Hello, everyone, and welcome to the Planet Fitness Third Quarter Earnings Conference Call. My name is Emily, and I'll be coordinating your call today. [Operator Instructions] I will now turn the call over to Stacey Caravella, VP, Investor Relations. Please go ahead, Stacey.

Stacey Caravella - Investor Relations

Thank you, operator, and good morning everyone. Speaking on today's call will be Planet Fitness Chief Executive Officer, Chris Rondeau; and Chief Financial Officer, Tom Fitzgerald; both of whom will be available for questions during the Q&A session following the prepared remarks. Today's call is being webcast live and recorded for replay.

Before I turn the call over to Chris, I'd like to remind everyone that the language on forward-looking statements included in our earnings release also applies to our comments made during the call. Our release can be found on our website, investor.planetfitness.com, along with any reconciliation of non-GAAP financial measures mentioned on the call with their corresponding GAAP measures.

I'd also like to invite everyone to listen in to our Investor Day on Tuesday, November 15. You can find details on timing and the link to the webcast on our Investor Relations website.

Now I'll turn the call over to Chris.

Tom Fitzgerald - Chief Financial Officer

Thanks, Chris, and good morning, everyone. Through the third quarter of this year, we have repurchased 1.5 million shares inclusive of a $50 million share repurchase that we executed in Q3 at an average price of $61.68, which we believe underscores the strength of our balance sheet only 2 years after having all of our stores temporarily closed due to the pandemic.

We also announced this morning that our Board of Directors approved a new $500 million share repurchase authorization that replaces the existing one from 2019. We believe this is another signal of our confidence in the reliability and consistency of our asset-light model to generate significant free cash flow.

Now I will cover our Q3 results. All of my comments regarding our quarter performance will be comparing Q3 2022 to Q3 of last year, unless otherwise noted.

We opened 29 new stores compared to 24 last year. We had positive same-store sales growth of 8.2% in the quarter. Franchisee same-store sales grew 8.1%, and our corporate same-store sales increased 9.7%.

As a reminder, same-store sales for the Sunshine Fitness franchise stores that we acquired in Q1 of this year will not be reflected in our corporate-owned same-store sales until February of 2023, but they will continue to be reflected in our system-wide same-store sales, consistent with how we've treated prior acquisitions. Approximately 70% of our Q3 comp increase was driven by net member growth with the balance being driven by rate growth. The rate growth was primarily driven by a 5 basis point increase in our Black Card penetration to 62.9%, as well as our recent price increase in May from $22.99 to $24.99. As a reminder, the Black Card price increase that we took in May was for new joins only, so that should slowly begin to drive up average monthly dues over time.

For the third quarter, total revenue was $244.4 million compared to $154.3 million. The increase was driven by revenue growth across all 3 segments. The 7.1% increase in Franchise segment revenue was primarily due to an increase in royalties from same-store sales growth and the new stores. Partially offsetting the increase was a decrease of approximately $2.6 million as a result of the stores acquired in the Sunshine Fitness transaction moving from the Franchise segment to the Corporate-owned segment, higher NAF expenses and the higher equipment placement expense.

For the third quarter, the average royalty rate was 6.4%, which was flat to the prior year period. The 131% increase in revenue in the Corporate-owned store segment was primarily driven by the Sunshine Fitness acquisition, as well as same-store sales growth and the new store openings.

The Equipment segment revenue increased 78% driven by higher equipment sales to existing franchisee-owned stores. For the quarter, replacement equipment accounted for approximately 75% of total equipment revenue, which was higher than we typically experienced largely due to reequips that shifted from Q2 to Q3 of this year, due to COVID-related supply chain disruptions in China earlier this year. We completed 28 new store placements in Q3, flat to last year.

Our cost of revenue, which primarily relates to the cost of equipment sales to franchisee-owned stores, amounted to $48.5 million compared to $27.1 million. Store operations expense, which relates to our Corporate-owned store segment, increased to $57.9 million from $27.8 million, primarily due to the additional stores from the Sunshine acquisition.

SG&A for the quarter was $27.1 million compared to $23 million. Payroll costs primarily drove this increase with the addition of the Sunshine Fitness team as well as increased travel expense and expense related to our Franchisee Conference. National Advertising Fund expense was $17 million compared to $15.6 million.

Net income was $30.7 million, adjusted net income was $38.2 million and adjusted net income per diluted share was $0.42. A reconciliation of adjusted net income to GAAP net income can be found in the earnings release. Adjusted EBITDA was $93.9 million and adjusted EBITDA margin was 38.4% compared to $61.7 million and adjusted EBITDA margin of 40.0%. A reconciliation of adjusted EBITDA to GAAP net income can be found in the earnings release. We are no longer excluding preopening costs from our adjusted EBITDA, adjusted net income and adjusted earnings per share. In the reconciliation, you'll find the prior year period restated reflecting this change.

By segment, franchise adjusted EBITDA was $53.5 million, and adjusted EBITDA margin was 66.3%. Corporate store adjusted EBITDA was $39.6 million, and adjusted EBITDA margin was 38.4%. Equipment adjusted EBITDA was $15.8 million and adjusted EBITDA margin was 25.4%.

Now turning to the balance sheet. As of September 30, 2022, we had total cash and cash equivalents of $467.2 million compared to $603.9 million on December 31, 2021, which included $62.7 million and $58 million of restricted cash in each period.

