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EX-32.1 - EX-32.1 - Planet Fitness, Inc.plnt-ex321_8.htm

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

x

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2015

OR

o

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ___________to ______________

Commission file number: 001-37534

 

PLANET FITNESS, INC.

(Exact Name of Registrant as Specified in Its Charter)

 

 

Delaware

 

38-3942097

(State or Other Jurisdiction of

Incorporation or Organization)

 

(I.R.S. Employer

Identification No.)

26 Fox Run Road, Newington, NH 03801

(Address of Principal Executive Offices and Zip Code)

(603) 750-0001

(Registrant’s Telephone Number, Including Area Code)

Securities registered pursuant to Section 12(b) of the Act:

 

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x     No  o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x     No  o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer

 

o

  

Accelerated filer

 

o

 

 

 

 

Non-accelerated filer

 

x  (Do not check if a smaller reporting company)

  

Smaller reporting company

 

o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).    Yes  o    No  x

As of November 6, 2015 there were 36,597,985 shares of the Registrant’s Class A Common Stock, par value $0.0001 per share, outstanding and 62,111,755 shares of the Registrant’s Class B Common Stock, par value $0.0001 per share, outstanding.

 

 

 

 

 


 

PLANET FITNESS, INC.

TABLE OF CONTENTS

  

 

 

2


 

Cautionary Note Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q, as well as information included in oral statements or other written statements made or to be made by us, contain statements that constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are neither historical facts nor assurances of future performance. Instead, they are based on our current beliefs, expectations and assumptions regarding the future of our business, future plans and strategies, and other future conditions. Forward-looking statements can be identified by words such as “anticipate,” “believe,” “envision,” “estimate,” “expect,” “intend,” “may,” “plan,” “predict,” “project,” “target,” “potential,” “will,” “would,” “could,” “should,” “continue,” “ongoing,” “contemplate” and other similar expressions, although not all forward-looking statements contain these identifying words. Examples of forward-looking statements include, among others, statements we make regarding:

 

·

future financial position;

 

·

business strategy;

 

·

budgets, projected costs and plans;

 

·

future industry growth;

 

·

financing sources;

 

·

the impact of litigation, government inquiries and investigations; and

 

·

all other statements regarding our intent, plans, beliefs or expectations or those of our directors or officers.

We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements, and you should not place undue reliance on our forward-looking statements. Actual results or events could differ materially from the plans, intentions and expectations disclosed in the forward-looking statements we make. Important factors that could cause actual results and events to differ materially from those indicated in the forward-looking statements include, among others, the following:

 

·

our dependence on the operational and financial results of, and our relationships with, our franchisees and the success of their new and existing stores;

 

·

risks relating to damage to our brand and reputation;

 

·

our ability to successfully implement our growth strategy;

 

·

technical, operational and regulatory risks related to our third-party providers’ systems and our own information systems;

 

·

our and our franchisees’ ability to attract and retain members;

 

·

the high level of competition in the health club industry generally;

 

·

our reliance on a limited number of vendors, suppliers and other third-party service providers;

 

·

the substantial indebtedness of our subsidiary, Planet Fitness Holdings, LLC;

 

·

risks relating to our corporate structure and tax receivable agreements; and

 

·

the other factors identified under the heading “Risk Factors” in our Registration Statement on Form S-1 (File No. 333-205141) and other filings we make with the Securities and Exchange Commission.

The forward-looking statements in this Quarterly Report on Form 10-Q represent our views as of the date of this Report. We undertake no obligation to publicly update any forward-looking statements whether as a result of new information, future developments or otherwise.

