PLANET FITNESS, INC. Unless the context requires otherwise, references in this report to the "Company," "we," "us" and "our" refer toPlanet Fitness, Inc. and its consolidated subsidiaries. Overview We are one of the largest and fastest-growing franchisors and operators of fitness centers inthe United States by number of members and locations, with a highly recognized national brand. Our mission is to enhance people's lives by providing a high-quality fitness experience in a welcoming, non-intimidating environment, which we call theJudgement Free Zone , where anyone-and we mean anyone-can feel they belong. Our bright, clean stores are typically 20,000 square feet, with a large selection of high-quality, purple and yellowPlanet Fitness -branded cardio, circuit- and weight-training equipment and friendly staff trainerswho offer unlimited free fitness instruction to all our members in small groups through our PE@PF program. We offer this differentiated fitness experience at only$10 per month for our standard membership. This exceptional value proposition is designed to appeal to a broad population, including occasional gym users and the approximately 80% of theU.S. and Canadian populations over age 14who are not gym members, particularly thosewho find the traditional fitness club setting intimidating and expensive. We and our franchisees fiercely protectPlanet Fitness' community atmosphere-a place where you do not need to be fit before joining and where progress toward achieving your fitness goals (big or small) is supported and applauded by our staff and fellow members. As ofJune 30, 2021 , we had more than 14.8 million members and 2,170 stores in all 50 states, theDistrict of Columbia ,Puerto Rico ,Canada ,Panama ,Mexico andAustralia . Of our 2,170 stores, 2,064 are franchised and 106 are corporate-owned. As ofJune 30, 2021 , we had commitments to open more than 1,000 new stores under existing ADAs. COVID-19 Impact OnMarch 11, 2020 , theWorld Health Organization declared a global pandemic related to the COVID-19 outbreak. The pandemic has caused unprecedented economic volatility and uncertainty, which has negatively impacted our recent operating results. In response to the COVID-19 pandemic, we proactively closed all of our stores system wide inMarch 2020 . Our stores began reopening in earlyMay 2020 as local guidelines allowed, and as ofJune 30, 2021 , 2,130 of our stores were open and operating, of which 2,026 were franchisee-owned stores and 104 were corporate-owned stores. As COVID-19 continues to impact areas in which our stores operate, certain of our stores have had to re-close, and additional stores may have to re-close, pursuant to local guidelines. As previously announced, members have not and will not be charged membership dues while our stores are temporarily closed and are credited for any membership dues paid for periods when our stores were closed. Compared to the periods prior toMarch 2020 , we have experienced and may continue to experience decreased new store development and remodels, as well as decreased replacement equipment sales in 2021 as a result of the COVID-19 pandemic. We continue to reopen stores as local authorities issue guidelines authorizing the reopening of fitness centers and we determine it is safe to do so. As stores reopened we have recognized franchise revenue and corporate-owned store revenue associated with any membership dues collected prior to store closures. We continue to defer revenue for stores that have not yet reopened. We may have to defer further revenue in the future for stores that are required to re-close. The duration of the COVID-19 pandemic and the extent of its impact on our business cannot be reasonably estimated at this time. We anticipate that the COVID-19 pandemic may continue to negatively impact our operating results in future periods. As a result of COVID-19 we have experienced to date, and may continue to experience, a decrease in our net membership base compared to membership levels inMarch 2020 . We have taken a number of actions to efficiently manage the business, as well as increase liquidity and financial flexibility in order to mitigate the impact of the COVID-19 pandemic on our business. Although the COVID-19 pandemic may continue to negatively impact the Company's operations and cash flows, based on management's current expectations and currently available information, the Company believes current cash and cash from operations will be sufficient to meet its operating cash requirements, planned capital expenditures and interest and principal payments for at least the next twelve months. Our segments We operate and manage our business in three business segments: Franchise, Corporate-owned stores and Equipment. Our Franchise segment includes operations related to our franchising business inthe United States ,Puerto Rico ,Canada ,Panama ,Mexico andAustralia , including revenues and expenses from the NAF. Our Corporate-owned stores segment includes operations with respect to all corporate-owned stores throughoutthe United States andCanada . The Equipment segment primarily includes the sale of equipment to ourUnited States franchisee-owned stores. We evaluate the performance of our segments and allocate resources to them based on revenue and earnings before interest, taxes, depreciation and amortization, referred to as Segment EBITDA. Revenue and Segment EBITDA for all operating segments include only transactions with unaffiliated customers and do not include intersegment transactions. The tables below summarize the financial information for 26 -------------------------------------------------------------------------------- Table of Contents our segments for the three and six months endedJune 30, 2021 andJune 30, 2020 . "Corporate and other," as it relates to Segment EBITDA, primarily includes corporate overhead costs, such as payroll and related benefit costs and professional services that are not directly attributable to any individual segment. Three months ended Six months ended June 30, June 30, (in thousands) 2021 2020 2021 2020 Revenue Franchise segment$ 72,849 $ 21,002 $ 136,910 $ 79,531 Corporate-owned stores segment 40,579 9,419 78,456 49,935 Equipment segment 23,823 9,813 33,762 37,998 Total revenue$ 137,251 $ 40,234 $ 249,128 $ 167,464 Segment EBITDA Franchise$ 51,756 $ 3,529 $ 92,936 $ 40,275 Corporate-owned stores 10,372 (6,342) 21,062 5,665 Equipment 5,608 1,311 7,438 7,677 Corporate and other (12,595) (8,285) (21,250) (17,031) Total Segment EBITDA(1)$ 55,141 $ (9,787) $ 100,186 $ 36,586 (1)Total Segment EBITDA is equal to EBITDA, which is a metric that is not presented in accordance withU.S. GAAP. Refer to "-Non-GAAP financial measures" for a definition of EBITDA and a reconciliation to net income (loss), the most directly comparableU.S. GAAP measure. A reconciliation of income (loss) from operations to Segment EBITDA is set forth below: Corporate-owned Corporate and (in thousands) Franchise stores Equipment other Total Three months endedJune 30, 2021 Income (loss) from operations$ 49,869 $ 1,727$ 4,347 $ (15,691) $ 40,252 Depreciation and amortization 1,887 8,600 1,261 3,288 15,036 Other income - 45 - (192) (147) Segment EBITDA(1)$ 51,756 $ 10,372$ 5,608 $ (12,595) $ 55,141 Three months endedJune 30, 2020 Income (loss) from operations$ 1,644 $
(13,776)
1,965 7,262 1,262 2,519 13,008
Other (expense) income (80) 172 - (165) (73)
Segment EBITDA(1) $ 3,529 $ (6,342) $ 1,311 $ (8,285) $ (9,787)
Six months ended June 30, 2021
Income (loss) from operations $ 89,154 $
3,106
3,782 17,866 2,522 6,340 30,510
Other income (expense) - 90 (68) (4) 18
Segment EBITDA(1) $ 92,936 $ 21,062 $ 7,438 $ (21,250) $ 100,186
Six months ended June 30, 2020
Income (loss) from operations $ 36,467 $
(8,097)
3,892 14,584 2,525 4,799 25,800
Other (expense) income (84) (822) - 146 (760)
Segment EBITDA(1) $ 40,275 $ 5,665 $ 7,677 $ (17,031) $ 36,586
