Planet Fitness, Inc.

Good afternoon. My name is Ian, and I will be your conference operator today. At this time, I would like to welcome everyone to be placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. At that time, if you would like to ask a question over the phone lines, please press star, then one on your telephone keypad. To withdraw your question, press the pound key. In the interest of time, please limit yourself to one question and one follow-up question. At this time, I would like to hand the call over to your speaker today. Brendan Frey from ICR, please go ahead, sir.

Thank you for joining us today to discuss Planet Fitness' second quarter 2020 earnings results. On today's call are Chris Rondo, Chief Executive Officer, Dorban Lively, President, and Tom Fitzgerald, Chief Financial Officer. Following Chris and Tom's prepared remarks, we will open the call up for questions. I would like to remind you that certain statements we will make in this presentation are forward-looking statements. These forward-looking statements reflect Planet Fitness' judgment and analysis only as of today and actual results may differ materially from current expectations based on a number of factors affecting Planet Fitness' business. Accordingly, you should not place undue reliance on these forward-looking statements. For a more thorough discussion of the risks and uncertainties associated with the forward-looking statements to be made in this conference call and webcast, we refer you to the disclaimer regarding forward-looking statements included in our second quarter 2020 earnings release, which was furnished to the SEC today on Form 8-K, as well as our filings with the SEC referenced in that disclaimer. We do not undertake any obligation to update or alter any forward-looking statements, whether a result of new information, future events, or otherwise. In addition, the company may refer to certain adjusted non-GAAP metrics on this call. Explanation of these metrics can be found in the earnings release filed earlier today. With that, I'll turn the call over to Chris Rondeau, Chief Executive Officer of Planet Fitness.

Chris? Thank you, Brendan, and thank you, everyone, for joining us today. Before we share our Q2 results, I want to express my sincere appreciation to our dedicated employees on the front lines of our stores, at our corporate headquarters, and our franchisees for how they have supported our business and our members during this unprecedented time. COVID-19 pandemic continues to present challenges for our business. As we previously communicated, in mid-March, we temporarily closed all of our stores due to health and safety of our employees, members, and communities we serve. As you plan for successfully reopening our stores, we enlisted global medical expertise and work closely with franchisees to develop a robust COVID-19 operations playbook that outlines enhanced safety and sanitization policies and procedures. This includes measures such as personal protective equipment for all staff, enhanced cleaning efforts using disinfectant on the EPA list as effective against COVID-19, touchless check-in, physical distancing measures whereby certain pieces of equipment are marked out of use to ensure additional space between members, and much more. More recently, as a leader in the industry, we took additional steps and implemented a standard universal mask policy requiring everyone to wear a mask inside of our stores except while actively working out. and in accordance with the local and state restrictions. We'll continue to proceed cautiously until there is greater certainty on when conditions will return to normal. For the 1,490 stores that were opened by the end of the second quarter, overall joints outpaced prior year levels even as we executed reduced levels of local and national advertising, nearly offsetting total cancels for the period. As a result, we only saw a modest decline in membership across our open stores through the end of June. Thank you for joining us. As the third quarter got underway and consumer sentiment began to shift with the uptick of COVID-19 cases across the country, we are seeing a pent-up demand taper off and joints started to stabilize as clubs have been open longer. For July, joints have been generally flat the prior year, except when we were up against the July sale period. At the same time, we also saw an uptick in cancels, with much of the increase concentrated in states that experienced a resurgence of COVID-19. Usage has remained strong, particularly in stores open the longest. After growing consistently each week, usage has plateaued at about 60% average compared to prior year. To date, we have 1,477 stores open in 46 states, D.C., five provinces in Canada, and Australia. 1,426 of these stores are franchisee locations and 51 are corporately owned stores. Total membership is now 14.8 million, a 4% decrease from the 15.5 million members we ended with Q1. We continue to focus our marketing efforts on the robust cleaning and sanitization policies and procedures to instill confidence and reassurance that Planet Fitness is doing everything we can to keep our employees and members safe. Supporting and engaging members in their fitness journeys both in our stores and at home also remains a top priority for us. We continue to host free, live United We Move workouts on Facebook, which have been extremely well received, totaling more than 20 million views from 36 countries around the world. In the quarter, we also accelerated our digital offerings on Planet Fitness mobile app with our recent partnership with iFit, a leader in streaming workouts and a pioneer in interactive connected fitness. We continue to see encouraging usage of our iFit digital content, which is enabling a new avenue for us to engage with existing and prospective members and helping to inform our long-term digital strategy. In fact, 24% of Planet Fitness digital content users were non-existing members. Our accelerated digital strategy, while still in its early stages, is proven to be a great engagement tool for existing members and for potentially acquiring new members. Adoption of our mobile app was at an all-time high in Q2, with nearly 60% of new joiners downloading the app in the quarter. During the month of June, we saw more in-app joins than during January 2020, which is pretty remarkable given January is our busiest new member sign-up period and was prior to COVID when 100% of our stores were open. We also recently released new features and functionality including in-app messaging allowing us to communicate to our members via the app and a crowd meter which gives members the ability to check the capacity of their club before they get to the gym. We believe this is particularly reassuring for members who may want to work out in less busy times. The overall health of our franchisees remains a top priority for us. In an effort to continue to support them throughout this time, we have provided a 12-month extension on new store development obligations, re-equips, remodels, and a 15% discount off equipment placed by the end of this year. We opened 21 new stores in the quarter. A handful of these locations were originally scheduled to open in Q1, but were delayed due to COVID-19. As we previously said, we expect there to be reduced development over the next couple of quarters as franchisees focus primarily on training and supporting staff on new policies, procedures, is successfully reopening our stores, keeping our members engaged with our brand and rebuilding their cash positions, which were reduced during this period. Health and wellness is more important now than ever. We see ourselves as an integral part of the healthcare delivery system and part of the solutions to COVID-19. Fitness plays a key role in positively impacting the overall mental and physical well-being in addition to combating COVID-19 risk factors such as obesity, heart disease, lung disease, and diabetes. We look forward to reopening more stores in the future as the states and municipalities allow to further provide our communities with much-needed access to health and fitness. While a near-term operating environment is likely to remain volatile and negatively affect our near-term revenue and profitability, I am confident in the long run, once this pandemic is behind us, that Planet Fitness will be able to significantly widen our competitive moat for several reasons. First, the incredible strengths and sophistication and diversification of our franchise system. 75% of our stores are owned by franchisees who own and operate locations in multiple states. Second, we are well positioned to capitalize on the industry consolidation as many of our competitors struggle to survive financially. Third, the real estate market will be even more attractive in terms of availability of prime locations and lower rent costs and enhanced landlord incentives for our system because not many brands will be adding hundreds of locations in the coming years. Fourth, the encouraging early results of our opportunity we're seeing as a result of the accelerated digital content strategy. focusing on the needs of first-time and casual gym users. And finally, the overall increased focus on health and wellness, which we believe will emerge over the next several years. This will further enhance the tailwinds in the category, and we believe our value proposition is second to none. I'll now turn the call over to Tom.

