Good afternoon. My name is Ian, and I will be your conference operator today. At this time, I would like to welcome everyone to the Planet Fitness Second Quarter 2020 Earnings Call. And all lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. [Operator Instructions] At this time, I would like to hand the call over to your speaker today, Brendon Frey from ICR. Please go ahead, sir.

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

Thank you, Brendon, and thank you everyone for joining us today. Before we share our Q2 results, I want to express my sincere appreciation to our dedicated employees on the frontlines of our stores at our corporate headquarters and our franchisees for how they have supported our business and our members during this unprecedented time. COVID-19 pandemic seems to present challenges for our business. As we have previously communicated in mid-March, we temporarily closed all of our stores due to health and safety of our employees, members and communities we serve. As we plan for successfully reopening our stores, we enlisted global medical expertise and work closely with franchisees to develop a robust COVID-19 operations playbook that outlines enhanced safety incentivization policies and procedures. This includes measures such as personal protective equipment for our staff, enhanced cleaning efforts using disinfectant on the EPA list as effective against COVID-19, touchless check in, physical distancing measures whereby certain pieces of equipment are marked out of use to ensure additional space between members and much more. More recently, as a leader in the industry, we took additional steps in implementing a standard universal mask policy, requiring everyone to wear a mask inside of our store except while actively working out and in accordance with the local and state restrictions. We will continue to proceed cautiously until there is greater certainty on when conditions will return to normal. For the 1,419 stores that were opened by the end of the second quarter, overall joint outpaced prior year levels even as we executed the reduced levels of local and national advertising, nearly offsetting total cancels for the period. As a result, we only saw a modest decline in membership across our open stores through the end of June. The number of visits per store continued…

Thanks, Chris and good afternoon, everyone. As we outlined in our Q1 call in May, and as Chris just discussed, COVID-19 had significantly disrupted our business. With the health and safety of our members and employees as our primary focus, we temporarily closed all Planet Fitness locations in mid-March. It wasn’t until early May that we slowly began the reopening process following our expansive COVID-19 store reopening playbook and adhering to health authority guidelines. As we mentioned on our Q1 call, 1,875 of our 2,039 stores drafted monthly membership dues in March and then closed shortly thereafter. Those members who were drafted and collected in March had a 30-day credit to utilize once their homes store reopened. I am going to walk through how this dynamic among others, shaped our results and then provide color by segment. For the second quarter, total revenue was $40.2 million, compared to $181.7 million in the prior year period. The biggest driver of our Q2 top and bottom line was the decline in royalty revenue and corporate store revenue related to monthly membership dues that weren’t collected as the result of our decision to freeze member accounts while stores were closed due to COVID-19. To be more specific there were 297 stores that drafted in May and 1,357 that drafted in June. However, due to the issue credits only three stores had a full draft in May and 340 had a full draft in June. Partially offsetting this decline was the recognition of $11.2 million in deferred revenue related to monthly membership dues collected in March before stores closed made up of $9.4 million from franchise royalty and $1.8 million from corporate-owned stores monthly dues. We also recognized $3.1 million of net contributions in the second quarter that were also deferred from Q1. In…

[Operator Instruction] Your first question comes from the line of Jonathan Komp of Baird. Your line is open.

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

Sure, Jon. Yeah. This is Chris. Yeah. So, as you know, the join billing date for our members is 17th of the month and we started opening up beginning of May and most of these clubs did have a month’s credit. So we started billing a good portion of our members and June 17th would have been the first go around of smaller number. And then the larger bill date would have been July 17th. So after that June 17th billing we have began to see that spike and we have seen even historically forever in and around bill dates before slightly a few days after cancellations spike around that. So there’s a lot of noise is also with the same timing around California re-shutdown, Arizona re-shutdown and then the news and certain states, so a lot of noise is going on. But base on what we see, we definitely think that there’s more to do with billing cycles and the kicking in and restarting of the billing of the members. So we had the June 17th, then the July 1st annual fee, then July 17th billing, which is a big chunks of clubs of that 1,400, which then we believe is driving most of those cancellations that we saw come through. As far as -- and also in July last year we had an annual sale in the first week of July, which didn’t occur this year. So to your marketing question, as now we have three quarters of the stores opened, hopefully the next 500 or so get the green light shortly which time will tell and it’s very fluid at this point on those that the second half of the year, as you know, we are collecting the annual -- the NAF again, which is the 2% on EFT. We are lining up to probably start the first national sale in September. But time will tell on that. I think the one thing I would add to this is that we are -- I am extremely happy about and proud of is that the franchisees collectively with us and with the independent franchise council we got together to look at the second half NAF lag mix and have agreed to slightly change that mix to increase the NAF slightly the rest of the year to help kick in that flywheel here as we hopefully get sense of some normalcy in the world.

