Good afternoon. My name is Jason, and I will be your conference operator today. At this time, I would like to welcome everyone to the Planet Fitness First Quarter 2020 Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there’ll be a question-and-answer session. [Operator Instructions I would now like to turn the call over to your speaker today Brendon Frey. Thank you. Please go ahead, sir.

Thank you for joining us today to discuss Planet Fitness's first quarter 2020 earnings results. On today’s call are Chris Rondeau, Chief Executive Officer; Dorvin Lively, President; and Tom Fitzgerald, Chief Financial Officer. Following the 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's 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's 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 first 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’ll 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 dive into our Q1 results, I want to address the unprecedented COVID-19 situation. First and foremost, our thoughts are with the family members of those who have lost loved ones as a result of the pandemic and health care providers, first responders, and essential workers on the frontline supporting our communities. COVID-19 has presented challenging realities for all businesses. On March 17, we have closed all of our 99 corporate stores, and encouraged our franchisees to do the same. By March 22, all of our more than 2,000 locations were closed. Throughout this evolving situation, we have been in constant communication with our franchisees and our team members, and have also worked to keep our members informed and engaged with our brand. Upon the closures of our stores in March, all members’ accounts were frozen and we communicated to them that they would not be charged any fees while our stores are closed. This includes monthly membership dues in annual fees. As a leader in the industry, we and our franchisees believe it is critical that Planet Fitness put our member’s interest first and foremost. We believe this message has been extremely well received, and may have also helped minimize cancellation requests. In fact, we did not see any material change in our member count due to cancels in the second half of March during the initial closure period. Our corporate headquarters employees continued to work remotely to support the business and our franchisees during this time. Given stay-at-home orders still in place in many states new store developments and equipment placements are on hold at this time. Our teams and franchisees have been hard at work preparing for our reopening of our prospective stores, including developing…

Thanks, Chris. As Chris said, we continue to be optimistic about the future of Planet Fitness for several reasons, one of the biggest being the overall strength of our franchise system and our size and scale advantage versus our competition. Our system is comprised of approximately 130 franchise groups, which compares with approximately 190 at the time of the IPO as there have been some consolidation over the past five years. Today, the average franchisee owns approximately 15 stores with our largest owning 169 stores or approximately 8% of the store base. Of our 130 groups, 13 are majority owned by private equity and represent some of our largest operators. All-in-all, we have a very experienced group of seasoned operators that have been operating the Planet Fitness brand for many years. While franchise stores average EBITDA margin percentages have historically been in the high 30% range on an adjusted four-wall EBITDA basis, most franchisees have been reinvesting significant cash flows back into the business, growing their store fleet, replacing equipment, and remodeling older locations. In the past few years, we've had many franchisees either sell their business to another franchisee, or, as I mentioned, taking significant investments from private equity. In the past, some of these private equity firms have indicated to us that they are seeing higher returns on their investment in the Planet Fitness brand, then in many of their former or existing portfolio companies and have significant runway to build out more Planet Fitness stores. In fact, several of these private equity firms have indicated to us recently that they remained extremely interested in further investment in our brand. When it comes to the capital structure of our franchisees and their balance sheets, it varies. Some of these businesses have put on leverage in recent times, while…

Thanks Dorvin and good afternoon everyone. For the first quarter, total revenue was 127.2 million, compared to 148.8 million in the prior year period. As you've heard, COVID-19 significantly disrupted our business starting in the middle of March. I'll walk through how the shutdown impacted our overall first quarter results and then provide color by segment. The biggest impact on our Q1 top and bottom line was the deferral of revenue related to monthly membership dues collected in March, before stores closed due to COVID-19. As previously announced, members will be credited for any membership dues paid for periods when our stores were closed. We expect to recognize franchise revenue and corporate owned store revenue associated with those membership dues that were drafted in March once stores reopen In addition, due to the outbreak of COVID-19 we were unable to move forward with planned new and replacement equipment sales over the last few weeks of March. Let me summarize the impacts to our top line results, due to COVID-19, which caused total revenues to be down $35.4 million due to the following three drivers. First, there was a $20 million deferral of revenue related to monthly membership dues collected in March before stores closed. That's made up of 14.1 million from franchise royalty and 5.9 million from corporate own stores monthly dues. Second, $4.6 million of NAF contributions were deferred; and lastly in the equipment segment new and replacement equipment sales were reduced by $10 million, and equipment placement revenues were $0.8 million lower in the franchise segments. Now with that as context, we're very pleased that first quarter same-store sales increased 9.8%. From a segment perspective, franchise same-store sales increased 10.0% and our corporate same-store sales increased 7.3%. Approximately three quarters of our Q1 comp increase was driven by…

Yes, thanks a lot, and good afternoon, everybody. I guess my first question I wanted to ask of Chris. Chris, you know, you've been a lifelong participant in the industry and you're starting to see more and more news around, you know bankruptcies, can you give us your perspective on you know what this movie looks like right now compared to other movies, in the industry in the past and talk about, you know, the market share opportunities that are afforded from that, based on your perspective. Thanks.