Thanks, Chris, and good afternoon, everyone. As we outlined in our Q1 call in May and as Chris just discussed, COVID-19 has significantly disrupted our business. With the health and safety of our members and employees as our primary focus, we temporarily closed all Planet Fitness locations in mid-March. It wasn't until early May that we slowly began the reopening process following our expansive COVID-19 store reopening playbook and adhering to health authority guidelines. As we mentioned on our Q1 call, 1,875 of our 2,039 stores drafted monthly membership dues in March and then closed shortly thereafter. Those members who were drafted and collected in March had a 30-day credit to utilize once their home store reopened. I'm going to walk through how this dynamic, among others, shaped our results and then provide color by segments. For the second quarter, total revenue was $40.2 million compared to $181.7 million in the prior year period. The biggest driver of our Q2 top and bottom line was the decline in royalty revenue and corporate store revenue related to monthly membership dues that weren't collected as the result of our decision to freeze member accounts while stores were closed due to COVID-19. To be more specific, there were 297 stores that drafted in May and 1,357 that drafted in June. However, due to the issued credits, only three stores had a full draft in May and 340 had a full draft in June. Partially offsetting this decline was the recognition of $11.2 million in deferred revenue related to monthly membership dues collected in March before stores closed made up of $9.4 million from franchise royalty and $1.8 million from corporate-owned stores' monthly dues. We also recognized $3.1 million of NAF contributions in the second quarter that were also deferred from Q1. In addition, our year-over-year performance was significantly impacted by the decline in equipment sales as we were unable to move forward with planned new and replacement equipment sales due to COVID-19. We did place equipment in 14 stores in Q2, some of which were originally scheduled to be placed in late March but were delayed until the second quarter. We had replacement equipment sales of 2.7 million in Q2. Before I get into the specifics, Let me spend a minute on our same-store sales definition. When stores are closed and we don't draft monthly membership dues or don't execute a full draft upon reopening because members have credits to utilize from prior periods, they are not included in the comparable store base and therefore are not included in the same-store sales calculation for that month. because none of our stores drafted in April and only a portion of stores drafted in May and June, we are not reporting a same-store sales figure for the second quarter. That said, we do want to share the results and provide some color for the comparable stores that had a full draft in June and walk through the key drivers. For some context, we reported 53 consecutive quarters of positive same-store sales before COVID-19 hit in March and shut down all of our stores. Our recurring revenue model and historically strong same-store sales results are built on the ability to continue to grow net membership levels across our store base month over month and therefore year over year. Additionally, in our recurring revenue model, our same-store sales performance at any point in time is a function of what happened to our membership levels over the trailing 12 months. The way our recurring revenue model works is that if the net membership growth rate per store in the current period falls below the growth rate for net membership per store in the same period last year, then our same store sales will grow at a slower rate and could even decline. Our comps are not based on what happened in the last month, but based on what's happened in the last 12 months. So when the majority of our stores were closed for two to three months as a result of COVID-19, that created an interruption in our membership growth cycle that cannot be offset in a given month. When our stores shut down due to COVID, we were unable to grow net membership levels in our stores and as a result have seen a slowdown in same-store sales growth. Now, nine were in the comp base. with approximately 80%. For comparison purposes, these stores delivered same-store sales growth of 9.3% in Q1 of this year. Of the decline in growth in June from Q1 to a drop in net member growth in the balanced The first store in the 279 comp store of this year. Whereas in last year's Q2, members. Approximately 400 basis points of the difference in comp Comp performance compared with the first quarter was due to the decline in black card penetration, which we attribute to the fact that we were unable to repeat a black card national promotion in mid-March due to the COVID store closures. Our system-wide black card penetration rate in Q2 was 61.1% at 40 basis point decrease compared to the prior year period, while in Q1 we saw a 30 basis point improvement year over year. As Chris discussed, across the 1,490 stores that were opened by the end of the second quarter, membership levels remained relatively flat at the end of the second quarter versus the membership levels when the stores reopened. Joins over-indexed compared to prior year due to overall demand early on after reopening, and cancels also indexed higher than the prior year. However, since mid-June, the combination of the resurgence of COVID-19 and corresponding media coverage and increased consumer concerns in general regarding the virus. Joins are now in line with prior year levels for stores that have reopened and