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

Sure. Yeah. I will go quickly on the competition side and then let Tom fill in on the -- we are doing franchise business review with all the franchises now. We are going through them as we speak here, so we got some good financials and updates there. But, yeah, I mean, competition, besides the ones that everybody probably on the phone has heard between the Gold’s Gym and the 24 Hour Fitness, there’s definitely with the -- there’s almost now over 40,000 different independent gyms out there that you don’t see the moms-and-pops are here bottom at the national level of closures and not reopening and we have franchisees in most markets now even some corporate stores that have been reached out by a competitor that just decided not to open. So there’s going to be I think probably a six-month or 12-month timing of which we believe they are going to try to open or just not reopen just based on a financial standpoint. So I think there’s definitely some opportunity there for us from a benefit to the system for sure in that world but probably back on [ph] such as business reviews.

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

Great. I appreciate the color. Thank you.

Thanks, Jon.

You bet.

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

Hey. Can you guys hear me?

Yeah. Sure, John. Yeah.

Hi, John.

Hey. So, Chris, let me start with, if you look at the 600,000 or 700,000 reduction in numbers from where you are in the 1Q. Have you been able to parse out demographically, right, how that breaks out among your key demographic groups and then geographically, and is there anything to learn from that?

Yeah. I’d say, from a high level, the boomers are proportionally higher than what we normally see as well as Gen Xers where millennials and Gen Zs are not. In some of the higher spiky stages we were seeing some higher index in join. So like the Texas and the Floridas, Arizona for example. Those also skew slightly higher than their peers here and throughout the rest of the country. And Canada which is very different, Canada has had increased joins and less cancels and I think they have tackle a lot more usage up there than the U.S. stores.

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

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

Okay. Thank you.

Thanks, John.

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

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

Thanks, Simeon.

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

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

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

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

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

Yeah. Thanks, Simeon.

Thank you.

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

Thanks a lot. Can you hear me?

Sure. We can Randy. Yeah.

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

Yeah. I mean, the moms-and-pops, as I mentioned earlier, definitely we are getting the franchisees that come that the Monday, Tuesday guys, even in quarterly we have had a couple of here call saying that the competitor on the street they are calling, obviously, they are not going to open, so they want to sell the membership to us or brings in the location. So there’s lot more smaller folks, smaller one-off scenarios, but there’s a lot more of those than there are national chains, right? If you look at, as we have always talked about, we take us and LA Fitness and 24 Hour Fitness and put them all together, you are lucky if you get to 3,000, 4,000 stores, so there’s still 35,000 mom-and-pops out there. So I think that there are a lot more of those than we realize. I think you look at our franchisees and comments earlier, the diversification. I mean our average franchisee has 20 locations. They are in multiple states. So 35% are movable space. So they might not have all their stores open but they have their portfolio open, so they are able to weather the storm a heck of a lot longer. And I think the probability of this model which as you know made an extremely profitable where if you look at, for instance an example, their FTD their EBITDA margins per store is almost half of ours. So, the strength of those franchisees getting through the system and also a very newer franchise system, I look back in 2009 when we had this happen and we are much smaller back then and the average franchisee probably at three locations. Luckily we were low cost so we got a lot of people trained down from higher priced clubs. But the sophistication in our system at that point was a very -- it was a lot, lot harder to weather that kind of storm. Now this situation is even worse, right, to weather this kind of closed off period, you never closed back then, right? So I think you look at the -- the EBITDA margins of our stores, the veteran ownership in our system now doing this for almost 20 years in franchising. It’s just a much stronger system as a whole to get through this. So -- and the thing is once we open it’s a different story. We have clubs that are opening. But when people are getting deferred rent, they are getting deferred lease payments on their equipment leases and so on and so forth. Now, deferred that means they are not [inaudible] pay them. So now you reopen your doors and your paying 1.5 times rent and 1.5 times lease on your equipment, now your expenses are 25% or 30% higher per store. It’s going to be -- it will be tough for a lot of these guys. They don’t have as big a margin as we do.

