supply franchisee with all of their equipment needs and due to our collective size of volume we’re able to provide franchises with much lower pricing than they could obtain on their own, better warranty, service levels and convenient order replacement process. The evolution of our equipment business has been a win-win for us and our franchises and in fact we just recently renegotiated the terms with our largest supplier and passed all the savings to our franchisee, it was a very transparent process that further strengthened the relationship between corporate and our franchisee partners. In addition to purchasing equipment for new store openings, stores are required to replace their equipment every four years to seven years to maintain a consistent high quality fitness experience. Combination of new store openings and their replacement cycle continues to fuel consistent growth of this segment. As you just heard there is tremendous opportunities for growth across our business. Our model is generated strong second quarter results which Dorvin will review in a moment. Before I turn the call over let me leave you with the few key points to further bolster my confidence in the company's future prospects. We have assembled a great team to execute our growth strategy, this includes, at the corporate level where we’ve built a deep rep bench over the past three years through the addition of several experienced leaders in the areas of finance, operations, marketing, IT and legal. Our team of franchisee are equally as strong, they are well capitalized and committed to grow their businesses. Those [indiscernible] of our stores are operated by multi-store owners and 87% of our growth in 2014’s existing franchisee adding to their units. On top of this there have been zero store closures due to financial performance. I actually believe we have developed something special, I would like to say we’re lucky to have two types of customers, our members and our franchises, one we bring wealth and one we bring health. I look forward to carrying on this tradition for many years to come. With that I'll hand it over to Dorvin.