cancels have continued to index above prior year. Moving on to a review of our segment revenue results, franchise segment revenue in the prior year period. Let me break down the components. First, royalty revenue, which consists of royalties on monthly membership dues and annual membership fees, was $14.9 million compared to $48.9 million. A million of revenue includes $9.4 million of deferred revenue recognized from the March draft from stores that were and reopened during the quarter. The average royalty rate for the second quarter for the stores that drafted was 6.4% in the same period last year. At higher royalty rates compared to 5 million compared to 4.2 million sign-ups in the recognition of fees paid. The transfer of existing stores as a result of the store closures. Also, within the second quarter compared to $5.1 million a year ago. These are fees we received for the assembly The NAAF revenue in the current quarter includes $3.1 million of deferred NAAF revenue that was collected in March but not recognized until Q2. Our corporate-owned store segment revenue was $9.4 million compared to $39.7 million in the prior year period. The $30.3 million decrease was due to lower membership fees due to the closure of our corporate stores. Since the majority of our corporate stores were still closed, we had a reduction of annual dues previously collected and $1.8 million of revenue deferrals from stores closed after the March draft Thank you all for joining us today. Replacement equipment sales in Q2 were $2.7 million compared to $42.5 million in Q2 last year. In the second quarter, we had 14 new store equipment placements, which was down 41 from the prior year period. Beginning in Q2, we launched a 15% discount offer on all equipment orders and replacement orders. included in the to the additional discount. Relates to direct cost of equipment sales to new and existing franchise-owned stores amounted to a decrease of 84.4% in line with the store operation expenses which are associated with our corporate-owned stores decreased are primarily driven by cost-saving measures taken while stores are closed, including lower payroll, marketing, and operating expenses, partially offset by higher occupancy expense associated with the seven new stores opened and 16 stores acquired since the end of the first quarter of last year. SG&A for the quarter was $15.9 million compared to $18.9 million a year ago. The decrease was driven primarily by reductions in variable compensation, temporary executive salary reductions, lower equipment placement expenses, and various administrative expense reductions related to COVID-19. National advertising fund expense was $10.9 million compared to $12.5 million in the prior year period. The decrease in expense was due to reduced advertising and marketing expenses as a result of COVID-19. The difference between NAF expenses and revenue this quarter primarily reflects lower NAF contribution revenue due to COVID-19. Adjusted EBITDA, which is defined as net income before interest, taxes, depreciation, and amortization, adjusted for the impact of certain non-cash and other items that are not considered in the evaluation of ongoing operating performance was a loss of $9.3 million compared to earnings of $76.5 million in the prior year period. Included in this quarter's adjusted EBITDA is approximately $14.3 million related to the recognition of deferred revenue previously discussed. A reconciliation of adjusted EBITDA to GAAP net income or loss can also be found in the earnings release. By segment, franchise adjusted EBITDA was 3.6 million, corporate store adjusted EBITDA was negative 5.9 million, and equipment adjusted EBITDA was 1.3 million. Adjusted net loss was 27.9 million, down 70.0 million from a year ago, and adjusted net loss per diluted share was 32 cents, a decrease of 77 cents per diluted share. Now turning to the balance sheet. As of June 30, 2020, we had cash and cash equivalents of $423.6 million compared to $547.5 million on March 31, 2020. In addition, we ended the quarter with $86.4 million of restricted cash compared to $63.2 million at the end of Q1. Based on the current situation and our focus on preserving liquidity, we announced in March that we were halting our share repurchase activity for the time being. We also took additional measures to reduce our monthly cash burn, including the previously announced compensation reductions for our leadership team and our board of directors. Total long-term debt, excluding deferred financing costs, was $1.80 billion as of June 30, 2021. consisting of our three tranches of securitized debt and $75 million of variable funding notes. Our securitized debt structure is covenant-like. We have two maintenance covenants, a debt service coverage ratio, and a total systems sales threshold. These are both tested quarterly, calculated on a trailing 12-month basis, and reported on a roughly two-month lag. In our most recent debt covenant reporting period of June 5, 2020, we had a 120% and a 170% cushion to the first triggering event for our debt service coverage ratio and system-wide sales covenant, respectively. Similar to our liquidity position, we believe we have sufficient headroom for our two maintenance covenants. Given the uncertainty surrounding the evolving nature of the pandemic, we are continuing to refrain from providing guidance. While the near term is difficult to predict, we believe that in the longer term, our business will be well positioned to widen our competitive moat and create value for our shareholders and our stakeholders. I'll now turn the call back to the operator for questions.

