Thank you for joining us today to discuss Planet Fitness’ First Quarter 2016 Earnings Results. On today’s call are Chris Rondeau, President and CEO; and Dorvin Lively, Chief Financial Officer. A copy of today’s press release is available on the Investor Relations section of Planet Fitness’ website at planetfitness.com. I would like to remind you that certain statements we will make in this presentation are forward-looking statements and 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 risk 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 that are included in our first quarter 2016 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 pro forma 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, President and Chief Executive Officer of Planet Fitness. Chris?

Thanks, Brendon. Thanks everyone for joining us today. 2016 has gotten off to a strong start, first quarter is the busiest time of the year for our industry and member signups are at the highest level of the year following holidays and New Year's resolution. We've worked hard to ensure Planet Fitness is best positioned to capitalize on our brand dominance throughout the US and our entry increase last year to the Canadian market. We know that we have the best value proposition for the growing number of casuals and first-time gym users who are choosing to get more active and improve their health and wellness. Our strategy is straightforward, yet difficult to replicate, we’ve meaningfully increased our awareness – our affordable non-intimidating fitness offering through our powerful national advertising fund, a significant competitive advantage from our brand. Combined with our franchisee accelerated store opening, in fact in many markets our franchisees are also large operators of fitness in those markets. In 2015, over $26 million was spent to support national marketing campaigns then included running, advertising nationally throughout the year and for the first time being the presenting sponsor for Times Square New Year's Eve celebration in New York City. As expected, our New Year's Eve sponsorship proved to be an amazing opportunity to generate increased brand awareness both in the US and overseas. As I mentioned during our last call, findings from the brand health study conducted early in Q1 indicated a strong year over year gains of several important metrics. For the first time ever Planet Fitness ranked number one in unaided awareness in the gym category when asked questions such as when you think of gym and other workouts facilities, which brands come to mind, a number of consumers polled who said Planet Fitness increased 29%…

Thanks, Chris and good afternoon everyone. I will begin by reviewing the details of our first-quarter results and then discuss for full-year outlook. For the first quarter of 2016 total revenue increased 8.3% to $83.3 million from $76.9 million in the prior period. Total system-wide same-store sales increased by 6.8%. From a segment perspective, franchise same-store sales increased 7% and corporate same-store sales increased 4.9%. Our franchise segment revenue was $27.7 million, an increase of 27.2% from $21.8 million in the prior period. Let me break down the drivers of our fastest-growing segment. Royalty revenue was $14 million, which consist of royalties on monthly membership business and annual membership fees this compares to royalty revenue of $10.5 million in the same quarter last year, an increase of 33.8%. This year over year increase had three drivers, first, we opened 194 new franchise stores since the first quarter of last year, second, as I mentioned our franchise owned same-store sales increased by 7% which was primarily driven by higher members per comp store as well as a slight higher dues or member increase. And then third, a higher overall average royalty rate. For the first quarter, the average royalty rate was 3.59%, up from 3.41% in the same period of last year driven by more stores at our current royalty rate of 5%. Next our franchise and other fees were $5.4 million or we had an increase of 19.6% or $900,000 over the prior period. These fees are received from processing dues to our a point of sale system, fees from online new member signups as well as fees paid to us on association with new franchise agreements and area development agreements. In the prior year, they were both a revenue component as well as a cost component in the cost…

[Operator Instructions] Your first question comes from the line of Oliver Chen from Cowen and Company. Your line is open.

Hi, Chris and Dorvin, congrats on a really excellent quarter. The system-wide same-store sales came in very nicely, above our estimates and guidance. Do you have an idea in just terms of characterizing what were the main drivers for how this was a little bit stronger than expected? And then also, as we model this line item going forward, should we expect the combination of the number of members and also dues growth to be factors that drive the company. How would you characterize as kind of the major drivers for underlying comp store sales growth going forward? Thank you.