Sure. Thanks Randy. This is Chris. Yes, and I think, you know, the silver lining, I think in all of this is that it's definitely going to probably accelerate a lot of the, I guess, longevity of a lot of our competition that we've been talking about for a few years now. And I think with the strength of our model and profitability of our model compared to others, and in the recent Gold's Gym bankruptcy and closing of their 30 stores and what you hear about 24 Hour Fitness and others. I think it's, unfortunately it’s a lot of what they've been known for, and a lot of what, you know, we've been known for being the opposite of them is really catered to that casual first timer, keeping up on CapEx, which is a big one, Randy. I mean, our stores are always fresh, they're always new. We're not, build it once and let it sit until it lives a low slow death. So, I think this is definitely accelerating. The timing I would have probably taken if these pandemic didn't happen, so I guess that's a silver lining here. And honestly I do think that when situations like this that people will have and there's some surveys been done all right, it's definitely a renewed appreciation I think for the importance of being healthy and then point of your health and being fit and this longer-term will help the industry and – but you've got to weather the storm to get through it. So, I think we're in a good spot and I think you're right, this will pave the way to widen our mode even more so than it already is, and excited to get back to work here.

Helpful, and then, I think a follow-up, you mentioned that, I believe some of the clubs have started to open a little bit here. In the first few that have kind of opened, you know, any particular learnings about what you're seeing from the members or the club operators? And then related to that, when you have your, I think you have a franchisee council, what are the topics that are being discussed the most in the franchisee council right now, and kind of, how are you using that kind of position? You know, the opening plans and other things to the business going forward?

Sure, yes, great question. So, the openings has been, you know, just three clubs right now. We have two in Georgia, one in Utah. It's only been a few days. So, 1st of May we opened those. And as I mentioned in my opening remarks, [it was more] we have about 100 page COVID-19 operations list of all the protocols and policies we put in place for members and staff and cleaning procedures. So, we're using these five clubs to make sure we have all our T's crossed and I's dotted before we roll out to the broader system, which right now we're planning about 150 stores pre-May 13, to May 15 to open so we're [filling] that bucket for a broader opening. It's early, again since four days, but I'd say, you know, so far, really pleased with the joining momentum early on. I think there was a little bit of a pent-up demand, cancellations aren't really anything surprising. We're out of whack there, which would be great, usage is a bit slower, I think, on a CEO Roundtable of about seven gym chains around the world. And one in particular who's ahead of us in this whole pandemic, and he's been opened now seven weeks with about 170 stores. And a lot of what he's seeing is a pent-up demand, his joins are ahead of last year, his cancellations are on par with last year. So, definitely a pent-up demand and the member usage, which is a little bit different is slow out of the gate in the several weeks in, now they're about 80% of last year's member usage. So, but I think the demand is the most encouraging and exciting thing for me, which back to what I just said a minute ago is, I think…

Really helpful. Sounds like great partnership with the members and your franchisee partners. So, that's really great. So, thanks a lot and I'll move on.

Thanks, Randy.

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

Hi, Chris. Two things, how you sort of, or plan to communicate with members to get them comfortable to come back in once that particular gym opens? And then remind us of two things, your demographics, which I think skew younger one; and then two, kind of usage even at peak times, you know is, that would seem to not be an issue, right? Your clubs are not overwhelmed with members and they're not staying for, you know, more than probably 45 minutes, touch on those, please.

Sure. So, [indiscernible] members, not unlike when we, you know, closed down is communicating that they weren't going to be billed for time we weren't going to be open. So, just like that communication is now communicating, you know, when the club plans to reopen, what your billing process looks like, as Tom had mentioned in his opening remarks, how we – some members were billed and then we closed shortly after because of the government regulations. So, we owe them credit. So, how that credit gets applied to their opening time. So, it's a lot of that communication on top of what they can expect when they see and they walk in, the gyms will definitely be different that first opening, compared to when they – what they saw when we closes. So, more cleaning, sanitization stations than we had before, which we've always had them for decades, which is not all that common unfortunately in the gym world, but we've always had more of those, more signage – more signage reiterating our already cleaning policies and procedures where, you know, our stores, our members are cleaning as much as our staff is. I mean, it's, you know, before and after they use a bench, they are cleaning, you know, the treadmill or their workout apparatus that they're on. So, reiterating all of that, a lot of that, self-checking in a way, we're now using, we're forcing app downloads using the barcode there. There is no more the – the staff taking the person's keys or key type from their hand, and kind of get back to them or their phone, they're actually doing themselves on the way they go in. So, that’s some of the things that they were expressing to the member. On the age thing you're…

And then lastly, maybe just the mechanics of the deferred revenue, right. So, it sounds like that will get realized when each of those clubs opens. So, a lot of that would be like you said, will be spread over 2Q and 3Q, is that fair?

Hi, John, it's Tom. It really depends on when the club reopens. The vast majority, as Chris said, and we said in the opening, you know, drafted and then based on the advice of the authorities, the gyms closed. That's the – I think there was 165 clubs who actually closed before the draft. So, it just depends on when those clubs open up and the member essentially burns off what is essentially a 30-day credit in most cases.