27-------------------------------------------------------------------------------- Table of Contents (1)Total Segment EBITDA is equal to EBITDA, which is a metric that is not presented in accordance withU.S. GAAP. Refer to "-Non-GAAP Financial Measures" for a definition of EBITDA and a reconciliation to net income (loss), the most directly comparableU.S. GAAP measure. How we assess the performance of our business In assessing the performance of our business, we consider a variety of performance and financial measures. The key measures for determining how our business is performing include the number of new store openings, same store sales for both corporate-owned and franchisee-owned stores, system-wide sales, EBITDA, Adjusted EBITDA, Segment EBITDA, Adjusted net income (loss) and Adjusted net income (loss) per share, diluted. See "-Non-GAAP financial measures" below for our definition of EBITDA, Adjusted EBITDA, Adjusted net income (loss), and Adjusted net income (loss) per share, diluted and why we present EBITDA, Adjusted EBITDA, Adjusted net income (loss), and Adjusted net income (loss) per share, diluted, and for a reconciliation of our EBITDA, Adjusted EBITDA, and Adjusted net income (loss) to net income (loss), the most directly comparable financial measure calculated and presented in accordance withU.S. GAAP, and a reconciliation of Adjusted net income (loss) per share, diluted to net income (loss) per share, diluted, the most directly comparable financial measure calculated and presented in accordance withU.S. GAAP. Number of new store openings The number of new store openings reflects stores opened during a particular reporting period for both corporate-owned and franchisee-owned stores. Opening new stores is an important part of our growth strategy and we expect the majority of our future new stores will be franchisee-owned. Before we obtain the certificate of occupancy or report any revenue for new corporate-owned stores, we incur pre-opening costs, such as rent expense, labor expense and other operating expenses. Some of our stores open with an initial start-up period of higher than normal marketing and operating expenses, particularly as a percentage of monthly revenue. New stores may not be profitable and their revenue may not follow historical patterns. The following table shows the change in our corporate-owned and franchisee-owned store base for the three and six months endedJune 30, 2021 and 2020: Three months ended June 30, Six months ended June 30, 2021 2020 2021 2020 Franchisee-owned stores: Stores operated at beginning of period 2,043 1,940 2,021 1,903 New stores opened 21 21 43 59 Stores debranded, sold or consolidated(1) - (1) - (2) Stores operated at end of period(2) 2,064 1,960 2,064 1,960 Corporate-owned stores: Stores operated at beginning of period 103 99 103 98 New stores opened 3 - 3 1 Stores operated at end of period(2) 106 99 106 99 Total stores: Stores operated at beginning of period 2,146 2,039 2,124 2,001 New stores opened 24 21 46 60 Stores acquired, debranded, sold or consolidated(1) - (1) - (2) Stores operated at end of period(2) 2,170 2,059 2,170 2,059 (1)The term "debrand" refers to a franchisee-owned store whose right to use the Planet Fitness brand and marks has been terminated in accordance with the franchise agreement. We retain the right to prevent debranded stores from continuing to operate as fitness centers. The term "consolidated" refers to the combination of a franchisee's store with another store located in close proximity with our prior approval. This often coincides with an enlargement, re-equipment and/or refurbishment of the remaining store. (2)The "stores operated" includes stores that have closed temporarily related to the COVID-19 pandemic. All stores were closed inMarch 2020 in response to COVID-19, and as ofJune 30, 2021 , 2,130 were re-opened and operating, of which 2,026 were franchisee-owned stores and 104 were corporate-owned stores. 28 -------------------------------------------------------------------------------- Table of Contents Same store sales Same store sales refers to year-over-year sales comparisons for the same store sales base of both corporate-owned and franchisee-owned stores. We define the same store sales base to include those stores that have been open and for which monthly membership dues have been billed for longer than 12 months. We measure same store sales based solely upon monthly dues billed to members of our corporate-owned and franchisee-owned stores. Several factors affect our same store sales in any given period, including the following: •the number of stores that have been in operation for more than 12 months; •the percentage mix and pricing of PF Black Card and standard memberships in any period; •growth in total net memberships per store; •consumer recognition of our brand and our ability to respond to changing consumer preferences; •overall economic trends, particularly those related to consumer spending; •our ability and our franchisees' ability to operate stores effectively and efficiently to meet consumer expectations; •marketing and promotional efforts; •local competition; •trade area dynamics; and •opening of new stores in the vicinity of existing locations. Consistent with common industry practice, we present same store sales as compared to the same period in the prior year and which is calculated for a given period by including only sales from stores that had sales in the comparable months of both years. Same store sales of our international stores are calculated on a constant currency basis, meaning that we translate the current year's same store sales of our international stores at the same exchange rates used in the prior year. Since opening new stores will be a significant component of our revenue growth, same store sales is only one measure of how we evaluate our performance. Stores acquired from or sold to franchisees are removed from the franchisee-owned or corporate-owned same store sales base, as applicable, upon the ownership change and for the 12 months following the date of the ownership change. These stores are included in the corporate-owned or franchisee-owned same store sales base, as applicable, following the 12th month after the acquisition or sale. These stores remain in the system-wide same store sales base in all periods. As a result of the closure of all of our stores due to COVID-19 inMarch 2020 , a majority of the stores remained temporarily closed for a portion of the three and six months endedJune 30, 2020 . Because less than 50% of our stores in the same store sales base had membership billings in all of the months included in the three and six months endingJune 30, 2020 , we are not able to provide same store sales comparisons for the current or prior year periods. Total monthly dues and annual fees from members (system-wide sales) We define system-wide sales as total monthly dues and annual fees billed by us and our franchisees. System-wide sales is an operating measure that includes sales by franchisees that are not revenue realized by the Company in accordance with GAAP, as well as sales by our corporate-owned stores. While we do not record sales by franchisees as revenue, and such sales are not included in our consolidated financial statements, we believe that this operating measure aids in understanding how we derive royalty revenue and is important in evaluating our performance. We review the total amount of dues we collect from our members on a monthly basis, which allows us to assess changes in the performance of our corporate-owned and franchisee-owned stores from period to period, any competitive pressures, local or regional membership traffic patterns and general market conditions that might impact our store performance. We collect monthly dues on or around the 17th of every month. We collect annual fees once per year from each member based upon when the member signed his or her membership agreement. System-wide sales were$868 million and$86 million , during the three months endedJune 30, 2021 and 2020, respectively, and$1,634 million and$1,002 million during the six months endedJune 30, 2021 and 2020, respectively. 