Planet Fitness, Inc.’s (PLNT) CEO Chris Rondeau on Q2 2020 Results – Earnings Call Transcript

Planet Fitness, Inc. (NYSE:PLNT) Q2 2020 Results Earnings Conference Call August 4, 2020 4:30 PM ET

Company Participants

Brendon Frey – ICR, Investor Relations

Chris Rondeau – Chief Executive Officer

Dorvin Lively – President

Tom Fitzgerald – Chief Financial Officer

Conference Call Participants

Jonathan Komp – Baird

John Heinbockel – Guggenheim Securities

Simeon Siegel – BMO

Randy Konik – Jefferies

Oliver Chen – Cowen

Sharon Zackfia – William Blair

John Ivankoe – JPMorgan

Joe Altobello – Raymond James

Rafe Jadrosich – Bank of America

Operator

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

At this time, I would like to hand the call over to your speaker today, Brendon Frey from ICR. Please go ahead, sir.

Brendon Frey

Thank you for joining us today to discuss Planet Fitness’ second quarter 2020 earnings results. On today’s call are Chris Rondeau, Chief Executive Officer; Dorvin Lively, President; and Tom Fitzgerald, Chief Financial Officer. Following Chris and Tom’s prepared remarks, we will open the call up for questions.

I would like to remind you that certain statements we will make in this presentation are forward-looking statements. These forward-looking statements reflect Planet Fitness’ judgment and analysis only as of today and actual results may differ materially from current expectations based on a number of factors affecting Planet Fitness’ business. Accordingly, you should not place undue reliance on these forward-looking statements.

For a more thorough discussion of the risks and uncertainties associated with the forward-looking statements to be made in this conference call and webcast, we refer you to the disclaimer regarding forward-looking statements included in our second quarter 2020 earnings release, which was furnished to the SEC today on Form 8-K, as well as our filings with the SEC referenced in that disclaimer. We do not undertake any obligation to update or alter any forward-looking statements whether as a result of new information, future events or otherwise.

In addition, the company may refer to certain adjusted non-GAAP metrics on this call. Explanation of these metrics can be found in the earnings release filed earlier today.

With that, I will turn the call over to Chris Rondeau, Chief Executive Officer of Planet Fitness. Chris?

Chris Rondeau

Thank you, Brendon, and thank you everyone for joining us today. Before we share our Q2 results, I want to express my sincere appreciation to our dedicated employees on the frontlines of our stores at our corporate headquarters and our franchisees for how they have supported our business and our members during this unprecedented time.

COVID-19 pandemic seems to present challenges for our business. As we have previously communicated in mid-March, we temporarily closed all of our stores due to health and safety of our employees, members and communities we serve.

As we plan for successfully reopening our stores, we enlisted global medical expertise and work closely with franchisees to develop a robust COVID-19 operations playbook that outlines enhanced safety incentivization policies and procedures.

This includes measures such as personal protective equipment for our staff, enhanced cleaning efforts using disinfectant on the EPA list as effective against COVID-19, touchless check in, physical distancing measures whereby certain pieces of equipment are marked out of use to ensure additional space between members and much more.

More recently, as a leader in the industry, we took additional steps in implementing a standard universal mask policy, requiring everyone to wear a mask inside of our store except while actively working out and in accordance with the local and state restrictions. We will continue to proceed cautiously until there is greater certainty on when conditions will return to normal.

For the 1,419 stores that were opened by the end of the second quarter, overall joint outpaced prior year levels even as we executed the reduced levels of local and national advertising, nearly offsetting total cancels for the period.

As a result, we only saw a modest decline in membership across our open stores through the end of June. The number of visits per store continued to decline consistently across stores the longer they were open, with visits in some stores reaching levels comparable to prior year period. Upon reopening our stores in early May, we had approximately 15.4 million members. At the end of a quarter, total membership was down a little over 1% to 15.2 million.

As the third quarter got under way, the consumer sentiment began to shift with the uptick of COVID-19 cases across the country, we are seeing a pent-up demand taper off and joints start to stabilize as clubs have been opened longer. For July, joints have been generally flat to prior year, except when we were up against the July sale period.

At the same time, we also saw an uptick in cancels, with much of the increase concentrated in states that experienced a resurgence of COVID-19. Usage has remained strong particularly in stores opened the longest, after growing consistently each week, usage just plateaued at about 60% average compared to prior our year.

To-date, we have 1,477 stores open in 46 states, D.C., five provinces in Canada and Australia. 1,426 of these stores our franchisee locations and 51 are corporately-owned stores. Total membership is now 14.8 million, a 4% decrease from the 15.5 million members we ended with Q1.

We continue to focus our marketing efforts on the robust cleaning and sanitization policies and procedures to instill confidence and reassurance as Planet Fitness is doing everything we can to keep our employees and members safe.

Supporting and engaging members in their fitness journeys both in our stores and at home also remains a top priority for us. We continue to host free and live United We Move workouts on Facebook, which have been extremely well-received totaling more than 20 million views from 36 countries around the world.

In the quarter, we also accelerate digital offerings on Planet Fitness mobile app with our recent partnership with iFit, a leader in streaming home workouts and a pioneer in interactive connected fitness.

We have continued to see encouraging usage of our iFit digital content, which is enabling a new avenue for us to engage with existing and prospective members, and helping to inform our long-term digital strategy.

