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PLANET FITNESS, INC. Management’s Discussion and Analysis of Financial Condition and Results of Operations (form 10-K) | MarketScreener

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Unless the context requires otherwise, references in this report to the
“Company,” “we,” “us” and “our” refer to Planet Fitness, Inc. and its
consolidated subsidiaries.


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.

Overview


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. Our mission is to enhance people's lives and
democratize fitness by providing a high-quality fitness experience in a
welcoming, non-intimidating environment, which we call the Judgement Free Zone,
where anyone-and we mean anyone-can feel they belong. Our bright, clean stores
are typically 20,000 square feet, with a large selection of high-quality, purple
and yellow Planet Fitness-branded cardio, circuit- and weight-training equipment
and friendly staff trainers who offer unlimited free fitness instruction to all
our members in small groups through our PE@PF program. We offer this
differentiated fitness experience at only $10 per month for our standard
membership. This exceptional 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 are not gym members, particularly those
who find the traditional fitness club setting intimidating and expensive. We and
our franchisees fiercely protect Planet Fitness' community atmosphere-a place
where you do not need to be fit before joining and where progress toward
achieving your fitness goals (big or small) is supported and applauded by our
staff and fellow members.

As of December 31, 2022, we had approximately 17.0 million members and 2,410
stores in 50 states, the District of Columbia, Puerto Rico, Canada, Panama,
Mexico and Australia. Of our 2,410 stores, 2,176 were franchised and 234 were
corporate-owned.

As of December 31, 2022, we had commitments to open more than 1,000 new stores
under existing ADAs.


COVID-19 Impact

The COVID-19 pandemic has caused unprecedented economic volatility and
uncertainty, which negatively impacted our operating results. Compared to the
periods prior to March 2020, we have experienced and may continue to experience
decreased new store development and reduced equipment revenue as a result of the
COVID-19 pandemic, especially during 2020 and 2021.

As stores reopened we have recognized franchise revenue and corporate-owned
store revenue associated with any membership dues collected prior to temporary
store closures. We may have to defer revenue in the future if stores are
required to re-close.


The duration of the COVID-19 pandemic and the extent of its impact on our
business remains uncertain and difficult to predict. The COVID-19 pandemic may
continue to negatively impact our operating results in future periods. As a
result of the COVID-19 pandemic, we experienced a decrease in our net membership
base during 2020 and 2021 compared to membership levels in March 2020. In 2022,
the Company surpassed its previous membership all-time high from March of 2020.
Despite these record membership levels, however, it is possible that the
COVID-19 pandemic may have an ongoing impact on consumer behavior.

Composition of Revenues, Expenses and Cash Flows

Revenues

We generate revenue from three primary sources:


•Franchise segment revenue: Franchise segment revenue relates to services we
provide to support our franchisees and includes royalty revenue, NAF revenue,
franchise fees, placement revenue, online join fees and other fees associated
with our franchisee-owned stores. Franchise segment revenue generally does not
include the sale of tangible products by us to our franchisees. 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. This source of revenue comprised 41%, 28%, and 29% of our total
revenue for the years ended December 31, 2022, 2021 and 2020, respectively. As
of December 31, 2022, over 90% of our members paid their monthly dues by EFT,
while the remainder prepaid annually in advance.
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•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. 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.

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. 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
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. These costs
primarily consist of payroll, IT-related, marketing, legal and accounting
expenses.

•NAF Expense: Consists of expenses incurred on behalf of the NAF. The use of
amounts received by the NAF is restricted to advertising, product development,
public relations, merchandising, and administrative expenses and programs to
increase sales and further enhance the public reputation of the Planet Fitness
brand.

Cash flows

We generate a significant portion of our cash flows from monthly and annual
membership dues, royalties, NAF revenue and various fees related to transactions
involving our franchisee-owned stores. We oversee the membership billing
process, as well as the collection of our royalties, NAF revenue and certain
other fees, through our third-party hosted point-of-sale systems in the United
States and Canada. We collect monthly dues from our corporate-owned store
members on or around the 17th of each month, while annual fees are collected on
or around the 1st day of the second month following the month in which the
membership agreement was signed, provided our stores are open. Through our
point-of-sale system, in the United States and Canada, we oversee the processing
of membership billings for franchisee-owned stores. Our royalties and certain
other fees are generally deducted on or around the 17th of each month from these
membership billings by the processor prior to the net billings being remitted to
the franchisees, although our billing and collection practices vary in certain
international markets. 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. 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.

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.

Each of these cash flows have been negatively impacted, we believe temporarily,
by the COVID-19 pandemic, particularly during 2020 and 2021.

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Recent Transactions

Securitized Financing Facility


On February 10, 2022, we completed the Series 2022-1 Issuance pursuant to which
the Master Issuer issued the 2022 Notes in an aggregate outstanding principal
amount of $900 million. 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 2022 Variable Funding Notes and certain Letters of Credit.
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. 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 purchase
price of the acquisition was $824.6 million consisting of $430.9 million in cash
consideration, and $393.7 million of equity consideration. See Note 5 to the
consolidated financial statements.

Sale of Corporate-owned Stores


On August 31, 2022, the Company sold 6 corporate-owned stores located in
Colorado to a franchisee for $20.8 million. The net value of assets derecognized
in connection with the sale amounted to $19.5 million, which included goodwill
of $14.4 million, intangible assets of $2.6 million, and net tangible assets of
$2.4 million, which resulted in a gain on sale of corporate-owned stores of $1.3
million. See Note 6 to the consolidated financial statements.

Share repurchase programs

2019 share repurchase program

On November 5, 2019, the Company’s board of directors approved a share
repurchase program of up to $500.0 million.


On December 4, 2019, the Company entered into a $300.0 million accelerated share
repurchase agreement (the "2019 ASR Agreement") with JPMorgan Chase Bank, N.A.
("JPMC"). Pursuant to the terms of the 2019 ASR Agreement, on December 5, 2019,
the Company paid JPMC $300.0 million upfront in cash and received 3,289,924
shares of the Company's Class A common stock, which were retired, and the
Company elected to record as a reduction to retained earnings of $240.0 million.
Final settlement of the ASR Agreement occurred on March 2, 2020. At final
settlement, JPMC delivered 666,961 additional shares of the Company's Class A
common stock, based on a weighted average cost per share of $75.82 over the term
of the 2019 ASR Agreement, which 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. All purchased shares
were retired. Subsequent to these repurchases, there was $105.7 million
remaining under the 2019 share repurchase program.

2022 share repurchase program

On November 4, 2022, the Company’s board of directors approved a share
repurchase program of up to $500.0 million, which replaced the 2019 share
repurchase program. During January 2023, the Company purchased 317,599 shares of
Class A common stock for a total cost of $25.0 million.


