Release Date: February 15, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Revenue increased by 17.3% to AUD79.1 million for the half-year, demonstrating strong financial performance.
- EBITDA climbed to AUD16.6 million, an increase of 18.6% from the previous corresponding period.
- Corporate members at owned locations increased by 9.8%, and total membership across all locations grew by 6.2%.
- The company has secured 21 new greenfield locations, indicating strong future growth potential.
- Viva Leisure's strategic refurbishment program is nearing completion, with 63% of identified locations completed, setting a strong foundation for the second half.
Negative Points
- Several locations had to be closed due to underperformance and lease terminations, impacting overall club count.
- Delays in development approvals from councils have slowed greenfield growth.
- The company exited a corporate membership program, resulting in the cancellation of 8,395 members, though it represented less than 0.5% of annual revenue.
- There is a slight reduction in the cash balance at the balance date due to significant investment in the refurbishment plan.
- The strategic focus on refurbishments and upgrades in the first half moderated the pace of greenfield and acquisition efforts.
Q & A Highlights
Q: Can you provide context around the Fitness Passport members and the decision to no longer participate in that network?
A: The Fitness Passport members were yielding about AUD2.80, which affected utilization and yield. The program was inherited through acquisitions and operated in 21 of our 168 sites. We canceled 14 of them, impacting 1,800 members out of 8,000. Financially, it represented less than half a percent of our total revenue. Exiting the program balances the average revenue per member more appropriately.
Q: How should we think about potential yield increases looking into the second half and next year?
A: We do not implement price increases across the board but do so strategically. For example, if a location undergoes upgrades, we may increase prices for new members and then existing members. We use data-driven decision-making for pricing reviews. No price increases are baked into the forecast for the rest of this financial year; we generally look at a price increase for the beginning of FY 2025.
Q: Can you update us on the return on invested capital for the upgrade program and the potential for an expanded program for FY '25?
A: We have seen an uplift across completed sites with a net increase of 1,800 members and higher yielding rates. We have already banked about AUD2 million in annualized earnings from the refurb program, aiming for AUD6 million in total. The full benefit is expected within 12 months post-completion. Currently, there are no additional locations identified for refurbishment beyond the initial 27.
Q: Are the acquisitions in the pipeline completely funded by debt headroom?
A: Yes, our expanded debt facility will allow us to complete these acquisitions. We have about five acquisitions of up to 15 locations in the pipeline.
Q: What has driven the 6,000 member increase in January, and how does it compare to the same period last year?
A: The increase is driven by New Year's resolutions and the return of university students, including international students. This year, we saw about 5,000 organic sign-ups compared to 3,500 last year. We did not need to pull the promotional lever much; the cost of acquisition per customer remained relatively unchanged at about AUD25 to AUD26.
Q: Are you seeing greater opportunities for brownfield acquisitions at more attractive terms due to recent wage cost increases?
A: Smaller operators may not be as affected by wage pressures if they operate the business themselves. We are seeing a significant amount of opportunity, with the highest number of locations in our pipeline and being presented for consideration.
Q: Can you provide commentary on the churn environment and the macroeconomic impact on the business?
A: Our average price point is AUD15 to AUD17 a week, which does not have the same pressure as other expenses. Being a no-contract provider with 28 days' notice to exit, our churn has remained steady at around 5.1% each month.
Q: Can you provide details on the upfront fees and ongoing fees for Plus Fitness franchisees?
A: Franchisees pay AUD50,000 to secure a territory, which is generally non-refundable. The ongoing franchise fees are about AUD1,100 a month and increase annually for new franchisees.
Q: What gives you confidence that DA approvals will not be held up going forward?
A: We have a bigger pipeline with DAs falling at different stages. Approval times vary by region, with Queensland being quicker than New South Wales, ACT, and Victoria. We plan for a nine to 12-month approval process post-COVID, compared to three to six months previously.
Q: How are you prioritizing capital allocation between buybacks, greenfields, and other opportunities?
A: We prioritize greenfield sites, having 21 locations in the pipeline. The buyback program is used when the share price is deemed low and appropriate. We have not acquired any shares in the last couple of months, focusing on deploying cash for greenfield sites.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