Okay, thank you.

Yes.

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

Thanks. Hi guys, good afternoon. So, first question I want to go back to the notion of communicating with your members. I'm curious if you guys done any surveys among your members, how to gauge how readily and how quickly they intend to return to the gym? I think Equinox did something like that. I'm curious if you guys have any sense for: A, once the store opens how quickly they come into the gym; and b, you know, how long it might take to build back up to normal volume?

Yes, we've done some. We did one where we're saying that compared to even our peers we’re – who’s looking to, you know, resume their memberships and continue the memberships pose, you know, some were unanswered, and we were skewed higher than our competitors. And on the cancellation, how many want to discontinue after we opened? And were our competitors were at about 6% wanted to discontinue, we were only at about 3%. So that was some there. As far as working out, and I want to get back and trying to think if I had anything that was pointed that part out exactly, I don't believe so.

Okay, that's helpful. And just maybe secondly, you know, you guys mentioned earlier that you're still targeting 4,000 stores in the U.S. so does it sound like this has impacted that in any big way, has this pushed out that target in terms of timing a couple of years or so?

Hard to really say, [indiscernible] but it really determines how fast we can fill the pipeline with real estate and get the – you know, get that opening flywheel moving again, but…

I think Joe, the only thing I'd add to that is, you know, in my remarks a while ago, I said that, obviously, with the shutdown across the country, you know, all the way down to, you know, construction crews generally had to shut down as well. And then the working of the pipeline, you know, in essence came to a halt because no one knew when and how and how long it would take etcetera. So – and I indicated that, you know, we would expect total units to be down this year over, you know our high last year, and that could even go into next year, just because you got to get the pipeline back up and going again. A couple things, I guess, I would say is one, you know, we obviously still don't know, so we're in that time period as to you know, how the country will reopen and exactly what they will look like. I think a little bit to maybe, I think it might have been in Randy's question earlier that Chris answered in terms of competition. I think that not only from a competitor perspective, [the landscape] it's going to look like, going to look a lot different, but the whole retail landscape is going to look a lot different coming out of this as well. I just think there's going to be a whole repositioning in, in retail world and I think that also then provides, you know, opportunities, you know, in the nearer to even longer-term. So, we've always said we believe, and had a lot of confidence in that 4,000. Obviously, that's still, you know, even pre-COVID was still a few years down the road. I don't see this impacting that, but at the same time, you know, we got to see what may be the new normal will look like, but we expect to take advantage of that size and scale. You know, in terms of our base of members, our sophisticated franchisees, and the ability to, you know, continue to grow this brand, and you know, in all the markets we're at, because we still have considerable pipeline in almost every market, you know, certainly every regional market in the U.S.

Great, thank you, guys.

Thanks, Joe.

Thank you, Joe.

Your next question comes from the line of Peter Keith from Piper Sandler. Your line is open.

Hi. Thank you. Good afternoon. Wanted to just get a little more detail on the reopening, Chris, you made some interesting comments on CNBC, around maybe unplugging half the cardio machines, and so, to go back to some of the earlier questions around gym capacity, are you ever at a point where your gyms are well over 50% capacity? I think there's some concern that members might have issues with gym crowding and on the other hand, maybe you never really faced that issue, so could you help kind of clarify those comments?

Sure, yes. So, you know, we have about 120 or so pieces of cardiovascular equipment in the clubs. And how we have at least three clubs are open now. If there is a social distancing mandated by that area, we're doing every other piece of cardio, unplugged, and then signage so that people are spaced out. So, for the 120 pieces of cardio, so you have 60 pieces usable. You know, if it was a Monday night in January, you know, kind of a good ways it's opening here in May and June, so things generally get quieter in the gym world. And then back to what I mentioned with John Heinbockel with the question where people coming in here with the work from home people coming in mid-day, which is not something you generally see a lot of. So, luckily it will spread that out quite a bit for us. So, I don't really see an issue. One, time of the year. Two is, people are spacing out their workouts, and also our workout schedule. Because people work out generally Monday, Tuesday, and Wednesday. As I mentioned, you know, 1,500 workouts on the club on a Monday, that same club was a 700 Friday. So, not unlike January, people want to go where the crowds can't get in, and they just come a different day of the week, and spread that usage out. So, I don't really see us being different. And the thing about 50% of our members don't use the club in a 30-day period either. So, I mean, it gives me back a little bit of Joe's question about how many people were wanting to come back to work out? Well, half of our members don't use the club in the 30-day period. So, I'm a little different customer than a general sole cycle or Gold's Gym customer. That's, you know, a six, seven day a week person have a high water.

Okay, that's interesting. And then one other question I want to ask was around franchisee concessions that maybe there were some implied comments in there with regards to equipment replacement, but is there any concessions that you are looking at right now for that reopening process, maybe with ad spending, curious if you could help us frame up some of the possibilities we might see unfold over the coming months or quarters?