 

 

3


 

PART I-FINANCIAL INFORMATION

ITEM 1. Financial Statements

Planet Fitness, Inc. and subsidiaries

Condensed consolidated balance sheets

(Unaudited)

(Amounts in thousands, except per share amounts) 

 

 

 

September 30,

 

 

December 31,

 

 

 

2015

 

 

2014

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

28,461

 

 

$

43,291

 

Accounts receivable, net of allowance for bad debts of $946 and $399 at

   September 30, 2015 and December 31, 2014, respectively

 

 

9,890

 

 

 

19,275

 

Due from related parties

 

 

4,708

 

 

 

1,141

 

Inventory

 

 

2,775

 

 

 

3,012

 

Restricted assets – NAF (note 5)

 

 

5,018

 

 

 

 

Other current assets

 

 

8,949

 

 

 

8,599

 

Total current assets

 

 

59,801

 

 

 

75,318

 

Property and equipment, net

 

 

54,335

 

 

 

49,579

 

Intangible assets, net

 

 

278,986

 

 

 

295,162

 

Goodwill

 

 

176,981

 

 

 

176,981

 

Deferred income taxes

 

 

120,792

 

 

 

 

Other assets, net

 

 

10,248

 

 

 

12,236

 

Total assets

 

$

701,143

 

 

$

609,276

 

Liabilities and stockholders' deficit/members' equity

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Current maturities of long-term debt

 

$

5,100

 

 

$

3,900

 

Accounts payable

 

 

14,695

 

 

 

26,738

 

Accrued expenses

 

 

8,358

 

 

 

8,494

 

Current maturities of obligations under capital leases

 

 

70

 

 

 

376

 

Equipment deposits

 

 

7,498

 

 

 

6,675

 

Restricted liabilities – NAF (note 5)

 

 

5,018

 

 

 

 

Deferred revenue, current

 

 

12,362

 

 

 

14,549

 

Payable to related parties pursuant to tax benefit arrangements, current

 

 

3,022

 

 

 

 

Taxes payable

 

 

4,203

 

 

 

 

Other current liabilities

 

 

682

 

 

 

153

 

Total current liabilities

 

 

61,008

 

 

 

60,885

 

Long-term debt, net of current maturities

 

 

498,450

 

 

 

383,175

 

Obligations under capital leases, net of current portion

 

 

9

 

 

 

45

 

Deferred rent, net of current portion

 

 

4,373

 

 

 

3,012

 

Deferred revenue, net of current portion

 

 

12,033

 

 

 

9,330

 

Deferred tax liabilities – non current

 

 

 

 

 

606

 

Payable to related parties pursuant to tax benefit arrangements, net of current portion

 

 

138,989

 

 

 

 

Other liabilities

 

 

483

 

 

 

474

 

Total noncurrent liabilities

 

 

654,337

 

 

 

396,642

 

Commitments and contingencies (note 16)

 

 

 

 

 

 

 

 

Stockholders' deficit/members' equity:

 

 

 

 

 

 

 

 

Members’ equity

 

 

 

 

 

146,156

 

Class A common stock, $.0001 par value - 300,000 shares authorized, 36,598

   shares issued and outstanding as of September 30, 2015

 

 

4

 

 

 

 

Class B common stock, $.0001 par value - 100,000 shares authorized, 62,112

   shares issued and outstanding as of September 30, 2015

 

 

6

 

 

 

 

Accumulated other comprehensive income (loss)

 

 

(1,888

)

 

 

(636

)

Additional paid in capital

 

 

122

 

 

 

 

Accumulated deficit

 

 

(17,376

)

 

 

 

Total stockholders' deficit attributable to Planet Fitness Inc./members' equity

 

 

(19,132

)

 

 

145,520

 

Non-controlling interests

 

 

4,930

 

 

 

6,229

 

Total stockholders' deficit/members' equity

 

 

(14,202

)

 

 

151,749

 

Total liabilities and stockholders' deficit/members' equity

 

$

701,143

 

 

$

609,276

 

 

See accompanying notes to condensed consolidated financial statements.