Yes, Oliver, it’s Dorvin. The majority of our comp was really driven by member growth, unlike our percentage was up about 1 since year-end, significantly up over last year, but when you look at our real growth quarter-over-quarter, most of that member growth, which we obviously we’re feeling very good about. I think the second factor I would say is that, as we said in the past, it’s – significant amount of the comp can be driven by new stores, but our older mature stores still continue to perform very similar to the past. And then I guess just the last factor I would say is that we talked about it in the past in terms of the year-over-year comparison with the prior year where we were not removing the non-paying members. I think that came out a little bit better than originally when we had kind of planned the quarter, but we feel really good about. I think those are really the drivers for the quarter.

Thank you. And Chris, it sounds like the awareness growth has been really encouraging. Are there any tweaks in terms of – what you’re seeing in terms of the success of the programs thus far and any tactical adjustments that you’re making as you engage in the national advertising strategy through the year?

I would say, it’s hard to really tie things directly to the as far as number of members from [indiscernible] called action more so than a brand building, which is what we saw in the brand study. But I think as we look forward and think about what kind of strong dynamic promotions we continue to do that drive that kind of awareness, we have a billion people worldwide and almost 200 million or 135 million [ph] roughly see that in the country which is even higher than the Super Bowl, so I guess you looked at what are the dynamic things we can do to really drive that awareness can only help. I think couple of that was some of the digital work we have been doing, you are seeing some results from that.

Okay. Just a final question. A question we do get is regarding the ultimate chain size and terms of what’s the large potential in the 4,000 units. But what kind of gives you confidence in that as a long-term plan and has that changed at all in terms of what you’re seeing now? Thank you.

I would say no. I would say [indiscernible] we are opening stores in the West Coast, which is less saturated with PFs or opening stores in the East Coast, which are more saturated because we had just been here longer. The same ramp up is all the same, so I don’t see that there is less growth available on either side. So I think the franchise just continues to grow pretty uniformly in regards, so it sounds like we are only able to grow on West Coast at this point. And I think just want to continue to penetrate the markets around and the older stores continue to mature, we continue to tap deeper into the current markets.

I think maybe just add one comment to it, Oliver is that we have said we have over 1,000 stores committed to be opened under our area development agreement and so as we continue to open stores, we keep selling more so that pipeline continues to remain strong of committed franchisees to build out their areas and buy new areas.

Thank you. Best regards.

Your next question comes from the line of Jonathan Komp from Robert W. Baird. Your line is open.

Hi, thanks. Why don’t I start with another question on the system comps, the first quarter of the system tracking at the high-end and mid-single digits, which is the guidance for the year? And correct me, if I am wrong, the drag from removing the non-paying members should lessen sequentially into the next few quarters. So is there anything that you see in the business that would suggest that you can track out or above the high-end of that guidance, or any other perspective you can give there?

No, you’re right, in terms of the kind of that cadence of anniversarying the point-of-sale change, the biggest two quarters were Q4 and Q1 and then to Q2 and more of a moderate in Q3. And then by the time we get to October, November, we will fully have anniversaried that. I think that in terms of the way we think about the balance of the year and look at this quarter and how we are forecasting here, I don’t see any significant change that would cause me to vary with respect to kind of those comps. I mean, as you say, we are kind of on the high-end of the guidance we gave. But the two big drivers of that historically has always been that mix of kind of new stores versus mature stores and obviously as the base gets bigger, we have fewer stores as a percentage that’s in the base that are comping greater than 13 months. And so that puts a little bit of pressure in terms of when you’re say comparing 1,000 stores in the same-stores sales base versus 12 to 18 months ago, when it was more like 600 to 700 stores in the same-store sales base. But we feel really good about the comps and that’s why we reiterated that we think for the full year will be on that mid-single digit rate.

Okay, great. That’s helpful. And then maybe a couple on the unit development front. Chris, I know in the press release, you made a pretty positive comment about the new store plan, both for this year, which would be a record number of openings, and then also I think you mentioned the pipeline beyond 2016. So I was hoping you can maybe just quantify a little bit what you meant in the press release, the pipeline looking ahead?