As I mentioned earlier, during the quarter, we used $50 million to repurchase approximately 830,000 shares. Total long-term debt excluding deferred financing costs was $2.0 billion as of September 30, 2022, consisting of our four tranches of fixed-rate securitized debt that carries a blended interest rate of approximately 4%.

Finally, to our 2022 outlook. As a reminder, our view assumes there is no material resurgence of COVID that causes member or supplier disruptions, whether it be a shutdown or more stringent mandates that result in a significant change in membership behaviors.

In our earnings press release this morning, we reiterated and updated our growth targets for the year. We continue to expect system-wide same-store sales growth in the low double-digit percentage range. We decreased our outlook for equipment placements in franchisee-owned locations from approximately 170 to a range of 150 to 160. This update primarily reflects a worsening of the HVAC supply chain issue. We're continuing to monitor the situation carefully, but we do expect that some placements that we thought would happen in 2022 will now take place in early 2023.

We now expect revenue to increase in the high-50% range. Previously, we expected it to increase in the mid-50% range. This revision reflects our better insight into inventory availability to meet franchisee demand for reequips. We now expect adjusted EBITDA to increase approximately 60%, adjusted net income to increase in the low-100% range, and adjusted earnings per share to increase in the mid-90% range. Previously, we expected adjusted EBITDA growth in the high-50% range, adjusted net income growth in the low-90% range and adjusted earnings per share in the mid-80% range.

Our adjusted EPS guidance is based on diluted shares outstanding of approximately 90.5 million, inclusive of the issuance of equity as part of the Sunshine acquisition and share repurchases through the third quarter.

We also continue to expect 2022 net interest expense to be approximately $86 million, which reflects our first quarter debt refinancing and upsizing. As Chris said, we are looking forward to a solid Q4 and assuming there is no virus resurgence, we are optimistic that we will have a strong January in Q1.

I'll now turn the call back to the operator to open it up for Q&A.

Question & Answers

Operator

[Operator Instructions] Our first question today comes from the line of Randy Konik with Jefferies.

Randy Konik - Jefferies - Analyst

Thanks a lot and good morning, guys. I guess, Chris, a question for you. You mentioned in your commentary the change in utilization patterns that you saw it moved up and your cancel rate moved down. It sounds like it was significant in trend, so I just wanted to kind of understand how that is changing sequentially?

Sounds, again, significant and what you think is driving that change in those two items?

Chris Rondeau - Chief Executive Officer

Yes, that trend has been somewhat consistent, almost coming out of COVID, where the people that are working out are working out more than they were previously. You probably remember back since the IPO, the average person was working about 5 times a month, now it's up to 6 times a month.

And so I think that's kind of staying there. But the cancellation rate is right, I think people are just more committed, so it has fallen slightly from the past. So both trends are very good, mostly for the longer term because as the attrition gets better, joins continue to flow like they're flowing and just going to add more base.

Randy Konik - Jefferies - Analyst

Got it. Super helpful. And then I guess maybe a question for Tom. I know we haven't disclosed how much you think the conversion could occur of the Teen Summer Challenge members to paying members over time. But I guess what I wanted to try to understand is, if you look back to 2019, the last time this program took place, and I think 25% of those participants converted to members.

Can you give us some perspective on the time frame of those conversions, i.e., how long should you expect or how should these conversions start to take place? When should we notice them this time around in 2022 and 2023?

Chris Rondeau - Chief Executive Officer

Hi, Randy, this is Chris. Yes, when we said the 25%, that was from the time of the ending of the program in 2019 through the whole COVID years and stuff, so it was about 3 years ago now, right? And then we had reported that about 11% are still members today, and then about 5% of the parents are still members. So it's 3 years later. But right now, we are trending ahead of the conversion rate for the remainder of 2019 compared to that year. So if you look at between the end of the program or the program itself through the end of 2019, we are trending higher conversion rate than back then.

So I think that probably leads us to solve, one, is just the general Gen Z joining trend is positive in the right direction coupled with the fact that we have other tech messages in that messaging and e-mails now because we're all digital sign-up. So I think the trending is showing that it's doing better. And I can't imagine that it's not going to continue over the next couple of years ahead.

Tom Fitzgerald - Chief Financial Officer

And maybe one thing, Randy, as Chris said in his prepared remarks, that conversion rate is not only ahead of where we were in 2019, but it's off a base that's 3.5 times plus larger. So the impact on membership is much greater.

Randy Konik - Jefferies - Analyst

Super helpful. Thanks, guys.

Operator

Our next question comes from Brian Harbour with Morgan Stanley.

Brian Harbour - Morgan Stanley - Analyst

Yes, thank you. Maybe just a question on the replacement equipment revenue, which seems like it's really picking up quite quickly. Is that something that you kind of expect to continue in the fourth quarter and into next year? Or any kind of puts and takes there that we should think about?

Tom Fitzgerald - Chief Financial Officer

Yes. Hey, Brian, it's Tom. I'll start that. So I think part of the mix shift and it being 75% of the equipment revenue is because of the shifting of reequips from Q2 to Q3 because of the Shanghai shutdown. So it pushed reequips into Q3 and then some of the supply chain issues moving the new stores around a little bit.