At this time, if you would like to ask a question over the phone lines, please press star then one on your telephone keypad. As a reminder, please limit yourself to one question and one follow-up question for the sake of time. You will now pause for a moment to compile the Q&A roster. Your first question comes from the line of Jonathan Cobb of Baird. Your line is open.

Yeah, hi, thank you. I want to just ask firstly the recent trend you highlighted in the membership with more of the headlines impacting the business in July here. Just curious to get your thoughts, any perspective on whether What you've seen in July, you have reason to think it might continue here in the short term. And when you think about marketing plans in the second half, is there any plans that you have in place that you think could really restart the new joins and the trend there that you're seeing?

Sure, John. Yeah, this is Chris. Yeah, so as you know, the joint billing date for our members is the 17th of the month, and we started opening up beginning of May, and most of these clubs did have a month credit. So we started billing a good portion of our members in June 17th would have been the first go-around of a smaller number, and then the larger bill date would have been July 17th. So after that June 17th billing, we began to see that spike, and we've seen historically forever in and around bill dates spike. Thank you for joining us. and the kicking in and restarting of the billing of the members. So we had the June 17th, then the July 1st annual fee, then July 17th billing, which is a big chunk of clubs of that $1,400, which we believe is driving most of those cancellations that we saw come through. And also in July last year, we had an annual sale in the first week of July, which didn't occur this year. So to your marketing question, as now we have three-quarters of the stores open, hopefully the next 500 or so will get the green light shortly, which time will tell, and it's very fluid at this point on those. that the second half of the year, as now we're collecting the NAF again, which is the 2% on EFT, we're lining up to probably start the first national sale come September. But time will tell on that. I think the one thing I would add to this that I'm extremely happy about and proud of is that the franchisees collectively with us and with the Independent Franchise Council, we got together to look at the second half NAF mix and have agreed to slightly change that mix, increase the NAF slightly for the rest of the year to help kick in that flywheel here as we hopefully get a sense of some normalcy in the world.

Okay, that's great. And maybe just one broader question on the health of the system. I know You certainly mentioned the potential to see consolidation across the industry. When you think of your system, and we can see the pressure on your own company segment, just any perspective on the pressure that your franchisee base is feeling today and any updated statistics you can share around the health of the system within the planet system?

Sure, yeah, I'll go quickly on the competition side and then let Tom fill in on the – we're doing franchise business reviews with all the franchisees now. We're going through them as we speak here, so we've got some good financials and updates there. But, yeah, I mean, competition, you know, besides the ones that, you know, everybody probably on the phone has heard between the Gold's Gym and the 24-Hour Fitness, there's definitely – You know, there's almost now about 40,000 different independent gyms out there that you don't see the mom and pops or hear about them at the national level of closures and not reopening. And we have franchisees in most markets now, even some corporate stores that have been reached out by a competitor that just decided not to open. So there's going to be, I think, probably a six- or 12-month timing of which people are either going to try to open or just not reopen just based on the financial situation. and many more. So I think there's definitely some opportunity there for us from a planet fitness system for sure in that world. But Tom can probably fill in on the franchise business reviews.