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

I mean, from a high level, it’s definitely states that we see less in the news. People are kind of like, back to that, the mask mandates that we did, there we had 25%, 30% of our stores had zero mask policies, zero, nothing at all. And we saw a lot of customers’ sentiment you need to staffing. There was a little bit -- there was some angst there about being careful walking when the state didn’t even demand anything. So some states look at it very differently, but people are still somewhat concerned. So those states definitely have a little less angst I guess in the world and probably at Florida or Texas, for example, or Arizona or California.

Yeah.

But I wouldn’t say that the spread is that drastic.

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

Great. Thanks, Randy.

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

Hi, Chris and Tom. Regarding...

Hi, Oliver.

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

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

Yeah. And I think, Oliver, this is Dorvin.

Yeah.

Oliver, this is Dorvin. Just one other thing that I add on Chris’ comments on the cancelations and the fact that we went for basically three months without billing, and as you mentioned, you only billed a few clubs in June and then, you know, a significant number of more clubs in July. The other factor in there is that the last time we had billed the annual fee was on March the 1st. So the April monthly annual fee, the May and the June, those fees did not get billed to the member, the last 50 did not get billed until, basically in July we did get a catch up, in other words, so those months that we didn’t build the members. So you had a lot of members that got billed their annual fee for the first time and over a year because they didn’t get there April, May, and June annual fee. So there’s always been historically a higher spike of cancels around that annual fee time period. And if you go back years ago, we only had two months with billed annual fees, it was June and October. And then a few years ago we changed it to where an annual fee can be billed for a member, based on when they joined their membership on Planet. And so, that’s another factor that really occurred during this time period of July as well.

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

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

I mean I -- it’s one quarter, and the other thing, I think, to note there is in June last year. We had a Black Card flash sale which we didn’t have in the second quarter. So even though we were 58% of the Black Card, I am not sure that that’s going to potentially be the norm I suppose. So we are 60% across the system, so I think it was more probably impactful because we don’t have a Black Card sale in that quarter.

Which was the same thing that happened in Q1, we were up against the Black Card sale from last March. We didn’t execute it. So I think as long as our promotional windows can line up based on what’s going on in the world then we should -- it should not follow the same trend that we just discussed. But it’s just a matter of what the marketing calendar -- what would make sense from a marketing calendar based on what’s going on.

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

Yeah.

Yeah. Thank you very much. Best regards.

Thanks, Oliver.

Thanks, Oliver.

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

Hi. Good afternoon. I may have missed this.

Hello, Sharon.

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

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

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

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

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

And with -- yes. So…

Okay.

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

No. That’s okay. No problem.

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

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

Okay. Thank you.

Thanks, Sharon.

Thank you.

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

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

Yeah. John, this is Dorvin. What I’d say is that, we don’t disclose like how many leases are signed and at what stages they are at in the construction phase. But we open stores in Q2 and we will open stores over the balance of the year. Some of that is to my last comment is literally timing and that they are sight setting out there that franchisees are waiting, so they know that their clubs are going to be able to be opened and they will be able to continue the construction site get it closed. The -- there are clearly franchisees that are setting and waiting and saying, given that we -- we are going through this pandemic time when it seems to be spiking and no one knows exactly when it’s going to kind of cool off or come down a bit or to get the vaccine. There is also some that are saying they are just going to wait and see. And some of that quite frankly this is to build back up their cash reserves. I mean, if you go through a period of three months, four months or -- and longer for close to 600 stores are closed, they are going to take a time period to try to build back some of their cash reserves before they start really plowing back into it in a big way. Now there are others that either are in a better financial balance sheet position oversee this as an opportunity to really get aggressive. And we have had a conversation just this last week with one such franchisee that, I mean, he’s out there aggressively in his markets believing this is an opportunity to go after the competition. To your point on the real estate availability side,…

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

Dorvin, I will take that.

Do you want to take that?