So for the year, - maybe this is the direct answer to your question, for the year, with the change in our placement outlook, we believe reequips will be closer to 60% of total equipment revenue compared to where we were saying before, it would be closer to 50/50.

Brian Harbour - Morgan Stanley - Analyst

That's helpful, yes. Thank you. And then maybe just a question on kind of new unit openings. I mean, do you think that - you said it's the HVAC issues. Do you think those start to kind of come off next year, I don't know, if there's like a crush at the end of the year? Is there anything else that's at play just in openings this year?

Tom Fitzgerald - Chief Financial Officer

No. The issue this year primarily is the HVAC issues. And from what we hear, no one yet knows one day abate or go away. I think it's a combination of changing standards, catching the manufacturers off-guard a little bit, but also the Shanghai shutdowns and continuing sort of rolling lockdowns here and there in China. So we were in discussions with some larger franchisees here recently, and the frustrations continue because you sort of don't know until it's too late in the cycle.

So we'd love to say it's going to end in Q1, but we're not in any position to say we know when it will end. Hopefully, it's sometime in '23, but all manufacturers, all big manufacturers, are telling us they don't yet have a firm commitment on when it will return to normal so to speak.

Operator

Our next question comes from Rahul Krotthapalli with JPMorgan.

Rahul Krotthapalli - JPMorgan - Analyst

Good morning, guys. Thanks for taking my question. Chris, you guys talked about the franchise conference. Can you just give us some more insight on what kind of conversations did you have in terms of how the franchisees are feeling in terms of store openings or in terms of their financial health or anything else that kind of stood out that makes sense to discuss? That would be appreciated.

Chris Rondeau - Chief Executive Officer

Sure, yes. Yes, there's more excitement around the fact that the trends we're seeing with all the generations, specifically Gen Zs and the increase of their propensity to join, so that's already good stuff. On top of that, some of the conversations were some lines about the build-up costs is definitely some inflationary cost of build-out and construction, which luckily the model can weather that storm. It's not that we want expenses to go up, but it is for the time being. Will it come down in time? Hopefully, but time will tell, we don't really have a crystal ball on that one.

So it's always around that type of stuff. But all in all, people were excited to talk about the future. The pandemic is now behind us. It seems like everybody is thinking about how to get back on track but looking at real estate and driving marketing and sales and membership back to where it was. And we're well on our way today, which is great. So they are bullish and excited to get back to business here, it would just definitely be great from the inflationary costs when the buildout and construction came down, I would think it just add more fuel to the fire.

Rahul Krotthapalli - JPMorgan - Analyst

Got it. Just to follow up on that, talking about real estate, like is there anything new in terms of like store formats or anything that makes sense to consider given the changing trends and kind of frequency of visitations? Have you guys revisited that? Or like were there any conversations with the franchisees in terms of the white space going ahead when it comes to the format of the books?

Chris Rondeau - Chief Executive Officer

I think the only thing that we're looking at now preliminarily, but looking at a lot of data to look at is the change in our membership base. If you go back pre-COVID, Gen Zs were our smallest segment of our member base, the next being the Boomer, Boomer Plus generation, which is Boomer and Silent. And today, they're our second largest part of our member base, believe it or not. So it's grown substantially over the last 3 years.

So we're paying attention now just to look at some of their utilization of what they're using in the facility and is there some retooling slightly of just our equipment makeup. Is it ellipticals or is it treadmills or is it kettlebells and different functional training stuff, of which functional training is definitely something with the younger generation.

So just paying attention to some of that as the makeup of our base changes. But as far as size of box, no, I think that would be about the same, but maybe just retooling of inside the 4 walls.

Operator

Our next question comes from Joe Altobello with Raymond James.

Joseph Altobello - Raymond James - Analyst

Thanks. Hey guys. Good morning. Just want to go back to the HVAC shortage situation. I guess, first, is there an opportunity to find alternate suppliers outside of China? And secondly, could it actually benefit your store openings next year given the shift in timing from this year, and the assumption obviously that it gradually gets better?

Tom Fitzgerald - Chief Financial Officer

Hey, Joe, it's Tom. I'll take that. So we're in contact with the large suppliers, Carrier, Trane and so on. And I think we're doing all that we can to get our fair share, more than our fair share of that.

The problem is, unlike with equipment, we don't have a real preferred supplier relationship there. It's something we're looking into. So we are opening stores, it's not like there are none. There's just not as many as we need. And we've done all that we can to try to secure equipment in advance. Many of our franchisees, as we've talked to them, are actually looking to refurb or keep the equipment there if they can via code and just wait until more supply is available and then replace it. They tend to like to replace it all at once, so they don't have to worry about going back in and doing it a year or 2 later.

So I'd say we're doing everything possible as the franchisor and working with our franchisees and with the suppliers to secure what we can. It's just the demand exceeds the supply. And I know we're not alone. We're hearing it from other multiunit folks trying to open up new units. So I wish I had a better answer on when it will end. It's not a forever thing for sure. It's just we're not sure exactly when it returns back to normal, as I said previously.

Joseph Altobello - Raymond James - Analyst

Okay. Understood. And just maybe to follow-up on that, curious you guys haven't done an Investor Day in quite some time. Maybe kind of preview for us what we should expect to hear next week?

