Good afternoon. My name is Ian, and I will be your conference operator today. At this time, I would like to welcome everyone to the Planet Fitness Second Quarter 2020 Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. [Operator Instructions] At this time, I would like to hand the call over to your speaker today, Brendon 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 Rondeau, Chief Executive Officer; Dorvin 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 as 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 will turn the call over to Chris Rondeau, Chief Executive Officer of Planet Fitness. Chris?

Thank you, Brendon, 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 frontlines of our stores at our corporate headquarters and our franchisees for how they have supported our business and our members during this unprecedented time. The COVID-19 pandemic has presented challenges for our business. As we communicated in mid-March, we temporarily closed all of our stores due to the health and safety of our employees, members, and communities we serve. As we plan for successfully reopening our stores, we enlisted global medical expertise and worked closely with franchisees to develop a robust COVID-19 operations playbook that outlines enhanced safety policies and procedures. This includes measures such as personal protective equipment for our staff, enhanced cleaning efforts using disinfectants effective against COVID-19, touchless check-in, and physical distancing measures whereby certain pieces of equipment are marked out of use to ensure additional space between members. More recently, as a leader in the industry, we took additional steps by implementing a standard universal mask policy, requiring everyone to wear a mask inside our store except while actively working out and in accordance with local and state restrictions. We will continue to proceed cautiously until there is greater certainty on when conditions will return to normal. For the 1,419 stores that were opened by the end of the second quarter, overall joins 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. The number of visits per store continued to decline consistently across stores the longer they were open, with visits in some stores reaching levels comparable to the prior year period. Upon reopening our stores in early May, we had approximately 15.4 million members. At the end of the quarter, total membership was down a little over 1% to 15.2 million. As the third quarter began, consumer sentiment began to shift with the uptick of COVID-19 cases across the country, and we are seeing a tapering of pent-up demand with joins starting to stabilize as clubs have been opened longer. For July, joins have been generally flat compared to the prior year, except for 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 experiencing a resurgence of COVID-19. Usage has remained strong, particularly in stores opened the longest; after growing consistently each week, usage plateaued at about 60% of the average compared to the 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 in Q1. We continue to focus our marketing efforts on robust cleaning and sanitization policies and procedures to instill confidence and reassurance as 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 and 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 digital offerings on the Planet Fitness mobile app with our recent partnership with iFit, a leader in streaming home workouts and a pioneer in interactive connected fitness. We have continued 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, has proven to be a great engagement tool for existing members and potentially acquiring new members. Adoption of our mobile app was at an all-time high in Q2, with nearly 60% of our new joins 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 signup 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 with our members via the app, and a crowd meter which gives members the ability to check the capacity of their club before they go to the gym. We believe it’s particularly reassuring to members who may want to work out during 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 provided a 12-month extension on new store development obligations, re-equips, re-models, and a 15% discount on 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 reduced development over the next couple of quarters as franchisees focus primarily on training and supporting staff on new policies and procedures, 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 solution to COVID-19. Fitness plays a key role in positively impacting 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 states and municipalities allow to further provide our communities with much needed access to health and fitness. While the 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, Planet Fitness will be able to significantly widen our competitive moat for several reasons. First, the incredible strength, sophistication, and diversification of our franchise system with 75% of our stores owned by franchisees who own and operate locations in multiple states. Second, we are well-positioned to capitalize on industry consolidation as many of our competitors struggled to survive financially. Third, the real estate market will be even more attractive in terms of the availability of prime locations and lower rent costs, and enhanced landlord incentives for our system. Fourth, the encouraging early results of the opportunities we are seeing as a result of the accelerated digital content strategy focusing on the needs of first-time and casual gym users. Finally, the overall increased focus on health and wellness, which we believe will emerge over the next several years, further enhances the tailwinds in the category, and we believe our value proposition is second to none. I will 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 had 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 am going to walk through how this dynamic, among others, shaped our results and then provide color by segment. 