Thanks Chris, and good afternoon everyone. I'll begin by reviewing the details of our second quarter results and then provide our outlook for the balance of the full fiscal year 2015. For the second quarter of 2015 total revenue increased 25.9% to $79 million from $62.7 million in the prior year period. Total system-wide same-store sales increased by 7.3%. By segment our franchise segment revenue was 21.9 million, an increase of 18.7% from $18.4 million in the prior year period. Within the franchise segment revenue royalty revenue was 12.7 million which consists of royalties on monthly membership dues and annual membership fees. This compares to royalty revenue of $9 million in the same quarter of last year. This year-over-year increase had three drivers, first the opening of our 192 new franchise stores since the second quarter of last year, second a franchise owned same-store sales increase of 7.8% which represents results from the combination of higher members per comp store and higher dues per member and then third a higher overall royalty rate. For the second quarter the average royalty rate was 2.98%, up from 2.55% in the same period last year driven by more new stores opening at our current royalty rate of 5%. Next our franchise and other fees were $3.7 million versus $4.8 million in the prior year period. These fees are received from processing dues to our POS system, as well as fees paid to us in association with new franchise agreements and area development agreements. The year-over-year decline was primarily driven by lower transaction revenue, as a result of the migration to the new POS system this year. In the prior year there was a cost component in cost of revenue related to the POS transaction revenue, whereas it's now reported net in revenues. Also within total franchise segment revenue is placement revenue which was $2.3 million versus $1.5 million a year ago. These are fees we received for assembly and placement of equipment from our franchises. Finally, commission income of $3.2 million which are commissions from third party preferred vendor arrangements used by our franchises and this is compared to $3.1 million a year ago. Our corporate own store segment revenue increased 11.4% to $25 million from $22.4 million in the prior year period. The $2.6 million increase was attributable to contributions from stores opened since March 31 of ’14 and to a lesser extent, a modest increase in corporate owned same store sales of 0.9%. Equipment revenue increased 47% to $32.1 million from $21.8 million. The increase year-over-year was primarily driven by replacement equipment sales with the remainder coming from new equipment sales to four more new franchise owned stores compared to the same period last year. Cost of revenue which primarily relates to direct cost with equipment sales to new and existing franchise owned stores amounted to $25.3 million compared to $18.5 million a year ago. Store operation expenses which is associated with our corporate owned stores was $14.7 million compared to $12.9 million a year ago. The increase of $1.8 million was primarily driven by incremental expenses related to new corporate owned stores opened since March 31 of 2014. SG&A for the quarter was $12.4 million compared to $8.1 million. The increase of $4.3 million was primarily related to an increase -- to an incremental $3.3 million of non-recurring expenses in the period associated with preparing to be a publicly traded company and $400,000 of non-recurring expenses related to the transition to our new point-of-sale system earlier this year, as well as additional expenses incurred to support our growing franchise operations. Our operating income inclusive for the aforementioned non-recurring expenses increased 26.9% to $18.7 million for the quarter compared to operating income of $14.7 million in the prior year period. On an adjusted basis taking into account onetime items and expenses related to our public offering. Our adjusted operating margin was 28.9% in this quarter versus 25.2% in the prior year quarter. This was primarily due to revenue growth and higher margins from our franchise and equipment segments as well as leverage of our SG&A expenses. Our effective income tax rate for the second quarter was 3.5% compared to 4.7% in the prior year period, which is significantly lower than the U.S. federal statutory tax rate of 35%. This was because prior to the IPO and as of June 30th Planet Fitness was treated as a pass through entity for U.S. federal income taxes, as well as in most states for state income taxes. On a GAAP basis net income for the second quarter of fiscal year 2015 increased by 30.1% to $11.5 million from $8.8 million in the prior year period. On a pro forma adjusted basis net income improved to $12.9 million or $0.13 per diluted share from $10 million or $0.10 per diluted share in the prior year period. Pro-forma adjusted net income has been adjusted to include the impact of the initial public offering, reflect a normalized federal income tax rate, as if we were a public company and excludes several non-recurring cost. We have provided a reconciliation of pro forma adjusted net income to GAAP net income in today's earnings release. Adjusted EBITDA which is defined as net income before interest, taxes, depreciation and amortization adjusted for the impact of certain non-cash and other items that are not considered in the evaluation of ongoing operation performance increased 27.5% to $31 million from $24.3 million in the prior year period. A reconciliation of adjusted EBITDA to GAAP net income can also be found in the press release. By segment, our franchise segment EBITDA increased 21.4% to $17.7 million driven by higher royalties received from a 192 additional franchise owned stores opened since June 30, 2014 and an increase in franchise owned same store sales which also billed [ph] higher royalties. This was somewhat offset by higher operating expenses to support our growing franchise business as well as the aforementioned $400,000 of non-recurring expenses related to the transition of our new point-of-sale system. Adjusting for non-recurring items, our Franchise segment EBITDA margins increased by 220 basis points. Corporate-owned store segment EBITDA increased 11.3% to $9.3 million due to growth achieved from our existing stores opened in both periods as well as revenues from new stores not [indiscernible]. Keep in mind we have newer stores that opened in January, April and May of this year which included some pre-opening expenses as well as higher operating expenses experienced during the ramp period, for expenses such as marketing, brand, et cetera are abnormally higher on a percent of revenue basis then in a normal ongoing current state basis of operations. Adjusted for non-recurring items, our corporate store segment EBITDA margins increased about 80 basis points. Our Equipment segment EBITDA increased 62.3%, to $7.2 million driven by higher equipment sales to existing and to new franchise stores. Note that we had equipment sales before incremental new stores in the second quarter of this year compared to the year ago period. Equipment EBITDA margin increased by 220 basis points which was primarily driven by higher volume rebates on our equipment purchases in the current year quarter versus the prior year quarter. Turning to the balance sheet, as of June 30, 2015, we had cash and cash equivalents of $32.1 million and borrowing capacity of $40 million under our revolving credit facility. Total bank debt at the end of June was 504.8 million consisting solely of our senior term loan which bears interest at LIBOR plus 375. Giving us net debt of $472.7 million. Based on our ability to generate significant cash flows we feel very comfortable with our current capitalization. In early August, following the end of our second quarter we completed our IPO in which a total of 15,525,000 shares of common stock were sold to the underwriters at $16 per share. This included 2,025,000 shares sold pursuant to the full exercise of the underwriters' option to purchase additional shares. Of the 15.5 million shares sold, 9.1 million were primary shares sold by the company, the proceeds of which were used to purchase an equal amount of outstanding holding units from certain continuing LLC owners at approx. per share equaled to the IPO price, less the underwriters' discount. Following the IPO there are now 98.7 million shares outstanding. Now to our outlook, for the year ended December 31, 2015, revenue is expected to be between $314 million and $316 million with system wide same-store sales growth in the range of 7% to 7.5%. Pro forma adjusted net income is expected to be in the range of $46.5 million to $47.5 million or $0.47 to $0.48 per diluted share. By the end of the year we plan to open between 187 and 191 new franchise stores and 3 corporate stores. I will now turn the call back over to Chris for some closing remarks.