Chris Rondeau - Chief Executive Officer

Yes, it's going to be great to bring a team out. Usually, all you really hear from is me and Tom and previously Dorv [Phonetic]. So it is great to bring all the team out and talk about a lot of our different strategies and endeavors we're on with each of the departments, whether it's digital and data and the generational trend, we'll share a lot of what we're seeing and historically what we've seen, how they've grown, as well as the marketing and Jamie and so on.

So there'll be a lot of the team there talking about where we've been. A lot of the people, a lot of even current investors haven't really heard the story from back in the IPO days and the last 30-year history what got us here, what made us being successful in going through many ups and downs and why we're still here today after COVID with no bruises.

But a lot of it will be strategy and future-looking plans that we'll be working on, much like the - you saw my remarks on the Amazon Halo partnership, where we're in the middle of right now. That just started yesterday. Just a lot of exciting things, the doors that are opening up here with our size and scale and coming out of COVID and the highlight on health and wellness is at an all-time high, I think, from not only just members, but I think also partnerships like this.

Joseph Altobello - Raymond James - Analyst

Got it. Thank you, guys.

Operator

Our next question is from Alex Perry with Bank of America.

Alex Perry - Bank of America Merrill Lynch - Analyst

Hi, thanks for taking my questions here. Just first, I just wanted to square away some of the membership numbers from the quarter. So you had about 100,000 net new joins in the quarter. You said churn was lower than 2019. You had 300,000 new joins from High School Summer Pass compared to about 65,000 in 2019. But you sort of added the same amount of members quarter-over-quarter compared to 2019, so what would sort of be the delta if we sort of compare the quarter-over-quarter joins versus 2019? Thanks.

Chris Rondeau - Chief Executive Officer

I think the 300,000 is really from the beginning of the program, which was in May.

Alex Perry - Bank of America Merrill Lynch - Analyst

Got you. Okay. So you added the High School Summer participants earlier this year compared to 2019. Got you. Okay. That makes sense.

And then my second question was can you just talk about the health of the franchisee base and their willingness to open and the rising rate environment here. Sort of when should we get back to that sort of 200-plus algorithm? Is the only thing restraining that HVAC right now? Or how are you sort of seeing sort of the overall health? And you mentioned build-out costs, but the rising - how are you sort of thinking about the rising rate environment? Thanks.

Chris Rondeau - Chief Executive Officer

I'll hit on the inflation stuff and then let Tom talk about the interest rate stuff. What we don't really know quite yet, Alex, is that every year franchisees are required to open a certain number of units contractually under their area development agreements. But a lot of the developers pre-COVID were opening ahead of their schedules, right?

So what we're not sure of now is with the rising costs or increasing cost of buildouts is that will franchisees open up 2 or 3 units themselves that really aren't required to open into future years or they want to wait until maybe costs come down and then open them.

So we just don't know if they're going to open ahead of their schedules here go forward until costs come down or maybe they want to wait to open future ones when they do come down. So that's just the part we really don't know their appetite for opening ones early on that side of things. But Tom can obviously on interest rates.

Tom Fitzgerald - Chief Financial Officer

Yes, Alex, I think the interest rates going up isn't helpful, but I still think on a relative basis, the returns, as we talk to our franchisees and we've talked to our largest franchisees here, Top 30, as we do every year, we've completed almost all of them now.

No one's really saying rising interest rates are holding them back from building. A lot of the stores are funded just from the cash flows of the business. And frankly, a lot of the PE folks don't take money out of the business. They plow the money back in. So there's a fair amount of momentum for those new store builds.

And I think what Chris said is right, the costs are definitely higher. But as we've looked at commodity costs and even shipping costs, I forget the numbers off the top of my head, but the cost of moving a can from Asia was a few thousand, then it went to high teen thousands, and now it's back even below where it was pre-COVID. So these things are moving around quite a bit. So we've heard from some franchisees that time is different. I'd say the other thing that's very encouraging on the development side is, as we've talked to a number of these larger franchisees and we talk about their financials, a lot of their mature stores have returned or are very close to the pre-COVID profit level.

So while membership still may be trailing a little bit here and there depending on their geography, the continued increase in Black Card mix and the recent Black Card pricing will continue to improve margins. And I'd say the last thing on the inflation side, there was a lot of talk about wage inflation, that has really slowed down quite a bit. And as we've talked about, even with wage inflation in some markets being fairly considerable, one good year of same-store sales growth because of our model and low labor costs really offsets the impact, and margins basically return back to where they were before the wage inflation after 1-year of mid-single-digit same-store sales increase.

So anyway, I hope that kind of rounds out the picture for you.

Alex Perry - Bank of America Merrill Lynch - Analyst

Yes, that's perfect. Best of luck going forward.

Operator

Our next question is from Warren Cheng with Evercore ISI.

Warren Cheng - Evercore ISI - Analyst

Hey, good morning. My first question, I know this is sort of a seasonal low period for joins, but do you have data on where your new members are coming from? Are you seeing any uptick in members coming from other gyms or higher price gyms?

Chris Rondeau - Chief Executive Officer

Yes, from what we have seen from closed gyms, a little bit less than 1% from closed gyms. 25% of our joins now are rejoins still. And almost 40% of our members are still first-time gym members. So not too much has changed there. But we haven't really seen or heard or surveyed anything coming from higher-priced gyms.