4


 

Planet Fitness, Inc. and subsidiaries

Condensed consolidated statements of operations

(Unaudited)

(Amounts in thousands, except per share amounts)

 

 

For the three months ended

September 30,

 

 

For the nine months ended

September 30,

 

 

2015

 

 

2014

 

 

2015

 

 

2014

 

Revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Franchise

$

16,148

 

 

$

13,009

 

 

$

51,806

 

 

$

40,834

 

Commission income

 

3,646

 

 

 

2,771

 

 

 

11,624

 

 

 

9,873

 

Corporate-owned stores

 

25,153

 

 

 

22,692

 

 

 

73,674

 

 

 

62,823

 

Equipment

 

23,870

 

 

 

24,995

 

 

 

87,588

 

 

 

70,228

 

Total revenue

 

68,817

 

 

 

63,467

 

 

 

224,692

 

 

 

183,758

 

Operating costs and expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of revenue

 

18,858

 

 

 

20,163

 

 

 

70,104

 

 

 

57,837

 

Store operations

 

14,305

 

 

 

12,494

 

 

 

43,354

 

 

 

35,818

 

Selling, general and administrative

 

17,348

 

 

 

8,582

 

 

 

43,840

 

 

 

23,296

 

Depreciation and amortization

 

7,976

 

 

 

8,542

 

 

 

24,160

 

 

 

23,585

 

Other (gain) loss

 

(9

)

 

 

(269

)

 

 

(76

)

 

 

1,024

 

Total operating costs and expenses

 

58,478

 

 

 

49,512

 

 

 

181,382

 

 

 

141,560

 

Income from operations

 

10,339

 

 

 

13,955

 

 

 

43,310

 

 

 

42,198

 

Other expense, net:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense, net

 

(6,556

)

 

 

(5,097

)

 

 

(17,872

)

 

 

(16,705

)

Other expense

 

(1,815

)

 

 

(447

)

 

 

(2,627

)

 

 

(1,089

)

Total other expense, net

 

(8,371

)

 

 

(5,544

)

 

 

(20,499

)

 

 

(17,794

)

Income before income taxes

 

1,968

 

 

 

8,411

 

 

 

22,811

 

 

 

24,404

 

Provision for income taxes

 

1,230

 

 

 

108

 

 

 

1,921

 

 

 

892

 

Net income

 

738

 

 

 

8,303

 

 

 

20,890

 

 

 

23,512

 

Less net income attributable to non-controlling interests

 

4,631

 

 

 

176

 

 

 

4,857

 

 

 

494

 

Net income (loss) attributable to Planet Fitness, Inc.

$

(3,893

)

 

$

8,127

 

 

$

16,033

 

 

$

23,018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss) per share of Class A common stock(1):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

$

0.05

 

 

 

 

 

 

$

0.05

 

 

 

 

 

Diluted

$

0.04

 

 

 

 

 

 

$

0.04

 

 

 

 

 

Weighted-average shares of Class A common stock outstanding(1):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

35,661

 

 

 

 

 

 

 

35,661

 

 

 

 

 

Diluted

 

98,710

 

 

 

 

 

 

 

98,710

 

 

 

 

 

 

(1)

Represents earnings per share of Class A common stock and weighted-average shares of Class A common stock outstanding for the period from August 6, 2015 through September 30, 2015, the period following the recapitalization transactions and IPO (see Note 14).

See accompanying notes to condensed consolidated financial statements.

 

 

5


 

Planet Fitness, Inc. and subsidiaries

Condensed consolidated statements of comprehensive income (loss)

(Unaudited)

(Amounts in thousands)

 

 

For the three months ended

September 30,

 

 

For the nine months ended

September 30,

 

 

2015

 

 

2014

 

 

2015

 

 

2014

 

Net income including non-controlling interests

$

738

 

 

$

8,303

 

 

$

20,890

 

 

$

23,512

 

Other comprehensive loss, net:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Losses on interest rate swaps

 

 

 

 

 

 

 

 

 

 

(92

)