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 a 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 issue 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 store monthly dues. We also recognized $3.1 million of net 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. Before I get into the specifics of same-store sales, 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 credit 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 recorded 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, we have seen a slowdown in same-store sales growth. Of the 340 stores that had a full draft in June, 279 were in the comp base. This store had a same-store sales increase of 4.4% with approximately 80% of the increase due to net member growth and the balance being rate growth. For comparison purposes, these stores delivered same-store sales growth of 9.3% in Q1 of this year, 490 basis points higher than June’s results. Of the decline in growth in June from Q1 levels, approximately 85% was due to a drop in net member growth and the balance being a decrease in rate growth. To explain this change further, membership per store in the 279 comp stores dropped by approximately 1% or 70 members in Q2 of this year, whereas in last year’s Q2, membership for stores increased by approximately 3% or 190 members. This factor contributed approximately 400 basis points of the difference in comps between Q1 and Q2 of this year. The remaining gap in our comp performance over 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%, a 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 open 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 the 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 and the resumption of the billing of monthly and annual membership dues, joins are now in line with prior year levels for stores that have reopened, and cancels have continued to index above the prior year. Moving on to a review of our segment revenue results, franchise segment revenue was $21.0 million, compared to $71.8 million 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 in the same quarter of last year. The $14.9 million of revenue includes $9.4 million of deferred revenue recognized from the March draft from stores that were closed in March as a result of COVID-19 and reopened during the quarter. The average royalty rate for the second quarter for the stores that drafted was 6.4%, up from 6% in the same period last year, driven by more stores at higher royalty rates compared to the same period last year. Next, our franchise and other fees were $0.5 million, compared to $4.2 million in the prior year period. These are fees received from online new member sign-ups and the recognition of fees paid to us for franchise agreements, area development agreements, and the transfer of existing stores and fees received from processing dues. The decrease was primarily driven by lower online join fees in the quarter as a result of the store closures. Also, within the franchise segment revenue, our placement revenue was $0.9 million in the second quarter, compared to $5.1 million a year ago. These are fees we receive for the assembly and placement of equipment sales to our franchisee-owned stores within the U.S. The decrease reflects the lower net store placements we executed in the quarter compared with a year ago, as I just outlined. Finally, national advertising fund revenue was $4.7 million, compared to $12.5 million last year, as NAF revenue is not collected unless stores are open and draft monthly membership dues. The NAF revenue in the current quarter includes $3.1 million of deferred NAF 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 because of the closure of our corporate stores. Since the majority of our corporate stores were still closed in Q2, the $9.4 million of revenue includes the recognition of annual dues previously collected and $1.8 million of revenue deferrals from stores closed after the March draft due to COVID-19 and recognized in the second quarter. Turning to our equipment segment, revenue decreased $60.3 million to $9.8 million from $70.2 million. The decrease was primarily due to lower replacement equipment sales to existing franchisee-owned stores, as well as lower new store equipment sales. 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 to support our new store development and replacement orders. This offer applies to all equipment purchased and placed by the end of 2020. Included in the equipment revenues for the quarter was a decrease of $1.8 million related to the additional discount. Our cost of revenue primarily relates to the direct cost of equipment sales to new and existing franchise-owned stores and amounted to $8.5 million, compared to $54.4 million a year ago, a decrease of 84.4%, in line with the revenue decrease as previously discussed. Store operation expenses, which are associated with our corporate-owned stores, decreased to $14.7 million, compared to $20.2 million a year ago. The decrease was primarily driven by cost-saving measures taken while stores were closed, including lower payroll, marketing, and operating expenses, partially offset by higher occupancy expenses associated with the seven new stores opened and 16 stores acquired since the end of the first quarter 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 expenses were $10.9 million, compared to $12.5 million in the prior year period. The decrease in expenses 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, tax, and 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, franchised adjusted EBITDA was $3.6 million, corporate store adjusted EBITDA was negative $5.9 million, and equipment adjusted EBITDA was $1.3 million. The adjusted net loss was $27.9 million, down $70.0 million from a year ago, and the adjusted net loss per diluted share was $0.32, a decrease of $0.77 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 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, 2020, consisting of our three tranches of securitized debt and $75 million of variable funding notes. Our securitized debt structure is covenant-light. We have two maintenance covenants: a debt service coverage ratio and a total system 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 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 uncertainties 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 stakeholders. I will now turn the call back to the operator for questions.