The timing of purchases and amount of stock repurchased will be subject to the
Company's discretion and will depend on market and business conditions, the
Company's general working capital needs, stock price, applicable legal
requirements and other factors. Our ability to repurchase shares at any
particular time is also subject to the terms of the Indenture governing the
Securitized Senior Notes. Purchases may be effected through one or more open
market transactions, privately negotiated transactions, transactions structured
through investment banking institutions, or a combination of the foregoing.

Seasonality


Prior to the COVID-19 pandemic, our results were subject to seasonality
fluctuations in that member joins are typically higher in January as compared to
other months of the year. In addition, our quarterly results may fluctuate
significantly because of several factors, including the timing of store
openings, timing of price increases for enrollment fees and monthly membership
dues and general economic conditions. The seasonality of our membership growth
in 2020 and 2021 was meaningfully different than our historical patterns. 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.
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Our Segments


We operate and manage our business in three business segments: Franchise,
Corporate-owned stores and Equipment. Our Franchise segment includes operations
related to our franchising business in the United States, Puerto Rico, Canada,
Panama, Mexico and Australia, as well as revenues and expenses of the NAF. Our
Corporate-owned stores segment includes operations with respect to all
corporate-owned stores throughout the United States and Canada. The Equipment
segment includes the sale of equipment to franchisee-owned stores in the U.S,
Canada and Mexico. We evaluate the performance of our segments and allocate
resources to them based on revenue and earnings before interest, taxes,
depreciation and amortization, referred to as Segment EBITDA. Revenue and
Segment EBITDA for all operating segments include only transactions with
unaffiliated customers and do not include intersegment transactions. The tables
below summarize the financial information for our segments for the years ended
December 31, 2022, 2021 and 2020. "Corporate and other," as it relates to
Segment EBITDA, primarily includes corporate overhead costs, such as payroll and
related benefit costs and professional services that are not directly
attributable to any individual segment.

                                          Year Ended December 31,
                                    2022           2021           2020
(in thousands)
Revenue
Franchise segment                $ 329,634      $ 290,710      $ 206,156

Corporate-owned stores segment 379,393 167,219 117,142
Equipment segment

                  227,745        129,094         83,320
Total revenue                    $ 936,772      $ 587,023      $ 406,618
Segment EBITDA
Franchise segment                $ 216,817      $ 194,303      $ 114,968
Corporate-owned stores segment     142,083         49,196         23,672
Equipment segment                   59,082         29,680         13,097
Corporate and other                (49,366)       (78,265)       (33,242)
Total Segment EBITDA(1)          $ 368,616      $ 194,914      $ 118,495


(1)Total Segment EBITDA is equal to EBITDA, which is a metric that is not
presented in accordance with GAAP. Refer to “-Non-GAAP Financial Measures” for a
definition of EBITDA and a reconciliation to net income, the most directly
comparable GAAP measure.

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A reconciliation of income from operations to Segment EBITDA is set forth below:

                                                              Corporate-owned                              Corporate and
(in thousands)                            Franchise               stores               Equipment               other                Total
Year Ended December 31, 2022
Income (loss) from operations            $ 209,182          $         47,779          $  54,039          $      (80,922)         $ 230,078
Depreciation and amortization                7,411                    94,297              5,044                  17,270            124,022
Other income (expense)                         224                         7                 (1)                 14,753             14,983
Equity earnings (losses) of
unconsolidated entities, net of tax              -                         -                  -                    (467)              (467)
Segment EBITDA(1)                        $ 216,817          $        142,083          $  59,082          $      (49,366)         $ 368,616
Year Ended December 31, 2021
Income (loss) from operations            $ 186,767          $         13,375          $  24,746          $      (81,493)         $ 143,395
Depreciation and amortization                7,540                    35,811              5,044                  14,405             62,800
Other income (expense)                          (4)                       10               (110)                (10,998)           (11,102)
Equity earnings (losses) of
unconsolidated entities, net of tax              -                         -                  -                    (179)              (179)
Segment EBITDA(1)                        $ 194,303          $         49,196          $  29,680          $      (78,265)         $ 194,914
Year Ended December 31, 2020
Income (loss) from operations            $ 107,254          $         (6,209)         $   8,049          $      (49,334)         $  59,760
Depreciation and amortization                7,784                    30,532              5,048                  10,468             53,832
Other income (expense)                         (70)                     (651)                 -                   5,624              4,903
Segment EBITDA(1)                        $ 114,968          $         23,672          $  13,097          $      (33,242)         $ 118,495


(1)Total Segment EBITDA is equal to EBITDA, which is a metric that is not
presented in accordance with GAAP. Refer to “-Non-GAAP Financial Measures” for a
definition of EBITDA and a reconciliation to net income, the most directly
comparable GAAP measure.

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How We Assess the Performance of Our Business


In assessing the performance of our business, we consider a variety of
performance and financial measures. The key measures for determining how our
business is performing include total monthly dues and annual fees from members
(which we refer to as system-wide sales), the number of new store openings, same
store sales for both corporate-owned and franchisee-owned stores, average
royalty fee percentages for franchisee-owned stores, monthly PF Black Card
membership penetration percentage, EBITDA, Adjusted EBITDA, Segment EBITDA,
four-wall EBITDA, royalty adjusted four-wall EBITDA, Adjusted net income, and
Adjusted net income per share, diluted. 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.

Total monthly dues and annual fees from members (system-wide sales)


We review the total amount of dues we collect from our members on a monthly
basis, which allows us to assess changes in the performance of our
corporate-owned and franchisee-owned stores from period to period, any
competitive pressures, local or regional membership traffic patterns and general
market conditions that might impact our store performance. System-wide sales is
an operating measure that includes monthly membership dues and annual fee
billings by franchisees that are not revenue realized by the Company in
accordance with GAAP, as well as monthly membership dues and annual fee billings
by the Company's corporate-owned stores. While the Company does not record sales
by franchisees as revenue, and such sales are not included in the Company's
consolidated financial statements, the Company believes that this operating
measure aids in understanding how the Company derives its royalty revenue and is
important in evaluating its performance. Provided our stores are open, we bill
monthly dues on or around the 17th 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.