Yes, I mean, this is this Dorvin, Peter. You know, one of the things that Chris said earlier, I think in his remarks and maybe Tom even referred to it, but I think the, the, you know, the franchisees obviously are most interested in getting the stores open. And, you know, that's not the highest priority to, you know, to come out and try to re-equip clubs, you know, here all clubs are down or to plan on it, and you know, maybe a July or August when we don't know when clubs are open, etc. So, one of the things that we want to make sure because obviously our biggest asset, our franchisees out there is to in essence, you know, kind of take that worry off of their, off their plate in terms of being in default of their franchise agreements for not being in compliance with that. And so what we've done is, we have communicated to our franchisee base, that we would push out all re-equips as well as all new store requirements under the development schedules. Just push everything out a year. And what that does is a couple things. Number one is, it allows them to, you know, focus on their business, focus on getting ready to open the clubs back up, focus on taking care of the members, and making sure that we're ready for that. And, and then not have that issue of, you know, losing their territory because quite frankly, that's, you know, the pipeline is a huge asset that they have. So, we wanted to do that to, you know, to provide them kind of that level of comfort. So, that's number one. The second thing that we've done is to make sure that you know, we're there to help support them in ways that that they need to and, you know, but on the flip side of that is, you know, you've heard Chris say that we're as much an advertising company is, is anything else. So, you know, we're – we still have the same requirements in terms of the local marketing spend, etc. Because it will get these calls back open. You know, we want to make sure that we're out there with a brand and being able to market to prospective members as well. And I think that, Tom, you had a couple of things you wanted to add to it as well.

Yes. So, we may have mentioned this before, but our development team led by Ray Miolla has worked with the franchise groups to really share his team’s best practices on how to really have productive conversations with landlords about abatements and deferrals. And I'd say, as Dorvin touched on earlier for the most part, those have been very fruitful conversations. The majority of landlords, giving deferrals very few abatements, but deferrals on rent while the club's – while the stores are closed. And so, if that's for a month or two months that rent that was foregone would get added on to the subsequent six or nine months depending on the situation. And I'd say that the final thing is, we've tried to help as we think about to Chris' point, our leadership position in cleanliness and sanitization and taking that to another level given the situation and people's expectations. We are investing on behalf of the franchisees to secure what is difficult products and tools to secure so we can elevate our ability to enhance our sanitization capabilities at store level. So, we're essentially buying that inventory in advance. So, we make sure we could secure it. And then as they order it and get it in their clubs, they'll pay it off. So that helps with their liquidity. So, I'd say, you know, a combination of things that we think in some franchisees are based on calls we have with them every week, I think appreciative and understand that we're all in this together and all looking to come out stronger, both in terms of how we've treated the customer from a billing standpoint, how we're going to run the club's going forward, and really continue to widen the moat that we have competitively.

Okay, thank you. That's very helpful feedback and good luck in the coming months with the reopening.

Great, thank you.

Thanks Peter.

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

Hi, thank you, everybody. Dorvin, on your comments you mentioned, equipment replacement sales could be down as much as 50% or more [Technical Difficulty] what does that imply roughly for how you are thinking about what might be possible or generally with net openings and some things that you are looking at as there are a lot of unknowns with the environment? And then the second question was around churn and thinking about managing churn in this – amidst the crisis, and in relation to marketing or strategies that are underway as you monitor that and I'm sure the nature of marketing spend is quite different with what's been happening? Thank you.

Oliver, you were cutting out a lot there. So, I'm going to, if I didn't get the question exactly right, you can come back. The first part of the question I think was on specifically reequipped and maybe what the expectation maybe is now versus where we were or where we had in our initial guidance? I think was your question. You know, we whipped through our guidance back earlier this year and as Tom said a few months ago, we're not providing guidance over the balance of the year, but in terms of kind of that balance of the year or full-year rather development of new store openings, as well as replacement equipment, I made the comment in my remarks that, you know, it could likely be down 50% or more over what it was last year. As a result of the fact that, you know, stores are closed now, except for the three stores that Chris mentioned earlier that have opened with the uncertainty of when those stores would open back up. And then ultimately, you know, kind of regenerate the pipeline, you know, for new sales down the road. And what we said then, the comment I made just a couple minutes ago was to be able to, you know, give the franchisees some, you know, confidence that we were not going to step in, and require them to be putting replacement equipment in and, you know, here in May or June or July or August or something when we're still trying to get clubs open, that's not the highest priority on our list and we didn't want it to be the highest priority on their list. So, that's why I made the comment, we were pushing everything out 12 months from its original date. We think that is the right thing to do for the brand, the right thing to do for the franchisees and will ultimately, you know, pay dividends back to us as a brand and to take care of our members.