[Operator Instruction] Your first question comes from the line of Jonathan Komp 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 the more of the headlines impacting the business in July here. Just curious to get your thoughts, any perspective on whether what you have seen in July, you have reason, I think, you 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 that you are seeing?

Sure, Jon. Yeah. This is Chris. Yeah. So, as you know, the join 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’s credit. So we started billing a good portion of our members, and June 17th would have been the first go-around for a smaller number. Then, the larger billing date would have been July 17th. So after that June 17th billing, we began to see that spike, and we have seen even historically a trend where around bill dates, we see slightly higher cancellations a few days after. So there’s a lot of noise also with the same timing around California re-shutdown, Arizona re-shutdown and then the news coverage in certain states. It’s a lot of noise going on. But based on what we see, we definitely think that there’s more to do with billing cycles 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 the 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. As far as -- 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 we have three quarters of the stores opened, hopefully the next 500 or so get the green light shortly, which time will tell and it’s fluid at this point on those second half of the year. We are collecting the annual NAF again, which is the 2% on EFT, and we are lining up to probably start the first national sale in September. But time will tell on that. The one thing I would add is that I am extremely happy and proud of is that the franchisees collectively with us and the independent franchise council got together to look at the second half NAF lag mix, and we have agreed to slightly change that mix to increase the NAF for the rest of the year to help kick in the 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 there to see consolidation across the industry. When you think of your system and we can see 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 will go quickly on the competition side and then let Tom fill in on the health of the franchisees. We are doing franchise business reviews with all the franchisees now, so we got some good financials and updates there. But yeah, I mean, competition, besides the ones that everybody probably on the phone has heard about, like Gold’s Gym and 24 Hour Fitness, there’s definitely almost over 40,000 different independent gyms. You don’t see the mom-and-pop and the national level of closures not reopening, and we have franchisees in most markets now. Even some corporate stores have been reached out by a competitor that just decided not to open. So I think there’s going to be I think probably a six-month or 12-month timing of which we believe they are going to try to reopen or not reopen based on a financial standpoint. So I think there’s definitely some opportunity there for us from a benefit to the system for sure moving forward.

Yeah. Hey, Jon. So, as Chris said, we have been in touch with our franchisees as we said all along, but more recently doing franchise business reviews. Also reaching out in specific situations like in California where the gyms closed and talking to all those franchisees who are affected. I think we are fortunate, as Chris said, 75% of our stores are owned by franchisees who operate in more than one state. So they are 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 manage the economic pressure. The only other thing I’d add is, we have talked about before, we have been in touch with lenders and through these franchise business reviews to the extent that a franchisee had 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 remained modest. The lenders across the board have said they will be accommodating. We have talked to them directly, and the franchisees are obviously in touch with them. For the most part, they are waiving during the store closures and they are going to revisit the metrics upon reopening, which the franchisees share with them for their own stores. We feel like they are going to come out of this thankfully in good shape. No one through all of these discussions has raised their hands and said, 'I need financial help, right? I don’t think I can make it.' So they are all financially sound, working with lenders who are being accommodating, and once the stores reopen, they can start to recover their cash and their balance sheets and begin looking forward to development. But it’s in that sequence and seems appropriate given where we are.

Great. I appreciate the color. Thank you.

Thanks, Jon.

You bet.

