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.