Number of new store openings


The number of new store openings reflects stores opened during a particular
reporting period for both corporate-owned and franchisee-owned stores. Opening
new stores is an important part of our growth strategy and we expect the
majority of our future new stores will be franchisee-owned. Before we obtain the
certificate of occupancy or report any revenue for new corporate-owned stores,
we incur pre-opening costs, such as rent expense, labor expense and other
operating expenses. Our stores open with an initial start-up period requirement
of higher than normal marketing spend and operating expenses may also be higher,
particularly as a percentage of monthly revenue. New stores may not be
profitable and their revenue may not follow historical patterns. 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:

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                                                        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. We retain the right to prevent debranded stores from
continuing to operate as fitness centers. The term "consolidated" refers to the
combination of a franchisee's store with another store located in close
proximity with our prior approval. This often coincides with an enlargement,
re-equipment and/or refurbishment of the remaining store.
(2)The "stores operated" includes stores that have closed temporarily related to
the COVID-19 pandemic. All stores were closed in March 2020 in response to the
COVID-19 pandemic, and as of December 31, 2022, all 2,410 were re-opened and
operating.

Same store sales

Same store sales refers to year-over-year sales comparisons for the same store
sales base of both corporate-owned and franchisee-owned stores. We define the
same store sales base to include those stores that have been open and for which
monthly membership dues have been billed for longer than 12 months. We measure
same store sales based solely upon monthly dues billed to members of our
corporate-owned and franchisee-owned stores.

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.


Consistent with common industry practice, we present same store sales as
compared to the same period in the prior year for all stores that have been open
and for which monthly membership dues have been billed for longer than 12
months, beginning with the thirteenth month and thereafter, as applicable. Same
store sales of our international stores are calculated on a constant currency
basis, meaning that we translate the current year's same store sales of our
international stores at the same exchange rates used in the prior year. 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.
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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. These stores are included in the corporate-owned or
franchisee-owned same store sales base, as applicable, following the twelfth
month after the acquisition or sale. These stores remain in the system-wide same
store sales base in all periods.

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. Because none of our stores in the same store sales base billed monthly
membership dues in all of the months included in the year ended December 31,
2020, we are not providing same store sales comparisons ("NC") for the years
ended December 31, 2021 and 2020.


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. 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 seek to make it simple for members to join,
whether online, through our mobile application or in-store, and, while some
memberships require a cancellation fee, we offer, and require our franchisees to
offer, a non-committal membership option. This approach to memberships is part
of our commitment to appeal to new and occasional gym users. As a result, we do
not rely upon membership attrition as an operating metric in assessing our
performance. We primarily attribute our membership growth to the continued net
member growth in existing stores as well as the growth of our system-wide store
base.

Average royalty fee percentages for the franchisee-owned stores


The average royalty fee percentage represents royalties collected by us from our
franchisees as a percentage of the monthly membership dues and annual fees that
are billed by the franchisees to their member base. 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.

PF Black Card penetration percentage


Our PF Black Card penetration percentage represents the number of our members
that have opted to enroll in our PF Black Card membership program as a
percentage of our total active membership base. PF Black Card members pay higher
monthly membership dues than our standard membership and receive additional
benefits for these additional fees. These benefits include access to all of our
stores system-wide, guest privileges and access to exclusive areas in our stores
that provide amenities such as water massage beds, massage chairs, tanning
equipment and more. We view PF Black Card penetration percentage as a critical
metric in assessing the performance and growth of our business.

Non-GAAP Financial Measures


We refer to EBITDA, Adjusted EBITDA, four-wall EBITDA and royalty adjusted
four-wall EBITDA as we use these measures to evaluate our operating performance
and we believe these measures are useful to investors in evaluating our
performance. EBITDA, Adjusted EBITDA, four-wall EBITDA and royalty adjusted
four-wall EBITDA as presented in this Form 10-K are supplemental measures of our
performance that are neither required by, nor presented in accordance with GAAP.
EBITDA, Adjusted EBITDA, four-wall EBITDA and royalty adjusted four-wall EBITDA
should not be considered as substitutes for
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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 presentation of EBITDA,
Adjusted EBITDA, four-wall EBITDA and royalty adjusted four-wall EBITDA should
not be construed as an inference that our future results will be unaffected by
unusual or nonrecurring items. We have also disclosed Segment EBITDA as an
important financial metric utilized by the Company to evaluate performance and
allocate resources to segments in accordance with ASC 280, Segment Reporting. 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. We believe that EBITDA, which eliminates the impact of certain
expenses that we do not believe reflect our underlying business performance,
provides useful information to investors to assess the performance of our
segments as well as the business as a whole. Our Board of Directors also uses
EBITDA as a key metric to assess the performance of management. We define
Adjusted EBITDA as EBITDA, adjusted for the impact of certain non-cash and other
items that we do not consider in our evaluation of ongoing performance of the
Company's core operations. These items include certain purchase accounting
adjustments, transaction fees, stock offering-related costs, severance expense
and certain other charges and gains. 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. Four-wall EBITDA is an assessment of our average
corporate-owned store-level profitability for stores included in the
same-store-sales base, which includes local and national advertising expense and
adjusts for certain administrative and other items that we do not consider in
our evaluation of individual store-level performance. Royalty adjusted four-wall
EBITDA then applies the current royalty rate. Accordingly, we believe that
Royalty adjusted four-wall EBITDA is comparable to a franchise store under our
current franchise agreement and is useful to investors to assess the operating
performance of an average store in our system. Management also uses such metrics
in assessing store-level operating performance over time.

A reconciliation of net income to EBITDA and Adjusted EBITDA is set forth below
for the years ended December 31, 2022, 2021 and 2020:

                                                                                  Year Ended December 31,
                                                                         2022               2021               2020
(in thousands)
Net income (loss)                                                    $ 110,456          $  46,122          $ (15,204)
Interest income                                                         (5,005)              (878)            (2,937)
Interest expense                                                        88,628             81,211             82,117
Provision for income taxes                                              50,515              5,659                687
Depreciation and amortization                                          124,022             62,800             53,832
EBITDA                                                                 368,616            194,914            118,495
Purchase accounting adjustments-revenue(1)                                 332                379                279
Purchase accounting adjustments-rent(2)                                    436                433                490
Loss on reacquired franchise rights(3)                                   1,160                  -                  -
Transaction fees and acquisition-related costs(4)                        5,497                  -                  -
Gain on settlement of preexisting contract with acquiree(5)             (2,059)                 -                  -
Severance costs(6)                                                           -                  -                981
Legal matters(7)                                                         9,739                  -              5,810

(Gain) loss on adjustment of allowance for credit losses on
held-to-maturity investment(8)

                                          (2,506)            17,462                  -
Dividend income on held-to-maturity investment(9)                       (1,876)            (1,401)                 -
Insurance recovery(10)                                                    (174)            (2,500)                 -
Tax benefit arrangement remeasurement(11)                              (13,831)            11,737             (5,949)
Gain on sale of corporate-owned stores(12)                              (1,324)                 -                  -
Other(13)                                                                1,824              1,286             (1,265)
Adjusted EBITDA(14)                                                  $ 365,834          $ 222,310          $ 118,841