Your next question comes from the line of John Heinbockel of Guggenheim Securities. Your line is now open.

Hey. Can you guys hear me?

Yeah. Sure, John. Yeah.

Hi, John.

Hey. So Chris, let me start with, if you look at the 600,000 or 700,000 reduction in numbers from where you are in the Q1. 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?

Yeah. I’d say, 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 spike stages, we are seeing some higher index in joins. So like Texas and Florida, Arizona for example. Those also skew slightly higher than their peers here and throughout the rest of the country. Canada, which is very different, has had increased joins and less cancels, and I think they have tackled a lot more usage up there than the U.S. stores.

Okay. And then secondly, when you think about, I don’t know where you -- what plans you have started to put together for New Year’s Eve heading into January. I guess, you would assume that you would have the vast majority of the clubs open. What’s your early thought on how you attack your typical busy join season and is that more -- what’s more of the focus this year, the joins or trying to limit the cancellations in your marketing?

Yeah. I mean, in the cancels, first and foremost, we want to make sure people start using the club. I mean, reason the cancellations is generally that people are using the workouts or the 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 are seeing here from customer sentiment that a lot of are going to be reassurance as opposed to strictly a dollar down. I think the financial piece, our membership is $10 a month anyway, so now that’s always really affordable. But I think now what we are seeing is this reassurance that we are clean and that members are going to be safe. In all the surveys we have done so far on our side have shown that people are extremely happy with everything we put in place and the employees as well. We have had even corporate had about 85% retention of our employees as they have come back from furlough. So people are excited to get back in and see what they are seeing. I think that, as I said in the past, our average member works out 5 times to 6 times a month, and that same usage pattern is holding true. So of the people using the store, they are using the same amount which is great to see. New Year’s Eve, yeah, they are still in play. They still plan on having it. I think this is definitely a big store still here, in some social distancing issues are going to bars or nightclubs; maybe viewership could be up because people are stuck at home. So I think also we get a lot of airplay out of it with the message and get people hopefully get 2021 off to a better start.

Okay. Thank you.

Thanks, John.

Your next question comes from the line of Simeon Siegel of BMO. Your line is open.

Thanks. Hey, guys. Hope you are doing well through all this.

Thanks, Simeon.

Chris, any way to quantify gross adds versus cancellations and how you are thinking about that trajectory? And then just given the color on the current members, any thoughts more into the quarter and the year? And then, sorry, if I missed this, have you given differentiation in Black Card versus Classic for the reopened gyms or in place? Thanks.

Yeah. For Q2, we had about 58% Black Card acquisition for Q2, the system there. I think the adds question, I think the bigger question now is back to what I just mentioned; from an acquisition standpoint, we are going to be able to drive a lot of high acquisition joins on expiration days, for example, or it’s just more rebranding and reassurance messaging which is yet to be seen. I think back to my previous question first, Jon Komp, is that we believe that most of these cancels we are seeing today are draft-related. So the question is now that these people have gone through their first or second round, does it get back to more of normalcy, right, because they haven’t drafted for three or four months, which we have seen if we go to the cancels around draft dates. So we are just playing catch-up at this point with the billing, which time will tell for the next couple of drafts here. For August, September, for example, do we start to see people going down to their second or third drafts now? They are back to the normal attrition.

Great. And then Tom or Dorvin, what’s the right way to think about your ability to flex SG&A in store ops at various levels of revenue for the rest of the year?

Yeah. I will start, and Dorvin, feel free to add. So, I think from a store standpoint, we have continued to furlough our store associates except the club manager where the stores are closed, and we will continue to do so until we get the green light. We are continuing to work with landlords as our franchisees around rent deferrals while the stores are closed. I’d say, more broadly, at this point, any sort of spending or investments that we don’t need to do, we are not doing. Now, clearly, digital is the focus. So we are prioritizing that and some other things, but when it comes to HQ, if there’s some project that was in motion that we just don’t feel we need to do at this point, that’s where we are really pulling back. Plus all the other stuff we have previously mentioned are put in place.