Anecdotally, I'm sure it's happening from people trading down. And if I go back to 1999, 2000, when the dotcom bomb went off, anecdotally back then, we saw having from maybe before [Phonetic] probably back then, but we saw it and experienced it back then as well. But I'm sure it's happening, and the people get more cost conscious of what they're spending money on.

And as many people have gone to multipurpose clubs, you realize you don't use a rock wall or the pool, then why paying for it. So it's probably something that's in our favor. We had some great same-store sales back in that era, late '90s.

Warren Cheng - Evercore ISI - Analyst

Got you. Very helpful. my second question, I just wanted to ask about that Amazon Halo collaboration. Is there any back-end integration with the Halo, you're on a data sharing basis or integration with your own kind of fitness app, where you can kind of tap into that activity tracking data?

Chris Rondeau - Chief Executive Officer

Not yet, but this part of the plan is to have Halo or other wearables but also talking to the app and having the data flow. But strictly right now, where it's basically to just a free Halo with any Black Card purchase, zero enrollment, $24.99 a month. And the Halo is free for the first year. And then after that, if you want to continue with it, they can go and pay Amazon their $3.99 or $4,99. But it includes a free 1-year membership with Halo as well.

Operator

Our next question is from Max Rakhlenko with Cowen and Co.

Maksim Rakhlenko - Cowen and Company - Analyst

Great. Thanks a lot. Congrats, guys. So first, January feels like it's going to be a very important season for you following some of this year's challenges. So just curious, how do you feel about your readiness heading into the season? And what do you plan to do differently next year compared to both this year as well as the pre-pandemic years?

Chris Rondeau - Chief Executive Officer

Yes, this year, we have our annual New Year's Eve celebration here to kick it off at Times Square. So it will be our 8th year and longest-running sponsor of Times Square. But the normal integration, you'll see with our stage and hats and such in the commercial, that kicks off our January promotion. And then we'll normally do an extension towards the end of the month as well for this. We'll also push the $10 membership as that entry-level pricing throughout that commercial.

The branding and messaging will be similar to what we've been doing this year, which is really about that post workout glow, the feel-good feeling, the mental health benefits of exercise as opposed to the general thought that people think about the waistline, right? So we're going to continue with that theme.

One other thing might be a little different this year is we're going to lead up to some last week of December promo, end of the year special before we go into that January push. So a little bit different time than that one, where normally December is a mid-month flash sale. So we have a little push at the end as opposed to the middle of the month.

Besides that, nothing out of the ordinary but just more of the same. But I think it's going to be - it's quite amazing, I think this will be the first quarter in 4 years that hopefully will not be interrupted by anything. So I think it should be a real good one for us.

Tom Fitzgerald - Chief Financial Officer

And Max, it's Tom. Got one thing to add there, I think our agencies have transitioned across our franchise system away from Publicis into one of the two existing agencies that we've talked about. So in our discussions with franchisees, they're very settled and happy about where they are with their agency and very confident looking forward that the execution will be back to what they were used to.

And we're also feeling very good about reconnecting with Barkley strategically on the creative and also working with us as our agency of record for NAF. So compared to where we were several months ago, we feel like we're on terra firma here when it comes to agencies.

Chris Rondeau - Chief Executive Officer

Yes. And I think the only thing I'd add too is, as you know, Max, the marketing flywheel we have and we're going into this first quarter with once again the largest member base we've ever had, which is just more marketing dollars.

And I think if you go back even pre-pandemic, you can't even join in the Planet Fitness App. So that in our favor with marketing and have an uninterrupted first quarter, we expect a special first quarter.

Maksim Rakhlenko - Cowen and Company - Analyst

Awesome. That's great. Appreciate all the color on that. And then separately, just congrats on appointing Jennifer Simmons to Corporate Club's President. Seems very well deserved.

Chris, what are Jennifer's top priorities today? And how is the integration of Sunshine going? And then what can you share about just some of the best practices that you're seeing that can be translated to the rest of the portfolio?

Chris Rondeau - Chief Executive Officer

Sure. Yes. She really helps build up our whole strategic and data analytics here in the business. And most, almost all our decisions here with the franchise system, whether it's marketing, size of box, demographics, I mean, a lot of this will come from data that she's put together that proves out best practices.

So to have her influence our corporate store fleet of 200-plus stores of these now and growing it, with her background, is going to be kind of the perfect storm, I think, in a lot of great ways. So I'm excited to have her take over that fleet along with Mary, who is the VP of Ops down there; and Scott, who has been in the marketing position down there.

He's been there in the Sunshine deal that we brought on board. And I think it's important to note that with our same-store sales of 8.6% - I mean, 8.2% system-wide, that our corporate store legacy fleet, right, is - if you recall, Max, our legacy fleet, because they're our oldest, most mature markets back from 30 years ago, we don't have a lot of new store builds in the legacy fleet to influence same-store sales.

So this is like the first couple of quarters here with their influence that our corporate fleet has outpaced same-store sales of the system, which has never happened. So there's no doubt there's some best practices from a marketing and operational store front that they have already put in place in our legacy fleet that are having influence.

So really great news there. And with Jen's support now down there as well in Orlando with their home offices, I expect some really good things.

Maksim Rakhlenko - Cowen and Company - Analyst

Got it. That's very helpful. Best regards and I look forward to the Analyst Day.

Operator

Our next question comes from Chris O'Cull with Stifel.