In fact, 24% Planet Fitness digital content users were non-existing members. Our accelerated digital strategy while still in its early stages is proven to be a great engagement tool for existing members and for potentially acquiring new members.

Adoption of our mobile app was in an all-time high in Q2 with nearly 60% of our new joins downloading the app in the quarter. During the month of June, we saw more in-app joins and during January 2020, which is pretty remarkable given January is our busiest new member signup period and was prior to COVID when 100% of our stores were open.

We also recently released new features and functionality including in-app messaging, allowing us to communicate to our members via the app. And a crowd meter which gives members the ability to check the capacity of their club before they go to the gym. We believe it’s particularly reassuring to members who may want to work out in less busy times.

The overall health of our franchisees remains a top priority for us. In an effort to continue to support them throughout this time, we have provided a 12-month extension on new store development obligations, re-equips, re-models and a 15% discount of equipment placed by the end of this year.

We opened 21 new stores in the quarter. A handful of these locations were originally scheduled to open in Q1 but were delayed due to COVID-19. As we previously said, we expect there to be reduced development over the next couple quarters as franchisees focus primarily on training and supporting staff on new policies, procedures is successfully reopening our stores, keeping our members engaged with our brand and rebuilding their cash positions, which were reduce during this period.

Health and wellness is more important now than ever. We see ourselves as an integral part of the healthcare delivery system and part of the solution to COVID-19. Fitness plays a key role in positively impacting the overall mental and physical well being in addition to combating COVID-19 risk factors such as obesity, heart disease, lung disease and diabetes. We look forward to reopening more stores in the future as states and municipalities allow to further provide our communities with much needed access to health and fitness.

While the near-term operating environment is likely to remain volatile and negatively affect our near-term revenue and probability, I am confident in the long run, once this pandemic is behind us, Planet Fitness will be able to significantly widen our competitive mode for several reasons.

First, the incredible strength and sophistication and diversification of our franchise system with 75% of our stores are owned by franchisees who own and operate locations in multiple states.

Second, we are well-positioned to capitalize on the industry consolidation as many of our competitors struggled to survive financially.

Third, the real estate market will be even more attractive in terms of availability of prime locations and lower rent cost, and enhanced landlord incentives for our system. There are many brands we will be adding hundreds of locations in the coming years.

Fourth, the encouraging early result of our opportunity we are seeing as a result of the accelerated digital content strategy focusing on the needs of first time and casual gym users.

And finally, the overall increased focus on health and wellness, which we believe will emerge over the next several years. This will further enhance the tailwinds in the category and we believe our value proposition is second to none.

I will now turn the call over to Tom.

Tom Fitzgerald

Thanks, Chris and good afternoon, everyone. As we outlined in our Q1 call in May, and as Chris just discussed, COVID-19 had significantly disrupted our business. With the health and safety of our members and employees as our primary focus, we temporarily closed all Planet Fitness locations in mid-March. It wasn’t until early May that we slowly began the reopening process following our expansive COVID-19 store reopening playbook and adhering to health authority guidelines.

As we mentioned on our Q1 call, 1,875 of our 2,039 stores drafted monthly membership dues in March and then closed shortly thereafter. Those members who were drafted and collected in March had a 30-day credit to utilize once their homes store reopened. I am going to walk through how this dynamic among others, shaped our results and then provide color by segment.

For the second quarter, total revenue was $40.2 million, compared to $181.7 million in the prior year period. The biggest driver of our Q2 top and bottom line was the decline in royalty revenue and corporate store revenue related to monthly membership dues that weren’t collected as the result of our decision to freeze member accounts while stores were closed due to COVID-19.

To be more specific there were 297 stores that drafted in May and 1,357 that drafted in June. However, due to the issue credits only three stores had a full draft in May and 340 had a full draft in June.

Partially offsetting this decline was the recognition of $11.2 million in deferred revenue related to monthly membership dues collected in March before stores closed made up of $9.4 million from franchise royalty and $1.8 million from corporate-owned stores monthly dues. We also recognized $3.1 million of net contributions in the second quarter that were also deferred from Q1.

In addition, our year-over-year performance was significantly impacted by the decline in equipment sales as we were unable to move forward with planned new and replacement equipment sales due to COVID-19.

We did place equipment in 14 stores in Q2, some of which were originally scheduled to be placed in late March but were delayed until the second quarter. We had replacement equipment sales of $2.7 million in Q2.

Before I get into the specifics of same-store sales let me spend a minute on our same-store sales definition. When stores are closed and we don’t draft monthly membership dues or don’t execute a full draft upon reopening because members have credit to utilize from prior periods, they are not included in the comparable store base and therefore are not included in the same-store sales calculation for that month.

Because none of our stores drafted in April and only a portion of stores drafted in May and June, we are not reporting a same-store sales figure for the second quarter. That said, we do want to share the results and provide some color for the comparable stores that had a full draft in June and walked through the key drivers.

For some context, we recorded 53 consecutive quarters of positive same store sales before COVID-19 hit in March and shutdown all of our stores. Our recurring revenue model and historically strong same-store sales results are built on the ability to continue to grow net membership levels across our store base month-over-month and therefore year-over-year.

Additionally, in our recurring revenue model, our same-store sales performance at any point in time is a function of what happened to our membership levels over the trailing 12 months. The way our recurring revenue model works is that if the net membership growth rate per store in the current period falls below the growth rate for net membership per store in the same period last year then our same-store sales will grow at a slower rate and could even decline.