Okay. Thanks. Best of luck for the rest of the year, guys.

Yeah. Thanks, Simeon.

Thank you.

Your next question comes from the line of Randy Konik of Jefferies. Your line is open.

Thanks a lot. Can you hear me?

Sure. We can, Randy. Yeah.

Hi. Great. Thanks guys. I guess, first, I just want to kind of get your perspective on how do you think this environment for your competition looks versus the great financial crisis of 2008, 2009 or 9/11 stuff like that? Just any times that you can compare this to that show -- give us some perspective on how much of these competitors can collapse and how quickly they can collapse versus prior periods? What does it feel like or what does it looking like to you? And any color you can provide on what you are hearing about the non-usual suspects in the industry and how they are doing financially, meaning like not just the chains but more of the moms-and-pops, just curious on your thoughts there?

Yeah. I mean, the mom-and-pops, as I mentioned earlier, definitely we are getting the franchisees that come in. Some of the smaller players, even in quarterly comments, some have called saying that the competitor on the street they are calling, obviously, they are not going to open, so they want to sell the membership to us or bring the location. So, there’s a lot more of those smaller one-off scenarios, but there’s a lot more of those than there are national chains. If you look at, we have always talked about, if we put the national chains together, we might have 3,000 to 4,000 stores. So there are still 35,000 mom-and-pop gyms out there. I think that there are a lot more of those than we realize. I think you look at our franchisees’ comments from earlier; the diversification is strong. Our average franchisee has 20 locations and they are in multiple states. So, 35% are movable space. They might not have all their stores open, but they have their portfolio open, so they are able to weather the storm a lot longer. I think the probability of this model which has been extremely profitable now has gotten stronger. If you look at our EBITDA margins per store, they are significantly better than some other brands. The strength of our franchisees has them getting through this and also being in a more solid position as a whole to navigate through this as a result of being open during the last significant crisis.

Okay. That’s super helpful. And just kind of try to parse out a little bit of the geographic differences you are seeing. Are there any states to call out that you are -- you say to yourself, wow, that looks kind of, that really -- that particular state or states looks really like business as usual, and what are those states and whether anything to kind of call out there? And in contrast, states that look like they are really not business as usual and anything that stands out there as well?

I mean, from a high level, it’s definitely states that we see less in the news. People are kind of like back to where the mask mandates that we did. We had 25%, 30% of our stores had no mask policies at all. We saw customers’ sentiment from that. So, there’s a little bit of angst there about being careful walking, especially in states that don’t even demand anything. So some states are looking at it differently, but people are still somewhat concerned. So those states definitely have a little less angst, I guess; Florida or Texas, for example, or Arizona or California. But I wouldn’t say that the spread is that drastic.

Got it. Okay. Very helpful. Thanks, guys.

Great. Thanks, Randy.

Your next question comes from the line of Oliver Chen of Cowen. Your line is open.

Hi, Chris and Tom. Regarding the cancellations that you are seeing, what would you say is -- had that most within your control to manage that? And are there any comparisons that we should know about as we model going forward in terms of what you are up against last year? And then a follow-up, you have a number of strategies to help the franchisees; whether that would be equipment or development delays, which of those have the franchisees taken most advantage of? Thank you.