Patrick Johnson - Stifel - Analyst

Great. Thanks, guys. This is Patrick on for Chris. Good morning. Chris, I appreciate all the comments around the supply chain constraints and development, but I do want to ask just one follow-up. If we step back from all of that, can you just give us a sense of what's in the pipeline today in terms of projects and whether you're seeing the number of projects in that pipeline grow over the last 6 to 12 months or so relative to where it was?

Tom Fitzgerald - Chief Financial Officer

Hey, Patrick, it's Tom. I'll take that. I think what you're getting at is sort of the outlook for 2023, and we'll talk about that. We really don't talk about where things are in the flow and in the pipeline. But I kind of come back to what Chris was saying.

Franchisees absolutely know what those obligations are they have to build. The returns are still very strong. We've had new PE folks come in and invest in some of our larger franchisees here recently. Knowing that the cost to build are up and who knows how long they stay up, but still aggressively looking to build because the returns, as they tell us, are still relatively better than anything they see.

So while there might be a slight step back on the ROI because of the higher cost to build, we don't see it really diminishing the appetite, nor they know the requirement is there. So we'll certainly talk more about where this all looks for 2023 as we normally do when we provide that outlook on our year-end call.

Patrick Johnson - Stifel - Analyst

Got it. That's helpful. And then, Tom, I was hoping you could provide just a little bit more color on the relative contribution to the corporate store margin that the legacy store portfolio had. I know Chris just mentioned that the comps are really strong in that segment of the corporate store portfolio this quarter.

But to what extent have you seen the membership levels continue to recover in those gyms sort of excluding the higher margin performance in the Sunshine units? And how should we be thinking about that heading into 4Q and then into next year in terms of the trajectory of the corporate store margin?

Tom Fitzgerald - Chief Financial Officer

Yes, it's a good question. And I think the good news is, as Chris said, the stronger same-store sales from our legacy markets will certainly - given our model and the largely fixed cost nature of it, will flow to the bottom line and continue to enhance those legacy store margins from a 4-wall standpoint. So all that is very strong.

And Sunshine, also, they continue to perform. And you might remember, Patrick, we talked about at the time of the acquisition, pre-COVID the Sunshine mature stores were several hundred basis points higher in 4-wall EBITDA margin than our legacy stores, primarily because of the markets they're in, lower cost to build, lower cost to operate.

And so that's remaining intact, but as comps continue to drive higher AUVs and those dollars flow to the bottom line, $0.80-plus on the dollar, both sets of stores margins should continue to increase. And I'd say the other piece that we talked about year-on-year with Sunshine is they had more of a full team there leading that unit where we had more of a hybrid approach from an SG&A standpoint, for lack of a better term. And now that, that is fully incorporated into our run rate, that might have been a little bit of a headwind on a margin basis, but won't be going forward as we leverage that because sales will grow faster than the SG&A.

Operator

Our next question comes from Jonathan Komp of Baird.

Jonathan Komp - Robert W. Baird - Analyst

Hi. Thank you. Good morning. I'll ask one more question on units, and I'm sure we'll have more questions next week, too. But I guess big picture, if you don't get back to opening 200 units a year on the franchise side, should that be viewed as any sign that the long-term potential is not as large or as good as you thought it was pre-COVID?

And maybe on the company stores, are you planning any slowdown in the company growth just given the inflation challenges with construction?

Chris Rondeau - Chief Executive Officer

Yes, I don't see - we still have over 1,000 in the pipeline, Jon, community area development agreements with the franchisees on top of the 2,300-plus that are open today. And as we've talked about in the past, the franchisees, their territory that they have undeveloped is almost as valuable as the one they have that are developed, right? And that's where a lot of the value of their business comes from is their units along with the runway. So they never want to lose their runway from not developing and have it contractually taken away from them, which then would resell to another franchisee that's going to build it.

So I think the big question that I mentioned earlier is we're not sure if they're going to want to open ahead of schedule just because of the cost of opening stores right now, as they want to wait and see if that comes down in a year or two because they would sometimes, Jon, open up units that maybe weren't committed until here right now in 2022.

They might have opened up 2023, '24 and '25 in the same year, right? So they might just kind of slow down slightly so that you still open contractually, but not open ahead of schedule. So whether we get back to 200 or we get back to 260 like we did in 2019, I think it might be just a little bit of hesitation to go open up 20% more units than they're required because of that.

So still a lot of units to be opened and a lot of contractual units to be opened. So it will push a lot of openings each year. It's just hard to say if we go from 200 to 260 to 300 or are we going to be a slow ramp until costs come down.

Tom Fitzgerald - Chief Financial Officer

And Jon, on the corporate side, I mean, as you know, part of the attraction of the Sunshine acquisition was not only the current portfolio they had and the profitability and the team that they had, but also the pipeline. And so in addition to the opportunities in our legacy markets, we really like the ROI opportunities for the new stores in the Sunshine territory. So we do not anticipate slowing down corporate store development. We want to maintain roughly our 10% penetration, so we would look to grow with the system.

In any given year, it might be a little bit ahead, a little bit behind just based on real estate opportunities and what's happening site-by-site, but our intent strategically is to stay around the 10%.

Jonathan Komp - Robert W. Baird - Analyst

Yes, that's great. And then just one follow-up on pricing. I think year-over-year, you saw maybe a little less increase in the Black Card penetration. So any drivers behind that? And are you seeing any pushback on the higher Black Card monthly pricing?