(1)Represents the impact of revenue-related purchase accounting adjustments
associated with the 2012 Acquisition. At the time of the 2012 Acquisition, the
Company maintained a deferred revenue account, which consisted of deferred area

                                       53
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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. 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. 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. 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. 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 $0.3 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.
(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. 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.
(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.
(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. In 2020 this amount includes expense of $3.8 million related to the
settlement of legal claims, and a $2.0 million reserve against an
indemnification receivable related to a legal matter.
(8)Represents a (gain) loss on the adjustment of the allowance for credit losses
on the Company's held-to-maturity investment.
(9)Represents dividend income recognized on a held-to-maturity investment.
(10)Represents insurance recoveries. In 2021, the amount relates to previously
recognized expenses related to the settlement of legal claims.
(11)Represents (gains) and losses related to the adjustment of our tax benefit
arrangements primarily due to changes in our deferred state tax rate.
(12)Represents a gain on the sale of corporate-owned stores.
(13)Represents certain other charges and gains that we do not believe reflect
our underlying business performance.
(14)Effective September 30, 2022, we no longer exclude pre-opening costs from
our computation of Adjusted EBITDA. Adjusted EBITDA for all prior periods
presented has been restated to the current period computation methodology.

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 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 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. We believe Adjusted net income and Adjusted net income per share, diluted,
supplement GAAP measures and enable us to more effectively evaluate our
performance period-over-period. A reconciliation of Adjusted net income to net
income, the most directly comparable GAAP measure, and the computation of
Adjusted net income per share, diluted, are set forth below.
                                       54
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                                                                                  Year Ended December 31,
(in thousands, except per share data)                                    2022               2021               2020
Net income (loss)                                                    $ 110,456          $  46,122          $ (15,204)
Provision for income taxes, as reported                                 50,515              5,659                687
Purchase accounting adjustments-revenue(1)                                 332                379                279
Purchase accounting adjustments-rent(2)                                    436                433                490
Loss on reacquired franchise rights(3)                                   1,160                  -                  -
Transaction fees and acquisition-related costs(4)                        5,497                  -                  -
Loss on extinguishment of debt(5)                                        1,583                  -                  -
Gain on settlement of preexisting contract with acquiree(6)             (2,059)                 -                  -
Severance costs(7)                                                           -                  -                981
Legal matters(8)                                                         9,739                  -              5,810

(Gain) loss on adjustment of allowance for credit losses on held-to-

 maturity investment(9)                                                 (2,506)            17,462                  -
Dividend income on held-to-maturity investment(10)                      (1,876)            (1,401)                 -
Insurance recovery(11)                                                    (174)            (2,500)                 -
Tax benefit arrangement remeasurement(12)                              (13,831)            11,737             (5,949)
Gain on sale of corporate-owned stores(13)                              (1,324)                 -                  -
Other(14)                                                                1,824              1,286             (1,265)
Purchase accounting amortization(15)                                    40,671             16,636             16,846
Adjusted income before income taxes                                  $ 200,443          $  95,813          $   2,675
Adjusted income taxes(16)                                               51,915             25,870                712
Adjusted net income(17)                                              $ 148,528          $  69,943          $   1,963
Adjusted net income per share, diluted                               $    1.64          $    0.80          $    0.02
Adjusted weighted-average shares outstanding, diluted(18)               90,411             87,218             87,166



(1)Represents the impact of revenue-related purchase accounting adjustments
associated with the 2012 Acquisition. 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. 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. 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. 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. 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 $0.3 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.
(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.
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.
                                       55
--------------------------------------------------------------------------------
(5)Represents a loss on extinguishment of debt as a result of the repayment of
the 2018-1 Class A-2-I notes prior to the anticipated repayment date.
(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.
(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. In 2020 this amount
includes expense of $3.8 million related to the settlement of legal claims, and
a $2.0 million reserve against an indemnification receivable related to a legal
matter.
(9)Represents a (gain) loss on the adjustment of the allowance for credit losses
on the Company's held-to-maturity investment.
(10)Represents dividend income recognized on a held-to-maturity investment.
(11)Represents an insurance recovery of previously recognized expenses related
to the settlement of legal claims.
(12)Represents gains related to the adjustment of our tax benefit arrangements
primarily due to changes in our deferred state tax rate.
(13)Represents a gain on the sale of corporate-owned stores.
(14)Represents certain other charges and gains that we do not believe reflect
our underlying business performance.
(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. 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.
(17)Effective September 30, 2022, we no longer exclude pre-opening costs from
our computation of Adjusted net income. Adjusted net income for all prior
periods presented has been restated to the current period computation
methodology.
(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.

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

                                                                                                                  Net income per
(in thousands, except per share amounts)                     Net income     

Weighted Average Shares share, diluted
Net income attributable to Planet Fitness, Inc.(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 89,987
taxes(3)
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).
(2)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. as of the beginning of the period presented. Also assumes the
addition of net income attributable to non-controlling interests corresponding
with the assumed exchange of Holdings Units and shares of Class B common stock
for shares of Class A common stock.
(3)Represents the total impact of all adjustments identified in the adjusted net
income table above to arrive at adjusted income before income taxes, and the
impact of dilutive stock options and RSUs.
(4)Represents corporate income taxes at an assumed effective tax rate of 25.9%
applied to adjusted income before income taxes.
                                       56
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Year Ended December 31, 2021

                                                                                                                 Net income per
(in thousands, except per share amounts)                     Net income     

Weighted Average Shares share, diluted
Net income attributable to Planet Fitness, Inc.(1) $ 42,774

                     83,894                 $      0.51
Assumed exchange of shares(2)                                   3,348                      3,324
Net income                                                     46,122

Adjustments to arrive at adjusted income before income 49,691
taxes(3)
Adjusted income before income taxes

                            95,813
Adjusted income taxes(4)                                       25,870
Adjusted net income                                         $  69,943                     87,218                 $      0.80


(1)Represents net income attributable to Planet Fitness, Inc. for the year ended
December 31, 2021 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).
(2)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. as of the beginning of the period presented. Also assumes the
addition of net income attributable to non-controlling interests corresponding
with the assumed exchange of Holdings Units and shares of Class B common stock
for shares of Class A common stock.
(3)Represents the total impact of all adjustments identified in the adjusted net
income table above to arrive at adjusted income before income taxes. Effective
September 30, 2022, we no longer exclude pre-opening costs from our computation
of Adjusted net income. Adjusted net income for all prior periods presented has
been restated to the current period computation methodology.
(4)Represents corporate income taxes at an assumed effective tax rate of 27.0%
applied to adjusted income before income taxes.