Yeah. Hey, John. So as Chris said, we've been in touch with our franchisees as we've said all along, but more recently doing franchise business reviews as we call them. But also reaching out in certain situations like in California where the gyms closed and talking to all those franchisees who are affected and I think we're fortunate, as Chris said in his prepared remarks, 75% of our stores, our franchise stores, are owned by franchisees who operate in more than one state. They're geographically diversified so that if they do have some stores in one state that are closed, they may have stores in other states that are open to help with the economic pressure. I think the only other thing I'd add is we've talked about before, we've been in touch with lenders and through these franchise business reviews to the extent that a franchisee had really a modest amount of debt from a leverage standpoint, but given the store closures caused those debt levels to increase when they would have otherwise still remained modest. The lenders across the board have said they are being accommodating. We've talked to them directly, as I said, and the franchisees are obviously in touch with them. And for the most part, they're waiving as long as the stores are closed, and then they're going to revisit the metrics upon reopening, which the franchisees share with them for their own stores. And so we feel like they're going to come out of this, thankfully, in good shape, and as we've said, no one through all of these discussions has raised their hand and said, I need financial help or I don't think I can make it. So they're all financially sound, working with lenders who are being accommodating, and once the stores reopen, then they can start to build back their cash and their balance sheet and then start to look forward to development. But it's in that sequence, and that seems appropriate given where we are.

I appreciate the color. Thank you. Thanks, John. You bet.

Your next question comes from the line of John Heinbottle of Guggenheim Securities. Your line is all open.

Hey, can you guys hear me?

Yeah, sure do, John. Hey, John.

Hey, so, Chris, let me start with if you look at the 600,000 or 700,000 reduction in members from where you were in the 1Q, have you been able to parse out demographically How that breaks out among your key demographic groups, and then geographically, and is there anything to learn from that?

From a high level, the boomers are proportionally higher than what we normally see as well as Gen Xers, where Millennials and Gen Zs are not. In some of the higher spiking states, we're seeing some higher indexing joints, so like the Texases, the Floridas, Arizona, for example, those are also skewed slightly higher than the peers here and throughout the rest of the country. In Canada, which is very different, Canada has had increased joints and less cancels and a heck of a lot more usage up there than the U.S. stores.

Okay. And then secondly, when you think about what plans you've started to put together for New Year's Eve heading into January. I guess you would assume that you'd have the best majority of the clubs open. What's your early thought on how you attack your typical busy join season? What's more the focus this year? The joins or trying to limit the cancellations in your marketing?

Yeah, I mean, cancel is first and foremost. We want to make sure people start using the club. I mean, the reason for cancellation is generally people aren't using the workouts or facilities. So we want to make sure that people begin to work out and get some benefit there for sure. But I think driving demand is definitely going to be a big piece of what we need to do. But I guess the question on the demand piece, which we're seeing here from customer sentiment, that a lot of it is going to be reassurance as opposed to strictly a dollar down. Thank you for joining us today. are excited to get back in and see what they've seen. And I think, too, that, as we've said in the past, our average member works out five to six times a month, and that same usage pattern is holding true. So of the people using the store, they're using the same amount, which is great to see. New Year's Eve, yeah, they're still in play. They still plan on having it. Hypothesis is that they're thinking because this is, God forbid, still here or there's some social distancing or issues going to bars or nightclubs that maybe viewership could be up because people are stuck at home. So I still think we'll get a lot of airplay out of it with the message and get people hopefully to get 2021 off to a better start.

Okay, thank you.

Thanks, John.

Your next question comes from the line of Simon Segal of BMO. Your line is open.

Thanks. Hey, guys. Hope you're doing well through all this. Chris, any way to quantify gross ads versus cancellations and how you're thinking about that trajectory? And then just given the color on the card numbers, any thoughts on where that ends the quarter and the year? And then, sorry if I missed this, did you give any differentiation in black card versus classic for the reopened gems or cancellations? Thanks.

Yeah, for Q2, we were about 58% black card acquisition for Q2, the system there. You know, I think the ads question, you know, I think the bigger question now is back to what I just mentioned here is from an acquisition standpoint, are we going to be able to drive a lot of high acquisition join on expiration dates, for example, or is it just more brand?

We'll see you next time.

as long as you don't have more closures like California and Arizona, and that doesn't seem to ramp, but it's so fluid as we all see on TV. Day by day, it changes based on reports of the day. I think more or less it's going to be just how can we drive the messaging and the marketing because not only is it reassuring potential members, it's a current member at home that says, geez, look at all this cleaning stuff they've done and the protocols in place. So in the advertising, you might get, you know, you're kind of talking to both. You're talking to both, you know, members and non-members, I think, in the advertising the second half of the year. I think Oliver, this is Dork.