29 -------------------------------------------------------------------------------- Table of Contents Non-GAAP financial measures We refer to EBITDA and Adjusted EBITDA as we use these measures to evaluate our operating performance and we believe these measures provide useful information to investors in evaluating our performance. EBITDA and Adjusted EBITDA as presented in this Quarterly Report on Form 10-Q are supplemental measures of our performance that are neither required by, nor presented in accordance withU.S. GAAP. EBITDA and Adjusted EBITDA should not be considered as substitutes forU.S. GAAP metrics such as net income (loss) or any other performance measures derived in accordance withU.S. GAAP. Also, in the future we may incur expenses or charges such as those used to calculate Adjusted EBITDA. Our presentation of EBITDA and Adjusted EBITDA should not be construed as an inference that our future results will be unaffected by unusual or nonrecurring items. We have also disclosed Segment EBITDA as an important financial metric utilized by the Company to evaluate performance and allocate resources to segments in accordance with ASC 280, Segment Reporting. As part of such disclosure in "Our Segments" within Management's Discussion and Analysis of Financial Condition and Results of Operations, the Company has provided a reconciliation from income (loss) from operations to Total Segment EBITDA, which is equal to the Non-GAAP financial metric EBITDA. We define EBITDA as net income (loss) before interest, taxes, depreciation and amortization. We believe that EBITDA, which eliminates the impact of certain expenses that we do not believe reflect our underlying business performance, provides useful information to investors to assess the performance of our segments as well as the business as a whole. Our board of directors also uses EBITDA as a key metric to assess the performance of management. We define Adjusted EBITDA as net income (loss) before interest, taxes, depreciation and amortization, adjusted for the impact of certain additional non-cash and other items that we do not consider in our evaluation of ongoing performance of the Company's core operations. These items include certain purchase accounting adjustments, stock offering-related costs, and certain other charges and gains. We believe that Adjusted EBITDA is an appropriate measure of operating performance in addition to EBITDA because it eliminates the impact of other items that we believe reduce the comparability of our underlying core business performance from period to period and is therefore useful to our investors in comparing the core performance of our business from period to period. A reconciliation of net income (loss) to EBITDA and Adjusted EBITDA is set forth below for the three and six months endedJune 30, 2021 and 2020: Three months ended June 30, Six months ended June 30, 2021 2020 2021 2020 (in thousands) Net income (loss)$ 15,016 $ (31,985) $ 21,206 $ (21,602) Interest income (195) (359) (412) (2,286) Interest expense 20,125 20,467 40,369 40,708 Provision (benefit) for income taxes 5,159 (10,918) 8,513 (6,034) Depreciation and amortization 15,036 13,008 30,510 25,800 EBITDA $
55,141
128 79 197 146
Purchase accounting adjustments-rent(2) 97 129 214 271
Severance costs(3) - 159 - 159
Pre-opening costs(4) 481 154 847 515
Insurance recovery(5) (325) - (2,500) -
Tax benefit arrangement remeasurement(6) - - (348) (502)
Other(7) 54 - 688 93
Adjusted EBITDA $ 55,576 $ (9,266) $ 99,284 $ 37,268
(1)Represents the impact of revenue-related purchase accounting adjustments
associated with the 2012 Acquisition. At the time of the 2012 Acquisition, the
Company maintained a deferred revenue account, which consisted of deferred ADA
fees, deferred franchise fees, and deferred enrollment fees that the Company
billed and collected up front but recognizes for U.S. GAAP purposes at a later
date. In connection with the 2012 Acquisition, it was determined that the
carrying amount of deferred revenue was greater than the fair value assessed in
accordance with ASC 805-Business Combinations, which resulted in a write-down of
the carrying value of the deferred revenue balance upon application of
acquisition push-down accounting under ASC 805. These amounts represent the
additional revenue that would have been recognized in these periods if the
write-down to deferred revenue had not occurred in connection with the
application of acquisition pushdown accounting.
(2)Represents the impact of rent-related purchase accounting adjustments. In
accordance with guidance in ASC 805 - Business Combinations, in connection with
the 2012 Acquisition, the Company's deferred rent liability was required to
30
--------------------------------------------------------------------------------
Table of Contents
be written off as of the acquisition date and rent was recorded on a
straight-line basis from the acquisition date through the end of the lease term.
This resulted in higher overall recorded rent expense each period than would
have otherwise been recorded had the deferred rent liability not been written
off as a result of the acquisition push down accounting applied in accordance
with ASC 805. Adjustments of $33 , $41 , $82 , and $82 in the three and six months
ended June 30, 2021 and 2020, respectively, reflect the difference between the
higher rent expense recorded in accordance with U.S. GAAP since the acquisition
and the rent expense that would have been recorded had the 2012 Acquisition not
occurred. Adjustments of $64 , $88 , $132 and $189 in the three and six months
ended June 30, 2021 and 2020, respectively, are due to the amortization of
favorable and unfavorable leases. All of the rent related purchase accounting
adjustments are adjustments to rent expense which is included in store
operations on our consolidated statements of operations.
(3)Represents severance expense recorded in connection with an equity award
modification.
(4)Represents costs associated with new corporate-owned stores incurred prior to
the store opening, including payroll-related costs, rent and occupancy expenses,
marketing and other store operating supply expenses.
(5)Represents an insurance recovery of previously recognized expenses related to
the settlement of legal claims.
(6)Represents gains related to the adjustment of our tax benefit arrangements
primarily due to changes in our effective tax rate.
(7)Represents certain other charges and gains that we do not believe reflect our
underlying business performance.
31
--------------------------------------------------------------------------------
Table of Contents
Our presentation of Adjusted net income (loss) and Adjusted net income (loss)
per share, diluted, assumes that all net income (loss) is attributable to Planet
Fitness, Inc. , which assumes the full exchange of all outstanding Holdings Units
for shares of Class A common stock of Planet Fitness, Inc. , adjusted for certain
non-recurring items that we do not believe directly reflect our core operations.
Adjusted net income (loss) per share, diluted, is calculated by dividing
Adjusted net income (loss) by the total shares of Class A common stock
outstanding plus any dilutive options and restricted stock units as calculated
in accordance with U.S. GAAP and assuming the full exchange of all outstanding
Holdings Units and corresponding Class B common stock as of the beginning of
each period presented. Adjusted net income (loss) and Adjusted net income (loss)
per share, diluted, are supplemental measures of operating performance that do
not represent, and should not be considered, alternatives to net income (loss)
and earnings (loss) per share, as calculated in accordance with U.S. GAAP. We
believe Adjusted net income (loss) and Adjusted net income (loss) per share,
diluted, supplement U.S. GAAP measures and enable us to more effectively
evaluate our performance period-over-period. A reconciliation of Adjusted net
income (loss) to net income (loss), the most directly comparable U.S. GAAP
measure, and the computation of Adjusted net income (loss) per share, diluted,
are set forth below.