                                                                            

Year Ended December 31, 2020

                                                                                                                  Net income per
(in thousands, except per share amounts)                     Net income     

Weighted Average Shares share, diluted
Net loss attributable to Planet Fitness, Inc.(1)

            $  (14,991)                    80,303                 $     (0.19)
Assumed exchange of shares(2)                                     (213)                     6,293
Net loss                                                       (15,204)

Adjustments to arrive at adjusted income before income 17,879
taxes(3)

                                                                                                570
Adjusted income before income taxes                              2,675
Adjusted income taxes(4)                                           712
Adjusted net income                                         $    1,963                     87,166                 $      0.02


(1)Represents net loss attributable to Planet Fitness, Inc. for the year ended
December 31, 2020, 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).
(2)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. as of the beginning of the period presented. Also assumes the
addition of net income attributable to non-controlling interests corresponding
with the assumed exchange of Holdings Units and shares of Class B common stock
for shares of Class A common stock.
(3)Represents the total impact of all adjustments identified in the adjusted net
income table above to arrive at adjusted income before income taxes. Effective
September 30, 2022, we no longer exclude pre-opening costs from our computation
of Adjusted net income. Adjusted net income for all prior periods presented has
been restated to the current period computation methodology.
(4)Represents corporate income taxes at an assumed effective tax rate of 26.6%
applied to adjusted income before income taxes.
                                       57

——————————————————————————–

The following table reconciles Corporate-owned stores segment EBITDA to
four-wall EBITDA to royalty adjusted four-wall EBITDA for the year ended
December 31, 2022:

                                                                         Year Ended December 31, 2022
(in thousands)                                              Revenue                 EBITDA              EBITDA Margin
Corporate-owned stores segment                         $      379,393          $     142,083                     37.5  %
New stores(1)                                                  (3,278)                 5,912
Selling, general and administrative(2)                              -       

12,929

Impact of eliminations(3)                                           -       

(3,131)

Gain on sale of corporate-owned stores                              -       

(1,324)

Purchase accounting adjustments(4)                                  -                  1,644
Four-wall                                              $      376,115          $     158,113                     42.0  %
Royalty adjustment(5)                                               -                (27,264)
Royalty adjusted four-wall                             $      376,115          $     130,849                     34.8  %



(1)Includes the impact of stores open less than 13 months and those which have
not yet opened.
(2)Reflects administrative costs attributable to the Corporate-owned stores
segment but not directly related to store operations.
(3)Reflects certain intercompany charges and other fees which are eliminated in
consolidation.
(4)Represents the impact of certain purchase accounting adjustments associated
with the 2012 Acquisition and our historical acquisitions of franchisee-owned
stores. These are primarily related to fair value adjustments to deferred rent.
(5)Includes the effect of royalties at a rate of 7.0% as if the stores were
similar to a franchisee-owned store at the current franchise royalty rate.
                                       58
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Results of Operations
The following table sets forth our consolidated statements of operations as a
percentage of total revenue for the years ended December 31, 2022, 2021 and
2020:

                                                                                   Year ended December 31,
                                                                    2022                    2021                    2020
Revenue:
Franchise revenue                                                       29.0  %                 40.6  %                 40.1  %

National advertising fund revenue                                        6.2  %                  8.9  %                 10.6  %
Franchise segment                                                       35.2  %                 49.5  %                 50.7  %
Corporate-owned stores                                                  40.5  %                 28.5  %                 28.8  %
Equipment                                                               24.3  %                 22.0  %                 20.5  %
Total revenue                                                          100.0  %                100.0  %                100.0  %
Operating costs and expenses:
Cost of revenue                                                         18.9  %                 17.2  %                 17.5  %
Store operations                                                        23.4  %                 18.9  %                 21.6  %
Selling, general and administrative                                     12.3  %                 16.1  %                 16.9  %
National advertising fund expense                                        7.1  %                 10.1  %                 15.1  %
Depreciation and amortization                                           13.2  %                 10.7  %                 13.2  %
Other loss                                                               0.5  %                  2.6  %                  1.1  %
Total operating costs and expenses                                      75.4  %                 75.6  %                 85.4  %
Income from operations                                                  24.6  %                 24.4  %                 14.6  %
Other income (expense), net:
Interest income                                                          0.5  %                  0.1  %                  0.7  %
Interest expense                                                        (9.5) %                (13.8) %                (20.2) %
Other income (expense), net                                              1.6  %                 (1.9) %                  1.2  %
Total other expense, net                                                (7.4) %                (15.6) %                (18.3) %
Income (loss) before income taxes                                       17.2  %                  8.8  %                 (3.7) %

Equity earnings (losses) of unconsolidated entities, net of
tax

                                                                        -  %                    -  %                    -  %
Provision for income taxes                                               5.4  %                  1.0  %                  0.2  %
Net income (loss)                                                       11.8  %                  7.8  %                 (3.9) %

Less net income (loss) attributable to non-controlling
interests

                                                                1.2  %                  0.6  %                 (0.1) %
Net income (loss) attributable to Planet Fitness, Inc.                  10.6  %                  7.2  %                 (3.8) %



                                       59

——————————————————————————–

The following table sets forth a comparison of our consolidated statements of
operations for the years ended December 31, 2022, 2021 and 2020:

                                                                           Year Ended December 31,
                                                                  2022               2021               2020
(in thousands)
Revenue:
Franchise revenue                                             $ 271,559          $ 238,349          $ 162,855

National advertising fund revenue                                58,075             52,361             43,301
Franchise segment                                               329,634            290,710            206,156
Corporate-owned stores                                          379,393            167,219            117,142
Equipment                                                       227,745            129,094             83,320
Total revenue                                                   936,772            587,023            406,618
Operating costs and expenses:
Cost of revenue                                                 177,200            100,993             70,955
Store operations                                                219,422            110,716             87,797
Selling, general and administrative                             114,853             94,540             68,585
National advertising fund expense                                66,116             59,442             61,255
Depreciation and amortization                                   124,022             62,800             53,832
Other losses, net                                                 5,081             15,137              4,434
Total operating costs and expenses                              706,694            443,628            346,858
Income from operations                                          230,078            143,395             59,760
Other income (expense), net:
Interest income                                                   5,005                878              2,937
Interest expense                                                (88,628)           (81,211)           (82,117)
Other income (expense), net                                      14,983            (11,102)             4,903
Total other expense, net                                        (68,640)           (91,435)           (74,277)
Income (loss) before income taxes                               161,438             51,960            (14,517)
Equity earnings (losses) of unconsolidated entities, net of
tax                                                                (467)              (179)                 -
Provision for income taxes                                       50,515              5,659                687
Net income (loss)                                               110,456             46,122            (15,204)

Less net income (loss) attributable to non-controlling
interests

                                                        11,054              3,348               (213)

Net income (loss) attributable to Planet Fitness, Inc. $ 99,402

$ 42,774 $ (14,991)

Comparison of the years ended December 31, 2022 and December 31, 2021

Revenue

Total revenues were $936.8 million in 2022, compared to $587.0 million in 2021,
an increase of $349.7 million, or 59.6%.