Yes, I believe, it’s in the process, it still have over -- so although we keep opening units each quarter, we continue to backfill he pipeline, so we’ve still over a 1,000 units to be developed in the future, and that’s domestically, over and above there is 100 to we sold in Canada alone, so they continue to backfill the pipeline on both here now, at this point Canada and the US. And all interesting franchisees that are buying the stores, it’s encouraging that they are continuing to put their dollars back to work to grow this business.

And do you think that, 210 to 220 target of system openings for this year, is that – should that be viewed a ceiling of what the system is capable of, do you think the number can keep kind of walking up over time or how do you view that pace of openings?

Yes, I think it’s a good number. I don’t as mentioned in the past, we could open more if we just approve. We disapproved more locations than we do approve and I think it’s just really waiting with the way we make sales then as I mentioned in the past, retail has been in our favor with the e-commerce depression and how it recently forced authority and so on. We want to hold out to the A side, instead of taking the B side today, I would rather wait another six months [indiscernible] open stores. So I think it’s rather 210 to 220 great stores than funds of resource.

Understood. And then Dorvin, maybe one last question. Just as we look at the balance of 2016 and the timing of openings, I know the first quarter had a little bit of that mismatch year-over-year, just the timing of openings. Any meaningful differences year-over-year as you look to the balance of the year or any thoughts on kind of modeling the pace of openings through the year?

A couple of things, one is, I think you will see the cadence somewhat similar to last year in terms of how we see the markets by quarter. I think from a Q2 perspective, last year we opened 38, we kind of feel pretty comfortable in that range for Q2 this year and then the balance of the year. Back half of the year rather I think you will see it somewhat very similar to the cadence last year.

And would that imply kind of limited equipment revenue growth again in the second quarter, and then more of a sharper acceleration in the back half or how do you think about that one?

Yes, I think you will see probably a more stable revenue number on the equipment side in Q2 and then with some accelerated growth in the back half.

Okay, thank you guys.

Thank you, Jon.

And your next question comes from the line of Kevin Milota from JP Morgan. Your line is open.

Okay, guys, it’s Kevin here. Two quick ones, one I think I missed the royalty revenue number, I heard 14, but was there a touch more [ph] there, being the question. And then second on kind of balance sheet strategy, appreciate the buyback authorization that’s great news. And as we look forward and as you guys continue to generate cash, is there any thought or did the Board put any thought into putting into place a dividend with this conversation or is that on the comp? Appreciate it.

Yes, on the revenue side, it was – the royalty piece was – it was $14 million this year over about $10.5 million last year, I think it was the number, so that was increase just on the royalty side. I think and Chris can jump in, I think the Board obviously had discussions around our model, it generates a lot of cash as you know from a very asset light perspective. We continued delever with a debt payment last year in Q4 and then with growth and from a leverage perspective, I think as I made the comments few months ago in my prepared remarks that we feel very comfortable with the capitalization and we do look at what’s the right way to return cash to shareholders with knowing that we will continue to generate cash over the balance of the year and I think that one of the items was a dividend. We looked at all of our options and the beauty of what we have I think is with authorizing this $20 million buyback, it still gives us flexibility to continue to look at other options as well as we go through the balance of this year and on into next year with our – with the way we generate cash. So we felt like that there have been some recent volatility in our stock, if you go back over the last two or three months, and we want to have the opportunity to take advantage of that if that were to rise again. The board feels very confident and our plans for the year, our guidance were given and I wanted to have this in place to be able to take advantage of those kinds of opportunities.

Your next question comes from the line of Philip Terpolilli from Wedbush. Your line is open.