Our comps are not based on what happened in the last month but based on what’s happened in the last 12 months. So when the majority of our stores were closed for two months to three months as a result of COVID-19 that created an interruption in our membership growth cycle that cannot be offset in a given month.

When our stores shut down due to COVID, we were unable to grow net membership levels in our stores and as a result, have seen a slowdown in same-store sales growth. Of the 340 stores that had a full drop in June 279 were in the comp base. This store had a same-store sales increase of 4.4% with approximately 80% of the increase due to net member growth and the balance being rate growth.

For comparison purposes, these stores delivered same-store sales growth of 9.3% in Q1 of this year, 490 basis points higher than June’s results. Of the decline in growth in June from Q1 levels, approximately 85% was due to a drop in net member growth and the balance being a decrease in rate growth.

To exchange — to explain this change further, membership per store in the 279 comp stores dropped by approximately 1% or 70 members in Q2 of this year, whereas in last year’s Q2, membership for store increased by approximately 3% or 190 members. This factor contributed approximately 400 basis points of the difference in comps between Q1 and Q2 of this year.

The remaining gap in our comp performance over the first quarter was due to the decline in Black Card penetration which we attribute to the fact that we were unable to repeat a Black Card national promotion in mid-March due to the COVID store closures. Our system wide Black Card penetration rate in Q2 was 61.1%, a 40-basis-point decrease compared to the prior year period, while in Q1 we saw a 30-basis-point improvement year-over-year.

As Chris discussed, across the 1,490 stores that were open by the end of the second quarter, membership levels remained relatively flat at the end of the second quarter versus the membership levels when the stores reopened.

Joins over index compared to prior year due to overall demand early on after reopening and cancels also indexed higher than the prior year. However, since mid-June the combination of the resurgence of COVID-19 and corresponding media coverage and increased consumer concerns in general regarding the virus and the resumption of the billing of monthly and annual membership dues joins are now in line with prior year levels for stores that have reopened and cancels have continued to index above prior year.

Moving on to a review of our segment revenue results, franchise segment revenue was $21.0 million, compared to $71.8 million in the prior year period. Let me breakdown the components. First, royalty revenue which consists of royalties on monthly membership dues and annual membership fees was $14.9 million, compared to $48.9 million in the same quarter of last year.

The $14.9 million of revenue includes $9.4 million of deferred revenue recognized from the March draft from stores that were closed in March as result of COVID-19 and reopened during the quarter. The average royalty rate for the second quarter for the stores that drafted was 6.4% up from 6% in the same period last year driven by more stores at higher royalty rates compared to the same period last year.

Next our franchise and other fees were $0.5 million, compared to $4.2 million in the prior year period. These are fees received from online new members sign ups and the recognition of fees paid to us for franchise agreements, area development agreements and the transfer of existing stores and fees received from processing dues. The decrease was primarily driven by lower online joint fees in the quarter as a result of the store closures.

Also within the franchise segment revenue was our placement revenue which was $0.9 million in the second quarter, compared to $5.1 million a year ago. These are fees we receive for the assembly and placement of equipment sales to our franchisee-owned stores within the U.S. The decrease reflects the lower net store placements we executed in the quarter compared with a year ago, as I just outlined.

Finally, national advertising fund revenue was $4.7 million, compared to $12.5 million last year, as NAF revenue is not collected unless stores are open and draft monthly membership dues. The NAF revenue in the current quarter includes $3.1 million of deferred NAF revenue that was collected in March but not recognized until Q2.

Our corporate-owned store segment revenue was $9.4 million, compared to $39.7 million in the prior year period. The $30.3 million decrease was due to lower membership fees due to the closure of our corporate stores.

Since the majority of our corporate stores were still closed in Q2, the $9.4 million of revenue includes the recognition of annual dues previously collected and $1.8 million of revenue deferrals from stores closed after the March draft due to COVID-19 and recognized in the second quarter.

Turning to our equipment segment. Revenue decreased $60.3 million to $9.8 million from $70.2 million. The decrease was primarily due to lower replacement equipment sales to existing franchisee-owned stores, as well as lower new store equipment sales.

Replacement equipment sales in Q2 were $2.7 million, compared to $42.5 million in Q2 last year. In the second quarter, we had 14 new store equipment placement, which was down 41 from the prior year period.

Beginning in Q2, we launched a 15% discount offer to all — on all equipment orders to support our new store development and replacement orders. This offer applies to all equipment purchased in place by the end of 2020. Included in the equipment revenues for the quarter was a decrease of $1.8 million related to the additional discount.

Our cost of revenue was primarily relates to direct cost of equipment sales to new and existing franchise-owned stores amounted to $8.5 million, compared to $54.4 million a year ago, a decrease of 84.4% in line with the revenue decrease as previously discussed.

Store operation expenses which are associated with our corporate-owned stores decreased to $14.7 million, compared $20.2 million a year ago. The decrease was primarily driven by cost saving measures taken while stores are closed, including lower payroll, marketing and operating expenses, partially offset by higher occupancy expense associated with the seven new stores opened and 16 stores acquired since the end of the first quarter of last year.