Three months ended June 30, Six months ended June 30,
(in thousands, except per share amounts) 2021 2020 2021 2020
Net income (loss) $
15,016
5,159 (10,918) 8,513 (6,034)
Purchase accounting adjustments-revenue(1) 128 79 197 146
Purchase accounting adjustments-rent(2) 97 129 214 271
Severance costs(3) - 159 - 159
Pre-opening costs(4) 481 154 847 515
Insurance recovery(5) (325) - (2,500) -
Tax benefit arrangement remeasurement(6) - - (348) (502)
Other(7) 54 - 688 93
Purchase accounting amortization(8) 4,159 4,211 8,318 8,424
Adjusted income (loss) before income taxes $
24,769
6,589 (10,230) 9,878 (4,966)
Adjusted net income (loss) $
18,180
Adjusted net income (loss) per share, diluted $
0.21
Adjusted weighted-average shares outstanding(10) 87,200 86,467 87,188 86,671 (1)Represents the impact of revenue-related purchase accounting adjustments associated with the 2012 Acquisition. At the time of the 2012 Acquisition, the Company maintained a deferred revenue account, which consisted of deferredADA fees, deferred franchise fees, and deferred enrollment fees that the Company billed and collected up front but recognizes forU.S. GAAP purposes at a later date. In connection with the 2012 Acquisition, it was determined that the carrying amount of deferred revenue was greater than the fair value assessed in accordance with ASC 805-Business Combinations, which resulted in a write-down of the carrying value of the deferred revenue balance upon application of acquisition push-down accounting under ASC 805. These amounts represent the additional revenue that would have been recognized in these periods if the write-down to deferred revenue had not occurred in connection with the application of acquisition pushdown accounting. (2)Represents the impact of rent-related purchase accounting adjustments. In accordance with guidance in ASC 805 - Business Combinations, in connection with the 2012 Acquisition, the Company's deferred rent liability was required to be written off as of the acquisition date and rent was recorded on a straight-line basis from the acquisition date through the end of the lease term. This resulted in higher overall recorded rent expense each period than would have otherwise been recorded had the deferred rent liability not been written off as a result of the acquisition push down accounting applied in accordance with ASC 805. Adjustments of$33 ,$41 ,$82 , and$82 in the three and six months endedJune 30, 2021 and 2020, respectively, reflect the difference between the higher rent expense recorded in accordance withU.S. GAAP since the acquisition and the rent expense that would have been recorded had the 2012 Acquisition not occurred. Adjustments of$64 ,$88 ,$132 and$189 in the three and six months endedJune 30, 2021 and 2020, respectively, are due to the amortization of favorable and unfavorable leases. All of the rent related purchase accounting adjustments are adjustments to rent expense which is included in store operations on our consolidated statements of operations. (3)Represents severance expense recorded in connection with an equity award modification. 32 -------------------------------------------------------------------------------- Table of Contents (4)Represents costs associated with new corporate-owned stores incurred prior to the store opening, including payroll-related costs, rent and occupancy expenses, marketing and other store operating supply expenses. (5)Represents an insurance recovery of previously recognized expenses related to the settlement of legal claims. (6)Represents gains and losses related to the adjustment of our tax benefit arrangements primarily due to changes in our effective tax rate. (7)Represents certain other charges and gains that we do not believe reflect our underlying business performance. (8)Includes$3,096 ,$3,096 ,$6,192 and$6,192 of amortization of intangible assets, for the three and six months endedJune 30, 2021 and 2020, respectively, recorded in connection with the 2012 Acquisition, and$1,063 ,$1,116 ,$2,126 and$2,231 of amortization of intangible assets for the three and six months endedJune 30, 2021 and 2020, respectively, recorded in connection with historical acquisitions of franchisee-owned stores. The adjustment represents the amount of actual non-cash amortization expense recorded, in accordance withU.S. GAAP, in each period. (9)Represents corporate income taxes at an assumed effective tax rate of 26.6% for the three and six months endedJune 30, 2021 and 26.8% for the three and six months endedJune 30, 2020 , applied to adjusted income (loss) before income taxes. (10)Assumes the full exchange of all outstanding Holdings Units and corresponding shares of Class B common stock for shares of Class A common stock ofPlanet Fitness, Inc. A reconciliation of net income (loss) per share, diluted, to Adjusted net income (loss) per share, diluted is set forth below for the three and six months endedJune 30, 2021 and 2020: For the three months ended For the three months ended June 30, 2021 June 30, 2020 Net income Net loss per (in thousands, except per share per share, share, amounts) Net Income Weighted Average Shares diluted Net loss Weighted Average Shares diluted Net income (loss) attributable to Planet Fitness, Inc.(1)$ 14,010 83,837$ 0.17 $ (29,177) 79,966$ (0.36) Assumed exchange of shares(2) 1,006 3,363 (2,808)
6,501
Net income (loss) 15,016 (31,985)
Adjustments to arrive at adjusted
income (loss) before income taxes(3) 9,753 (6,186) Adjusted income (loss) before income taxes 24,769 (38,171) Adjusted income tax expense (benefit)(4) 6,589 (10,230) Adjusted net income (loss)$ 18,180 87,200$ 0.21 $ (27,941) 86,467$ (0.32) (1)Represents net income (loss) attributable toPlanet Fitness, Inc. and the associated weighted average shares, diluted of Class A common stock outstanding. (2)Assumes the full exchange of all outstanding Holdings Units and corresponding shares of Class B common stock for shares of Class A common stock ofPlanet Fitness, Inc. Also assumes the addition of net income (loss) attributable to non-controlling interests corresponding with the assumed exchange of Holdings Units and Class B common shares for shares of Class A common stock. (3)Represents the total impact of all adjustments identified in the adjusted net income table above to arrive at adjusted income (loss) before income taxes. (4)Represents corporate income taxes at an assumed effective tax rate of 26.6% and 26.8% for the three months endedJune 30, 2021 and 2020, respectively, applied to adjusted income (loss) before income taxes. 33
--------------------------------------------------------------------------------
Table of Contents
For the six months ended For the six months ended
June 30, 2021 June 30, 2020
Net income Net loss per
(in thousands, except per share per share, share,
amounts) Net income Weighted Average Shares diluted Net loss Weighted Average Shares diluted
Net income (loss) attributable to
Planet Fitness, Inc.(1) $ 19,591 83,771 $ 0.23 $ (20,570) 79,532 $ (0.26)
Assumed exchange of shares(2) 1,615 3,417 (1,032) 7,139
Net income (loss) 21,206 (21,602)Adjustments to arrive at adjusted
income (loss) before income taxes(3) 15,929 3,072 Adjusted income (loss) before income taxes 37,135 (18,530) Adjusted income tax expense (benefit)(4) 9,878 (4,966) Adjusted net income (loss)$ 27,257