Thanks, good afternoon. Thanks for taking the question. Wanted to talk a little bit about international and I appreciate all the comments earlier about new store growth, but can you sort of talk about some of those new markets that maybe you're starting to look at a little bit more than you have in the past, sort of the Latin America region. I guess what’s the opportunity here? Is it something we can actually start to see a little bit more of for next year? And then from just sort of an economic standpoint when we're looking at the model, is it sort of a similar structure when we think about sort of the profitability for you, anything different we should know there and then are they actually included in the ADA pipeline at this point?

No. I’ll do it and then Dorvin can chime in. So I would say right now our focus is Canada and then the DR was a good piece front to kind of get into the Latin America market and it was followed by our Puerto Rico development, which is the same franchisee and if I look at just even the US markets where most of our Hispanic clubs do very, very well and Dominican has performed extremely well and he is now looking for more sites in there. So I think it's a good first start and I’d look at how do we scale the go to Latin America, which is intriguing to me. Dorvin will talk more on the financials.

Yeah. I think the way, Philip, the way we would think about it is, the type of structure could really vary country by country. We might do, as an example, we might do a direct franchisee in one country, but we may decide to do a master franchise. So the economics of that obviously would vary a lot depending on just the economics of the country itself and the situation country-by- country, but the type of resources we have to throw at it versus in my example of maybe a master franchise, but at this point, we’re continuing to focus on that thousand plus locations, which does not include to your question, does not include any locations outside of the US and Canada. So I think it's something we’ll keep looking at, but at this time, we're really focused on kind of what's right in front of us.

Okay. And then just one more, we’re looking at sort of the guidance raised on the top line for the full year, would you say the majority of that's coming from a certain segment versus the others, sort of equipment sales are just a little bit stronger on the membership growth front than you thought or what's the driver there? Thanks.

Yeah. I think it's probably mostly the franchise out of our business. I mean, that's where the majority of our stores are and as I summarized in the latter part of my comments a while ago, the real growth -- the highest growth segment of the business is franchise, but at the same time, we had good comps on our corporate side of our business, and although our equipment business was basically flattish to just slightly down, we still feel really good in our plans over the whole year, but in essence, I think that we feel comfortable in raising the revenue side, and it flows then through the bottom line, a little bit from the franchise and the corporate side as well.

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

Hi, good afternoon. Thanks for taking my question. I just wanted to ask you guys a little bit on the kind of the underlying -- the trends you're seeing in franchisee economics, have you seen any changes there? And then, if you can kind of weave into, I know that has been some kind of announcements around a minimum wage and there is I guess a fair amount of the franchisee employees are paid a minimum wage. How does that sort of impact the economics going forward? Is there anything you guys can do to help offset that? Thank you.

Sure. I'll start and maybe Chris will jump in. The way -- we obviously have hindsight into franchisees monthly, EFTs every month, point of sale system, which we control and we’d look at as we’re looking at our comps and getting that data together to report upon it and I’ve made these couple of comments earlier about some of the drivers. We don't see anything fundamentally different in our business through the system and obviously the growth we’ve had in the positive comps now for I think 36, 37 straight quarters now and as I look at our business, we have a portfolio of 58 stores in several states and several different demographics. We’re now in downtown Boston, we are in some more rural areas as well and with some significantly mature stores. So we think we've got a pretty good example of what a lot of our franchisees are looking at, including some of our stores in California and maybe the higher rent district, et cetera. And we don't see anything fundamentally different, as we go down and look at the P&L and I’d just make a comment with respect to the kind of the model itself and you’ve heard us say this in the past that the real driver or the real variable of the drivers is typically rent. And because our labor staffing model is anywhere from say 10 to maybe 14 employees per store, we’re not impacted as much as some other retail concepts are that operate 24x7 or 24x5 models and so when you see these labor pressures that we read about and hear about, it's certainly something that doesn’t impact us as much as others do and we, on average, we pay our employees a little bit above minimum wage events. So it's one of those things where we certainly feel a bit insulated to that, but with that said, I think what I’d say is that economically, our franchisees are continuing to buy new stores, they continue to open up new stores and when I look at their top line and I know that the variable components of their P&L, there is no significant change that we’ve seen.