And then any decision on annual pricing, I'm just trying to think about how much pricing benefit you might see for new units going into 2023?

Chris Rondeau - Chief Executive Officer

Yes. We'd say that that slight pullback in Black Card acquisition this quarter was mostly just from the increase in the $10 a month High School Summer Pass teens converting into. So just drove a little bit of a slight decrease in Black Card acquisition this quarter, but it wasn't related to the pricing on the Black Card itself. The acquisition of this general off-sale periods were normal, actually slightly even better believe it or not, which is interesting because this is the first time we've raised the Black Card price, which is the third time we've done it.

But it's the first time we've done it where we didn't see a decrease - a initial decrease in Black Card acquisition for a couple of months before it rebounded. So really interesting that even though we had a $2 increase, we saw an increase in acquisition, just that the teens actually drove it down this quarter.

Tom Fitzgerald - Chief Financial Officer

And Jon, we said on the call that the Black Card, since the rate increase, we're still outperforming the test results that we have.

Chris Rondeau - Chief Executive Officer

And I don't see - as far as, I think in price increase in general, I don't see that $10 changing, maybe that still is, as I've always talked about, to kind of get you off the couch price. And I think it's just an amazing business model where we advertise $10 generally speaking, and people come in. And when they realize the benefits, they end up taking the Black Card in that 60% range. So it's a great curiosity price to get people interested in checking it out, and then we hope we get them to convert upwards.

Jonathan Komp - Robert W. Baird - Analyst

Great. That's helpful. Thanks again.

Operator

Our next question comes from the line of Simeon Siegel with BMO Capital Markets.

Simeon Siegel - BMO Capital Markets - Analyst

Thanks. Hey, guys, hope you are all doing well this quarter. So Chris, you've had Sunshine for a bit now, and you're seeing the full top line EBITDA recognition. Just any learnings or changes how you're thinking about long-term corporate versus franchise numbers going forward?

And then just, Tom, sorry if I missed this, can you just remind us how long the NAF expenses should outweigh the NAF revenues, and any help on what that discrepancy is during that time?

Chris Rondeau - Chief Executive Officer

Yes. I think to Tom's earlier comments, I think we want to stay at that 10% range that we reiterated when we bought Sunshine. So as the fleet grows, we continue to build corporate stores in all our markets, the legacy markets as well as the Sunshine markets and probably any smaller tuck-ins of franchisees that come up for sale in and around our current locations that we're in, right?

So anything in that Southeast part of the country or Northeast, where most of our corporate stores are, and as smaller franchisees, let's say, come for sale, tuck them in. But I think it's - I think leveraging their ops and some of their marketing techniques that they've put in place, as I just said, is the legacy store same-store sales are ahead of systems, which just never happened. So it's a great influence that they're having on the system, which is great.

I think now with Jen's leadership down there, with the rest of the team, I look for some really good things to happen and continue to build ground-up stores as well there. So still the same plan but, I think, probably a better outlook, I think, in the future.

Tom Fitzgerald - Chief Financial Officer

And Simeon, on the NAF side, pre-COVID, we always kind of balanced what we spent with what we collected. And then during COVID, we decided to make some unilateral moves where we spent more than we collected. And then coming into this year, we were intending to be sort of back to where we were historically. But I think with all the impact of the Omicron variant in January, right during the peak join season, the fits and starts, frankly, that we had with Publicis and some of the things that we ended up having to pay for that we thought part of our longer-term contract would have been free really changed the dynamic there. And we felt that was appropriate for us to absorb to where NAF will be greater than - NAF expense will be greater than collections. I think it's $7.3 million year-to-date on track to be right around $10 million full year.

Our intent, as Chris said, assuming COVID is behind us and we get back to a more normal Q1 in January, which certainly looks like it will be the case compared to what we've seen here in the last couple of years, our intent would be for NAF collections and expense to match up as they did pre-COVID.

Operator

Our next question is from John Heinbockel with Guggenheim.

John Heinbockel - Guggenheim - Analyst

Hey, Chris, let me start with what is your current thought on national versus local, right? Because I think the idea was maybe eventually you would do more national, less local. But if the local is improved and tweaked, do you move more in a national direction? And then I think that's question one.

And then the other part of that, right, was maybe that would pave the way for a royalty rate increase down the road. Are we quite a ways away from that particularly given the cost increases that franchisees are absorbing to get a club open?

Chris Rondeau - Chief Executive Officer

Yes, it's a good question, John, and I think as I've mentioned this in the past but if it wasn't for COVID, we have 53 straight quarters of positive comps leading into it, and we were probably at a point where raising the royalty probably would have been in the card.

But naturally now coming out of COVID and we're not - 100% of the stores aren't back to where they were and there's some payroll expense increase in some of these in operational expense.

So once EBITDA margins I think return to close or past where they were, then that definitely is a topic for discussion, I believe. So we're not quite there, but I believe we're seeing the same-store sales. And as you know, the flow through is a matter of time.

As far as the lap, I think a couple more - at least a year, maybe two with Zimmerman, Moroch and Barkley now is our easier reckon and that'll quicken the data. We just had our big annual October sale, as I'm sure you saw, we're going to have a postmortem now every sale, and all 3 agencies are going to get in the room. We're all going to go over our most outperforming markets and most least performing markets, and then boil down exactly reasons why and what media mix and spend they did so that we can now have that to teach and show all the Zs, what to do for the next sale. And that will be refined every time we do this, right? We'll learn something every time.