SG&A for the quarter was $15.9 million, compared to $18.9 million a year ago. The decrease was driven primarily by reductions in variable compensation, temporary executive salary reductions, lower equipment placement expenses and various administrative expense reductions related to COVID-19.

National advertising fund expense was $10.9 million, compared to $12.5 million in the prior year period. The decrease in expenses was due to reduced advertising and marketing expenses as a result of COVID-19. The difference between NAF expenses and revenue this quarter primarily reflects lower NAF contribution revenue due to COVID-19.

Adjusted EBITDA, which is defined as net income before interest tax and depreciation and amortization, adjusted for the impact of certain non-cash and other items that are not considered in the evaluation of ongoing operating performance was a loss of $9.3 million, compared to earnings of $76.5 million in the prior year period.

Included in this quarter’s adjusted EBITDA is approximately $14.3 million related to the recognition of deferred revenue previously discussed. A reconciliation of adjusted EBITDA to GAAP net income or loss can also be found in the earnings release.

By segment, franchised adjusted EBITDA was $3.6 million, corporate store adjusted EBITDA was negative $5.9 million and equipment adjusted EBITDA was $1.3 million. Adjusted net loss was $27.9 million, down $70.0 million from a year ago and adjusted net loss for diluted share was $0.32, a decrease of $0.77 per diluted share.

Now turning to the balance sheet. As of June 30, 2020, we had cash and cash equivalents of $423.6 million, compared to $547.5 million on March 31, 2020. In addition, we ended the quarter with $86.4 million of restricted cash, compared to $63.2 million at the end of Q1.

Based on the current situation and our focus on preserving liquidity, we announced in March that we were halting our share repurchase activity for the time being. We also took additional measures to reduce our monthly cash burn including the previously announced compensation reductions for our leadership team and our Board of Directors.

Total long-term debt excluding deferred financing costs was $1.80 billion as of June 30, 2020, consisting of our three tranches of securitized debt and $75 million of variable funding notes. Our securitized debt structure is covenant light. We have two maintenance covenants a debt service coverage ratio and a total system’s sales threshold. These are both tested quarterly, calculated on a trailing 12-month basis and reported on a roughly two month lag.

In our most recent debt covenant reporting period of June 5, 2020, we had 120% and 170% cushion to the first triggering event for our debt service coverage ratio and system-wide sales covenant, respectively. Similar to our liquidity position, we believe we have sufficient headroom for our two maintenance covenants.

Given the uncertainties surrounding the evolving nature of the pandemic, we are continuing to refrain from providing guidance. While the near-term is difficult to predict, we believe that in the longer term, our business will be well-positioned to widen our competitive mode and create value for our shareholders and our stakeholders.

I will now turn the call back to the operator for questions.

Question-and-Answer Session

Operator

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

Jonathan Komp

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

Chris Rondeau

Sure, Jon. Yeah. This is Chris. Yeah. So, as you know, the join billing date for our members is 17th of the month and we started opening up beginning of May and most of these clubs did have a month’s credit.

So we started billing a good portion of our members and June 17th would have been the first go around of smaller number. And then the larger bill date would have been July 17th. So after that June 17th billing we have began to see that spike and we have seen even historically forever in and around bill dates before slightly a few days after cancellations spike around that.

So there’s a lot of noise is also with the same timing around California re-shutdown, Arizona re-shutdown and then the news and certain states, so a lot of noise is going on. But base on what we see, we definitely think that there’s more to do with billing cycles and the kicking in and restarting of the billing of the members.

So we had the June 17th, then the July 1st annual fee, then July 17th billing, which is a big chunks of clubs of that 1,400, which then we believe is driving most of those cancellations that we saw come through. As far as — and also in July last year we had an annual sale in the first week of July, which didn’t occur this year.

So to your marketing question, as now we have three quarters of the stores opened, hopefully the next 500 or so get the green light shortly which time will tell and it’s very fluid at this point on those that the second half of the year, as you know, we are collecting the annual — the NAF again, which is the 2% on EFT. We are lining up to probably start the first national sale in September. But time will tell on that.

I think the one thing I would add to this is that we are — I am extremely happy about and proud of is that the franchisees collectively with us and with the independent franchise council we got together to look at the second half NAF lag mix and have agreed to slightly change that mix to increase the NAF slightly the rest of the year to help kick in that flywheel here as we hopefully get sense of some normalcy in the world.

Jonathan Komp

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

Chris Rondeau

Sure. Yeah. I will go quickly on the competition side and then let Tom fill in on the — we are doing franchise business review with all the franchises now. We are going through them as we speak here, so we got some good financials and updates there.

But, yeah, I mean, competition, besides the ones that everybody probably on the phone has heard between the Gold’s Gym and the 24 Hour Fitness, there’s definitely with the — there’s almost now over 40,000 different independent gyms out there that you don’t see the moms-and-pops are here bottom at the national level of closures and not reopening and we have franchisees in most markets now even some corporate stores that have been reached out by a competitor that just decided not to open.

So there’s going to be I think probably a six-month or 12-month timing of which we believe they are going to try to open or just not reopen just based on a financial standpoint. So I think there’s definitely some opportunity there for us from a benefit to the system for sure in that world but probably back on [ph] such as business reviews.

Tom Fitzgerald

Yeah. Hey, Jon. So, as Chris said, we have been in touch with our franchisees as we said all along, but more recently doing franchise business reviews as we call them. But also reaching out in certain situation like in California where the gyms closed and talking to all those franchisees who are affected.