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

Yeah. Thanks a lot. I guess my first question is a question for Chris. Can you expand upon the comments around the Sports Authority, the real estate, is there any differences in your thought process on future location characteristics, given we are seeing much [indiscernible] in the industry and there seems to be a lot more space kind of opening up in your favorite, just curious on your thoughts on the future and location characteristics changing or not changing?

Yeah. It kind of goes back I think to the ’09 area when the real estate started to turn. And that was working out better for us. We had to take the BRC sites as we were competing with Old Ladys and Best Buys and everybody else previous to that, right. So fast forward to the last couple of years, and even key to have this seem like every 3, 6 months to see another retailer putting back. So we are now -- we were waiting for that, like I mentioned earlier, the old circuit city is something that’s – it may remain in front of the center and it’s not really a better site to take. So characteristics are probably the same now for the last 2, 3 years, 4 year, but we had hold out that better site. In that way, you can’t be taken off by somebody else coming in and taking to the C side.

Got it. And then you spoke a little bit about on the call about the I guess the success around on email campaign, are you doing anything on the existing member side, marketing to them, perhaps looking towards increasing the uptake or the penetration of the Black Card membership from the existing membership, just curious on any marketing efforts you kind of use around the existing members rather than the nice marketing efforts around driving new members?

Sure. A good question. We’ve just barely started in the last couple of months now on our Welcome email campaign, basically welcoming them and then joining and get them to come in and kind of personal training appointments and so on. So we just started to get into some of that. So there is no yet feedback or results on what it’s doing or enhancing and then also upgrading those are underway as well. So probably more on that in the future, but that's kind of what the whole digital has been, we didn’t really had any of that in place a year or two ago.

Got it. And I guess for Dorvin, as the company just gets bigger and bigger, it’s going to be more orders or placements for equipment revenue, you're seeing that industry starting to consolidate a little bit, I'm sure you can get more economies of scale on pricing, how do you think about the margins of that business. I'm sure if you get better potential pricing, pass it on to your franchise partners, but -- potentially sharing the savings, how should we be thinking about the margin characteristics of the equipment business as you get bigger and bigger and bigger?

Yes. As you know, we’ve entered into a new contract last summer and it was a two-year contract or a three-year contract and we’ll obviously -- we have a consolidation that we’re referring to and then with just the growth we’ve had, I mean I think we become more important obviously and we’ll use that to our advantage. I think the way we handled the last negotiation where we were very transparent with our franchisees and I think we've shared this with you guys that we brought down to the table with us to actually negotiate across the table with those companies that we RFPed [ph] and I think we do that again, build through that same process and I think we would expect more than likely the pass-through savings as well. I think that we've got a really good win-win situation with our partnership today with our franchisees. I mean, it's a model that they do quite well and we as well. And that's one of the reasons why we passed that through. So I guess the net of it is, I think with growth and scale and consolidation, that's favorable to us.

Got it. I guess my just last question on the strength in the awareness statistics, it seems like they were up very strongly year-over-year, just give any color on awareness changes on a geographic basis. Perhaps in the less penetrated markets versus the more mature markets, any color you’ve got on the geographic side of things.

I don't have in particular to that, but the sample set was nine different geographic areas throughout the country, so it was blended, so it wasn't heavy north-east that skewed it.

Your next question comes from the line of Joe Edelstein from Stephens. Your line is open.

Hi, good afternoon, everyone. Just wanted to come back to the line of questioning around the return profiles for the franchisees, I know that 30% cash and cash return is the number you talked to in the past. I was curious how does that look to you really after they have accounted for all the back office and kind of accounting for the reequipping needs, as those get factored in over the next few years. And then secondly, because the returns have looked so high, I mean do you feel like overtime, there might actually be some more opportunity around your current 5% royalty rate actually taking that up over time?