87,188$ 0.31 $ (13,564) 86,671$ (0.16) (1)Represents net income (loss) attributable toPlanet Fitness, Inc. and the associated weighted average shares, diluted of Class A common stock outstanding. (2)Assumes the full exchange of all outstanding Holdings Units and corresponding shares of Class B common stock for shares of Class A common stock ofPlanet Fitness, Inc. Also assumes the addition of net income (loss) attributable to non-controlling interests corresponding with the assumed exchange of Holdings Units and Class B common shares for shares of Class A common stock. (3)Represents the total impact of all adjustments identified in the adjusted net income (loss) table above to arrive at adjusted income (loss) before income taxes. (4)Represents corporate income taxes at an assumed effective tax rate of 26.6% and 26.8% for the six months endedJune 30, 2021 and 2020, respectively, applied to adjusted income (loss) before income taxes. 34 -------------------------------------------------------------------------------- Table of Contents Results of operations The following table sets forth our condensed consolidated statements of operations as a percentage of total revenue for the three and six months endedJune 30, 2021 and 2020: Three months ended June 30, Six months ended June 30, 2021 2020 2021 2020 Revenue: Franchise revenue 43.5 % 40.3 % 44.9 % 38.9 % Commission income 0.1 % 0.1 % 0.1 % 0.3 % National advertising fund revenue 9.4 % 11.8 % 9.9 % 8.3 % Franchise segment 53.0 % 52.2 % 54.9 % 47.5 % Corporate-owned stores 29.6 % 23.4 % 31.5 % 29.8 % Equipment 17.4 % 24.4 % 13.6 % 22.7 % Total revenue 100.0 % 100.0 % 100.0 % 100.0 % Operating costs and expenses: Cost of revenue 13.5 % 21.1 % 10.6 % 18.1 % Store operations 20.7 % 36.5 % 21.8 % 24.4 % Selling, general and administrative 15.9 % 39.5 % 17.8 % 19.6 % National advertising fund expense 9.9 % 27.0 % 10.5 % 15.6 % Depreciation and amortization 11.0 % 32.3 % 12.2 % 15.4 % Other (gain) loss (0.2) % - % (1.0) % - % Total operating costs and expenses 70.8 % 156.4 % 71.9 % 93.1 % Income (loss) from operations 29.2 % (56.4) % 28.1 % 6.9 % Other income (expense), net: Interest income 0.1 % 0.9 % 0.2 % 1.4 % Interest expense (14.7) % (50.9) % (16.2) % (24.3) % Other income (expense) (0.1) % (0.2) % - % (0.5) % Total other expense, net (14.7) % (50.2) % (16.0) % (23.4) % Income (loss) before income taxes 14.5 % (106.6) % 12.1 % (16.5) % Provision (benefit) for income taxes 3.8 % (27.1) % 3.4 % (3.6) % Net income (loss) 10.7 % (79.5) % 8.7 % (12.9) % Less net income (loss) attributable to non-controlling interests 0.7 % (7.0) % 0.6 % (0.6) % Net income (loss) attributable toPlanet Fitness , Inc. 10.0 % (72.5) % 8.1 % (12.3) % 35
-------------------------------------------------------------------------------- Table of Contents The following table sets forth a comparison of our condensed consolidated statements of operations for the three and six months endedJune 30, 2021 and 2020: Three months ended June 30, Six months ended June 30, 2021 2020 2021 2020 (in thousands) Revenue: Franchise revenue$ 59,758 $ 16,214 $ 111,938 $ 65,125 Commission income 70 45 342 435 National advertising fund revenue 13,021 4,743 24,630 13,971 Franchise segment 72,849 21,002 136,910 79,531 Corporate-owned stores 40,579 9,419 78,456 49,935 Equipment 23,823 9,813 33,762 37,998 Total revenue 137,251 40,234 249,128 167,464 Operating costs and expenses: Cost of revenue 18,497 8,478 26,482 30,323 Store operations 28,430 14,681 54,337 40,838 Selling, general and administrative 21,789 15,896 44,279 32,848 National advertising fund expense 13,529 10,878 26,282 26,083 Depreciation and amortization 15,036 13,008 30,510 25,800 Other (gain) loss (282) 15 (2,420) 26 Total operating costs and expenses 96,999 62,956 179,470 155,918 Income (loss) from operations 40,252 (22,722) 69,658 11,546 Other income (expense), net: Interest income 195 359 412 2,286 Interest expense (20,125) (20,467) (40,369) (40,708) Other income (expense) (147) (73) 18 (760) Total other expense, net (20,077) (20,181) (39,939) (39,182) Income (loss) before income taxes 20,175 (42,903) 29,719 (27,636) Provision (benefit) for income taxes 5,159 (10,918) 8,513 (6,034) Net income (loss) 15,016 (31,985) 21,206 (21,602) Less net income (loss) attributable to non-controlling interests 1,006 (2,808) 1,615 (1,032) Net income (loss) attributable toPlanet Fitness , Inc.$ 14,010
Comparison of the three months endedJune 30, 2021 and three months endedJune 30, 2020 Revenue Total revenues were$137.3 million in the three months endedJune 30, 2021 , compared to$40.2 million in the three months endedJune 30, 2020 , an increase of$97.0 million , or 241.1%. Franchise segment revenue was$72.8 million in the three months endedJune 30, 2021 , compared to$21.0 million in the three months endedJune 30, 2020 , an increase of$51.8 million , or 246.9%. Franchise revenue was$59.8 million in the three months endedJune 30, 2021 compared to$16.2 million in the three months endedJune 30, 2020 , an increase of$43.5 million or 268.6%. Included in franchise revenue is royalty revenue of$52.5 million , franchise and other fees of$5.5 million , and placement revenue of$1.7 million for the three months endedJune 30, 2021 , compared to royalty revenue of$14.9 million , franchise and other fees of$0.5 million , and placement revenue of$0.9 million for the three months endedJune 30, 2020 . The franchise revenue increases in the three months endedJune 30, 2021 as compared to the three months endedJune 30, 2020 were primarily due to temporary store closures as a result of COVID-19 in the prior year period. Commission income, which is included in our franchise segment, was$0.1 million in the three months endedJune 30, 2021 compared to$0.0 million in the three months endedJune 30, 2020 . 36 -------------------------------------------------------------------------------- Table of Contents National advertising fund revenue was$13.0 million in the three months endedJune 30, 2021 , compared to$4.7 million in the three months endedJune 30, 2020 . The$8.3 million increase in national advertising fund revenue was primarily due to temporary store closures as a result of COVID-19 in the prior year period. Revenue from our corporate-owned stores segment was$40.6 million in the three months endedJune 30, 2021 , compared to$9.4 million in the three months endedJune 30, 2020 , an increase of$31.2 million , or 330.8%. The increase was primarily due to temporary store closures as a result of COVID-19 in the prior year period, as well as the opening of seven new corporate-owned stores sinceApril 1, 2020 . Equipment segment revenue was$23.8 million in the three months endedJune 30, 2021 , compared to$9.8 million in the three months endedJune 30, 2020 , an increase of$14.0 million , or 142.8%. The increase was driven by higher equipment sales to new and existing franchisee-owned stores in the three months endedJune 30, 2021 compared to the three months endedJune 30, 2020 , primarily due to temporary store closures as a result of COVID-19 in the prior year period. Cost of revenue Cost of revenue was$18.5 million in the three months endedJune 30, 2021 compared to$8.5 million in the three months endedJune 30, 2020 , an increase of$10.0 million , or 118.2%. Cost of revenue, which primarily relates to our equipment segment, increased as a result of higher equipment sales to new and existing franchisee-owned stores in the three months endedJune 30, 2021 compared to the three months endedJune 30, 2020 , primarily as a result of temporary store closures as a result of COVID-19 in the prior year period. Store operations Store operation expenses, which relate to our corporate-owned stores segment, were$28.4 million in the three months endedJune 30, 2021 compared to$14.7 million in the three months endedJune 30, 2020 , an increase of$13.7 million , or 93.7%. The increase was primarily attributable to lower operating and payroll expenses in the prior year period as a result of COVID-19 related closures, and higher expenses as a result of the opening of seven new corporate-owned stores sinceApril 1, 2020 . Selling, general and administrative Selling, general and administrative expenses were$21.8 million in the three months endedJune 30, 2021 compared to$15.9 million in the three months endedJune 30, 2020 , an increase of$5.9 million , or 37.1%. The$5.9 million increase was primarily driven by higher incentive and stock-based compensation, travel expenses, and expenses associated with our mobile app during the three months endedJune 30, 2021 compared to the prior year quarter. National advertising fund expense National advertising fund expense was$13.5 million in the three months endedJune 30, 2021 compared to$10.9 million in the three months endedJune 30, 2020 , due to lower advertising and marketing expenses in the prior year period as a result of lower membership billings due to the COVID-19 pandemic. Depreciation and amortization Depreciation and amortization expense consists of the depreciation of property and equipment, including leasehold and building improvements and equipment. Amortization expense consists of amortization related to our intangible assets, including customer relationships and non-compete agreements. Depreciation and amortization expense was$15.0 million in the three months endedJune 30, 2021 compared to$13.0 million in the three months endedJune 30, 2020 , an increase of$2.0 million , or 15.6%. The increase was primarily attributable to the opening of seven new corporate-owned stores sinceApril 1, 2020 and depreciation of new information systems assets. Other (gain) loss Other (gain) loss was a gain of$0.3 in the three months endedJune 30, 2021 compared to zero in the three months endedJune 30, 2020 . Interest income Interest income was$0.2 million in the three months endedJune 30, 2021 , compared to$0.4 million in the three months endedJune 30, 2020 , primarily as a result of lower interest rates in the three months endedJune 30, 2021 compared to the three months endedJune 30, 2020 . Interest expense Interest expense primarily consists of interest on long-term debt as well as the amortization of deferred financing costs. Interest expense was$20.1 million in the three months endedJune 30, 2021 and$20.5 million in the three months endedJune 30, 2020 . 