Thanks Dorvin. Before we open the call up to any questions, I want to reiterate how excited I am about many growth opportunities that exist for Planet Fitness. It has taken a lot of hard work to get to this point, I want to thank our great group of dedicated employees, our store employees and franchise partners for all their efforts as well as our sponsor TSG for their ongoing support. Together we move forward committed to achieving a long-term vision we have established for this business. Now Mike I will go ahead and turn it over to any questions.

[Operator Instructions] Your first question comes from John Heinbockel from Guggenheim Securities.

So there are two things, one just housekeeping for Dorvin, do you have the membership at the end of the quarter and then the Black Card penetration for the quarter?

Yes, John, those are couple of items we’re going to provide just on an annual basis. Just due to seasonality from quarter-to-quarter we made the decision just to disclose that at the end of the year. So when we release our Q4 full year results, we'll provide that.

And then, for Chris then more strategically, so if you think about a Black Card, may be talk a little bit about other amenities you can add inside the club? More particularly what you can add outside the club and how quickly that will ramp up in addition to what you already have. And then where do you think, when you sort of look at what you can add, where do you think the Black Card penetration ultimately ends up peaking? Can it be significantly higher than where we are today, can it hit 70?

I think the one thing with Black Card we’re possibly looking for added amenities for inside the store, one recent example of that actually is the HydroMassage bed that’s come out with a lounger version which is something you’re almost more like in a lounge chair, kind of posture. So maybe a little less intimidating than laying flat on your back and those results have been good too. So, we’re also constantly looking at in-store ways of getting people more excited about upgrading. Outside the store we do have the Reebok partnership as well as the Regis Salons and constantly looking for outside things there to kind of give value outside the four walls, I’d like to really try to focus on something that’s used more frequently than say a haircut, which is once a month something that’s more used maybe weekly or if not daily, whether it's food or coffee or something like that, so that’s -- we’re always constantly looking for things there, for sure. And I think as far as where it could go, we are currently at that 55% at the end of 2014, we do have some stores in the system opened recently that have expanded Black Card areas which we’re kind of focused on larger -- making those series [ph] slightly larger, but also as the penetration of certain markets with more stores where reciprocities is a much bigger function to sell, and some of those stores are achieving as high as 65%. So I think as time goes there is definitely room to continue to move that.

The next question is from Kevin Malone from JP Morgan.

Hey good afternoon guys appreciate it. I was hoping to talk about a couple of things here, one on the development pipeline through the process here. You talked about 500 clubs opening or 500 clubs committed over the next three years or 1,000 over the next seven years. Any update in terms of the production in the quarter, as it relates to new ADAs that were signed? And then secondly on the balance sheet, obviously you talked about being comfortable with your leverage levels at this point, especially thinking about the free cash flow that the model throws off. How should we think about long-term leverage potential for more shareholder friendly actions, et cetera? Appreciate it.

Yes, I think the one thing I said probably -- the way I’d probably answer that is, even though we continued to open more stores, we started off with over a 1,000 stores in the ADA pipeline, we still continue to have over 1,000 stores because we’re adding more future units on top of that. So the good thing is even though we keep opening stores, we’re keeping up with that opening pace as the ADA units continue in the pipeline. What was the second part of that question?