And I think we are fortunate in, as Chris said, in his prepared remarks, 75% of our stores — our franchise stores are owned by franchisees who operate in more than one state. So they are geographically diversified so that if they do have some stores in one state that are closed they may have stores in other states that are open to help sort of with the economic pressure.

And I think the only other thing I’d add is, we have talked about before, we have been in touch with lenders and through this franchise business reviews to the extent that a franchisee had really a modest amount of debt from a leverage standpoint. But given the store closures caused those debt levels to increase, when they would have otherwise still remained modest.

The lenders across the Board have said they will — they are being accommodating. We have talked to them directly, as I said, and the franchisees are obviously in touch with them. And for the most part, they are waving as long as the stores are closed and then they are going to revisit the metrics upon reopening, which the franchisee’s share with them for their own stores.

And so we feel like they are going to come out of this but thankfully in good shape. And as we said, no one through all of these discussions has raised their hand and said, I need financial help, right? I don’t think I can make it.

So they are all financially sound, working with lenders who are being accommodating and once the stores reopen then they can start to go back their cash and their balance sheet and then start to look forward to development. But it’s in that sequence and that seems appropriate given where we are.

Jonathan Komp

Great. I appreciate the color. Thank you.

Chris Rondeau

Thanks, Jon.

Tom Fitzgerald

You bet.

Operator

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

John Heinbockel

Hey. Can you guys hear me?

Chris Rondeau

Yeah. Sure, John. Yeah.

Tom Fitzgerald

Hi, John.

John Heinbockel

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

Chris Rondeau

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

John Heinbockel

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

Chris Rondeau

Yeah. I mean, in the cancels, first and foremost, we want to make sure people start using the club. I mean, reason the cancellation is generally people are using the workouts or the facilities. So we want to make sure that people begin to work out and take — get some benefit there for sure. But I think driving demand is definitely going to be a big piece of what we need to do.

But I guess, the question on the demand piece, which we are seeing here from customer sentiment that a lot of are going to be reassurance as opposed to strictly a dollar down. I think the financial piece, our membership is $10 a month anyway, so now that’s always really affordable. But I think now what we are seeing is this reassurance that we are clean that the members are going to be safe.

And in all the surveys we have done so far on our side have shown that people are extremely happy with everything we put in place and the employees as well. We have had even corporate had about 85% retention of our employees, as they have come back from furlough. So people are excited to get back in and see what they are seeing.

And I think to that, as I said in the past, like, our average member works out 5 times to 6 times a month and that same usage pattern is holding true. So of the people using the store they are using the same amount which is great to see.

New Year’s Eve, yeah, they are still in play. They still plan on having it. I though this is definitely, because this is — we have got a big store still here or there’s some social distancing or issues going to bars or night clubs that maybe viewership could be up because people are stuck at home. So I think also we get a lot of airplay out of it with the message and get people hopefully get 2021 off to a better start.

John Heinbockel

Okay. Thank you.

Chris Rondeau

Thanks, John.

Operator

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

Simeon Siegel

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

Chris Rondeau

Thanks, Simeon.

Simeon Siegel

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

Chris Rondeau

Yeah. For Q2, we had about 58% Black Card acquisition for Q2, the system there. I think the adds question, I think, the bigger question now is back to what I just mentioned here is, from an acquisition standpoint, we are going to be able drive a lot of high acquisition join on expiration days for example or it’s just more rebranding and reassurance messaging which is yet to be seen.

I think back to my previous question first, Jon Komp, is that, we believe that most of these cancel we are seeing today are draft related. So the question is this, now that these people gone through their first or second round, does it get back to more of normalcy, right, because they haven’t drafted for three or four months, which we have seen if we go to the cancels around draft date.

So we are just playing catch-up at this point with the billing, which time will tell, so the next couple of drafts here. August, September, for example, do we start to see people are going down their second or third draft now? They are back to the normal attrition.

Simeon Siegel

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

Tom Fitzgerald

Yeah. I will start, and Dorvin, feel free to add. So, I think, from a store standpoint, I mean, we have continued to furlough our store associates except the club manager where the stores are closed and we will continue to do so until we get the green light. We are continuing to work with landlords as our franchisees around rent deferrals while the stores are closed.

And I — I’d say, more broadly, just at this point, any sort of spending or investments that we don’t need to do we are not doing. Now, clearly, digital is the focus. So we are prioritizing that and some other things, but when it comes to HQ, if there’s some –if there’s a project that was in motion that we just don’t feel we need to do at this point, that’s where we are really pulling back. Plus all the other stuff we have previously mentioned are put in place.

Simeon Siegel

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

Chris Rondeau

Yeah. Thanks, Simeon.

Tom Fitzgerald

Thank you.

Operator

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

Randy Konik

Thanks a lot. Can you hear me?

Tom Fitzgerald

Sure. We can Randy. Yeah.

Randy Konik

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

Chris Rondeau

Yeah. I mean, the moms-and-pops, as I mentioned earlier, definitely we are getting the franchisees that come that the Monday, Tuesday guys, even in quarterly we have had a couple of here call saying that the competitor on the street they are calling, obviously, they are not going to open, so they want to sell the membership to us or brings in the location.