Sure. I will talk about the joins and cancellations. The cancels because I think it's billing-related. I think we really got to get through that bill cycle that I mentioned. Once a couple months of these go through, which is I think what we are seeing, they are a bigger part of the increase. Now, remember of the other 500 stores that are going to open; those 500 stores have to go through that same process of starting that back half. And I think the unfortunate, the longer this will probably close, we will be able to see what happens with that. These stores now opened -- the stores in North Carolina, for example, they open tomorrow, and they are not going to their first bill cycle until September. So we are going to watch those 500 clubs as well. But I believe that what I have seen on the cancel side of things on the existing stores that were opened, like September, October, now they are on their second, third, or fourth draft in a row, and you are probably going through some of the bumps we are seeing today. Time will tell, as long as you don’t have more closures like California and Arizona; then we see that ramp. But it’s still fluid as we all see on TVs day by day it changes based on the reports of the day. I think more of this is going to be just how can we drive the messaging and marketing, because not only is it reassuring potential members, it’s current members at home that say – 'Gee, look at all this cleaning stuff they have done and protocols in place.' So in the advertising, you might get you kind of talking to both members and nonmembers in the advertising in the second half of the year.

Yeah. And I think, Oliver, this is Dorvin. Just one other thing that I would add on Chris’ comments on the cancellations and the fact that we went for basically three months without billing. As you mentioned, you only billed 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. So the last 50 did not get billed until, basically in July, we did get 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. There has historically been a higher spike of cancellations around that annual fee time period. If you go back years ago, we only had two months with billed annual fees; it was June and October. A few years ago, we changed it to where an annual fee can be billed for a member based on when they joined their membership at Planet. That’s another factor that really occurred during this time period of July as well.

Yeah. And then, Oliver, I think of the things the franchisees have taken advantage of. I mean, they all essentially got that 12-month extension on new store development and re-equips. This was to alleviate the pressure that their lenders might have had to potentially experience the default if they weren’t in compliance with our agreements. So putting those dates out just alleviates the pressure from the lenders. So essentially, everybody took advantage of that. We mentioned we did offer a 15% discount if the equipment was ordered and placed 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 got 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 in 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 think to note is in June last year, we had a Black Card flash sale which we didn’t have in the second quarter. So even though we were at 58% of the Black Card, I am not sure that that’s going to potentially be the norm, I suppose. We were at 60% across the system, so I think it was more probably impactful because we don’t have a Black Card sale in that quarter.

Which was the same thing that happened in Q1; we were up against the Black Card sale from last March. 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 we should -- it should not follow the same trend that we just discussed. But it’s just a matter of what the marketing calendar -- what would make sense from a marketing calendar based on what’s going on.

Yeah. This plays into what I mentioned earlier on the NAF last change we did with the franchisees on taking that mix slightly here for the remainder of the year to get the flywheel pass on.

Yeah. Thank you very much. Best regards.

Thanks, Oliver.

Thanks, Oliver.

Your question comes from the line of Sharon Zackfia of William Blair. Your line is open.

Hi. Good afternoon. I may have missed this.

Hello, Sharon.

Hi. I may have missed this. But did you indicate if you are profitable and 72% of the clubs open? And then secondarily, what has the -- what is 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?

No. No. At a corporate level, so 72% of stores open, is that enough to cover kind of all of the corporate G&A and so on with the organization?

From an EBITDA standpoint, we were negative. So I am not sure if that’s...

No. I am asking as of July. So, in July, I think, you indicated you have 72% of stores open at this point. So I am just wondering at that level, I mean, I understand the June quarter, but in -- at the current run rate, are you profitable?

And yes, at that level, we would be profitable. Sorry about that. I misunderstood.

No. That’s okay. No problem.

And from an equipment standpoint, it’s hard to understand what would have been because as things have evolved, franchisees, new store development, and Dorvin feel free to add, have shifted as well based on whether a store is open or not, so a few states have remained closed, reclosed. But we believe that at the end of the day, we will do more placements. We 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.

Yeah. Thanks, Sharon. What I’d add to that is clearly in states like California where the clubs are shutdown or even states where we haven’t been able to open again like North Carolina, as an example. Those franchisees are being very cautious about going out and either re-equipping the club or certainly, starting construction on a brand new site, because with really not knowing what the potential end game would look like. The flip side is, you do have franchisees that are in good financial shape, they got a territory where they are saying this is an aggressive opportunity to double down against the competition and they are out there looking for sites. So, it’s clearly a mixed bag and there is a lot of wait and see because of just the news of COVID and the spike states as well. But there will be some that will take advantage of the discount program for sure.