Yeah. We look at a lot of different franchisee financials. I mean we reapprove every new franchise or every franchisee that comes in, we approver again every franchisee that's coming into by new. So we look at their financials, how their existing portfolio of stores are operating, et cetera. And if I go back over the last two or three years, that's been a combination of some of our larger groups that do have a back-office function and have a CFO, have a CMO, et cetera all the way down to guys that’s got three, four, five, maybe six or seven stores out of their first 88 and what about another 88% more stores. So I think it's been a good mix that where we’ve looked at their financials to give us a sense for how they operate, and then it's very consistent with our corporate storage when you take out the royalties and yes, you have some markets, maybe you have a little bit higher rent, et cetera, but we do as well. And so that was the reason I made the comment earlier to the question that we don't see any major differences in terms of the typical franchisee level of economics. I think that from a royalty perspective, we are at 5% today on our monthly dues and annuals fees, it's been that way for a while. I think that's one thing down the road that we can always look at, but as Chris and I’ve said in the past, we’ve used other levers in the past to be able to generate revenue at the store level to the franchisees as well as us for corporate stores and that's using enrolment fees, using annual fees, et cetera and those of them, some of the tools or levers we’ve had in the past, but I think at this point, we feel pretty comfortable with where we're at.

Appreciate that. And just speaking of the corporate stores and given the improvement in the comp in the quarter within that side of the business, I mean, is that a scenario where you might actually look to refranchise some of those locations, go back down into lower-40s or even 30s in terms of the number of stores that you’d want to operate just on the corporate side?

No. It’s Chris. I don't believe so for us, it's a little bit of a casting bed for things you want to try and test before you roll up to the franchisees and for the units we have, we’re in 8 different states and 2 in Canada, so we pretty much have all demographics covered. So it allows us to have a good cross sample of the country to test things. It also ends up being a good farm team if you will for our corporate office as well as office and marketing folk come from. People have grown up in the stores and have learned our operations and our culture to come here, so it’s a good farm team for us. So we will open another stores over a year and we will maybe acquire some in the future, but as of now we are pretty set with – feel good with the 58 stores we have and not looking to really grow that. We just look to focus on franchise business and service franchisees let them expand.

Okay, thanks for taking the questions and good luck.

Thank you, Joe.

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

Hi, good afternoon. A couple of questions. Given the lumpiness with equipment revenue I was wondering if you would call out any of the upcoming quarters as having kind of disproportionally higher equipment revenue. I know you mentioned that back half of the year and I think you lap any of your comparison in the third quarter, so I was wondering if we are kind of weighted more towards the third quarter in equipment revenue?

Yeah, I go back to the comment I made earlier in terms of kind of the way we see the cadence falling out quarter by quarter and it really – as you know, Sharon, the back half of the year particularly Q4 is always a strong quarter, the strongest quarter for us as well. The other piece of that is the replacement side and in this quarter I think that was right around 22% of the total equipment revenues thereabout. I think when we talked back at the end of the year I have said that last year we are getting up close to 20 and that in this year it ought to be in kind of the low to mid 20s as a percent of revenue. That can be a little bit lumpy as well. We’ve had good growth in that in the first quarter this year and we will have growth in replacement equipment sales on a full year basis as well. But if you look at the – I guess we have to say if you look at the balance of the year now, Q3 or Q2 rather as I said earlier should be fairly stable with kind of in the past Q3 will be stronger and then Q4 will be our strongest quarter from equipment revenue perspective.

Okay. And then maybe a question for Chris. I think there has been some concern over the kind of real estate paradigms the product can go into, because I think it’s kind of wider bandwidth than traditional retail and you’ve gone into some sites that maybe traditional retail wouldn’t go into and have done well. Can you kind of compare and contrast maybe how you are doing and I don’t know you characterize A, B or C real estate or kind of transferability of Planet in different paradigms.

