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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 June 30, 2016

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 August 4, 2016 there were 44,489,145 shares of the Registrant’s Class A Common Stock, par value $0.0001 per share, outstanding and 54,079,804 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 annual report on Form 10-K for the fiscal year ended December 31, 2015 filed 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) 

 

 

 

June 30,

 

 

December 31,

 

 

 

2016

 

 

2015

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

55,664

 

 

$

31,430

 

Accounts receivable, net of allowance for bad debts of $643 and $629 at

   June 30, 2016 and December 31, 2015, respectively

 

 

11,575

 

 

 

19,079

 

Due from related parties

 

 

973

 

 

 

4,940

 

Inventory

 

 

893

 

 

 

4,557

 

Restricted assets – national advertising fund

 

 

1,656

 

 

 

1,962

 

Other current assets

 

 

17,626

 

 

 

10,977

 

Total current assets

 

 

88,387

 

 

 

72,945

 

Property and equipment, net of accumulated depreciation of $26,285 as of

   June 30, 2016 and $23,525 as of December 31, 2015

 

 

54,931

 

 

 

56,139

 

Intangible assets, net

 

 

263,739

 

 

 

273,619

 

Goodwill

 

 

176,981

 

 

 

176,981

 

Deferred income taxes

 

 

194,240

 

 

 

117,358

 

Other assets, net

 

 

1,133

 

 

 

2,135

 

Total assets

 

$

779,411

 

 

$

699,177

 

Liabilities and stockholders' equity (deficit)

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Current maturities of long-term debt

 

$

5,100

 

 

$

5,100

 

Accounts payable

 

 

11,992

 

 

 

23,950

 

Accrued expenses

 

 

9,100

 

 

 

13,667

 

Due to related parties

 

 

3,966

 

 

 

 

Equipment deposits

 

 

4,519

 

 

 

5,587

 

Deferred revenue, current

 

 

20,619

 

 

 

14,717

 

Payable to related parties pursuant to tax benefit arrangements, current

 

 

7,389

 

 

 

3,019

 

Other current liabilities

 

 

313

 

 

 

212

 

Total current liabilities

 

 

62,998

 

 

 

66,252

 

Long-term debt, net of current maturities

 

 

477,969

 

 

 

479,779

 

Deferred rent, net of current portion

 

 

4,799

 

 

 

4,554

 

Deferred revenue, net of current portion

 

 

8,456

 

 

 

12,016

 

Deferred tax liabilities

 

 

1,167

 

 

 

 

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

 

 

204,947

 

 

 

137,172

 

Other liabilities

 

 

484

 

 

 

484

 

Total noncurrent liabilities

 

 

697,822

 

 

 

634,005

 

Commitments and contingencies (note 11)

 

 

 

 

 

 

 

 

Stockholders' equity (deficit):

 

 

 

 

 

 

 

 

Class A common stock, $.0001 par value - 300,000 shares authorized, 44,489

   shares issued and outstanding as of June 30, 2016 and 36,598 shares issued

   and outstanding as of December 31, 2015

 

 

4

 

 

 

4

 

Class B common stock, $.0001 par value - 100,000 shares authorized, 54,080

   shares issued and outstanding as of June 30, 2016, and 62,112 shares issued

   and outstanding as of December 31, 2015

 

 

6

 

 

 

6

 

Accumulated other comprehensive loss

 

 

(1,067

)

 

 

(1,710

)

Additional paid in capital

 

 

7,981

 

 

 

352

 

Accumulated deficit

 

 

(7,673

)

 

 

(14,032

)

Total stockholders' deficit attributable to Planet Fitness Inc.

 

 

(749

)

 

 

(15,380

)

Non-controlling interests

 

 

19,340

 

 

 

14,300

 

Total stockholders' equity (deficit)

 

 

18,591

 

 

 

(1,080

)

Total liabilities and stockholders' equity (deficit)

 

$

779,411

 

 

$

699,177

 

 

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

June 30,

 

 

For the six months ended

June 30,

 

 

2016

 

 

2015

 

 

2016

 

 

2015

 

Revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Franchise

$

25,506

 

 

$

18,691

 

 

$

46,997

 

 

$

35,658

 

Commission income

 

3,973

 

 

 

3,188

 

 

 

10,159

 

 

 

7,978

 

Corporate-owned stores

 

26,383

 

 

 

24,975

 

 

 

52,080

 

 

 

48,521

 

Equipment

 

35,610

 

 

 

32,099

 

 

 

65,579

 

 

 

63,718

 

Total revenue

 

91,472

 

 

 

78,953

 