Oliver, this is Dork, and just one other thing to add on Chris's comments on the cancellations and the fact that, you know, we went for, you know, basically three months without billing. And as you mentioned, you know, we built a few clubs in June and then, you know, a significant number of more clubs in July. The other factor in there is that the last time we had billed the annual fee was on March the 1st. So the April monthly annual fee, the May and the June, those fees did not get billed to the member, you know, who wants their fees. did not get billed until basically in July we did a catch-up, in other words, so those months that we didn't bill the members. So you had a lot of members that got billed their annual fee for the first time in over a year because they didn't get their April, May, and June annual fee. So there's always been historically a higher spike of cancels around an annual fee time period. And you go back years ago, we only had two months we billed annual fees. It was June and October. And then a few years ago, we changed it to where an annual fee can be billed for a member, you know, based on when they join the membership or plan it. And so that's another factor that really occurred during this time period of July as well.

Yeah, and then, Oliver, I think the – the things the franchisees have taken advantage of. I mean, they all essentially got the 12-month extension on new store development and re-equips. And the reason we did that, one, was to just alleviate the pressure that their lenders might have had or put on them to potentially experience a default if they weren't in compliance with our agreement. So pushing those dates out just alleviates the pressure from the lenders. So essentially everybody took advantage of that. And then, as we mentioned, we did offer a 15% discount if equipment was ordered in place by the end of the year. So folks who are able to execute that, it's a little incentive for them to do that. We essentially cut our margins in half, but we thought that was the right long-term thing to do.

Got it. A quick follow-up, the black card penetration going forward. Should we expect that to be a headwind of the comp when we do year over year? I would love any color there to the extent that you can provide it. Thank you.

I mean, it's one quarter. And the other thing I need to note, there's in June last year we had a black card flash sale, which we didn't have in this second quarter. So even though we were 58% of the black card, I'm not sure that that's necessarily going to be the norm, I suppose. We're 60% across the system. So I think it was more probably impactful because we didn't have a black card sale in that quarter.

Which was the same thing that happened in Q1. We were up against a black card sale from last March, and we didn't execute it. So I think as long as our promotional windows can line up based on what's going on in the world, then it should not follow the same trend that we just discussed. But it's just a matter of what the marketing calendar is. What makes sense from a marketing calendar based on what's going on?

Which plays in part to what I mentioned earlier on the last vote change we did with the franchisees on changing that mix slightly here for the remainder of the year to get that flywheel back going.

Yeah. Thank you very much. Best regards.

Thanks, Oliver. Thanks, Oliver.

Our next question comes from the line of Sharon Zakfia of William Blair. Your line is open.

Hi. Good afternoon. I may have missed this. Hi. I may have missed this, but did you indicate if you're profitable at 72% of the clubs open? And then secondarily, what has kind of the response been to the equipment discount? I mean, what are you seeing in terms of any uptick in planned replacements or new club openings in the back half?

So Sharon, I want to make sure I understand the first part of the question. When you say are we profitable, do you mean across The stores that are reopened, are they now profitable?

Is that what you're... No, no, at a corporate level. So is 72% of stores open? Is that with the organization?

From an EBITDA standpoint, we were negative. So I'm not sure if that... No, I'm asking as of July.

So in July, I think you indicated you have 72% of stores open at this point. So I'm just wondering, at that level, I mean, I understand the June quarter, but at the current run rate, are you profitable?

I'm with it, yes. So at that level, we would be profitable. Sorry about that.

I misunderstood. No, that's okay. No problem.

And, yeah, from an equipment standpoint, you know, it's hard to understand what would have been because as things have evolved, franchisees – New Store Development, and Dorban, feel free to add, you know, has shifted as well, you know, based on whether a store that, sorry, whether a state has remained closed or in a couple cases has reclosed. So, but we, you know, we believe that at the end of the day we'll do more, we'll do more placements will make a little less money than we would have otherwise and probably end up being margin dollar neutral to what would have been without the incentive.

I think, Sharon, what I'd add to that is that Tom makes a good point in that states like California, where clubs are shutting down, or even states where we haven't been able to open again like in California, North Carolina is an example. Those franchisees are being very cautious about going out and, you know, starting construction on a brand new site because, you know, with really not knowing kind of what the potential endgame would look like, you've got a territory where there's Thank you. Thank you.

Your next question comes from line of John Evenco of J.T. Morgan. Your line is open.