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 revenue was $271.6 million in the year ended December 31, 2022
compared to $238.3 million in the year ended December 31, 2021, an increase of
$33.2 million or 13.9%. 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. Of the
$22.8 million increase in royalty revenue in the year ended December 31, 2022 as
compared to the year ended December 31, 2021, $14.4 million was attributable to
a franchise same store sales increase of 11.2%, $9.7 million was attributable to
new stores opened since January 1, 2021, $5.2 million was due to prior year
COVID-related temporary closures and $2.8 million was from higher royalties on
annual fees. Partially offsetting the royalty revenue increases was a decrease
of approximately $9.3 million primarily as a result of the stores acquired in
the Sunshine Acquisition becoming corporate-owned stores. The $7.2 million
increase in placement revenue was primarily driven by higher new and replacement
equipment placements and the $2.8 million increase in franchise and other fees
was primarily attributable to higher online join fees.

                                       60
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National advertising fund revenue was $58.1 million in the year ended
December 31, 2022, compared to $52.4 million in the year ended December 31,
2021, an increase of $5.7 million, or 10.9%. The increase in national
advertising fund revenue in the year ended December 31, 2022 as compared to the
year ended December 31, 2021 was primarily due to higher same store sales, new
stores opened since January 1, 2021 and stores that were not open for all of the
prior year period due to COVID-related temporary closures.

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%. Of the increase,
$180.8 million was attributable to the stores acquired or opened as a result of
the Sunshine Acquisition, $22.3 million was from the corporate-owned store same
store sales increase of 13.1%, and $8.7 million was from new stores opened or
acquired since January 1, 2021 and stores that were not open for all of the
prior year period due to COVID-related temporary closures. 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%. Of the increase $77.0 million was driven by
higher equipment sales to existing franchisee-owned stores, and $21.7 million
was driven by higher equipment sales to new franchisee owned stores in the year
ended December 31, 2022, as compared to the year ended December 31, 2021. 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%. 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.

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%. Of the increase, $89.6 million was attributable to the stores acquired in
the Sunshine Acquisition, $13.4 million from new stores opened or acquired since
January 1, 2021 and $6.9 million from mature stores as a result of higher rent,
occupancy, payroll and prior year COVID-related temporary closures. Partially
offsetting the increase was $1.2 million of lower expense as a result of the
sale of six Colorado corporate-owned stores in 2022.

Selling, general and administrative


Selling, general and administrative expenses were $114.9 million in the year
ended December 31, 2022 compared to $94.5 million in the year ended December 31,
2021, an increase of $20.3 million, or 21.5%. Of the increase, $9.0 million was
attributable to higher selling, general and administrative expense from the
Sunshine Acquisition and $5.5 million was related to transaction costs incurred
in connection with the Sunshine Acquisition. Outside of increases from the
Sunshine Acquisition we also had increases of $2.1 million of higher legal and
consulting fees, $2.9 million of higher travel expense, $1.5 million of higher
software and other information system expense, $1.1 million of higher insurance
expense and $0.8 million due to higher compensation expense during the year
ended December 31, 2022 compared to the prior year. Partially offsetting these
increases was $2.7 million of higher spend in the prior year period to support
reopening efforts as a result of the COVID-19 pandemic.

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.

Depreciation and amortization


Depreciation and amortization expense consists of the depreciation of property
and equipment, including leasehold and building improvements and equipment.
Amortization expense consists of amortization related to our intangible assets,
including customer relationships and reacquired franchise rights.

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%. Of the increase, $56.7 million was
attributable to the depreciation and amortization of assets acquired in the
Sunshine Acquisition and $2.9 million was attributable to depreciation of newly
added information system assets.

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Other losses, net


Other loss was $5.1 million in the year ended December 31, 2022 compared to
$15.1 million in the year ended December 31, 2021. 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 $15.1 million loss in the year ended
December 31, 2021 includes $17.5 million of credit loss expense on our
held-to-maturity investment based upon facts and circumstances that existed as
of December 31, 2021 related to the investee's performance and overall financial
condition, partially offset by a gain of $2.5 million from an insurance recovery
related to the settlement of legal claims.

Interest income


Interest income was $5.0 million in the year ended December 31, 2022 compared to
$0.9 million in the year ended December 31, 2021. The increase was primarily a
result of higher interest rates in the year ended December 31, 2022 compared to
the year ended December 31, 2021.

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%. The increase in interest expense is due to higher interest
expense from the increased principal balance and a $1.6 million loss on
extinguishment of debt from the write-off of remaining deferred financing costs,
both as a result of the debt refinancing completed on February 10, 2022.

Other income (expense)


Other income (expense) was income of $15.0 million in the year ended
December 31, 2022 compared to an expense of $11.1 million in the year ended
December 31, 2021. These amounts included income of $13.8 million and expense of
$11.7 million attributable to the remeasurement of our tax benefit arrangements
due to changes in our effective tax rate in the years ended December 31, 2022
and December 31, 2021, respectively. Other income (expense) also includes the
effects of foreign currency gains and losses.

Provision for income taxes


Income tax expense was $50.5 million for the year ended December 31, 2022
compared to $5.7 million for the year ended December 31, 2021, an increase of
$44.9 million. The $44.9 million increase is primarily attributable to our
higher income before taxes in the year ended December 31, 2022 as compared to
the year ended December 31, 2021, and by an income tax expense in 2022 due to
remeasurement of deferred taxes.