So there’s lot more smaller folks, smaller one-off scenarios, but there’s a lot more of those than there are national chains, right? If you look at, as we have always talked about, we take us and LA Fitness and 24 Hour Fitness and put them all together, you are lucky if you get to 3,000, 4,000 stores, so there’s still 35,000 mom-and-pops out there. So I think that there are a lot more of those than we realize.

I think you look at our franchisees and comments earlier, the diversification. I mean our average franchisee has 20 locations. They are in multiple states. So 35% are movable space. So they might not have all their stores open but they have their portfolio open, so they are able to weather the storm a heck of a lot longer.

And I think the probability of this model which as you know made an extremely profitable where if you look at, for instance an example, their FTD their EBITDA margins per store is almost half of ours. So, the strength of those franchisees getting through the system and also a very newer franchise system, I look back in 2009 when we had this happen and we are much smaller back then and the average franchisee probably at three locations.

Luckily we were low cost so we got a lot of people trained down from higher priced clubs. But the sophistication in our system at that point was a very — it was a lot, lot harder to weather that kind of storm. Now this situation is even worse, right, to weather this kind of closed off period, you never closed back then, right?

So I think you look at the — the EBITDA margins of our stores, the veteran ownership in our system now doing this for almost 20 years in franchising. It’s just a much stronger system as a whole to get through this.

So — and the thing is once we open it’s a different story. We have clubs that are opening. But when people are getting deferred rent, they are getting deferred lease payments on their equipment leases and so on and so forth.

Now, deferred that means they are not [inaudible] pay them. So now you reopen your doors and your paying 1.5 times rent and 1.5 times lease on your equipment, now your expenses are 25% or 30% higher per store. It’s going to be — it will be tough for a lot of these guys. They don’t have as big a margin as we do.

Randy Konik

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

Chris Rondeau

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

Randy Konik

Yeah.

Chris Rondeau

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

Randy Konik

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

Chris Rondeau

Great. Thanks, Randy.

Operator

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

Oliver Chen

Hi, Chris and Tom. Regarding…

Chris Rondeau

Hi, Oliver.

Oliver Chen

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

Chris Rondeau

Sure. I will talk about the joins and cancel, there so many concern on the other part there. The cancels because I think its billing related I think we really got to get through that bill cycle that I mentioned. Once a couple months of these go through which is I think what we are seeing they are bigger part of the increase.

Now, remember of the other 500 stores are going to open, we — those 500 stores have to go through that same process of starting that back half. And I think unfortunate the longer this will probably close we will be able to see what happens with that.

These stores now they opened — the stores and North Carolina, for example, they open tomorrow, they are not going their first bill cycle until September. So we are going to that 500 clubs as well. But I believe that what I have seen the cancel side of things on the existing stores that were opened like September, October this is now their second third or fourth draft in a row. That you are probably going through some of the bumps we are seeing today.

Time would tell, as long as you don’t have more closures like California and Arizona and that we see to ramp. But it’ still fluid as we all see on TVs day by day it changes based on reports of the day. So I think more this is going to be just how can we drive the messaging and the marketing, because not only is it reassuring potential members it’s the current member at home that says — gee, look at all these cleaning stuff they have done and protocols in place. So in the advertising you might get you kind of talking to both, you are talking to both members and nonmembers I think in the advertising in the second half of the year.

Dorvin Lively

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

Chris Rondeau

Yeah.

Dorvin Lively

Oliver, this is Dorvin. Just one other thing that I add on Chris’ comments on the cancelations and the fact that we went for basically three months without billing, and as you mentioned, you only billed a few clubs in June and then, you know, a significant number of more clubs in July.

The other factor in there is that the last time we had billed the annual fee was on March the 1st. So the April monthly annual fee, the May and the June, those fees did not get billed to the member, the last 50 did not get billed until, basically in July we did get a catch up, in other words, so those months that we didn’t build the members.

So you had a lot of members that got billed their annual fee for the first time and over a year because they didn’t get there April, May, and June annual fee. So there’s always been historically a higher spike of cancels around that annual fee time period.

And if you go back years ago, we only had two months with billed annual fees, it was June and October. And then a few years ago we changed it to where an annual fee can be billed for a member, based on when they joined their membership on Planet. And so, that’s another factor that really occurred during this time period of July as well.

Tom Fitzgerald

Yeah. And then, Oliver, I think of the things the franchisees have taken advantage of. I mean they all essentially got that 12-month extension on new store development and reequips. And the reason we did that one was to just alleviate the pressure that their lenders might have had or put on them by — to potential experience the default if they weren’t in compliance with our agreements. So putting those dates out just alleviates the pressure from the lenders.

So essentially everybody took advantage of that and then we — as we mentioned, we did offer a 15% discount if the equipment was ordered in place by the end of the year. So folks who are able to execute that, it’s a little incentive for them to do that. We essentially got our margins in half but we thought that was the right long-term thing to do.

Oliver Chen

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

Tom Fitzgerald

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

Dorvin Lively

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

Chris Rondeau

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

Dorvin Lively

Yeah.

Oliver Chen

Yeah. Thank you very much. Best regards.

Chris Rondeau

Thanks, Oliver.

Tom Fitzgerald

Thanks, Oliver.

Operator

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

Sharon Zackfia

Hi. Good afternoon. I may have missed this.

Chris Rondeau

Hello, Sharon.