Okay. Thank you.

Thanks, Sharon.

Thank you.

Your next question comes from the line of John Ivankoe of JPMorgan. 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 that the new gyms and new placements that we could actually expect? And I did hear, excuse me, I did hear in the prepared remarks comments about getting better to lease terms from landlords, as more sites coming available, more flexible terms, what have you. I mean, I guess, what do you think as in terms of what’s happened to the near-term market opportunity? And I know it’s a really hard question, but I am assuming that a lot of people think we will get a vaccine at some point by 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. What’s the overall appetite for opening stores? I mean, I guess, making the assumption that you believe that proposition is true?

Yeah, John, this is Dorvin. What I’d say is that we don’t disclose how many leases are signed and at what stages they are in the construction phase. But we will open stores in Q2, and we will open stores over the balance of the year. Some of that is timing and that they are sight-setting out there that franchisees are waiting, so they know that their clubs are going to be able to be opened and they will be able to continue the construction site to get it closed. There are clearly franchisees that are setting and waiting and saying, given that we are going through this pandemic time when it seems to be spiking and no one knows exactly when it’s going to cool off or come down or to get the vaccine. There is also some that are saying they are just going to wait and see. Some of that is about building back up their cash reserves. I mean, if you go through a period of three months or longer where 600 stores were closed, they are going to take time to try to build back some of their cash reserves before they start plowing back into it in a big way. Now there are others that either are in a better financial balance sheet position, see this as an opportunity to get aggressive. We had a conversation just this last week with one such franchisee that he’s out there aggressively 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 have seen the full fallout yet as to what real estate availability is going to look like. There is going to be much more space available. The consensus by the franchisee and the real estate teams from their broker communities is that there is going to be a lot more space available. But I think the issue at the moment is that landlords are dealing with franchisees in our business and other businesses that push them hard on abatements and deferrals, etc. right now they are dealing more with the immediacy of that than they are out there looking for space. So that’s going to take time to work its way through. And net-net, as we said earlier in the year, we believe this year could be as much as 50% or more down from the 2019 level. In terms of longer term, we believe the moats are going to be greater. We believe the real estate availability is going to be more plentiful than it was, and I believe our franchisees will be just as aggressive at building as they had been in the past. The only question is how long it takes to get there, and that’s still too much of an unknown.

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

Yeah. Dorvin, I will take that.

Yeah. Earlier in the year, our stores that we opened were performing just in line with the way stores have performed in the past. A typical average store, how they opened in its first month, second month, third month was doing very similar to past. Once we got into the pandemic and then all stores closed, you had an impact not only from stores that were going through pre-sell, because that’s a big deal for us. You have 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. When you throw the pandemic in during that time period of the presale where you can't open or finish it, you didn’t really get that initial bump and then you have got the issue just the virus and the pandemic. Clearly, there’s been a slower pace on ramping post-COVID, and that really doesn’t concern us in a big way because particularly earlier in the year, we were saying our performance of our business was similar to the past. So I think it still comes back to a lot of the comments that we have been talking about, and that is that there’s still demand out there, people still want to join the gym; there’s a hesitancy for workouts and 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.

Thanks, John.

Your next question comes from the line of Joe Altobello of Raymond James. Your line is open.

Thanks. Hey, guys. Good afternoon. So there was a question I want to go back to usage for a second. You mentioned that the average across the store base that’s opened is about 60%. But I think you mentioned that some stores are actually approaching usage levels that we saw at this time last year. I am 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? The average age of members within those stores? Is there something unusual about those stores where the use index is about 100% of last year?