 

 

174,815

 

 

 

155,875

 

Operating costs and expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of revenue

 

27,801

 

 

 

25,300

 

 

 

51,440

 

 

 

51,246

 

Store operations

 

15,760

 

 

 

14,708

 

 

 

30,492

 

 

 

29,049

 

Selling, general and administrative

 

12,381

 

 

 

12,354

 

 

 

24,226

 

 

 

26,492

 

Depreciation and amortization

 

7,678

 

 

 

7,983

 

 

 

15,382

 

 

 

16,184

 

Other loss (gain)

 

21

 

 

 

(61

)

 

 

(165

)

 

 

(67

)

Total operating costs and expenses

 

63,641

 

 

 

60,284

 

 

 

121,375

 

 

 

122,904

 

Income from operations

 

27,831

 

 

 

18,669

 

 

 

53,440

 

 

 

32,971

 

Other expense, net:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense, net

 

(6,161

)

 

 

(6,560

)

 

 

(12,528

)

 

 

(11,316

)

Other income (expense)

 

(160

)

 

 

(76

)

 

 

234

 

 

 

(812

)

Total other expense, net

 

(6,321

)

 

 

(6,636

)

 

 

(12,294

)

 

 

(12,128

)

Income before income taxes

 

21,510

 

 

 

12,033

 

 

 

41,146

 

 

 

20,843

 

Provision for income taxes

 

3,419

 

 

 

419

 

 

 

6,709

 

 

 

691

 

Net income

 

18,091

 

 

 

11,614

 

 

 

34,437

 

 

 

20,152

 

Less net income attributable to non-controlling interests

 

13,959

 

 

 

113

 

 

 

26,936

 

 

 

226

 

Net income attributable to Planet Fitness, Inc.

$

4,132

 

 

$

11,501

 

 

$

7,501

 

 

$

19,926

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

$

0.11

 

 

 

 

 

 

$

0.20

 

 

 

 

 

Diluted

$

0.11

 

 

 

 

 

 

$

0.20

 

 

 

 

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

36,771

 

 

 

 

 

 

 

36,685

 

 

 

 

 

Diluted

 

36,773

 

 

 

 

 

 

 

36,686

 

 

 

 

 

 

(1)

Represents earnings per share of Class A common stock and weighted-average shares of Class A common stock outstanding for the period following the recapitalization transactions and IPO (see Note 9).

See accompanying notes to condensed consolidated financial statements.

 

 

5


 

Planet Fitness, Inc. and subsidiaries

Condensed consolidated statements of comprehensive income

(Unaudited)

(Amounts in thousands)

 

 

For the three months ended

June 30,

 

 

For the six months ended

June 30,

 

 

2016

 

 

2015

 

 

2016

 

 

2015

 

Net income including non-controlling interests

$

18,091

 

 

$

11,614

 

 

$

34,437

 

 

$

20,152

 

Other comprehensive income (loss), net:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized loss on interest rate caps, net of tax

 

(79

)

 

 

(161

)

 

 

(662

)

 

 

(940

)

Foreign currency translation adjustments

 

(3

)

 

 

(54

)

 

 

(96

)

 

 

47

 

Total other comprehensive loss, net

 

(82

)

 

 

(215

)

 

 

(758

)

 

 

(893

)

Total comprehensive income including non-controlling

   interests

 

18,009

 

 

 

11,399

 

 

 

33,679

 

 

 

19,259

 

Less: total comprehensive income attributable to non-controlling

   interests

 

13,899

 

 

 

113

 

 

 

26,392

 

 

 

226

 

Total comprehensive income attributable to Planet

   Fitness, Inc.

$

4,110

 

 

$

11,286

 

 

$

7,287

 

 

$

19,033

 

 

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 six months ended

June 30,

 

 

 

2016

 

 

2015

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net income

 

$

34,437

 

 

$

20,152

 

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

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

15,382

 

 

 

16,184

 

Amortization of deferred financing costs

 

 

741

 

 

 

686

 

Amortization of favorable leases and asset retirement obligations

 

 

198

 

 

 

235

 

Amortization of interest rate caps

 

 

221

 

 

 

 

Deferred tax expense

 

 

6,703

 

 

 

21

 

Provision for bad debts

 

 

13

 

 

 

546

 

Gain on disposal of property and equipment

 

 

(165

)

 

 

(67

)

Equity-based compensation

 

 

960

 

 

 

 

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

 

 

 

 

 

 

 

 

Accounts receivable

 

 

7,785

 

 

 

7,352

 

Due to and due from related parties

 

 