37 -------------------------------------------------------------------------------- Table of Contents Other income (expense) Other income was$0.1 million in the three months endedJune 30, 2021 compared to expense of$0.1 million in the three months endedJune 30, 2020 . Provision (benefit) for income taxes Provision for income taxes was$5.2 million in the three months endedJune 30, 2021 , compared to a benefit of$10.9 million in the three months endedJune 30, 2020 , an increase of$16.1 million . The increase in the provision for income taxes was primarily attributable to higher income before income taxes in the three months endedJune 30, 2021 as compared to a loss before income taxes in the three months endedJune 30, 2020 . Segment results Franchise Segment EBITDA for the franchise segment was$51.8 million in the three months endedJune 30, 2021 compared to$3.5 million in the three months endedJune 30, 2020 , an increase of$48.2 million . The franchise segment EBITDA increase in the three months endedJune 30, 2021 as compared to the three months endedJune 30, 2020 was primarily due to a$37.7 million increase in franchise royalty revenue, a$8.3 million increase in NAF revenue, and a$5.0 million increase in franchise and other fees, primarily attributable to temporary store closures as a result of COVID-19 in the prior year period. Depreciation and amortization was$1.9 million in both the three months endedJune 30, 2021 and the three months endedJune 30, 2020 . Corporate-owned stores Segment EBITDA for the corporate-owned stores segment was$10.4 million in the three months endedJune 30, 2021 compared to a loss of$6.3 million in the three months endedJune 30, 2020 , an increase of$16.7 million . The corporate-owned store segment EBITDA increase was primarily a result of temporary store closures related to COVID-19 in the prior year period, as well as the opening of seven new corporate-owned stores sinceApril 1, 2020 . Depreciation and amortization was$8.6 million and$7.3 million for the three months endedJune 30, 2021 and 2020, respectively. The increase in depreciation and amortization was primarily attributable to the stores opened sinceApril 1, 2020 . Equipment Segment EBITDA for the equipment segment was$5.6 million in the three months endedJune 30, 2021 compared to$1.3 million in the three months endedJune 30, 2020 , an increase of$4.3 million . The increase was driven by higher equipment sales to new and existing franchisee-owned stores in the three months endedJune 30, 2021 compared to the three months endedJune 30, 2020 , due to temporary store closures as a result of COVID-19 in the prior year period. Depreciation and amortization was$1.3 million for both the three months endedJune 30, 2021 and 2020. Comparison of the six months endedJune 30, 2021 and six months endedJune 30, 2020 Revenue Total revenues were$249.1 million in the six months endedJune 30, 2021 , compared to$167.5 million in the six months endedJune 30, 2020 , an increase of$81.7 million , or 48.8%. Franchise segment revenue was$136.9 million in the six months endedJune 30, 2021 , compared to$79.5 million in the six months endedJune 30, 2020 , an increase of$57.4 million , or 72.1%. Franchise revenue was$111.9 million in the six months endedJune 30, 2021 compared to$65.1 million in the six months endedJune 30, 2020 , an increase of$46.8 million or 71.9%. Included in franchise revenue is royalty revenue of$99.1 million , franchise and other fees of$10.3 million , and placement revenue of$2.5 million for the six months endedJune 30, 2021 , compared to royalty revenue of$55.5 million , franchise and other fees of$6.7 million , and placement revenue of$2.9 million for the six months endedJune 30, 2020 . The franchise revenue increases in the six months endedJune 30, 2021 as compared to the six months endedJune 30, 2020 were primarily due to temporary store closures related to COVID-19 beginning inMarch 2020 . Commission income, which is included in our franchise segment, was$0.3 million in the six months endedJune 30, 2021 compared to$0.4 million in the six months endedJune 30, 2020 . National advertising fund revenue was$24.6 million in the six months endedJune 30, 2021 , compared to$14.0 million in the six months endedJune 30, 2020 . The increase in national advertising fund revenue in the six months endedJune 30, 2021 compared to the six months endedJune 30, 2020 was primarily a result of the temporary closures related to COVID-19 beginning inMarch 2020 . 38 -------------------------------------------------------------------------------- Table of Contents Revenue from our corporate-owned stores segment was$78.5 million in the six months endedJune 30, 2021 , compared to$49.9 million in the six months endedJune 30, 2020 , an increase of$28.5 million , or 57.1%. The increase was primarily attributable to temporary store closures related to COVID-19 beginning inMarch 2020 , as well as the opening of eight new corporate-owned stores sinceJanuary 1, 2020 . Equipment segment revenue was$33.8 million in the six months endedJune 30, 2021 , compared to$38.0 million in the six months endedJune 30, 2020 , a decrease of$4.2 million , or 11.1%. The decrease was driven by lower equipment sales to new franchisee-owned stores in the six months endedJune 30, 2021 compared to the six months endedJune 30, 2020 , primarily as a result of store closures beginning inMarch 2020 , and providing all franchisees with a 12-month extension for all new store development obligations as a result of COVID-19, partially offset by higher replacement equipment sales to existing franchisee-owned stores. Cost of revenue Cost of revenue was$26.5 million in the six months endedJune 30, 2021 compared to$30.3 million in the six months endedJune 30, 2020 , a decrease of$3.8 million , or 12.7%. Cost of revenue, which primarily relates to our equipment segment, decreased as a result of lower equipment sales to new franchisee-owned stores, partially offset by higher replacement equipment sales to existing franchisee-owned stores in the six months endedJune 30, 2021 compared to the six months endedJune 30, 2020 , primarily as a result of store closures beginning inMarch 2020 , and providing all franchisees with a 12-month extension for all new store development obligations and an 18-month extension on re-equipment investment obligations, both as a result of COVID-19. Store operations Store operation expenses, which relate to our corporate-owned stores segment, were$54.3 million in the six months endedJune 30, 2021 compared to$40.8 million in the six months endedJune 30, 2020 , an increase of$13.5 million , or 33.1%. The increase was primarily attributable to lower operating and marketing expenses as a result of COVID-19 related closures beginning inMarch 2020 , partially offset by higher expenses as a result of the opening of eight new corporate-owned stores sinceJanuary 1, 2020 . Selling, general and administrative Selling, general and administrative expenses were$44.3 million in the six months endedJune 30, 2021 compared to$32.8 million in the six months endedJune 30, 2020 , an increase of$11.4 million , or 34.8%. The$11.4 million increase was primarily driven by higher incentive and stock-based compensation, local marketing support for ourCalifornia re-openings, and expenses associated with our mobile app during the six months endedJune 30, 2021 compared to the prior year quarter. National advertising fund expense National advertising fund