Second part was balance sheet strategy, leverage levels, you stated that you felt comfortable with where things are now and where they are going to move over the next year or two. I’m hoping to get a sense for how we should think about kind of a longer term leverage targets in potential for capital returns?

Sure. You're right, we stated that we’re at 4.5 times, we were at 4.5 times a year ago in Q1 and through that 12-month period we delevered a full turn when we refinanced the company back at the end of Q1 this year. So it’s certainly very comfortable and as I stated earlier in that 4/4.5 range, but as you know this is a -- it’s a very asset light model and generates a lot of cash flow, particularly through the leverage that we can get from revenue growth. So overtime it's going to -- it will delever and I think that the way we look at it is that, cash for or cash needs for us is new corporate stores, one or two a year is kind of how we’ve stated we’ll look at it. Down the road we think there could be some investments international strategy and so forth. But I think as a management team what we’re going to do is we’ll look at this in the next 12 to 18 months or so and we’ll make what we think is the right return decision in terms of cash back to our shareholders, whether it be a stock buyback or dividend, et cetera. But at this time the way we’re looking at, we’re very comfortable with where we’re at and knowing that we’ll -- it will delever and we’ll make a decision then as to, what’s the right return.

Next question is from Jonathan Komp from Robert W. Baird.

Thanks. Maybe first Dorvin just to clarify, one question on the number of members per store, I know you said you're just going to give that along with the Black Card percentage annually. Given some noise quarter-over-quarter?

Yes.

Could you just comment maybe when you look at year-over-year you're still seeing solid increases in that number, right? I think you said the comps are driven by an increased number of members and a higher membership fee is that correct?

Yes, what we’ve said is that -- I mean you see our positive comps that we’ve been able to post and if you look at the S1 [ph], I think we have 33 straight quarters of comps -- comp growth. And that’s been historically driven mix, about half and half between member growth and between mix on the [indiscernible] Black Card. But we obviously believe as Chris was just talking a minute ago on how we think we can continue to drive that mix on the Black Card -- Black Card percentage, but yes, I mean we continue to see our stores perform, even our newer stores that are not in comp yet.

Okay great. Thanks for clarifying and then maybe a different question related to the unit outlook and if you could maybe talk just for the 2015 pipeline specifically, what degree of confidence or maybe visibility you have to the numbers you lined up for the franchise unit openings? And I guess related to that we don't have a lot of history, but it usually looks like in the past you open up more units in the second half of the year than the first half and it looks like guidance is pretty equally split this year. So could you maybe just talk about whether the numbers there are conservative or what’s driving maybe the different cadence throughout the year?

Yes -- Chris might jump in on this as well. The way our business works is that from the time a territory is granted and a franchisee starts looking in that territory, up to lease signing and then construction and opening, it could be a nine month period from the time they sign a lease to ultimately they might open a store and in the past I would say a lot of franchisee’s have traditionally wanted to really open those stores up towards the back half of the year maybe even in the last quarter of the year, to have the store open up as we get into the January-February time period. As lot of our franchisees now are opening their 8th, 9th, 10th or 20th store and then multiple stores in the same year, they don't want to be opening every single store within a week or two week period, just operationally it's much better for them to open those at different periods and in fact a lot of them would see an argument that would say that, even if you opened up in the summer months, you’ve got it up and running and you’re ready for even the fall and the spring. So you are right, that that has been in the past. Although we have seen -- as I just mentioned more, the franchisees would tend to move it earlier in the year, let's say the first quarter, second quarter. With respect to more specifically kind of the guidance, I mean we've -- the way we look at our businesses is -- and I think the way we talked about it on the road show is that we see our long-term in that couple of hundred store-a-year range and at this point we feel comfortable with where this is at, but we’re sitting here with a lot of stores that have traditionally opened in that September to December timeframe and we still believe we’ll open, obviously a considerable number of stores this year, but in terms of things going to happen, they can slide a bit as we've talked in the past as well, but we still feel very comfortable with that range we put in the press release.