7,531

 

 

 

1,958

 

Inventory

 

 

3,664

 

 

 

2,245

 

Other assets and other current assets

 

 

(3,074

)

 

 

(587

)

Accounts payable and accrued expenses

 

 

(13,931

)

 

 

(13,164

)

Other liabilities and other current liabilities

 

 

4

 

 

 

42

 

Income taxes

 

 

(5,822

)

 

 

431

 

Payable to related parties pursuant to tax benefit arrangements

 

 

(6,007

)

 

 

 

Equipment deposits

 

 

(1,068

)

 

 

(3,870

)

Deferred revenue

 

 

2,232

 

 

 

3,230

 

Deferred rent

 

 

282

 

 

 

1,242

 

Net cash provided by operating activities

 

 

50,086

 

 

 

36,636

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Additions to property and equipment

 

 

(4,487

)

 

 

(8,538

)

Proceeds from sale of property and equipment

 

 

142

 

 

 

67

 

Net cash used in investing activities

 

 

(4,345

)

 

 

(8,471

)

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Proceeds from issuance of long-term debt

 

 

 

 

 

120,000

 

Principal payments on capital lease obligations

 

 

(25

)

 

 

(258

)

Repayment of long-term debt

 

 

(2,550

)

 

 

(2,250

)

Payment of deferred financing and other debt-related costs

 

 

 

 

 

(1,698

)

Repurchase and retirement of Class B common stock

 

 

(1,583

)

 

 

 

Distributions to Continuing LLC Members

 

 

(17,472

)

 

 

(155,088

)

Net cash used in financing activities

 

 

(21,630

)

 

 

(39,294

)

Effects of exchange rate changes on cash and cash equivalents

 

 

123

 

 

 

(14

)

Net increase (decrease) in cash and cash equivalents

 

 

24,234

 

 

 

(11,143

)

Cash and cash equivalents, beginning of period

 

 

31,430

 

 

 

43,291

 

Cash and cash equivalents, end of period

 

$

55,664

 

 

$

32,148

 

 

 

 

 

 

 

 

 

 

Supplemental cash flow information:

 

 

 

 

 

 

 

 

Net cash paid for income taxes

 

$

5,971

 

 

$

288

 

Cash paid for interest

 

$

11,479

 

 

$

10,826

 

Non-cash investing activities:

 

 

 

 

 

 

 

 

Non-cash additions to property and equipment

 

$

226

 

 

$

 

 

See accompanying notes to condensed consolidated financial statements.

 


7


 

Planet Fitness, Inc. and subsidiaries

Condensed consolidated statement of changes in equity (deficit)

(Unaudited)

(Amounts in thousands) 

 

 

 

Class A common stock

 

 

Class B common stock

 

 

Accumulated

other

comprehensive

loss

 

 

Additional paid-

in capital

 

 

Accumulated deficit

 

 

Non-controlling

interests

 

 

Total equity (deficit)

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at December 31, 2015

 

 

36,598

 

 

$

4

 

 

 

62,112

 

 

$

6

 

 

$

(1,710

)

 

$

352

 

 

$

(14,032

)

 

$

14,300

 

 

$

(1,080

)

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

7,501

 

 

 

26,936

 

 

 

34,437

 

Equity-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

960

 

 

 

 

 

 

 

 

 

960

 

Repurchase and retirement of Class B

   common stock

 

 

 

 

 

 

 

 

(141

)

 

 

 

 

 

 

 

 

(441

)

 

 

(1,142

)

 

 

 

 

 

(1,583

)

Exchange of Class B common stock

 

 

7,891

 

 

 

 

 

 

(7,891

)

 

 

 

 

 

857

 

 

 

3,023

 

 

 

 

 

 

(3,880

)

 

 

 

Tax benefit arrangement liability and

   deferred taxes arising from the

   secondary offering

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4,087

 

 

 

 

 

 

 

 

 

4,087

 

Distributions paid to members

   of Pla-Fit Holdings

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(17,472

)

 

 

(17,472

)

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(214

)

 

 

 

 

 

 

 

 

(544

)

 

 

(758

)

Balance at June 30, 2016

 

 

44,489

 

 

$

4

 

 

 

54,080

 

 

$

6

 

 

$

(1,067

)

 

$

7,981

 

 

$

(7,673

)

 

$

19,340

 

 

$

18,591

 

 

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 8.6 million members and 1,206 owned and franchised locations (referred to as stores) in 47 states, the District of Columbia, Puerto Rico, Canada and the Dominican Republic as of June 30, 2016.