Unrealized loss on interest rate caps, net of tax

 

(557

)

 

 

(29

)

 

 

(1,497

)

 

 

(29

)

Foreign currency translation adjustments

 

198

 

 

 

5

 

 

 

245

 

 

 

5

 

Total other comprehensive loss, net

 

(359

)

 

 

(24

)

 

 

(1,252

)

 

 

(116

)

Total comprehensive income including non-controlling

   interests

 

379

 

 

 

8,279

 

 

 

19,638

 

 

 

23,396

 

Less: total comprehensive income attributable to non-controlling

   interests

 

4,423

 

 

 

176

 

 

 

4,649

 

 

 

494

 

Total comprehensive income (loss) attributable to Planet

   Fitness, Inc.

$

(4,044

)

 

$

8,103

 

 

$

14,989

 

 

$

22,902

 

 

See accompanying notes to condensed consolidated financial statements.

 

 

6


 

Planet Fitness, Inc. and subsidiaries

Condensed consolidated statements of cash flows

(Unaudited)

(Amounts in thousands) 

 

 

 

For the nine months ended

September 30,

 

 

 

2015

 

 

2014

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net income

 

$

20,890

 

 

$

23,512

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

24,160

 

 

 

23,585

 

Amortization of deferred financing costs

 

 

1,070

 

 

 

1,006

 

Amortization of favorable leases and asset retirement obligations

 

 

380

 

 

 

251

 

Deferred tax (benefit) expense

 

 

(141

)

 

 

2

 

Provision for bad debts

 

 

547

 

 

 

74

 

Gain on disposal of property and equipment

 

 

(76

)

 

 

(269

)

Unrealized gain on interest rate swaps

 

 

 

 

 

29

 

Loss on extinguishment of debt

 

 

 

 

 

4,697

 

Equity-based compensation

 

 

4,647

 

 

 

 

Changes in operating assets and liabilities, excluding effects of acquisitions:

 

 

 

 

 

 

 

 

State income taxes

 

 

969

 

 

 

(2,243

)

Accounts receivable

 

 

8,830

 

 

 

4,187

 

Notes receivable and due from related parties

 

 

4,532

 

 

 

1,280

 

Inventory

 

 

237

 

 

 

471

 

Other assets and other current assets

 

 

(563

)

 

 

(197

)

Accounts payable and accrued expenses

 

 

(11,745

)

 

 

(10,573

)

Other liabilities and other current liabilities

 

 

57

 

 

 

(241

)

Equipment deposits

 

 

823

 

 

 

3,782

 

Deferred revenue

 

 

626

 

 

 

(1,300

)

Deferred rent

 

 

1,330

 

 

 

1,022

 

Net cash provided by operating activities

 

 

56,573

 

 

 

49,075

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Additions to property and equipment

 

 

(13,830

)

 

 

(7,667

)

Acquisition of franchises

 

 

 

 

 

(38,638

)

Proceeds from sale of property and equipment

 

 

76

 

 

 

274

 

Net cash used in investing activities

 

 

(13,754

)

 

 

(46,031

)

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Proceeds from issuance of Class A common stock sold in initial public offering, net of underwriting

   discounts and commissions

 

 

156,946

 

 

 

 

Use of proceeds from issuance of Class A common stock to purchase Holdings Units

 

 

(156,946

)

 

 

 

Proceeds from issuance of long-term debt

 

 

120,000

 

 

 

390,000

 

Principal payments on capital lease obligations

 

 

(343

)

 

 

(997

)

Repayment of long-term debt

 

 

(3,525

)

 

 

(184,825

)

Payment of deferred financing and other debt-related costs

 

 

(1,698

)

 

 

(7,785

)

Premiums paid for interest rate caps

 

 

(880

)

 

 

(2,373

)

Distributions to variable interest entities

 

 

 

 

 

(458

)

Distributions to Continuing LLC Members

 

 

(171,101

)

 