Hi. Thank you. And I apologize if I missed this. Can you say how many units are actually in some form of either signed lease or groundbreaking for the second half of 20 from a company and a franchise perspective in terms of the new gyms and new placements that we could actually expect? And I did hear... Excuse me. Do you hear in the prepared remarks, you know, comments about, you know, getting better lease terms from, you know, from landlords, you know, more sites coming available, you know, more flexible terms, you know, what have you? You know, I mean, I guess what do you think, you know, in terms of what's happened to the near-term market opportunity? And I know it's a, you know, it's a really hard question, but, you know, I mean, assuming that, you know, and I think a lot of people, you know, kind of think we get a vaccine at some point by, you know, early 21, mid-21, maybe at the latest. What do you think that could really mean for development in 21 and 22? Do you think we can get back to 19 levels? I mean, this really is, I guess, the biggest and most important part of the question at this point. I mean, what the overall kind of appetite is for opening stores. I mean, I guess that's making the assumption that you believe that that proposition is true.

Yeah, John, this is Dorman. What I'd say is that we don't disclose how many leases are signed and at what stages they're at in the construction phase, but we open stores in Q2 and we'll open stores over the balance of the year. Some of that, as to my last comment, is literally in timing in that there are sites setting out there that franchisees are waiting until they know that their clubs are going to be able to be open and they'll be able to continue the construction site and get it closed. There are clearly franchisees that are sitting and waiting and saying, Thank you for joining us. They're going to take a time period to try to build back some of their cash reserves before they start really plowing back into it in a big way. Now, there are others that either are in a better financial balance sheet position or see this as an opportunity to really get aggressive. And we've had a conversation just last week in his markets. believing this is an opportunity to go after the competition. To your point on the real estate availability side, I don't think we've seen the full fallout yet. The franchisee and their real estate teams and there's going to be a lot more space available. But and I think Tom may have made a comment in his remarks a little bit ago that, you know, one of the issues at the moment.

Pushed him hard on a base.

The immediacy of that. are out there trying to release space. So that's got to take a little bit of time to work its way through. And I guess net-net, as we said earlier in the year, we believe this year could be as much as 50% or more down over the 2019 level. Now, in terms of longer term, I think the moat's going to be greater. Thank you for joining us.

Yes, I understood. I certainly at least wanted to hear your perspective on that, which is very helpful. And in terms of some of the new gym performance, I mean some of the gyms that did open, for example, in the second quarter, maybe into the third, what is the performance of attracting new members to new gyms, which I would imagine would be kind of a very different proposition than basically maintaining existing members at existing gyms?

I'll take that.

You had an impact not only from stores that were going through pre-sale, because that's a big deal for us. You've heard us talk about we typically open a gym with over 1,000 members when the gym opens, and then it starts to ramp up for that. And so when you throw the pandemic in during a time period of where you're in the middle of a pre-sale and you maybe can't even finish it, close down, then you open back up, You didn't really get kind of that initial bump, and then you've got the issue of just the virus and the pandemic. So there's clearly been a bit of a slower pace on ramping post-COVID, and that really doesn't concern us in a big way, particularly because earlier in the year, we were seeing our performance of our business similar to the past. So I think it still comes back to a lot of the comments that we've been talking about, and that is that there's still demand out there. There's still people that want to join the gym. There's a hesitancy for workouts. Workouts have been down, as Chris talked about earlier, but we don't see that as a detriment to our overall four-wall store model.

Thank you. Thanks, John. Thanks, John. Your next question comes from the line of Joe Altabello of Raymond James. Your line is open.

Thanks. Hey, guys. Good afternoon. So this question, I want to go back to usage for a second. You mentioned that the average across the store base that's open is about 60%. But I think you mentioned that some stores are actually approaching usage levels that you saw at this time last year. I'm just curious, what's the key difference or differences in those stores that are approaching 100% usage index? Is it largely geography? Are these more rural stores? Is it the average age of members within those stores? Is there something unusual about those stores where the usage index is about 100% of last year?

Yeah, those were actually the earlier stores that opened up. So there's definitely a key piece is the longer they've been open. And in most cases, the longer ones have been open is also the ones that the states are less, I guess, and many more. and then it kind of got to 60% and it just kind of stayed there and it hasn't really progressed since the resurgence in some of the states. So I think it's just more that angst out there that's kind of held it kind of where it's at right now, I think. So I think we just got to wait for the consumers to get a little bit more comfortable here to begin to venture out and start to work out again. I mean, I worked out this morning in my local store here in Seabrook, New Hampshire and it was, I mean, I thought it was totally fine. People were cleaning the equipment down more than they ever did. They walked around, they stayed away from each other. Problem is you got to get in to see it. And then once you see it, you're like, oh, this is No big deal. So I think that's probably more of it is just getting them in there for the first time.

Got it. That's helpful, Chris. Thank you. And just secondly, in terms of the health of your franchisees, have you had any discussions regarding acquiring stores for many struggling franchisees, or have you facilitated any transactions between franchisees on that front?