expense was$26.3 million in the six months endedJune 30, 2021 compared to$26.1 million in the six months endedJune 30, 2020 . Depreciation and amortization Depreciation and amortization expense consists of the depreciation of property and equipment, including leasehold and building improvements and equipment. Amortization expense consists of amortization related to our intangible assets, including customer relationships and non-compete agreements. Depreciation and amortization expense was$30.5 million in the six months endedJune 30, 2021 compared to$25.8 million in the six months endedJune 30, 2020 , an increase of$4.7 million , or 18.3%. The increase was primarily attributable to the opening of corporate-owned stores sinceJanuary 1, 2020 and depreciation of new information systems assets. Other (gain) loss Other gain was$2.4 in the six months endedJune 30, 2021 compared to zero in the six months endedJune 30, 2020 . In the six months endedJune 30, 2021 , this includes a gain of$2.5 million from an insurance recovery related to the settlement of legal claims. Interest income Interest income was$0.4 million in the six months endedJune 30, 2021 compared to$2.3 million in the six months endedJune 30, 2020 , primarily as a result of lower interest rates in the six months endedJune 30, 2021 compared to the six months endedJune 30, 2020 . Interest expense Interest expense primarily consists of interest on long-term debt as well as the amortization of deferred financing costs. 39 -------------------------------------------------------------------------------- Table of Contents Interest expense was$40.4 million in the six months endedJune 30, 2021 compared to$40.7 million in the six months endedJune 30, 2020 . Other income (expense) Other income was zero in the six months endedJune 30, 2021 and expense of$0.8 million in the six months endedJune 30, 2020 . (Benefit) provision for income taxes The provision for income taxes was$8.5 million in the six months endedJune 30, 2021 , compared to a benefit of$6.0 million in the six months endedJune 30, 2020 . The increase in the provision for income taxes was primarily attributable to the Company's net income before income taxes in the six months endedJune 30, 2021 as compared to a net loss before income taxes for the six months endedJune 30, 2020 , primarily as a result of COVID-19 related closures beginning inMarch 2020 . Segment results Franchise Segment EBITDA for the franchise segment was$92.9 million in the six months endedJune 30, 2021 compared to$40.3 million in the six months endedJune 30, 2020 , an increase of$52.7 million , or 130.8%. The franchise segment EBITDA increase in the six months endedJune 30, 2021 compared to the six months endedJune 30, 2020 was primarily due to a$43.6 million increase in royalty revenue and a$10.7 million increase in NAF revenue, both as a result of COVID-19 related store closures beginning inMarch 2020 . Depreciation and amortization was$3.8 million and$3.9 million for the six months endedJune 30, 2021 and 2020, respectively. Corporate-owned stores Segment EBITDA for the corporate-owned stores segment was$21.1 million in the six months endedJune 30, 2021 compared to$5.7 million in the six months endedJune 30, 2020 , an increase of$15.4 million , or 271.8%. The corporate-owned store segment EBITDA increase was primarily attributable to temporary store closures related to COVID-19 beginning inMarch 2020 , as well as the opening of eight new corporate-owned stores sinceJanuary 1, 2020 . Depreciation and amortization was$17.9 million and$14.6 million for the six months endedJune 30, 2021 and 2020, respectively. The increase in depreciation and amortization was primarily attributable the opening of corporate-owned stores sinceJanuary 1, 2020 . Equipment Segment EBITDA for the equipment segment was$7.4 million in the six months endedJune 30, 2021 compared to$7.7 million in the six months endedJune 30, 2020 , a decrease of$0.2 million , or 3.1%, as a result of lower equipment sales to new franchisee-owned stores in the six months endedJune 30, 2021 compared to the six months endedJune 30, 2020 , primarily as a result of store closures beginning inMarch 2020 , and providing all franchisees with a 12-month extension for all new store development obligations as a result of COVID-19, partially offset by higher replacement equipment sales to existing franchisee-owned stores. Depreciation and amortization was$2.5 million for both the six months endedJune 30, 2021 and 2020. Liquidity and capital resources As ofJune 30, 2021 , we had$469.1 million of cash and cash equivalents. We require cash principally to fund day-to-day operations, to finance capital investments, to service our outstanding debt and tax benefit arrangements and to address our working capital needs. Based on our current level of operations, we believe that with the available cash balance, the cash generated from our operations, and amounts we have drawn under our Variable Funding Notes will be adequate to meet our anticipated debt service requirements and obligations under the tax benefit arrangements, capital expenditures and working capital needs for at least the next 12 months. We believe that we will be able to meet these obligations even if we continue to experience a reduction in sales and profits as a result of the COVID-19 pandemic. Our ability to continue to fund these items and continue to reduce debt could be adversely affected by the occurrence of any of the events described under "Risk Factors" in the Annual Report. There can be no assurance that our business will generate sufficient cash flows from operations or otherwise to enable us to service our indebtedness, including our Securitized Senior Notes, or to make anticipated capital expenditures. Our future operating performance and our ability to service, extend or refinance our indebtedness will be subject to future economic conditions and to financial, business and other factors, many of which are beyond our control, including potential future impacts related to the COVID-19 pandemic. 40 -------------------------------------------------------------------------------- Table of Contents The following table presents summary cash flow information for the six months endedJune 30, 2021 and 2020: Six months ended June 30, (in thousands) 2021 2020 Net cash (used in) provided by: Operating activities$ 74,266 $ (12,984) Investing activities (54,394) (20,992) Financing activities (8,421) 65,975 Effect of foreign exchange rates on cash 120 (834) Net increase in cash$ 11,571 $ 31,165 Operating activities For the six months endedJune 30, 2021 , net cash provided by operating activities was$74.3 million compared to net cash used in operating activities of$13.0 million in the six months endedJune 30, 2020 , an increase of$87.3 million . Of the increase,$59.6 million is due to higher net income after adjustments to reconcile net income to net cash provided by operating activities in the six months endedJune 30, 2021 as compared to the six months endedJune 30, 2020 , and$27.6 million is due to favorable changes in working capital primarily from accounts payable, accrued expenses, other assets and equipment deposits, partially offset by an unfavorable change in accounts receivable, all as a result of the temporary store closures related to COVID-19 in the prior year period. Investing activities Cash flow used in investing activities related to the following capital expenditures for the six months endedJune 30, 2021 and 2020: Six months ended June 30, (in thousands) 2021 2020
New corporate-owned stores and corporate-owned stores not yet opened
$ 4,801 $ 5,365 Existing corporate-owned stores 7,813 8,300 Information systems 6,653 7,417 Corporate and all other 128 79 Total capital expenditures