 

(193,981

)

Net cash used in financing activities

 

 

(57,547

)

 

 

(419

)

Effects of exchange rate changes on cash and cash equivalents

 

 

(102

)

 

 

4

 

Net (decrease) increase in cash and cash equivalents

 

 

(14,830

)

 

 

2,629

 

Cash and cash equivalents, beginning of period

 

 

43,291

 

 

 

31,267

 

Cash and cash equivalents, end of period

 

$

28,461

 

 

$

33,896

 

 

 

 

 

 

 

 

 

 

Supplemental cash flow information:

 

 

 

 

 

 

 

 

Net cash paid for income taxes

 

$

1,105

 

 

$

1,824

 

Cash paid for interest

 

$

17,063

 

 

$

14,061

 

Non-cash investing activities:

 

 

 

 

 

 

 

 

Non-cash consideration for acquisition of franchises

 

$

 

 

$

3,000

 

Non-cash additions to property and equipment

 

$

709

 

 

$

 

 

See accompanying notes to condensed consolidated financial statements.

 

7


 

Planet Fitness, Inc. and subsidiaries

Condensed consolidated statement of changes in equity

(Unaudited)

(Amounts in thousands)

 

 

 

 

 

 

 

Class A common stock

 

 

Class B common stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Members'

equity

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Accumulated

other

comprehensive

loss

 

 

Additional paid-

in capital

 

 

Accumulated deficit

 

 

Non-controlling

interests

 

 

Total equity

 

Balance at December 31, 2014

 

$

146,156

 

 

 

 

 

$

 

 

 

 

 

$

 

 

$

(636

)

 

$

 

 

$

 

 

$

6,229

 

 

$

151,749

 

Distributions to members

   prior to the recapitalization

   transactions

 

 

(164,693

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(164,693

)

Net income prior to the

   recapitalization transactions

 

 

14,412

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

264

 

 

 

14,676

 

Other comprehensive loss

   prior to the recapitalization

   transactions

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,054

)

 

 

 

 

 

 

 

 

 

 

 

(1,054

)

Equity-based compensation

   expense recorded in

   connection with

   recapitalization transactions

 

 

4,525

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4,525

 

Effect of the recapitalization

   transactions

 

 

(400

)

 

 

26,107

 

 

 

3

 

 

 

72,603

 

 

 

7

 

 

 

 

 

 

 

 

 

138

 

 

 

252

 

 

 

 

Issuance of Class A common

   stock in IPO, net of

   commissions

 

 

 

 

 

10,491

 

 

 

1

 

 

 

(10,491

)

 

 

(1

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income subsequent to the

   recapitalization transactions

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,621

 

 

 

4,593

 

 

 

6,214

 

Tax benefit arrangement liability

   and deferred taxes arising

   from the recapitalization

   transactions and IPO

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(19,135

)

 

 

 

 

 

(19,135

)

Equity-based compensation

   expense subsequent to

   the recapitalization

   transactions

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

122

 

 

 

 

 

 

 

 

 

122

 

Distributions paid to non-

   controlling unit holders

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(6,408

)

 

 

(6,408

)

Other comprehensive loss

   subsequent to the

   recapitalization transactions

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(198

)

 

 

 

 

 

 

 

 

 

 

 

(198

)

Balance at September 30, 2015

 

$

 

 

 

36,598

 

 

$

4

 

 

 

62,112

 

 

$

6

 

 

$

(1,888

)

 

$

122

 

 

$

(17,376

)

 

$

4,930

 

 

$

(14,202

)

 

See accompanying notes to condensed consolidated financial statements

 

 

 

8


 

Planet Fitness, Inc. and subsidiaries

Notes to Condensed Consolidated financial statements

(Unaudited)

(Amounts in thousands, except share and per share amounts)

 

 

(1) Business organization

Planet Fitness, Inc. (the “Company”), through its subsidiaries, is a franchisor and operator of fitness centers, with more than 7.1 million members and 1,040 owned and franchised locations (referred to as stores) in 47 states, the District of Columbia, Puerto Rico and Canada as of September 30, 2015.