Yeah, I think the retailers or REITs [indiscernible] not like the partner situations and so on, also tying up partners with the people there for a long time [indiscernible] caught in the parking lot for example. And also when I look at our stores we are lost busier Monday, Tuesday, Wednesday quite a bit busier than we are Fridays through the weekend which is the most retailers are busy. So we’ve had a lot of good traffic in the plasma and typically empty, so it’s come to not only be a burden, it’s actually a driver for them like that. I think non-traditional that we have done more of recently is in closed mall as being repurposed. We typically stayed away from them because they were more of a destination shopping place. Once a month you might go there to buy a gift where if we look at those malls are being repurposed from [indiscernible] so they are turning into something that somebody goes three times a week. So those would become a little more interesting and extremely aggressive brands that we try to attract it, so I think that’s something that’s not as typical in the past that’s becoming more a dream.

Okay, great. Thank you.

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

Thanks. Black Card percentage, I guess it was up a little bit versus a year ago, is that fair? And then I know the focus has been more recently on getting the franchisees to add local outside the box benefits right as opposed to something that that’s more corporate. How is that going and does that sort of by nature because every franchisee has to go out and find their local partner. Does that slow the process down of adding outside the club benefits to the Black Card?

Yeah, we haven’t really rolled that our nationally to start doing that. I mean we are still looking at locally to see if we can get the traction if it’s really increasing the sales of Black Card percentages for example. We haven’t see a huge increase in that locally, so we haven’t really rolled that. That’s part of national. Black Card percentage is up 1% from year end.

And quarter-over-quarter just about 1% and that ties really into my comment earlier John that most of comp in this quarter was really driven by member growth even then a small amount driven by the rate.

And you had also said right that it wasn’t as fertile to get larger corporate partners regionally or nationally that so when you think about that is there anything that can – you think about the value of the Black Card and obviously there is benefits inside the club, but is there anything either inside or outside where you think there is an opportunity to drive that percentage or not really it’s just going to take higher as people kind of get used to reciprocity and stuff like that.

Reciprocity is always the bigger factory. I think in Ontario we look at the local outside the four walls benefits as Ontario made sense that it would add more value to the members and drive more Black card sales but reciprocity is still is the number one driver, so I think [indiscernible].

And then just lastly when you think creatively about adjacent businesses, right, that might impact your franchisees, obviously you have a good view into their business, their needs, you got some capital where you think the most, the best opportunities are if there are any to expand into adjacent lines of business that maybe drive the top line growth one way a little bit more.

Yeah, I don’t – it’s always that question on Pro shops or retail or vitamins, right. I think the one thing we have always been disciplined though is just stay focused on health and wellness and people remember keeping the gyms clean and keeping the hellos and goodbyes for the members, so I think it’s just focus, focus, focus on the member and the cleanliness and trying to get to refocus and devote time and energy to something that is not in the gym space.

Okay, thanks.

Your next question comes from the line of Seth Sigman from Credit Suisse. Your line is open.

Thanks. Hey, guys, thanks for squeezing me in here. Just a couple of quick follow-ups. First just on the new store model, just a follow up here. Dor, when you discuss some of the economics, I guess my question is as you accelerated your growth in the last few years and you continue to drive awareness, are you seeing any change how the new stores are opening and how they are ramping from the sales perspective and how they contribute to comps.

Not significantly. I would say that we go back and look at kind of how many members they have on the first draft, those kinds of metrics. And it’s going to vary by market and if you are in a very high urban area versus a less more of a suburban or more of a rural market I guess but not really. I mean our stores continue to perform pretty consistently. If I look at the 2015 class versus the 2014 class there is not a lot of major differences there. So I think the issues that we continue to focus on internally obviously is supporting them, going through their pre-sale with them, we send people out there to help them with it to make sure that they operate to the play book and I think we are seeing the result of that.

Got it. Okay. And then on the corporate-owned stores, I may have missed this but could you elaborate on the strong improvement there that you saw margin where you think those can ultimately go?