And I think as we get there, we end up understanding the mix better and make them spend more efficient, which then leads to why we just put more money in national and then pave the way so it's easier, and the franchisees have less to worry about on their own end and then just maybe moving some of that over.

And now the efficiency goes better, perfect storm would be that the 9% doesn't have to be 9% anymore. And the 3,000 to 4,000 stores reopen, does that really need to be 9%, maybe not. So that just gives us more opportunity for a royalty increase as well. And it's the same dollars outside the 4-wall that the franchisee pays, which would really be great. So I think it's just a matter of time. I believe we'd get there. It's just about how soon.

John Heinbockel - Guggenheim - Analyst

And maybe secondly, what's your thought now on pace timing, right, in geography of international expansion? Do you want to step it up? And I guess it would be Greenfield, Asia would be the focus initially?

Chris Rondeau - Chief Executive Officer

Yes. I think as we've talked about in the past, it's kind of a little bit of a hybrid approach. We didn't really have an international team per se. It was just a development team here and ops team here doing, call it, a country a year, right?

We get to go in where it didn't really work. Mexico has been phenomenal for us. Australia has been phenomenal. I mean, we average more members there than in Mexico where stores open with 3 or 4 times the members of the U.S. store. Panama has done great. Australia has done great. New Zealand is going to be opening the first store this coming year.

So the bright [Phonetic] thing now putting - we're going to look to put an international team together that focuses solely on just international and begin to build that team out. And I don't think it would be abnormal for us to now look at doing 2 or 3 countries a year. I think some will have to be creative. And whether it would be an acquisition of a brand, as you know in Europe, there's a lot of big ones, does it make sense for somebody to go one at a time if we acquire. Asia, on the other hand, Japan specifically, there's not really any large-scale low-cost provider and therefore it doesn't make sense to go in Planet and start to build out stores.

So I think you'll see more focus and probably see more than - probably see more two or three possibly a year as opposed to one.

Operator

Our final question today comes from the line of Paul Golding with Macquarie Capital.

Paul Golding - Macquarie Capital - Analyst

Thanks so much and congrats on the quarter. I wanted to talk a bit more about Black Card. In the past, you've noted that reciprocity is the biggest benefit. And I was wondering how that trend has evolved sort of post COVID now, and with maybe more hybrid work, and how PF plus is also factoring in given the inclusion of the platform in Black Card now and any engagement metrics around that?

Chris Rondeau - Chief Executive Officer

Yes, this is Chris. The merchant [Phonetic] process is still the most used feature by far even with some of the either work from home or a hybrid approach, we haven't seen a huge fall-off at all on the reciprocity side of things.

Second most popular is the guest privileges, strong second, so you bring a guest free to work out with you. And all the others are pretty relatively small, whether it's hybrid, I mean, with the hydro massage beds or tanning or the digital usage. So it's all fairly small in that sense.

The other one is the reciprocity as well as the Black Card amenity usage, I mean, the reciprocity and the guest usage are definitely the most used by far. It's all bundled, so it's really hard to see what's driving the Black Card acquisition sale. Is it the reciprocity or is it the digital? We had very few $5.99 digital subscribers. But the interesting thing is the ones that do, more than half of them end up becoming bricks-and-mortar after the fact.

So you know there's very few of them, when they do it they end up being kind of a gateway into the bricks-and-mortar down the road. So it is converting people over, but it's a very small number in essence.

Paul Golding - Macquarie Capital - Analyst

Got it. And then in terms of the Amazon Halo offering, is there any opportunities there that you're taking advantage of a cross selling or cross marketing? Or are you getting any sort of media collateral from them? And what are the opportunities there?

Chris Rondeau - Chief Executive Officer

Yes, it's not so much we can disclose on how the partnership is working, but they're really great to work with, first off. And this is the beginning, hopefully, if all goes well with the sales, it's probably going to be the beginning of a lot of other stuff we can do in the future with them. We haven't - or no one's really sold gym memberships on Amazon yet. So if there was a way to do that, that would be something that would be pretty interesting to understand. But we haven't crossed that bridge at all. But I think it's just the beginning of hopefully a long-term relationship granted that, that sale goes well this year.

But what's really good about it is if it does form to work, as you've probably seen or know, we either do $1 down or 0 down during a promotion. Where do you go from there, right? Unless you pay them to join, it doesn't get - it can't get any cheaper, right, at $10 a month.

But I think when you start giving stuff away like this, it is like paying them to join. So hopefully, it could be the beginning of understanding and learning ways to drive volume other than just going to no enrollment fee.

Operator

Those are all the questions we have for today. I will now turn the call over to CEO, Chris Rondeau for concluding remarks.

Chris Rondeau - Chief Executive Officer

Thanks, everybody, for joining us today, and hopefully, you get to join us at the Investor Day next week. And really excited to wrap up fourth quarter here at CLSA [Phonetic] as this Amazon Halo promotion goes, Times Square kick off here for New Year's Eve and an uninterrupted great first quarter. So I hope to see you all next week. Thank you.

Operator

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PLANET FITNESS INC

Q3 2022

Earnings Transcript

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