For the six months endedJune 30, 2021 , net cash used in investing activities was$54.4 million compared to$21.0 million in the six months endedJune 30, 2020 , an increase of$33.4 million . The primary driver for the increase in cash used in investing activities was$35.0 million of cash used for investments in the six months endedJune 30, 2021 , partially offset by$1.8 million of lower capital expenditures in the current year period. Financing activities For the six months endedJune 30, 2021 , net cash used for financing activities was$8.4 million compared to net cash provided by financing activities of$66.0 million in the six months endedJune 30, 2020 , a decrease of$74.4 million . The primary driver of the decrease was the Company's incurrence of$75.0 million of borrowings under its Variable Funding Notes in the six months endedJune 30, 2020 . Securitized Financing Facility OnAugust 1, 2018 , the Master Issuer, a limited-purpose, bankruptcy remote, wholly-owned indirect subsidiary ofPla-Fit Holdings, LLC , entered into the 2018 Indenture under which the Master Issuer may issue multiple series of notes. On the same date, the Master Issuer issued the 2018 Class A-2-I Notes with an initial principal amount of$575 million and the 2018 Class A-2-II Notes with an initial principal amount of$625 million . In connection with the issuance of the 2018 Notes, the Master Issuer also entered into the Variable Funding Notes that allow for the incurrence of up to$75 million in revolving loans and/or letters of credit, which the Company fully drew down onMarch 20, 2020 . OnDecember 3, 2019 the Master Issuer issued the 2019 Notes with an initial principal amount of$550 million . The 2019 Notes were issued under the Indenture. The Securitized Senior Notes were issued in a securitization transaction pursuant to which most of the Company's domestic revenue-generating assets, consisting principally of franchise-related agreements, certain corporate-owned store assets, equipment supply agreements and intellectual property and license agreements for the use of intellectual property, were 41 -------------------------------------------------------------------------------- Table of Contents assigned to the Master Issuer and certain other limited-purpose, bankruptcy remote, wholly-owned indirect subsidiaries of the Company (the "securitization entities") that act as guarantors of the Securitized Senior Notes and that have pledged substantially all of their assets to secure the Securitized Senior Notes. Interest and principal payments on the Notes are payable on a quarterly basis. The requirement to make such quarterly principal payments on the Notes is subject to certain financial conditions set forth in the Indenture. The legal final maturity date of the 2018 Notes is inSeptember 2048 , but the Anticipated Repayment Dates of the 2018 Class A-2-I Notes and the 2018 Class A-2-II Notes areSeptember 2022 andSeptember 2025 respectively, unless earlier prepaid to the extent permitted under the Indenture. The legal final maturity date of the 2019 Notes is inDecember 2049 , but it is anticipated that, unless earlier prepaid to the extent permitted under the Indenture, the 2019 Notes will be repaid inDecember 2029 . If the Master Issuer has not repaid or refinanced the Notes prior to the respective Anticipated Repayment Dates, additional interest will accrue pursuant to the Indenture. The Variable Funding Notes will accrue interest at a variable interest rate based on (i) the prime rate, (ii) overnight federal funds rates, (iii) theLondon interbank offered rate forU.S. Dollars, or (iv) with respect to advances made by conduit investors, the weighted average cost of, or related to, the issuance of commercial paper allocated to fund or maintain such advances, in each case plus any applicable margin and as specified in the Variable Funding Notes. There is a commitment fee on the unused portion of the Variable Funding Notes of 0.5% based on utilization. It is anticipated that the principal and interest on the Variable Funding Notes will be repaid in full on or prior toSeptember 2023 , subject to two additional one-year extension options. Following the anticipated repayment date (and any extensions thereof) additional interest will accrue on the Variable Funding Notes equal to 5.0% per year. In connection with the issuance of the 2018 Notes and 2019 Notes, the Company incurred debt issuance costs of$27.1 million and$10.6 million , respectively. The debt issuance costs are being amortized to "Interest expense" through the Anticipated Repayment Dates of the Notes utilizing the effective interest rate method. The Securitized Senior Notes are subject to covenants and restrictions customary for transactions of this type, including (i) that the Master Issuer maintains specified reserve accounts to be used to make required payments in respect of the Securitized Senior Notes, (ii) provisions relating to optional and mandatory prepayments and the related payment of specified amounts, including specified make-whole payments in the case of the Notes under certain circumstances, (iii) certain indemnification payments in the event, among other things, the assets pledged as collateral for the Securitized Senior Notes are in stated ways defective or ineffective, (iv) a cap on non-securitized indebtedness of$50 million (provided that the Company may incur non-securitized indebtedness in excess of such amount, subject to the leverage ratio cap described below, under certain conditions, including if the relevant lenders execute a non-disturbance agreement that acknowledges the bankruptcy-remote status of the Master Issuer and its subsidiaries and of their respective assets), (v) a leverage ratio cap on the Company of 7.0x (calculated without regard for any indebtedness subject to the$50 million cap) and (vi) covenants relating to recordkeeping, access to information and similar matters. Pursuant to a parent company support agreement, we have agreed to cause our subsidiary to perform each of its obligations (including any indemnity obligations) and duties under the Management Agreement and under the contribution agreements entered into in connection with the securitized financing facility, in each case as and when due. To the extent that our subsidiary has not performed any such obligation or duty within the prescribed time frame after such obligation or duty was required to be performed, we have agreed to either (i) perform such obligation or duty or (ii) cause such obligations or duties to be performed on our behalf. The Securitized Senior Notes are also subject to customary rapid amortization events provided for in the Indenture, including events tied to failure to maintain stated debt service coverage ratios, certain manager termination events, an event of default, and the failure to repay or refinance the Notes on the applicable scheduled Anticipated Repayment Dates. The Securitized Senior Notes are also subject to certain customary events of default, including events relating to non-payment of required interest, principal, or other amounts due on or with respect to the Securitized Senior Notes, failure to comply with covenants within certain time frames, certain bankruptcy events, breaches of specified representations and warranties, failure of security interests to be effective, and certain judgments. In accordance with the Indenture, certain cash accounts have been established with the Trustee for the benefit of the trustee and the noteholders, and are restricted in their use. The Company holds restricted cash which primarily represents cash collections held by the Trustee, interest, principal, and commitment fee reserves held by the Trustee related to the Securitized Senior Notes. As ofJune 30, 2021 , the Company had restricted cash held by the Trustee of$42.2 million . Restricted cash has been combined with cash and cash equivalents when reconciling the beginning and end of period balances in the consolidated statements of cash flows. 42
--------------------------------------------------------------------------------
Table of Contents Off-balance sheet arrangements As ofJune 30, 2021 , our off-balance sheet arrangements consisted of guarantees of lease agreements for certain franchisees up to a maximum period of ten years with earlier expiration dates possible if certain conditions are met. Our maximum total obligation under these lease guarantee agreements is approximately$7.1 million and would only require payment upon default by the primary obligor. The estimated fair value of these guarantees as ofJune 30, 2021 was not material, and no accrual has been recorded for our potential obligation under these arrangements. Critical accounting policies and use of estimates There have been no material changes to our critical accounting policies and use of estimates from those described under "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in our Annual Report.
© Edgar Online, source