Yeah. Yeah. So, earlier in the year our stores that we opened, they are performing just in line with the way stores have performed in the past. Typical average store, how they opened up in its first month, second month, third month, how it was doing very similar to the past. Once we got into the pandemic and then all stores closed, you had an impact not only from stores that were going through pre-sell, because that’s a big deal for us. You have heard us talk about we typically open a gym with over a 1,000 when the gym opens and then it starts to ramp up for that. And so when you throw the pandemic in during that time period of where you are in the middle of a presale and you -- maybe you can’t even finish it, close down then you open back up, you didn’t really get kind of that initial bump and then you have got the issue just the virus and the pandemic. So, there’s clearly been a bit of a slower pace on ramping post-COVID and that really doesn’t concern us in a big way, because -- particularly because earlier in the year, we were saying our performance of our business similar to the past. So I think it still comes back to a lot of the comments that we have been talking about and that is that there’s still demand out there, there are still people that want to join the gym, there’s a hesitancy for workouts and workouts have been down, as Chris talked about earlier, but we don’t see that as a detriment to our overall of four-wall store model.

Thank you.

Thanks, John.

Thanks.

Thanks, John.

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

Thanks. Hey, guys. Good afternoon. So there was a question I want to go back to usage for a second. You mentioned that the average across the store base that’s opened is about 60%. But I think you mentioned that some stores are actually approaching usage levels that we saw at this time last year. I am just curious, what’s the key difference or differences in those stories that are approaching 20% usage index? Is it largely geography, are these more rural stores, the average age of members within those stores, is there something unusual about those stores where the use index is about 100% of last year?

Yeah. Those are actually earlier stores that opened, so that’s definitely a key piece is the longer they have been open. And in most cases longer ones that have been open it often the ones at the states are less, I guess, for COVID. So there -- these people have less aged out. So it’s quite definitely the longer they are open would getting up into that 80-plus or some are actually almost on par with last year. The thing though what happened in ‘19 July, when you start seeing the reclosing is more of the hype of resurgence. Things kind of just went flat where they -- we were saying before how every week was going up you know 5 points, 10 points in usage and then it kind of got to 60% and they kind of stayed and it hasn’t really progress since the resurgence of some of the states. So I think it’s just more of that aged out. It’s kind of held in kind of where it’s at right now I think. So, I think we are just have to wait for them. Consumers, they get a little more comfortable here and begin to venture out and start to workout again. And I worked out this morning in my local store here in New Hampshire. It was -- I mean, I thought it was wholly fine. People clean the equipment down more than they ever did. They walk around. They stay away from each other. The problem is you got to get in to see it. And they want you to see, like, this is no big deal. So I think that’s fine, more of it is just get them in that admission for first time.

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

Yeah. I will take…

I will take that one. This is Dorvin.

Sorry. Go ahead.

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

Got it.

Yeah. I think, one thing I’d add to that -- thing only I’d add to that is, we have somewhat extended all our branch to be sure that there’s waving the white flag and nervous that to give us a call let us know or even other franchise -- big franchise groups probably back and restart on their own. And I think back to Dorvin earlier point, I mean, the franchisees are bullish to get a sense of normalcy and then to begin to develop again because nobody is taking top anybody up on that. That’s an area they all kind of just want to -- they are bullish about the future. So they are kind of hanging in there just waiting this to pass.

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

Thanks, Joe.

Thanks, Joe.

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

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

Hey, Rafe.

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

Yeah, Rafe. This is Dorvin. As we have said the past franchisees have over a thousand committed under their area development agreements, and at any planned time, if people back and look now over the past three years, four years, five years or so generate about half of those are required to be developed over the next two years. And so what we did is we in essence just said, we give you an extra 12 months and just push everything out 12 months. So the commitment is sort of the same, it’s just been pushed out an incremental 12 months.

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

We don’t -- yeah. I mean, I don’t think what we are going to see is, is that, if a franchise had five stores this year and five next year, we push that. He has the -- what he has the ability to do is just to do five next year and then five the following year. In some cases, franchisees we will see where -- as we have been talking about kind of the normalcy what it’s going to look like. Many of our franchisee even had a schedule. So they technically in the past and we have made comments about, it could have slowed down their development because they were ahead of what they had to do but kept building, redeploying their cash. So, we don’t know what will happen in this case, once we kind of get past some of the -- these issues and get all of our clubs up and running again. It could clearly be the franchisees might do some catch up and get caught back up on what they were going to do this year versus what they would be required to do next year. But it’s -- I think, it still going to take a little bit of time to get kind of to the other side just to see how fast they might try to get their development schedule back up and running.

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

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

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

Yeah. There’s about $12 million left to be recognized.

Okay. All right. Thank you.

Thanks.

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

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

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