The next question is from Sean Naughton from Piper Jaffray.

In terms of just looking at some of those revenue line items you guys posted, it looks like the commission income number grew the lowest or one of the lowest in the segments there. Can you talk about why that may have occurred? Do you expect that dynamic to continue in the back half of the year and what would cause some lumpiness in that particular line item?

One of the major items in there is our transaction TOS processing fees we get and it was one of the factors that led to it being lower quarter-over-quarter. As I think you guys know we transitioned from our own home grown point of sales system that we've had throughout last year and made that decision towards the end of Q4 to migrate to a new point of sales system that was mostly complete through the end of Q1, little bit in the Q2, but that’s one of the factors driving it down. I think what we’ll see is that’s going to be more closely to the flattish for a bit, but the upside will be from new stores, new growth on just pure transactions as we open more and more stores. There is also been a slight, I think, I would say strategy with respect to some other components in there that -- we’re its third party vendors and the use of one type of a marketing strategy versus another is impacted slightly. But the biggest piece is the driver and there is a point-of-sales system.

Okay, got it and then just on the comp. It does look like -- supposed to be a little bit lower than it was in Q1 and Q2 for the back half of the year. Just should we -- should Q3 and Q4, do you feel like those should be relatively similar quarters and should the spread between corporate clubs and franchise clubs understanding that they’re in different growth periods there in terms of their match rate incurs [ph], but should that spread remain relatively constant in the second half? Thanks.

I think you’re right on the spread. I think that we don't see anything that would change that at this point in a big way. And then in terms of kind of Q3 and Q4 obviously we’re not giving guidance for Q3, but I think you are right they should be fairly similar with Q3 being a little bit higher than Q4. We've talked about some of the impacts of the point-of-sales system, in terms of how removing some of the non-paying members was impacting that until we Anniversary that, which will be by the end of Q3 next year. But not too dissimilar from Q3 to Q4.

[Operator Instructions] The next question is from Jerry Gray from Cowen.

So just looking at the equipment business it seems that kind of outperformed relative to what I was looking for in this quarter, but even so you’re selling to new stores for the first half has been a little bit lower than the number of new stores that you've opened. Just wondering how we should think about for the second half? It seems like typically you've sold into some stores a little bit -- a little bit earlier in the second half relative to the first half.

Yes. Thanks this is Chris, yes, I'll have Dorvin add to this as well. Part of it is the reequip piece and the new timing of reequip that the franchise advisory council that we work with, all got on the same page and endorsed and came up with the timing. So I think we're starting to see, and it might be a little early to tell, but I think what I see is, we’re starting to see people more proactively taking advantage of the reequips which is driving some of that extra equipment, which is great to see and it will take a little bit more time to see if that continues, but I think that's part of the -- some of the initial stuff we’re seeing happen.

Yes. And just to add to that our overall increase in the quarter and equipment, two drivers there, is reequipped into the four new stores which I talked about earlier, with the primary driver being the reequip side. One of the things that we've -- I think we've stated back during the road show presentations was that, this has been on the reequipped side that's been a little bit lumpy in the past from quarter-to-quarter including in 2014, I think, that a higher percentage of our reequipped sales on a full year basis occurred in Q3 and Q4, and we’ve stated that particularly to Chris’s comment, and we’re in this agreement that we have with the franchisees and the way that we see that timing in the future, we expect to see a higher percentage of our reequipped business in Q2 and Q3 on a full year basis. And I think the way we've also talked about it in terms of kind of the percent of total equipment sales, we expect our reequipped sales to be in the high teens to maybe 20% or so this year with that growing over time, with more and more of our stores coming into that time period where they would have to reequip. Keep in mind we've opened close to half of our store base just in the last three years or so, so those -- they haven’t come into that base yet, but I think the way to think about it is kind of high teens to 20% or so is the mix for this year with Q2 and Q3 kind of being the higher percent on a quarterly basis.