And I think on your other question on the churn over, I think in the marketing pieces that you know, I think the first and foremost most important thing is that we notified members we weren't billing them, we froze them. So, in our cancellations leading up to an enduring the closure, a fraction of what we're used to seeing when we're open. So remember, base, you know, this is tracking along pretty solid, even though we're not open and selling memberships, per se. I think as far as the churn piece of it, and keeping them active, I’d say, you know, we looked at all the digital stuff we've been doing between Facebook Live, we launched that March 16, as soon as we closed our stores, and we're doing over 100,000 workouts per night on those videos. So, it's really unbelievable transaction for both members and non-members. So, the people that are really watching us in Burlington brand affinity there is big. Then we post them on YouTube and our YouTube subscribers are up 229% since closing, and have over 10 million views. So, this is all happening in real time. So, when you go back and think about our digital strategy for a bit that we've been talking about for over a year now and getting the app going and all the content. We were definitely going down the right road and luckily that we're able to continue to engage our members along the way. And then the new iFit partnership we did, we launched a bunch of videos there. We were already doing a 173% increase in average daily workouts in our mobile app. And then we've launched that, and that's up 122%. So, I think keeping them engaged and giving them some value, even though where our four-walls aren’t open, is going to keep them engaged in the brand and then hopefully keep them longer-term that we're there with longer-term that we're their partner in fitness here.

Chris, what are your thoughts with at home, and the long-term of changes there that you're making to the customer experience, as well as those capabilities that you're building? How are you thinking about the platforms versus your app? And what may happen with that digital on demand side of the business?

Yes, I think it definitely has caused an acceleration in the adoption of digital content, where people are taking advantage of their home and you've seen it whether you know, even the stuff that I was just rattling off [indiscernible] and just even other [meltdowns], and iFit and noted track everything else. So, I think you're, I think we’ve accelerated. There's also been a recent study that showed, even though it's been a big influx of new customers there, also when their bricks-and-mortar open, they can't wait to get back to that and not maintain necessarily the digital although they're not going to write it up 100%, but it will, it'll never go back to pre-COVID numbers. It'll stay ahead of where it was, but will not say to the level it's at today. I think like we've talked about – I think it's a big part of, you know, what we want to do longer term that we're going to be engaged and be the trusted source in their wellness journey, whether it's in club or at home or running outside. So, I think it's proof in the pudding, I think it's really accelerated our point of view on it, just and what we're seeing from consumption and the feedback we get from the members and non-members that are doing the Facebook Live at night and Facebook Live something is looking at now or just it's going to be probably something we do forever at this point. So, it's a, I think it's a must have. I don't think it's an end-all be-all working out at home by any means. I think the bricks and mortar experience of being around others and the camaraderie builds in the motivation of builders, not replaceable, but I think it's a good, good place to be and why we kept the app going last summer.

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

Yes. Hi, thank you. I want to just follow up on the units, the new units and the re-equipment, side of things, and just curious, broader question of how you and your franchise partners are thinking about this, but just maybe the be clear. Are you thinking, you know kind of what the communicated relaxing the requirements for the next year here? Are you thinking after that period, you get back on to something close to the prior trajectory for those or are you thinking there's some sort of a catch-up before you then get to more of a normalized level? Just how are you thinking about post everything going on here?

Yes, John, what we're doing is we're saying that requirements that exist now in the pipeline that gets, in essence pushed out 12 months from its original date, but all replacement equipment when it's done, and all new stores when they're open, they still have the same deadline, the same five and seven. And, you know, Chris mentioned that a little bit earlier as to you know, one of the reasons we are where we are, is that, you know, we can't be out [new] and we think that's critical to the brand and critical to having you know, that high value, affordable option for, you know, what our brand stands for today. So, that's how we're handling it. So, it's the existing requirements as they are being pushed out a year for what's out there today, but then everything new going in place going forward still has the five and seven.

Okay, and maybe one other topic, then. Curious your thoughts more on, you know as things reopen, more on the behavior of your members. I know Chris, you've always talked about your non use of being the biggest driver of voluntary cancellations, I’m just wondering how you're thinking about how far you need to get out and kind of what the risk is that if there's some contingent of members who don't use the club for a certain period of time, you know how you're thinking about kind of that extended risk of cancellation?

Yes, I don't see that. I don't think these are going to really change and when I look at, even when I go back to 2009 when there was more of a, you know, banking or recession issue, where our same store sales were great back then. So, I don't think coming out of this people are going to be – want to be less healthy or less active. And I think we did one serve one of ours that we did said that there was like over 50% of the members would consider down size or downgrading from their higher price gym membership to a more affordable option. So, which is what we saw in 2009 where people were down trading. So I don't think we're going to see, you know, nothing points to any direction that I would feel any differently than the something we saw in 2009.

And have you seen, during the downturn any requests or inquiries about downgrading from a black card to a white card membership? Or would do you expect to see any of that?

Possibly, but I didn't see any real, I think, kind of like the upgrade situation we talked about no one really upgraded necessarily for the black card they join on it, you know, maybe a maybe a slight chance upon joining like maybe more members take a White Card in that example, but we're not talking about a big ticket because even the black card is much cheaper than probably where they're coming from.

Okay, great. I appreciate the perspective. Best of luck.

Thanks, John.