Yeah, I'll start it. Sorry, go ahead. So one of the things, and Tom's talked about it in our model, Joe, is that because of the return to the investment of the model and the margins that these four of us threw off, even with some contractions, or Stuart being closed for a period of time. I mean, although I was hurt to not have revenue coming in, but we haven't had any franchisees that's come to us that says, you know, would you buy us? And we have not had to broker any transaction between one franchisee and another franchisee because somebody had to get out. So I think that speaks to some of the comments that Tom made earlier in terms of just the overall financial condition of franchisees is that They've been able to weather the storm up to this point. With 70% plus have stores in multiple states, they've got some diversification there. But that's not the case in our scenario because our average franchisee probably has 15 plus stores or so, with many having significantly larger. And then they've done the same things that Tom was talking about that we did with our corporate stores. Most cases, they furloughed all their team members except their managers, and they took a hard look at their, you know, kind of their headquarters SG&A and started cutting expenses there. So they've been really, you know, very financial prudent during this process, you know, leading up to where we are today.

Yeah, I think the only thing I'd add to that is, you know, somewhat extended an olive branch to be sure that, you know, if there's anybody out there that is Waving the white flag and nervous to give us a call, let us know, or even other big franchise groups, private equity-backed that have reached out on their own. I think back to Doran's earlier point, the franchisees are bullish to get a sense of normalcy and then to begin to develop again because nobody's taking us up or anybody up on that scenario. They're bullish about the future, so they're kind of hanging in there just waiting for this to pass.

Got it. Great. Thank you, guys. Appreciate it.

Thanks, Joe. Thanks, Joe.

Your next question comes from the line of Raf Cedrosic of Bank of America. Your line is open.

Hi, Dave. Thanks. Good afternoon. Thanks for taking my question. The first question I have is just can you just remind us, I know you're providing a 12-month extension for the Club Opening Requirements, and the Replacement Equipment. Can you just remind us of the commitments that your franchisees have over the next couple of years as you look a little bit further out in terms of what's in the ADA pipeline that they're committed to?

Yeah, Ray, this is Dwarven. As we've said in the past, franchisees have over 1,000 committed under their air development agreements, and at any point in time, if you go back and look now over the past you know, three, four, five years or so, generally about half of those are required to be developed over the next three years. And so what we did is we, in essence, just said, you know, we give you an extra 12 months and just pushed everything out 12 months. So the commitment is sort of the same. It's just been pushed out an incremental 12 months.

Okay. And you're not seeing any pushback or change to the and so on and so forth.

franchisees. We'll see where, as we've been talking about kind of the normalcy, what it's going to look like. Many of our franchisees have been ahead of schedule. So they technically, in the past that we've made comments about it, could have slowed down their development because they were ahead of what they had to do, but kept building, you know, redeploying their cash. So we don't know what will happen in this case. You know, once we kind of get past some of the and all of our clubs up and running again. It could clearly be the franchisees might do some catch-up and get caught back up on what they were going to do this year versus what they would be required to do next year. But I think it's still going to take a little bit of time to get kind of to the other side of this to see how fast they might try to get their development schedule back up and running.

Thank you. And the second question was just in terms of was there any additional revenue deferrals in the second quarter that will be recognized in 3Q or later on in the year?

Hey, Rafe, it's Tom. No, there weren't any additional ones. It's more the what was deferred from Q1 in March hasn't fully been recognized yet. So that'll just get recognized whenever those stores reopen.

I think it was $20 million, and I think you mentioned on the first quarter call, and you recognized $11 million of that. Is that roughly the right amount?

Yeah, there's about $12 million left to be recognized. Okay.

All right. Thank you.

Thanks. That is all the questions we have time for today. At this time, I turn the call back over to the presenters.

Great. Thank you, everybody, for taking the time today and listening to our Q2 call and some small updates from the beginning of Q3. Looking forward to, you know, getting through this here and get the rest of these stores open. Excited about the second half of the year. Hopefully we can get things back on track and get the franchisees ready Take care of them and make sure that the staff and members are all happy with all our cleaning and things we're doing. And like the one thing that I always like to reiterate, I've heard me on a few calls recently with some interviews, is that we're definitely the solution here to this and not the problem. I think what the industry is lacking is representation. I think one thing we've got to work as a team here from Planet's standpoint is that, you know, if you think about it, we're really a key integral piece of the health care distribution process. And to close gyms is just really not – it's really counterproductive in my view. If 20% of the U.S. has a gym membership, you make a case that if the other 80% did, we probably wouldn't be here. So a lot of upside here for this industry, and I think Planet is well positioned to take full advantage of all of it. So I think it's a good spot we should get through this together. Thank you, everybody. Have a good day.

This concludes today's conference call you may now disconnect.