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”) which was completed on August 11, 2015 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 that occurred prior to the IPO, the Company became the sole managing member and holder of 100% of the voting power of Pla-Fit Holdings. 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.

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 limited liability company units of Pla-Fit Holdings, LLC (“Holdings Units”) not owned by the Company.

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.

In June 2016, the Company completed a secondary offering of 11,500,000 shares of its Class A common stock at a price of $16.50 per share. All of the shares sold in the offering were offered by existing holders of Holdings Units (“Continuing LLC Owners”) and certain holders of Class A common stock (“Direct TSG Investors”), together referred to as the “Selling Stockholders.” The Company did not receive any proceeds from the sale of shares of Class A common stock offered by the Selling Stockholders. The shares sold in the offering consisted of (i) 3,608,840 existing shares of Class A common stock held by the Direct TSG Investors and (ii) 7,891,160 newly-issued shares of Class A common stock issued in connection with the exercise of the exchange right by the Continuing LLC Owners that participated in the offering. Simultaneously, and in connection with the exchange, 7,891,160 shares of Class B common stock were surrendered by the Continuing LLC Owners and canceled. Additionally, in connection with the exchange, Planet Fitness, Inc. received 7,891,160 Holdings Units, increasing its total ownership interest in Pla-Fit Holdings. Immediately preceding the secondary offering, Planet Fitness, Inc. held 100% of the voting interest and 37.1% of the economic interest of Pla-Fit Holdings and the Continuing LLC Owners held the remaining 62.9% economic interest in Pla-Fit Holdings. Immediately following the completion of the secondary offering and as of June 30, 2016, Planet Fitness, Inc. held 100% of the voting interest and 45.1% of the economic interest of Pla-Fit Holdings and the Continuing LLC Owners held the remaining 54.9% economic interest in Pla-Fit Holdings. As future exchanges of Holdings Units occur, Planet Fitness Inc.’s economic interest in Pla-Fit Holdings will increase.

 

(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

9


Planet Fitness, Inc. and subsidiaries

Notes to Condensed Consolidated financial statements

(Unaudited)

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

 

(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 six months ended June 30, 2016 and 2015 are unaudited. The condensed consolidated balance sheet as of December 31, 2015 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 Company’s Annual Report on Form 10-K for the year ended December 31, 2015 (the “Annual Report”) filed with the SEC on March 4, 2016. 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 variable interest entity (“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.

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 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. 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 benefit arrangements.

(c) Fair Value

ASC 820, Fair Value Measurements and Disclosures, establishes a three-level valuation hierarchy for disclosure of fair value measurements. The valuation hierarchy is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date. Categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The three levels are defined as follows:

Level 1—Inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.

Level 2—Inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.

Level 3—Inputs to the valuation methodology are unobservable and significant to the fair value measurement.

10


Planet Fitness, Inc. and subsidiaries

Notes to Condensed Consolidated financial statements

(Unaudited)

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

 

The table below presents information about the Company’s assets and liabilities that are measured at fair value on a recurring basis as of June 30, 2016 and December 31, 2015:

 

 

 

 

 

 

 

Quoted

 

 

Significant

 

 

 

 

 

 

 

Total fair

 

 

prices

 

 

other

 

 

Significant

 

 

 

value at

 

 

in active

 

 

observable

 

 

unobservable

 

 

 

June 30,

 

 

markets

 

 

inputs

 

 

inputs

 

 

 

2016

 

 

(Level 1)

 

 

(Level 2)

 

 

(Level 3)

 

Interest rate caps

 

$

134

 

 

$

 

 

$

134

 

 

$

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Quoted

 

 

Significant

 

 

 

 

 

 

 

Total fair

 

 

prices

 

 

other

 

 

Significant

 

 

 

value at

 

 

in active

 

 

observable

 

 

unobservable

 

 

 

December 31,

 

 

markets

 

 

inputs

 

 

inputs

 

 

 

2015

 

 

(Level 1)

 

 

(Level 2)

 

 

(Level 3)

 

Interest rate caps

 

$

1,147

 

 

$

 

 

$

1,147

 

 

$

 

 

(d) Recent accounting pronouncements

The FASB issued ASU No. 2014-09, Revenue from Contracts with Customers, in September 2014. This guidance requires that an entity recognize revenue to depict the transfer of a promised good or service to its customers in an amount that reflects consideration to which the entity expects to be entitled in exchange for such transfer. This guidance also specifies accounting for certain costs incurred by an entity to obtain or fulfill a contract with a customer and provides for enhancements to revenue specific disclosures intended to allow users of the financial statements to clearly understand the nature, amount, timing and uncertainty of revenue and cash flows arising from an entity’s contracts with its customers. This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017 for public companies. In March 2016, the FASB issued ASU 2016-08, which further clarifies the implementation guidance on principal versus agent considerations contained in ASU 2014-09. This guidance is to be applied either retrospectively or as a cumulative-effect adjustment as of the date of adoption. The Company is currently evaluating the impact the adoption of this guidance will have on its consolidated financial statements.