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

Hi, good afternoon. I wanted to follow up on the digital dynamic, because obviously, it's important to keep your members engaged, but it's also pretty intriguing how many non-members you've been able to attract via the different classes you've been offering. So, can you talk about, and I don't know if you have this data, but is there any demographic difference at all between what you're seeing in terms of engagement online versus people who come into the club? Any evidence that is kind of widening the aperture for Planet, and then how do you follow up once clubs start to reopen and trying to engage these folks to move kind of from the digital realm into the club?

Yes, Facebook live is high, we don't really know, you know who those members are or non-members are, unfortunately there was 100,000 a night. One thing that will be interesting with our app is a lot of the content that we have on it now is all free. Members or nonmembers, if you can download the app, you get the access to it. We don't have the data yet, but we're going to work on where we'll be able to report on people who have the app, who is actually a member and who's actually just utilizing the content for free. And then within that messaging, which is launching, you know, as we speak today that we'll be able to then message to them separately. So, it could create a second marketing avenue for us to use or – not second, another marketing avenue for us to use to kind of – no difference team summer challenge on other ways has introduced our brand to a non-member to give them a taste of what we're like, so that hopefully we can market to them to get them to come in. So, and you know, honestly, it could be somebody that is, you know, we always say we go out for the first timer or casual gym user because it's the intimidation is a big piece. And it could be a level of intimidation that this breaks through that is something that they still can't walk in the gym, but if we can give them some access to some content at home and no plan to be that brand, maybe we can build up some, some courage to come in.

That's helpful and then, I don't think I heard you guys talk about this, but on SG&A obviously, there's a lot you can't control right now, but you can control the SG&A. So is [$72 million] of what we saw this quarter, is that kind of a correct run rate right now for quarterly SG&A?

Yes. Hi, Sharon, it's Tom. I think that, you know, there's some things that hit in Q1 or that some of the actions we’ve taken since Q1 that really weren't reflective. So, that rate will continue to come down, but I think when we look at our cash burn rate, you know, we've – we made the statements we've made about liquidity. And if, you know, clubs remain close through the year, we had enough liquidity to carry us well beyond the year. You know, that's still true, very true. And we've taken our cash burn rate, which we don't disclose, but through the actions we've taken, we've reduced that by about a third. So, we will continue to monitor the situation, and you know, take additional actions if necessary, to the extent this is prolonged, but short answer is, it'll come down from where it was in Q1 because some of the actions weren't fully reflected.

Thank you.

Your next question comes from a line of John Ivankoe from JPMorgan. Your line is open.

Hi, thank you. I appreciate the fact that many of your franchisees are in different financial positions from a debt perspective, and some of them are using debt to expand. You know, and I think, you know, your business model was the type of one where expecting recurring cash flows was, you know, I mean, all but you know, “guaranteed in normal times”, but we’re obviously not in normal times now, but do you have a sense of how many franchisees, how many stores within that franchise base, you know, you think really are financially challenged, and if that's the case, are there other franchisees willing to buy in other franchisees and give them some value for their equity or given your own cash balances, it's an opportunity to significantly increase your own company store account.

Hi John, it's Tom. I'll start off and maybe Dorvin will build on it. Yes, I think we've had discussions with some of our lenders of our franchisees and, you know, to your point and what Dorvin said earlier, you know, the business just produces so much cash for a franchisee that, you know, lenders were very willing to put some leverage on the business based on, on the, on the economics and the profitability. And so, you know, I think basically no one – including our own structure, no one ever contemplated a situation where the revenues go to zero. So, most of the most lenders as we - think communicated on other calls, we assumed that lenders would want to work with our franchisees just because of the fact that they're growing. That they are so profitable and if in fact, they have to look across their portfolio as lenders, we would be, you know, near the top, if not the top of the list of folks they'd want to be accommodating to, and that's borne out in the conversations we've had with some of the lenders who are pretty deep in our system of franchisees. And they basically said, you know, they're going to provide, to the extent it's needed, you know, they would provide waivers while the clubs are closed just until things reopen, and they get a better sense of, of where the trends are, where the key metrics are, as you'd imagine, but you know, all in all, the short answer would be understanding and accommodating knowing that we were very strong. They were very strong coming into this, and will likely be stronger coming out of it, given what's happening competitively and with the overall strengthening tailwinds for health and wellness.

Yes, and John, this is Dorvin. We've had actually in-bound calls from some of our franchisees and some of the private equity by franchisees that are saying that, you know, if there's anybody that would love to sell, we want to buy. And I'm sure they're probably reaching out, you know, to some of the franchisees themselves, as they have in the past, you know, to try to build a bigger overall portfolio within the Planet system. And to your latter point, I mean, we, you know, corporately we have 99 stores and we've stated that although we like the asset-like model, you know, we're less than 5% of the base. It's not inconceivable that if something came up and, you know, we knew a franchisee who wanted to sell or needed to sell, we clearly would be there to table as well. So, I think that, you know, what you've got here is, you've got franchisees that have a varying degree of a capital structure. To Tom's point, we believe based on just conversations with various banks in the system they're willing to work with, you know, with this business in the portfolio that they have, and then we've got guys on the sideline and we would even be there as well if need be.

Understood. Thank you.

Thank you, John.

Thanks, John.