Thanks. Did you give the replacement mix for this quarter? Sorry if I miss that.

No we did not, but it was one of the major drivers of the increase in the quarter of total equipment sales.

Okay, great. Thank you.

The next question is from Sharon Zackifia with William Blair.

Just a couple of quick questions. First, I don’t know if you have any thoughts on the recent NORB decision the [Indiscernible] industries, but just curious do you think that has any ramification for your business? And then secondarily, I heard you on the comp growth, it's been roughly half driven by Black Card mix and half by members per club. And I'm just wondering on that number per club metric, I think you ended last year at around 6,600 and I'm wondering if you think there is any ceiling there, of how high you think that could go?

Yes, I may have to get you a repeat -- a piece of that. With respect to your first question, we are following those NORB process or guidelines. So we believe we’re in compliance of that. What was your second question? I know one of your questions was on members per store, but maybe you need to repeat that for me Sharon.

Yes. Sorry I'm calling from the LaGuardia, so might be breaking up a little bit. But on the members per club, I think you ended last year with 6,600 members per club, and I know that's been -- part of the comp drivers has been increasing in that numbers per club metric, and I'm just wondering if you see any celling on how many members per club Planet can actually have? So maybe some metrics around kind of where you think that can go overtime and are you bumping up against any celling, anything we should be aware of?

Yes. Thanks Sharon it's Chris. Yes we have -- our stores are -- we improve our locations and layout all the equipment out, so we equipped them all very similar and we have many stores north of 10,000 members. So even with the current footprint in model and tooling that we currently have, we continue to add more members per store without having to really change anything. As I said we have many stores, all over 10,000 members, so there is still a lot of room to continue to leverage the boxes we have open.

Our last question comes from [Indiscernible]. Your line is open.

Hi. Good afternoon and thanks for taking my questions. Chris I was hoping you can maybe talk a little bit about what you are seeing in the competitive environment in terms of pricing, are you seeing any new concepts pop up that kind of compete at your price point?

There aren’t any new ones, stills just the same regional ones that are out there. I haven’t seen anything other than those. I think I've seen the studios that continue to go as we all know, but nothing really in our space is new. Just this [indiscernible] ones that have around for a while, the Retros and [indiscernible] for example.

Okay, got it thanks. And then just in terms -- I think your back half guidance for comp implies sort of mid-single digits, can you talk about your assumption in terms of members per unit and then pricing per member, are you assuming that both continue to rise? And maybe what the assumption is for Black Card penetration?

Yes, it's Dorvin, you're right. If you take kind of where we’re at, first half and look at the full year number and that kind of implies in those mid-single digits, maybe mid-plus a little bit and as I’ve said earlier maybe fairly similar from Q3 to Q4, but maybe Q3 being a little bit harder than Q4. We haven't given any kind of guidance in terms of what we think would be the breakdown of those metrics other than we've been posting good positive same-store sales and it has been driven by both of those factors I mentioned earlier, both growth and mix as well as volume. And at this point we don't see any reason why we couldn't continue to do that, but we believe the guidance in terms of full year same-store sales is appropriate.

Sorry, do you think I could just squeeze one more in here, just sort on the guidance, it does imply a slowdown in the back half revenue and I think it’s related to just the timing of equipment revenue, but could you just sort of walk us through the drivers to that? And then when we might see a reacceleration in that segment?

You got to look at the comparison of the prior year as well, we had a pretty strong Q4 last year that was quite a bit higher than other historic -- previous historical kind of Q4, so we're comping over that. So, that's one factor that comes into play with a bigger portion of the mix coming in that back half time period versus what our guidance would sort of imply today, but as I said earlier, I feel -- we’re still very, very comfortable with that 187 to 190 range on a full year basis.

I will now turn the call over to Chris Rondeau for closing comments.

Thanks everybody for your time today and for our first call, appreciate all the questions and I hope we answered them all well for you and we look forward to talking to you soon. Thank you.

This concludes the conference call, you may now disconnect.