The FASB issued ASU No. 2015-02, Income Statement—Consolidation, in February 2015. This guidance affects reporting entities that are required to evaluate whether they should consolidate certain legal entities. Specifically, the guidance 1) modifies the evaluation of whether limited partnerships and similar legal entities are variable interest entities or voting interest entities, 2) eliminates the presumption that a general partner should consolidate a limited partnership, 3) affects the consolidation analysis of reporting entities that are involved with VIEs, particularly those that have fee arrangements and related party relationships, and 4) provides a scope exception from consolidation guidance for reporting entities with interests in legal entities that are required to comply with or operate in accordance with requirements that are similar to those in Rule 2a-7 of the Investment Company Act of 1940 for registered money market funds. The guidance is effective for public business entities for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2015. The Company adopted ASU No. 2015-02 as of January 1, 2016, noting no material impact to the consolidated financial statements.

The FASB issued ASU No. 2015-05: Intangibles - Goodwill and Other - Internal-Use Software: Customer's Accounting for Fees Paid in a Cloud Computing Arrangement, in April 2015. The amendments in this update provide guidance to customers about whether a cloud computing arrangement includes a software license. If a cloud computing arrangement includes a software license, the update specifies that the customer should account for the software license element of the arrangement consistent with the acquisition of other software licenses. The update further specifies that the customer should account for a cloud computing arrangement as a service contract if the arrangement does not include a software license. The guidance is effective for public business entities for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2015. The Company adopted ASU No. 2015-05 as of January 1, 2016 on a prospective basis, noting no material impact to the consolidated financial statements.

The FASB issued ASU No. 2016-02, Leases, in February 2016. This guidance is intended to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. This guidance is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years for public companies. Early application of the amendments in this update is permitted for all entities. The Company is currently evaluating the effect that implementation of this guidance will have on its consolidated financial statements.

The FASB issued ASU No. 2016-09, Stock Compensation, in March 2016. This guidance is intended to simplify several aspects of the accounting for share-based payment award transactions. This guidance will be effective for fiscal years beginning after December 15, 2016,

11


Planet Fitness, Inc. and subsidiaries

Notes to Condensed Consolidated financial statements

(Unaudited)

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

 

including interim periods within that year. The Company is currently evaluating the effect of the standard on its consolidated financial statements.

 

(3) Variable interest entities

The carrying values of VIEs included in the consolidated financial statements as of June 30, 2016 and December 31, 2015 are as follows:

 

 

 

June 30, 2016

 

 

December 31, 2015

 

 

 

Assets

 

 

Liabilities

 

 

Assets

 

 

Liabilities

 

PF Melville

 

$

3,897

 

 

$

 

 

$

3,728

 

 

$

 

MMR

 

 

3,055

 

 

 

 

 

 

2,953

 

 

 

 

Total

 

$

6,952

 

 

$

 

 

$

6,681

 

 

$

 

 

The Company also has variable interests in certain franchisees mainly through the guarantee of certain debt and lease agreements as well as financing provided by the Company and by certain related parties to franchisees. The Company’s maximum obligation, as a result of its guarantees of leases and debt, is approximately $1,600 and $1,871 as of June 30, 2016 and December 31, 2015, respectively.

The amount of the Company’s maximum obligation represents a loss that the Company could incur from the variability in credit exposure without consideration of possible recoveries through insurance or other means. In addition, the amount bears no relation to the ultimate settlement anticipated to be incurred from the Company’s involvement with these entities, which is estimated at $0.

 

     

(4) Goodwill and intangible assets

A summary of goodwill and intangible assets at June 30, 2016 and December 31, 2015 is as follows:

 

 

 

Weighted

 

 

 

 

 

 

 

 

 

 

 

 

 

 

average

 

Gross

 

 

 

 

 

 

 

 

 

 

 

amortization

 

carrying

 

 

Accumulated

 

 

Net carrying

 

June 30, 2016

 

period (years)

 

amount

 

 

amortization

 

 

Amount

 

Customer relationships

 

11.1

 

$

171,782

 

 

 

(65,198

)

 

$

106,584

 

Noncompete agreements

 

5.0

 

 

14,500