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

Thanks. Hi, guys, hope you're all doing well enough on your office. Dorvin, just for that last point. So looking further out, and maybe what we just [indiscernible] further out, do you envision any meaningful changes to just the composition of the franchisee base? Like does the base get further consolidated to a top view? Does it get spread out more? So, any thoughts there? And then, Chris, just coming back to your point you had made. How are you thinking about the value ads from the black card post-COVID? Has anything changed there? I don't know if people stay home more as you think through the benefits?

Sure. Simeon, you know, I think that there will be continued consolidation. You know, we don't know what the world's going to look like coming out of this obviously. There were deals in the works, you know, going into this where both new potential private equity guys from the outside, you know, we're looking in, as well as guys on the inside that we're looking to, you know to grow. I think that will still be there. You know, we've gone from about 190 down to, you know, roughly 130. I don't see that accelerating you know, I see it probably moderating because we've got a lot of guys that that, you know, they bleed, purple and yellow and they like the business and they want to stay in the business and want to grow. And then, you know, over time, you know, few of the smaller guys will probably end up, you know, selling out to some of the larger guys, but, you know, we think that's fine. We like the composition of where it's at today we'd be fine with it staying where it's at, but we also don't see it. You know, it's really accelerating to the point that you know, you'd have a significant reduction in the number of franchisees today, and quite frankly, we like the partners we have today. That's in the system today.

Yes, this is Chris. I’d say on your black card amenity, and I think with this, I think what the pandemic has shown us, and like I mentioned earlier, I think it has definitely reinforced our direction with content and the road we're going down, but definitely just reassured that we were going down the right road with all the consumption that we're seeing within our app and the Facebook Live and YouTube, and the others in the industry, our industry that, you know, their consumption or even people that have just – they're an app company and they're what they've seen from a consumption standpoint because of the work from home and this. So, I think it just reinforces that it is something that we, luckily, we're already going down, but you know, I guess the big question is that black card benefit, is it a third tier membership, is it an add-on to any membership? You know, people are getting this content somewhere anyway. And you know, I see people in the gym all the time, and I go to Planet, and you know, they got their phone next to the bench or on the wall on the phone or routine, you know, why aren't they getting that from us as a benefit. So, I think it definitely as the world will be and going forward even more so than before, and then figure how to how to capitalize on that.

Okay, thanks a lot, guys. Best of luck and stay healthy.

Your next question comes from the line of Alex Maroccia from Berenberg. Your line is open.

Hi, guys. Good afternoon. I'm thinking about competitive bankruptcies, both in the U.S. and abroad. Do you think forced competitor store closures opens up some opportunities in larger U.S. cities that might have been oversaturated previously or even some of the international regions that were previously unattractive to you guys?

Yes, I think it's definitely something to look at, you know, the bigger – one of the bigger hurdles we have with those bankruptcies is because our model is very different in the sense of we don't have pools or a basketball courts as on as, what model is it? So, in a lot of ways, it could be strictly a real estate play, you know, if it's somebody who has a big coverage in a city that's hard to find real estate in Boston and New York, for example, and they have a lot of real estate that could be available, it could be more around a real estate play, quite frankly, the necessarily, you know, perfect box, but it's, we could just renovate it and make it look like ours. So, there's no doubt that they could free up some of that, but you know, most markets is, you know, well let’s talk about with the real estate the way it is, with retailers, you know, real estate is not that hard to come by in most rural markets. Then probably out of this would be even better for us longer-term, but definitely, I think in some of these really dense markets, it could definitely free up some potentially new locations for us that’s generally unavailable. I think in the international front, you know, I don't know anything off top my head yet, but you know, there's something, as I said, if you go into some of these countries where there's already some pretty large players there, you know, I don't know if I'd want to go in [indiscernible] at a time, but if there was an opportunity to come in and make a bigger, bigger presence at one time might make some sense for sure.

Okay. And then the second one is, on the SBA loans. I know that labor cost is the main metric for how much some of the small businesses were able to get. Can you give us a general sense of what labor costs are as a percentage of total OpEx for the franchisees?

Yes, hi, it's Tom. Between labor and occupancy combined they're kind of mid-30-ish. It depends on the location, but, and it's generally 50/50 between labor and occupancy, might be a little more in some circumstances, little less than others, but that's pretty close.

Okay, great. That's helpful. Thank you.

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

Hi, it’s Rafe. Good afternoon. Thanks for taking my question.

Hi, Rafe.

I just wanted to clarify the revenue deferrals from the store closures, would you expect to recognize that in the second quarter as the stores start to – the clubs start to reopen?

Yes, hi Rafe, it's Tom. It really depends on when they reopen. And so, as soon as the club's reopen and that that membership clock starts ticking where we're burning off the 30 days that folks, roughly 30 days folks paid for, then we can recognize the revenue. So, yes, if that's inside the quarter, then we're good. You know, in some clubs, which we've heard, you know, different things from different states. If that extends, you know, it could be Q3. So, really is a club by club basis, which is how we'll recognize it.