Yeah. Those are actually earlier stores that opened, so that’s definitely a key piece: the longer they have been open. In most cases, the longer ones that have been open have also been in states that are less concerning for COVID. So these people are less aged out. These stores have opened longer, and we are getting up into that 80-plus or some are almost on par with last year. The problem is, you’ve got to get in to see it and want to reassure them that this is no big deal. So I think it’s just we have to wait for consumers to get a little more comfortable and begin to venture out and start to work out again. I worked out this morning in my local store here in New Hampshire. It was -- I mean, I thought it was wholly fine. People were cleaning the equipment down more than they ever did. They walk around. They stay away from each other. The problem is you got to get in to see it, and they want you to see it. I think that’s where we are at right now.

Got it. That’s helpful, Chris. Thank you. And just secondly, with the help of your franchisees, have you had any discussions regarding acquiring stores from any struggling franchisees, or have you still located any transactions between franchisees on that front?

Yeah. I will take that, I think. One thing -- the one thing we note is that, because of the returns of the investment in the model and the margins that these stores have, even with some contractions or stores being closed for a period of time. Although, our approaches are somewhat broad, but we haven’t had any franchisee that has come to us that says 'Would you buy us?' We have not had brokers come into play on any transactions 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. They have been able to weather the storm up to this point and with 70% of franchises in multiple states, they have some diversification.

Got it. Great. Thank you, guys. I appreciate it.

Thanks, Joe.

Thanks, Joe.

Your next question comes from the line of Rafe Jadrosich of Bank of America. Your line is open.

Hi, there. Thanks. Good afternoon. Thanks for taking my question.

Hey, Rafe.

The first question I have is just can you just remind us, Dorvin, you providing a 12-month extension for the club opening requirements and replacing equipment. Can you just remind us of the commitments that your franchisees have over the next couple of years as we look a little bit further out in terms of like what’s in the ADA pipeline that they are committed to?

Yeah, Rafe. This is Dorvin. As we have said in the past, franchisees have over a thousand commitments under their area development agreements, and at any planned time, if people go back and look now, over the past three to five years, about half of those are required to be developed over the next two years. We just provided an extra 12 months and pushed everything out an incremental 12 months. So the commitment sort of is the same, it’s just been pushed out the extra year.

Okay. And you are not seeing push-back or change to the -- to next year or the outer years circle back commitment or finance fund?

We don’t -- yeah. I mean, I don’t think we are going to see is that if a franchisee had five stores this year and five next year; we push that. He has the ability to just do five next year and then five the following year. In some cases, franchisees we will see where as we have been talking about normalcy what it’s going to look like. Many of our franchisees even had a schedule initially. They are ahead of what they had to do but kept building and redeploying their cash. So, we don’t know what will happen in this case once we kind of get past some of these issues and get 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 bit of time to get to the other side to see how fast they might try to get their development schedule back up and running.

Okay. Thank you. And then the second question is just in terms of, was there any additional revenue deferrals in the second quarter that will be recognized in Q3 or later in the year?

Hey, Rafe. It’s Tom. No. There weren’t any additional ones. The more was deferred from Q1 in March hasn’t fully been recognized, and that all just get recognized whenever those stores reopen.

Do you have a, I think it was $20 million, and I think you mentioned on the first-quarter call, 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 of 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 in the beginning of Q3. Looking forward to getting through this year and getting the rest of these stores open. I am excited about the second half of the year. Hopefully, we can get things back on track and get these franchisees taken care of and make sure that our staff and members are all happy with everything we are doing. One thing I would reiterate is that we are definitely the solution here to this and not the problem. I think what the industry is lacking is representation. As an integral part of the healthcare distribution process, the closed gyms are not productive in my view; and 20% of the U.S. has a gym membership. You make a case for the other 80% that we probably wouldn’t be here. So there is a lot of upside here for this industry, and I think Planet is well-positioned to take full advantage of it. So, I think it’s a good spot, and hopefully we can get through this together. Thanks, everybody. Have a good day.

This concludes today’s conference. You may now disconnect.