Sharon Zackfia

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

Chris Rondeau

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

Sharon Zackfia

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

Tom Fitzgerald

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

Sharon Zackfia

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

Tom Fitzgerald

And with — yes. So…

Sharon Zackfia

Okay.

Tom Fitzgerald

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

Sharon Zackfia

No. That’s okay. No problem.

Tom Fitzgerald

And — yeah, from an equipment standpoint, it’s hard to understand the what would have been because as things have evolved, franchisees, new store development and Dorvin, feel free to add, has shifted as well based on whether a store that, sorry, whether a state has remained closed or in a couple of cases has reclosed.

So — but we believe that at the end of the day, we will do more placements. We will make a little less money than we would have otherwise and probably end up being margin dollar neutral to what would have been without the incentive.

Dorvin Lively

Yeah. Thanks, Sharon. What I’d add to that is that it’s — Tom makes a good point in states like California where the clubs are shutdown or even states where we haven’t been able to open again like in North Carolina, as an example.

Those franchisees are being very cautious about going out and either reequipping the club or certainly, starting construction on a brand new site, because with really not knowing kind of what the potential end game would look like.

The flip side of that is, you do have franchisees that are they are in good financial shape. They got a territory where they are saying this is an aggressive opportunity to kind of double down against the competition and they are out there looking for sites.

So, it’s clearly a mixed bag and there is a lot of wait and see because of just the news of COVID and the spike states as well. But there will be some that will take advantage of the discount program for sure.

Sharon Zackfia

Okay. Thank you.

Tom Fitzgerald

Thanks, Sharon.

Chris Rondeau

Thank you.

Operator

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

John Ivankoe

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

Dorvin Lively

Yeah. John, this is Dorvin. What I’d say is that, we don’t disclose like how many leases are signed and at what stages they are at in the construction phase. But we open stores in Q2 and we will open stores over the balance of the year.

Some of that is to my last comment is literally timing and that they are sight setting out there that franchisees are waiting, so they know that their clubs are going to be able to be opened and they will be able to continue the construction site get it closed.

The — there are clearly franchisees that are setting and waiting and saying, given that we — we are going through this pandemic time when it seems to be spiking and no one knows exactly when it’s going to kind of cool off or come down a bit or to get the vaccine. There is also some that are saying they are just going to wait and see.

And some of that quite frankly this is to build back up their cash reserves. I mean, if you go through a period of three months, four months or — and longer for close to 600 stores are closed, they are going to take a time period to try to build back some of their cash reserves before they start really plowing back into it in a big way.

Now there are others that either are in a better financial balance sheet position oversee this as an opportunity to really get aggressive. And we have had a conversation just this last week with one such franchisee that, I mean, he’s out there aggressively in his markets believing this is an opportunity to go after the competition.

To your point on the real estate availability side, I don’t think we have seen the full fallout yet as to what real estate availability is going to look like. I think that the consensus by the franchisee and the real estate teams and what we are hearing from their broker communities are that there is going to be a lot more space available.

But and I think Tom may have made a comment in his remarks a little bit ago that, one of the issues at the moment is that landlords are spending a lot of their time dealing with franchisees in our business and other businesses that push them hard on abatements and deferrals, et cetera.

And so they are dealing more with the immediacy of that than they are out there trying to really space. So that’s going to take a little bit of time to work its way through. And I guess net-net as we said earlier in the year and we believe this year could be as much as 50% or more down over the 2019 level.

Now in terms of longer term, I think, the modes are going to be greater. I think the real estate availability is going to be more plentiful than it was and I believe our franchisees will be just as aggressive at building as they had been in the past. The only question is how long it takes to get there and that’s just really at this point, John, it’s just still too much of an unknown.

John Ivankoe

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

Tom Fitzgerald

Dorvin, I will take that.

Dorvin Lively

Do you want to take that?

Tom Fitzgerald

Yeah. Yeah. So, earlier in the year our stores that we opened, they are performing just in line with the way stores have performed in the past. Typical average store, how they opened up in its first month, second month, third month, how it was doing very similar to the past.

Once we got into the pandemic and then all stores closed, you had an impact not only from stores that were going through pre-sell, because that’s a big deal for us. You have heard us talk about we typically open a gym with over a 1,000 when the gym opens and then it starts to ramp up for that.

And so when you throw the pandemic in during that time period of where you are in the middle of a presale and you — maybe you can’t even finish it, close down then you open back up, you didn’t really get kind of that initial bump and then you have got the issue just the virus and the pandemic.

So, there’s clearly been a bit of a slower pace on ramping post-COVID and that really doesn’t concern us in a big way, because — particularly because earlier in the year, we were saying our performance of our business similar to the past.

So I think it still comes back to a lot of the comments that we have been talking about and that is that there’s still demand out there, there are still people that want to join the gym, there’s a hesitancy for workouts and workouts have been down, as Chris talked about earlier, but we don’t see that as a detriment to our overall of four-wall store model.

John Ivankoe

Thank you.

Dorvin Lively

Thanks, John.

Tom Fitzgerald

Thanks.

Chris Rondeau

Thanks, John.

Operator

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

Joe Altobello

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

Chris Rondeau

Yeah. Those are actually earlier stores that opened, so that’s definitely a key piece is the longer they have been open. And in most cases longer ones that have been open it often the ones at the states are less, I guess, for COVID. So there — these people have less aged out. So it’s quite definitely the longer they are open would getting up into that 80-plus or some are actually almost on par with last year.