Can you say it again, I am sorry I missed that.

On the corporate-owned stores, I am not sure we talked about this earlier, but just very strong margin improvement this quarter. Can you elaborate on what was driving and how do you think about margins for corporate-owned stores going forward?

Yeah, so one think to keep in mind and you are right we certainly had a nice improvement. We have opened up, if you go back and think about we’ve opened up about five stores now in the last call it 18 to 24 months or so and some good performing stores. Two stores in Canada, the first two we planted up there have done very well. We opened a store in Oakland, our second one out there that’s done very well. Our Boston store is doing well, went into comp in April of this year, so it’s not in our first quarter comp and then we did have a store out in Long Island that opened back in I think it was June of ’14 so as having a higher number of newer stores in the mix as we talked about in the past certainly helps do that. On a pure GAAP basis last year we had some pre-opening expenses that would have been in the P&L and that’s why I gave some adjusted metrics when I went through my prepared remarks a few minutes ago. But I think we – as we had nice comps and have some higher performing stores we are seeing some leverage down to the bottom line.

Okay, thank you.

Your last question comes from George Kelly with Imperial Capital. Your line is open.

Hi, guys. A few questions for you. First on marketing, wondering if there is any major new kind of partnerships or campaigns that you can talk about that are coming in 2016?

Yeah, right now normally we do have four national campaigns that we do one per quarter, currently in one now and then one later this summer, but nothing that is dynamically different that we plan this year.

Okay. And then a couple of questions on the franchise side, first the royalty rate grew 20 basis points in the first quarter. Is that sort of – is that a good number to use for the remaining quarters this year.

Yeah, I think we’ve talked about this in the past of kind of how that matures over time and I think, George, when we’ve talked that the mix of stores that we open, we are still opening some stores that are not at the rate, so it is weighted out to more and more stores opening at the 5% rate and that’s where you are seeing some of the increase. So from a kind of modeling perspective what I have said in the past still pretty much holds and that’s to think about somewhere around 25 bps a year growth, year-over-year, it should be a pretty good number. Until we get to about 2018-ish time period 2019 and that’s when you will start having more and more franchise agreements expire and then they renew at the current rate.

Okay, helpful. And then last question on the franchise business. I am going through the math and you mentioned that the EBITDA last year, the margin was impacted by the point of sale changes you are making. So if I do that math and adjust for that I am getting a near 100% flow through in 100% incremental margin. Is that normal or were there other cost that affected you last year anything unique that wouldn’t – go forward.

There is some other cost. I think we break it out in the press release and the GAAP to non-GAAP recompilations. Last year we had one system upgrade back at the franchise side of the business. We had some other items related to the IPO that hit the corporate side, but I think we need to review your math, but it’s not 100% flow through as you are calculating.

Okay, I will go back to that. I guess I do have one more question too just on modeling. CapEx expectations for the year and can we split that between the owned clubs and the core business?

So we should be in the high teens to low 20s on a CapEx perspective and I think as we’ve said in the past that probably half to two-thirds of that is replacement equipment for own stores, our 58 stores as well as, as Chris said a while ago, we probably do one to maybe two stores new stores a year, so that’s the kind of the next component and then just miscellaneous corporate, IT, infrastructure type of CapEx, so kind of high teens to low 20s.

Okay, thank you.

Thank you.

With that I will turn the call back over to the presenters. Chris Rondeau: Thank you very much for joining us today and sorry for the technical difficulties early on. As you can see, we are pleased about first quarter results and I am proud of the strong relationship with our franchisees, something that’s really important to us. In fact, the next two weeks we are going to spend some time personally with them at two regional huddle that we are holding, and it’s important to us that we keep them motivated, excited and continue to open these stores. We are very confident in the future of the company. Together with our franchises we plan to execute our growth strategy in the US and internationally to attract new customers to our brands. Thank you for attending the call today.

That concludes today’s conference call. You may now disconnect.