Segment results

Franchise


Franchise segment EBITDA was $216.8 million in the year ended December 31, 2022
compared to $194.3 million in the year ended December 31, 2021, an increase of
$22.5 million, or 11.6%. The franchise segment EBITDA increase was primarily due
to the $33.2 million of higher franchise revenue and $5.7 million of higher NAF
revenue as described above, partially offset by $6.7 million of higher NAF
expense and an $8.6 million legal reserve related to the Preliminary Settlement
Agreement. 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%. Of the corporate-owned store segment
EBITDA increase, $78.1 million was attributable to the Sunshine Acquisition,
$13.7 million was attributable to the same store sales increase of 13.1% and
$3.5 million was due to prior year COVID-related temporary closures. These
increases were partially offset by a decrease of $2.9 million from new stores
opened since January 1, 2021. Depreciation and amortization was $94.3 million
for the year ended December 31, 2022, compared to $35.8 million for the year
ended December 31, 2021. The increase in depreciation and amortization was
primarily attributable the Sunshine Acquisition.

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Equipment


Equipment segment EBITDA was $59.1 million in the year ended December 31, 2022
compared to $29.7 million in the year ended December 31, 2021, an increase of
$29.4 million, or 99.1%. The increase was driven by higher equipment sales to
new and existing franchisee-owned stores in the year ended December 31, 2022
compared to the year ended December 31, 2021, as described above. Depreciation
and amortization was $5.0 million for both the years ended December 31, 2022 and
December 31, 2021.

Liquidity and Capital Resources

As of December 31, 2022, we had $409.8 million of cash and cash equivalents and
$62.7 million of restricted cash.


We require cash principally to fund day-to-day operations, to finance capital
investments, to service our outstanding debt and tax benefit arrangements and to
address our working capital needs. Based on our current level of operations, we
believe that with our available cash balance, the cash generated from our
operations, and amounts available under our Variable Funding Notes will be
adequate to meet our anticipated debt service requirements and obligations under
our tax benefit arrangements, capital expenditures and working capital needs for
at least the next 12 months. We believe that we will be able to meet these
obligations even if we continue to experience a reduction in sales and profits
as a result of the COVID-19 pandemic. Our ability to continue to fund these
items could be adversely affected by the occurrence of any of the events
described under "Risk Factors." There can be no assurance that our business will
generate sufficient cash flows from operations or otherwise to enable us to
service our indebtedness, including our Securitized Senior Notes, or to make
anticipated capital expenditures. 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.

The following table presents summary cash flow information for the years ended
December 31, 2022 and 2021:

                                                Year Ended December 31,
(in thousands)                                    2022               2021
Net cash provided by (used in):
Operating activities                       $     240,207          $ 189,289
Investing activities                            (506,566)           (90,916)
Financing activities                             135,725            (10,246)
Effect of foreign exchange rates on cash            (808)                14
Net (decrease) increase in cash            $    (131,442)         $  88,141


Operating activities


For the year ended December 31, 2022, net cash provided by operating activities
was $240.2 million compared to $189.3 million in the year ended December 31,
2021, an increase of $50.9 million. Of the increase, $127.0 million was due to
higher net income after adjustments to reconcile net income to net cash provided
by operating activities, partially offset by $76.1 million due to unfavorable
changes in working capital primarily from payments made under tax benefit
arrangements, a larger decrease in accounts payable and accrued expenses, higher
other assets, and an increase in accounts receivable as a result of higher
equipment sales volume, partially offset by an increase in deferred revenue in
the current year period. in the year ended December 31, 2022, compared to the
year ended December 31, 2021.

Investing activities

For the year ended December 31, 2022, net cash used in investing activities was
$506.6 million compared to $90.9 million in the year ended December 31, 2021, an
increase of $415.7 million. The primary drivers of the increase were $424.9
million of net cash used in the Sunshine acquisition and $46.0 million from
higher capital expenditures in the year ended December 31, 2022, partially
offset by cash received of $20.8 million from the sale of six Colorado
corporate-owned stores and $32.6 of lower cash used for investments in the year
ended December 31, 2022.

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Capital expenditures for the years ended December 31, 2022 and 2021:


                                        Year Ended December 31,
(in thousands)                            2022                2021
New corporate-owned stores        $      40,788            $ 22,614
Existing corporate-owned stores          43,289              16,651
Information systems                      15,816              14,391
Corporate and all other                     164                 418
Total capital expenditures        $     100,057            $ 54,074


Financing activities

For the year ended December 31, 2022, net cash provided by financing activities
was $135.7 million compared to net cash used in financing activities of $10.2
million in the year ended December 31, 2021, an increase of $146.0 million. The
primary drivers of the net cash provided by financing activities in the year
ended December 31, 2022 were $234.0 million of net cash provided from long-term
debt, consisting of $975.0 million of borrowings, $724.8 million of principal
payments and $16.2 million of deferred financing costs incurred. Partially
offsetting the increase was cash used for share repurchases of $94.3 million in
the year ended December 31, 2022.

Securitized Financing Facility


Planet Fitness Master Issuer LLC (the "Master Issuer"), a limited-purpose,
bankruptcy remote, wholly-owned indirect subsidiary of Pla-Fit Holdings, LLC, is
the master issuer of outstanding senior secured notes under a securitized
financing facility that was entered into in August 2018. In February 2022, the
Master Issuer completed a refinancing transaction with respect to this facility
under which the Master Issuer issued the Series 2022-1 Class A-2 Notes with
initial principal amounts totaling $900 million. The net proceeds from the sale
of the Series 2022-1 Class A-2 Notes were used to repay in full the Master
Issuer's outstanding Series 2018-1 Class A-2-I Notes, including the payment of
transaction costs. The remaining funds were used for the Sunshine Acquisition
and other general corporate purposes.

In connection with the issuance of the Series 2022-1 Class A-2 Notes, the Master
Issuer also issued the Series 2022-1 Class A-1 Notes, which allow for the
drawing of up to $75 million of Variable Funding Notes, including a Letters of
Credit facility, which was used to repay the 2018-1 Class A-1 Notes. 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. See Note 11 to the consolidated
financial statements contained in Item 8 herein for further information related
to our long-term debt obligations.

Share Repurchase Program

2019 share repurchase program

On November 5, 2019, our board of directors approved a share repurchase program
of up to $500 million (the “2019 Share Repurchase Program”).


On December 4, 2019, the Company entered into a $300 million accelerated share
repurchase agreement (the "2019 ASR Agreement") with JPMorgan Chase Bank, N.A.
("JPMC"). Pursuant to the terms of the 2019 ASR Agreement, on December 5, 2019,
the Company paid JPMC $300 million upfront in cash and received approximately
3.3 million shares of the Company's Class A common stock, which were retired.
Final settlement of the ASR Agreement occurred on March 2, 2020. At final
settlement, JPMC delivered approximately 667,000 additional shares of the
Company's Class A common stock, based on a weighted average cost per share of
$75.82 over the term of the 2019 ASR Agreement, which were retired.

On March 18, 2020, the Company announced the suspension of its 2019 share
repurchase program.