Got it. And then, Chris, you mentioned that the membership has stayed steady, and you didn't see an uptick in cancellations in the second half of March, just in prior periods where you've seen an individual club maybe close for an extended period of time, when the club reopened, did you see an uptick in churn or can you just talk about what's happened in the past when you've had club closures? And how it reopens and how long it takes to return to its prior productivity?

Yes, I think the only thing that probably be, you know, anything somewhat close to this would be Puerto Rico in 2017. Hurricane Maria, devastated the island and there was 11 stores at that time that were completely closed, probably half of it was say, we were closed for even three to six months, and they completely rebuild. Those was reopened and continued to build. The EFT once they rebuilt the store and it was – essentially it business as usual, and within a year, those stores were doing better than they were pre-hurricane. And that franchisee went on to build another store in that market. So, they recovered in pretty resilient, and if you remember back then they were saying that about 30% of the Island might have moved off the Island [indiscernible] there was no work or housing. So, we were really pleasantly surprised with how it turned out, you know when they reopened the stores from being closed. So that's probably the only that's that similar. We have our closures in Florida, but they're really, you know, weak at best, you know.

And then if you look at some of the clubs that are a little bit more expensive some of your competitors when you've seen them close clubs in the past, have you picked up new members from them? Is there a crossover in membership where you guys can gain share if they exit the market?

You know, bigger clubs that may have, you know, 1000 or 2000 members, you start to see an uptick when they cancel. You know, but all these boutiques too where they have you know, 300 or 400 members you almost don't see such a small number of members when they can't, when they close, we just see a lot of those [indiscernible]. I think we will see a lot more of those when this comes out, but you don't, such a few members at store you don't really see the uptick. I think longer-term you just see new joins, not having really any place to really shop, we’re the only options the end of the day.

Okay, great. Thank you.

Thanks Rafe.

Your next question comes from the line of Paul Golding from Macquarie. Your line is open.

Hi, thanks so much for taking my question. I was hoping you could give us some color around the mechanics of the resumption and around membership dues turning back on. If I think about a black card member and reciprocity there, is this turned on when the home gym turns back on? Or I mean, is there the ability to – because if we looked at urban versus suburban, I could see there being some differential there and when members may have access and the membership dues turn back on. So, any light you could shed on that?

That's a good question actually. I'd probably say that, we probably would let them use the club close by if their club wasn't open as we do when there's a, you know, a flood or a hurricane in certain clubs or even, we even do that during pre-sale and construction where if somebody joins a club during the construction pre-sale period, they're black card member, we allow them to use a, you know, one of the other front locations nearby while we're not open yet, not even building them yet. So that would probably be something that I'll – now that you’ve mentioned that, that’s a great idea. I think we will look at that for sure.

Great. I appreciate the color on that, Chris. And then on understanding contactless and virtual uptake looking out into the future and sort of offset with the increased physical cleanliness protocols, anything you can say on what the stickiness of any margin improvement or decrement could look like going forward on a longer-term basis from this?

I don't see this. There's really no more or less payroll. We don't need more people to, in a lot of our protocols, as I mentioned is, is just, I guess, reinforcing what we've already done and just, I guess taking credit for it, and calling it out, you know, we've always done it and always have, but we never really took credit for the fact that we have, you know, sanitization stations throughout the entire gym with paper towels, you know, probably within, you know, 30, 40 feet of any given machine, and actually happens to be, luckily one of the approved disinfectants and always was for this virus. So, I think a lot of us is taking credit for where credit is due and just reinforcing with the members that's proper gym etiquette. And in our club, our members are, I mean, if you don't wipe equipment down, our members are going to call you out. It's not even the staff that has to do it.

Understood. So then potentially contactless and having more virtual consumption of your fitness content, whether it's through iFit or whatever, could potentially benefit margins longer term, would you say, less need to maintain certain things from usage? Just trying to get a picture of how the environment could look from a cost side?

Yes, well, I think one thing is, you know, the unknown is will it create some retention benefit. As I mentioned, 50% of our members don't use the gym. We don't know and the app will tell us now is, we don't know is that because they're working out at home, and they're not using the gym, and if they're using our content then maybe they'll keep the membership longer, because they’re not using somebody else's. So that'd be probably the bigger upside I think I've looked to track and try to watch is that we're providing some value and maybe we'll say a little longer because they're not giving value somewhere else.

Got it. Thanks so much. Appreciate it.

Thank you. Pleasure.

Your last question comes from the line of Linda Bolton-Weiser from D.A. Davidson. Your line is open.

Hi, actually my question has been asked and answered. Thank you very much.

Okay. Thanks, Linda.

Thanks, Linda.

There are no further questions at this time. I turn the call back to Chris Rondeau for closing remarks.

Great. Well, thank you everybody for attending the call today for our first quarter release, under pretty different times for all of us. Still happy to see the business in franchisees, you know, excited about getting these things open, excited about the future. I really think that this silver lining all this will, as I mentioned, widen our moat longer term, and being the trusted source for wellness for our members in the future and non members that we don't have just yet. So, look forward to our second quarter call and give you an update at that time. Thank you.

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