The Company serves as the reporting entity for its various subsidiaries that operate three distinct lines of business:

 

·

Licensing and selling franchises under the Planet Fitness trade name.

 

·

Owning and operating fitness centers under the Planet Fitness trade name.

 

·

Selling fitness-related equipment to franchisee-owned stores.

The Company was formed as a Delaware corporation on March 16, 2015 for the purpose of facilitating an initial public offering (the “IPO”) and related transactions in order to carry on the business of Pla-Fit Holdings, LLC and its subsidiaries (“Pla-Fit Holdings”). As of August 5, 2015, in connection with the recapitalization transactions discussed below, the Company became the sole managing member and holder of 100% of the voting power of Pla-Fit Holdings and 37.1% of the economic interest. Pla-Fit Holdings owns 100% of Planet Intermediate, LLC which has no operations but is the 100% owner of Planet Fitness Holdings, LLC, a franchisor and operator of fitness centers. With respect to the Company, Pla-Fit Holdings and Planet Intermediate, LLC, each entity owns nothing other than the respective entity below it in the corporate structure and each entity has no other material operations, assets, or liabilities.

Initial Public Offering

On August 11, 2015, the Company completed an IPO pursuant to which the Company and selling stockholders sold an aggregate of 15,525,000 shares of Class A common stock at a public offering price of $16.00 per share. The Company received $156,946 in proceeds from its sale of 10,491,055 shares of Class A common stock, net of underwriting discounts and commissions, which were used to purchase an equal number of limited liability company units (“Holdings Units”) from existing holders (“Continuing LLC Owners”) of interests in Pla-Fit Holdings, at a purchase price per unit equal to the IPO price per share of Class A common stock, net of underwriting discounts and commissions. 

Recapitalization Transactions

In connection with the IPO, the Company and Pla-Fit Holdings completed a series of recapitalization transactions on August 5, 2015 which are described below (also see Note 12):

 

·

Pla-Fit Holdings amended and restated the limited liability company agreement to, among other things, (i) provide for a new single class of limited liability company units, Holdings Units, (ii) exchange all membership interests of the then-existing holders of Pla-Fit Holdings membership interests for Holdings Units and (iii) appoint the Company as the sole managing member of Pla-Fit Holdings.

 

·

The Company issued 72,602,810 shares of Class B common stock with voting rights but no economic rights to Pla-Fit Holdings’ existing owners on a one-to-one basis for each Holdings Unit owned.

 

·

The Company merged with Planet Fitness Holdings L.P., a predecessor entity to the Company that held indirect interests in Pla-Fit Holdings, for which the Company issued 26,106,930 shares of Class A common stock to the holders of interests in Planet Fitness Holdings L.P. (the “Direct TSG Investors”).

Subsequent to the IPO and the related recapitalization transactions, the Company is a holding company whose principal asset is a controlling equity interest in Pla-Fit Holdings. As the sole managing member of Pla-Fit Holdings, the Company operates and controls all of the business and affairs of Pla-Fit Holdings, and through Pla-Fit Holdings, conducts its business. As a result the Company consolidates Pla-Fit Holdings’ financial results and reports a non-controlling interest related to the portion of Holdings Units not owned by the Company. As of September 30, 2015, the Company owned 100% of the voting interest, and approximately 37.1% of the economic interest of Pla-Fit Holdings. As future exchanges of Holdings Units occur, the economic interest in Pla-Fit Holdings held by Planet Fitness, Inc. will increase.