The thing though what happened in ‘19 July, when you start seeing the reclosing is more of the hype of resurgence. Things kind of just went flat where they — we were saying before how every week was going up you know 5 points, 10 points in usage and then it kind of got to 60% and they kind of stayed and it hasn’t really progress since the resurgence of some of the states. So I think it’s just more of that aged out. It’s kind of held in kind of where it’s at right now I think. So, I think we are just have to wait for them.

Consumers, they get a little more comfortable here and begin to venture out and start to workout again. And I worked out this morning in my local store here in New Hampshire. It was — I mean, I thought it was wholly fine. People clean the equipment down more than they ever did. They walk around. They stay away from each other. The problem is you got to get in to see it. And they want you to see, like, this is no big deal. So I think that’s fine, more of it is just get them in that admission for first time.

Joe Altobello

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

Tom Fitzgerald

Yeah. I will take…

Dorvin Lively

I will take that one. This is Dorvin.

Tom Fitzgerald

Sorry. Go ahead.

Dorvin Lively

So, one other things, and Tom’s talked about it in our model, Joe, is that, because of the returns of the investment in the model and the margins that these stores have even with some contractions or stores being closed for a period of time.

I mean, although, our approaches are some broadly [ph] coming in, but we haven’t had any franchisees that’s come to us that, says, would you buy us? And we have not had the broker any transaction between one franchisee and another franchisee because somebody had to get up.

So I think that speaks to some of the comments that Tom made earlier in terms of just the overall financial condition of franchisees is that they have been able to weather the storm up to this point and with 70%-plus at stores in multiple states, they have got some diversification there. But that’s not the case in our scenario because our average franchisee probably has 15-plus stores or so with many having significantly larger.

And then they have done the same things that Tom is talking about that we did with our corporate stores. In most cases, they furloughed all of their team members except the managers and they took a hard look at their — kind of their headquarters SG&A and started cutting expenses there. So they have been really very financial prudent during this process leading up to where we are today.

Joe Altobello

Got it.

Chris Rondeau

Yeah. I think, one thing I’d add to that — thing only I’d add to that is, we have somewhat extended all our branch to be sure that there’s waving the white flag and nervous that to give us a call let us know or even other franchise — big franchise groups probably back and restart on their own.

And I think back to Dorvin earlier point, I mean, the franchisees are bullish to get a sense of normalcy and then to begin to develop again because nobody is taking top anybody up on that. That’s an area they all kind of just want to — they are bullish about the future. So they are kind of hanging in there just waiting this to pass.

Joe Altobello

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

Chris Rondeau

Thanks, Joe.

Dorvin Lively

Thanks, Joe.

Operator

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

Rafe Jadrosich

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

Chris Rondeau

Hey, Rafe.

Rafe Jadrosich

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

Dorvin Lively

Yeah, Rafe. This is Dorvin. As we have said the past franchisees have over a thousand committed under their area development agreements, and at any planned time, if people back and look now over the past three years, four years, five years or so generate about half of those are required to be developed over the next two years.

And so what we did is we in essence just said, we give you an extra 12 months and just push everything out 12 months. So the commitment is sort of the same, it’s just been pushed out an incremental 12 months.

Rafe Jadrosich

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

Dorvin Lively

We don’t — yeah. I mean, I don’t think what we are going to see is, is that, if a franchise had five stores this year and five next year, we push that. He has the — what he has the ability to do is just to do five next year and then five the following year.

In some cases, franchisees we will see where — as we have been talking about kind of the normalcy what it’s going to look like. Many of our franchisee even had a schedule. So they technically in the past and we have made comments about, it could have slowed down their development because they were ahead of what they had to do but kept building, redeploying their cash.

So, we don’t know what will happen in this case, once we kind of get past some of the — these issues and get all of our clubs up and running again. It could clearly be the franchisees might do some catch up and get caught back up on what they were going to do this year versus what they would be required to do next year. But it’s — I think, it still going to take a little bit of time to get kind of to the other side just to see how fast they might try to get their development schedule back up and running.

Rafe Jadrosich

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

Tom Fitzgerald

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

Rafe Jadrosich

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

Tom Fitzgerald

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

Rafe Jadrosich

Okay. All right. Thank you.

Chris Rondeau

Thanks.

Operator

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

Chris Rondeau

Great. Thank you, everybody, for taking the time today and listening on our Q2 call and some small updates in the beginning of Q3. Looking forward to getting through this year and get the rest of these stores open.

I am excited about the second half of the year. Hopefully, we can get things back on track and get these franchisees take care of them and make sure that the staff and members are all happy with all our feeling and things were doing.

And like the one thing that I would always like to reiterate, you have heard on a few calls recently with some interviews is that, we are definitely the solution here to this and not the problem. I think what the industry is lacking is representation.

I think one thing we have got to work as a team here from Planet’s standpoint is that, if you think about we are really a key — integral piece of the healthcare distribution process and the closed gyms is just really not — really kind of productive in my view and 20% of the U.S. has a gym membership. You make a case of the other 80% then we probably wouldn’t be here.

So a lot of upside here for this industry and I think Planet is well-positioned to take full advantage of all of it. So it’s — I think it’s a good spot, we should get through this together. Thanks, everybody. Have a good day.

Operator

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

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