2022 share repurchase program

On November 4, 2022, the Company’s board of directors approved a share
repurchase program of up to $500 million, which replaces the 2019 share
repurchase program.

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The timing of purchases and amount of stock repurchased will be subject to the
Company's discretion and will depend on market and business conditions, the
Company's general working capital needs, stock price, applicable legal
requirements and other factors. Our ability to repurchase shares at any
particular time is also subject to the terms of the Indenture governing the
Securitized Senior Notes. Purchases may be effected through one or more open
market transactions, privately negotiated transactions, transactions structured
through investment banking institutions, or a combination of the foregoing. The
Company may reinstate or terminate the program at any time.

Contractual Obligations and Commitments

The following table presents contractual obligations and commercial commitments
as of December 31, 2022.


                                                                    Payments due during the years ending December 31,
(in thousands)                                    Total                2023             2024-2025           2026-2027           Thereafter
Long-term debt(1)                             $ 2,025,187             20,750              621,188            429,563              953,686
Interest on long-term debt                        431,227             80,802              152,326             89,082              109,017
Obligations under tax benefit arrangements(2)     494,465             31,940               92,866            110,799              258,860
Operating leases                                  456,597             49,853              121,467            114,459              170,818
Advertising commitments(3)                         77,865             58,681               19,184                  -                    -
Purchase obligations(4)                            22,019             22,019                    -                  -                    -
Total Contractual Obligations                 $ 3,507,360          $ 

264,045 $ 1,007,031 $ 743,903 $ 1,492,381



(1)Long-term debt payments include scheduled principal payments only.
(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. 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. 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. In 2019, in
connection with a real estate partnership, the Company began guaranteeing
certain leases of its franchisees up to a maximum period of ten years, with
earlier expiration dates if certain conditions are met. See Note 18 to our
consolidated financial statements included elsewhere in this Form 10-K for more
information regarding these operating leases and guarantees.

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. The preparation of our financial statements in accordance with GAAP
requires us to make estimates and assumptions that affect the reported amounts
of assets, liabilities, revenue, expenses and related disclosures of contingent
assets and liabilities. We base our estimates on past experience and other
assumptions that we believe are reasonable under the circumstances, and we
evaluate these estimates on an ongoing basis. Actual results may differ from
those estimates. While estimates and judgments are applied in arriving at many
reported amounts, we believe that the following critical accounting estimates
involve a higher degree of judgment and complexity.

Business combinations


We account for business combinations using the purchase method of accounting
which results in the assets acquired and liabilities assumed being recorded at
fair value at the date of acquisition. The excess costs of acquired businesses
over the fair values of the assets acquired and liabilities assumed will be
recognized as goodwill.

The valuation methodologies used are based on the nature of the asset or
liability. The significant assets and liabilities measured at fair value include
property and equipment, intangible assets, 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. For other
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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.


The Company uses a variety of information sources to determine the estimated
fair values of acquired assets and liabilities, including third-party valuation
experts. The fair value of trade and brand names is estimated using the relief
from royalty method, an income approach to valuation, which includes projecting
future system-wide sales and other estimates. Membership relationships and
franchisee relationships are valued based on an estimate of future revenues and
costs related to the respective contracts over the remaining expected lives. Our
valuation includes assumptions related to the projected attrition and renewal
rates on those existing franchise and membership arrangements being valued.
Re-acquired franchise rights are valued using an excess earnings approach. The
valuation of re-acquired franchise rights is determined using a multi-period
excess earnings method under the income approach. For re-acquired franchise
rights with terms that are either favorable or unfavorable (from our
perspective) to the terms included in our current franchise agreements, a gain
or charge is recorded at the time of the acquisition to the extent of the
favorability or unfavorability, 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.

Income taxes


Deferred income taxes are recognized for the expected future tax consequences
attributable to temporary differences between the carrying amount of the
existing tax assets and liabilities and their respective tax basis. Deferred tax
assets and liabilities are measured using enacted tax rates expected to be
applied in the years in which temporary differences are expected to be recovered
or settled. The principal items giving rise to temporary differences are the use
of accelerated depreciation and certain basis differences resulting from
acquisitions and the recapitalization transactions. Valuation allowances are
established when necessary to reduce deferred tax assets to the amount expected
to be realized.

In determining the provision for income taxes, we make estimates and judgments
which affect our evaluation of the carrying value of our deferred tax assets as
well as our calculation of certain tax liabilities. We evaluate the carrying
value of our deferred tax assets on a quarterly basis. In completing this
evaluation, we consider all available positive and negative evidence. Such
evidence includes historical operating results, the existence of cumulative
earnings and losses in the most recent fiscal years, taxable income in prior
carryback year(s) if permitted under the tax law, expectations for future
pre-tax operating income, the time period over which our temporary differences
will reverse, and the implementation of feasible and prudent tax planning
strategies. 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. 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.

We recognize the effects of income tax positions only if those positions are
more likely than not of being sustained. Recognized income tax positions are
measured at the largest amount that is greater than 50% likely of being
realized. Changes in recognition or measurement are reflected in the period in
which the change in judgment occurs.

Tax Benefit Arrangements


As described in Note 17 to the consolidated financial statements included in
Part II, Item 8, we are a party to the tax benefit arrangements under which we
are contractually committed to pay certain non-controlling interest holders 85%
of the amount of any tax benefits that we actually realize, or in some cases are
deemed to realize, as a result of certain transactions. Amounts payable under
the tax benefit arrangements are contingent upon, among other things, (i)
generation of future taxable income over the term of the tax benefit
arrangements and (ii) future changes in tax laws. If we do not generate
sufficient taxable income in the aggregate over the term of the tax benefit
arrangements to utilize the tax benefits, then we would not be required to make
the related payments. Therefore, we would only recognize a liability for tax
benefit arrangement payments if we determine it is probable that we will
generate sufficient future taxable income over the term of the tax benefit
arrangements to utilize the related tax benefits. Estimating future taxable
income is inherently uncertain and requires judgment. 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. Changes in
the liability resulting from historical exchanges under these tax benefit
arrangements may occur based on changes in anticipated future taxable income,
changes in applicable tax rates or other changes in tax attributes that may
occur and impact the expected future tax benefits to be received by the Company.
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
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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.

Investments and allowance for expected credit losses


Our held-to-maturity securities are reported at amortized cost. 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. Adjustments for management's expectations may be
based on factors such as investee earnings performance, recent financing rounds
at reduced valuations, changes in the regulatory, economic or technological
environment of an investee or doubt about an investee's ability to continue as a
going concern. 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. A
held-to-maturity investment security and its allowance for expected credit
losses is written off when deemed uncollectible.
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