9


Planet Fitness, Inc. and subsidiaries

Notes to Condensed Consolidated financial statements

(Unaudited)

(Amounts in thousands, except share and per share amounts)

 

The recapitalization transactions are considered transactions between entities under common control.  As a result, the financial statements for periods prior to the IPO and the recapitalization transactions are the financial statements of Pla-Fit Holdings as the predecessor to the Company for accounting and reporting purposes.  Unless otherwise specified, “the Company” refers to both Planet Fitness, Inc. and Pla-Fit Holdings throughout the remainder of these notes.

Variable Interest Entities

The results of the Company have been consolidated with Matthew Michael Realty LLC (“MMR”) and PF Melville LLC (“PF Melville”) based on the determination that the Company is the primary beneficiary with respect to these variable interest entities (“VIEs”). These entities are real estate holding companies that derive a majority of their financial support from the Company through lease agreements for corporate stores.

 

 

(2) Summary of significant accounting policies

(a) Basis of presentation and consolidation

The accompanying unaudited interim condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP) for interim financial information and pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Accordingly, these interim financial statements do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) necessary for a fair presentation of the results of operations, financial position and cash flows for the periods presented have been reflected. All significant intercompany balances and transactions have been eliminated in consolidation.

The condensed consolidated financial statements as of and for the three and nine months ended September 30, 2015 and 2014 are unaudited. The condensed consolidated balance sheet as of December 31, 2014 has been derived from the audited financial statements at that date but does not include all of the disclosures required by U.S. GAAP. These interim condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements as of and for the year ended December 31, 2014 and related notes included in our final prospectus for the Company’s IPO dated August 6, 2015 filed pursuant to Rule 424(b) under the Securities Act of 1933, as amended (the “Securities Act”), with the SEC (the “Prospectus”). Operating results for the interim periods are not necessarily indicative of the results that may be expected for the full year.

As discussed in Note 1, as a result of the recapitalization transactions, Planet Fitness, Inc. consolidates Pla-Fit Holdings and Pla-Fit Holdings is considered to be the predecessor to Planet Fitness, Inc. for accounting and reporting purposes. The Company also consolidates entities in which it has a controlling financial interest, the usual condition of which is ownership of a majority voting interest. The Company also considers for consolidation certain interests where the controlling financial interest may be achieved through arrangements that do not involve voting interests. Such an entity, known as a VIE, is required to be consolidated by its primary beneficiary. The primary beneficiary of a VIE is considered to possess the power to direct the activities of the VIE that most significantly impact its economic performance and has the obligation to absorb losses or the rights to receive benefits from the VIE that are significant to it. The principal entities in which the Company possesses a variable interest include franchise entities and certain other entities. The Company is not deemed to be the primary beneficiary for Planet Fitness franchise entities. Therefore, these entities are not consolidated. See Note 3 for further information related to the Company’s VIEs.

(b) Use of estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Although these estimates are based on management’s knowledge of current events and actions it may undertake in the future, they may ultimately differ from actual results. Significant areas where estimates and judgments are relied upon by management in the preparation of the consolidated financial statements include revenue recognition, valuation of assets and liabilities in connection with acquisitions, valuation of equity-based compensation awards, the evaluation of the recoverability of goodwill and long-lived assets, including intangible assets, income taxes, including deferred tax assets and liabilities and reserves for unrecognized tax benefits, and the liability for the Company’s tax receivable agreements.

10


Planet Fitness, Inc. and subsidiaries

Notes to Condensed Consolidated financial statements

(Unaudited)

(Amounts in thousands, except share and per share amounts)

 

(c) Fair Value

The table below presents information about the Company’s assets and liabilities that are measured at fair value on a recurring basis as of September 30, 2015 and December 31, 2014:

 

 

 

 

 

 

 

Quoted

 

 

Significant

 

 

 

 

 

 

 

Total fair

 

 

prices

 

 

other

 

 

Significant

 

 

 

value at

 

 

in active

 

 

observable

 

 

unobservable

 

 

 

September 30,

 

 

markets

 

 

inputs

 

 

inputs

 

 

 

2015

 

 

(Level 1)