|
|
|
|
|
|
|
|
|
|
(1) Organization
Planet Fitness, Inc. (the “Corporation”) was formed as a Delaware corporation on March 16, 2015. The Corporation was formed for the purpose of completing an initial public offering (the “IPO”) and related transactions in order to carry on the business of Pla-Fit Holdings, LLC and its subsidiaries (the “Company”). As of August 5, 2015, in connection with the Reclassification transaction discussed below, the Corporation became the sole managing member and holder of 100% of the voting power of the Company. The Company 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 Corporation, the Company and Planet Intermediate, LLC, each entity owns nothing other than the respective entity below it in the corporate structure and each entity has no other material operations, assets, or liabilities.
As described in more detail in Note 4, on August 11, 2015, the Corporation completed an IPO pursuant to which the Corporation and selling stockholders sold an aggregate of 15,525,000 shares of Class A common stock at a public offering price of $16.00 per share. The Corporation received $156.9 million in proceeds, net of underwriting discounts and commissions, which were used to purchase limited liability company units (“Holdings Units”) from existing holders (“Continuing LLC Owners”) of interests in the Company, at a purchase price per unit equal to the IPO price per share of Class A common stock, less underwriting discounts and commissions.
Subsequent to the IPO and the related recapitalization transactions described in Note 4, we are a holding company and our principal asset is a controlling equity interest in the Company. As the sole managing member of the Company, we operate and control all of the business and affairs of the Company, and through the Company and its subsidiaries, conduct our business. As a result, beginning in the third quarter of 2015, we will consolidate the Company’s financial results and report a non-controlling interest related to the portion of Holdings Units not owned by us.
(1) Business organization
Pla-Fit Holdings, LLC (the “Company”), through its subsidiaries, is a franchisor and operator of fitness centers, with more than 7.2 million members and 1,014 owned and franchised locations (referred to as stores) in 47 states, Puerto Rico and Canada as of June 30, 2015.
The Company serves as the reporting entity for its various subsidiaries that operate three distinct lines of business:
• | Licensing and selling franchises under the Planet Fitness trade name. |
• | Owning and operating fitness centers under the Planet Fitness trade name. |
• | Selling fitness-related equipment to franchisee-owned stores. |
The results of the Company have been consolidated with Matthew Michael Realty LLC (“MMR”) and PF Melville LLC (“PF Melville”) based on the determination that the Company is the primary beneficiary with respect to these variable interest entities (“VIEs”). These entities are real estate holding companies that derive a majority of their financial support from the Company through lease agreements.
Planet Fitness, Inc. (the “Corporation”) was formed as a Delaware corporation on March 16, 2015 for the purpose of facilitating an initial public offering and other related transactions in order to carry on the business of the Company and its subsidiaries. The Company owns 100% of Planet Intermediate, LLC which has no operations but is the 100% owner of Planet Fitness Holdings, LLC. With respect to the Corporation, the Company and Planet Intermediate, LLC, each entity owns nothing other than the respective entity below it in the corporate structure and each entity has no other material operations, assets, or liabilities.
On August 11, 2015, the Corporation completed an initial public offering (“IPO”) pursuant to which the Corporation and selling stockholders sold an aggregate of 15,525,000 shares of Class A common stock at a public offering price of $16.00 per share. The Corporation received $156.9 million in proceeds, net of underwriting discounts and commissions, which were used to purchase Holdings Units from the Company at a price equal to the IPO price per share of $16.00 less underwriting discounts and commissions. Subsequent to the IPO and related recapitalization transactions that occurred in connection with the IPO, the Corporation is the sole managing member of the Company and, although it has a minority economic interest in the Company, it has the sole voting power in, and controls the management of, the Company.
|
(2) Summary of significant accounting policies
Basis of Accounting
The balance sheet as of June 30, 2015 is unaudited. The balance sheets have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). Separate statements of operations, comprehensive income, changes in stockholder’s equity, and cash flows have not been presented in the financial statements because there have been no activities in this entity since its inception through June 30, 2015. These interim condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements as of March 16, 2015 and related notes included in our final prospectus for the Corporation’s IPO dated August 6, 2015 filed pursuant to Rule 424(b) under the Securities Act of 1933, as amended (the “Securities Act”), with the SEC (the “Prospectus”). Operating results for the interim periods are not necessarily indicative of the results that may be expected for the full year.
(2) Summary of significant accounting policies
(a) | Basis of presentation and consolidation |
The accompanying unaudited interim condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP) for interim financial information and pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Accordingly, these interim financial statements do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) necessary for a fair presentation of the results of operations, financial position and cash flows for the periods presented have been reflected. All significant intercompany balances and transactions have been eliminated in consolidation.
The condensed consolidated financial statements as of and for the three and six months ended June 30, 2015 and 2014 are unaudited. The condensed consolidated balance sheet as of December 31, 2014 has been derived from the audited financial statements at that date but does not include all of the disclosures required by U.S. GAAP. These interim condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements as of and for the year ended December 31, 2014 and related notes included in our final prospectus for the Corporation’s IPO dated August 6, 2015 filed pursuant to Rule 424(b) under the Securities Act of 1933, as amended (the “Securities Act”), with the SEC (the “Prospectus”). Operating results for the interim periods are not necessarily indicative of the results that may be expected for the full year.
The Company also consolidates entities in which it has a controlling financial interest, the usual condition of which is ownership of a majority voting interest. The Company also considers for consolidation certain interests where the controlling financial interest may be achieved through arrangements that do not involve voting interests. Such an entity, known as a VIE, is required to be consolidated by its primary beneficiary. The primary beneficiary of a VIE is considered to possess the power to direct the activities of the VIE that most significantly impact its economic performance and has the obligation to absorb losses or the rights to receive benefits from the VIE that are significant to it. The principal entities in which the Company possesses a variable interest include franchise entities and certain other entities. The Company is not deemed to be the primary beneficiary for Planet Fitness franchise entities. Therefore, these entities are not consolidated. See note 3 for further information related to the Company’s VIEs.
(b) | Use of estimates |
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Although these estimates are based on management’s knowledge of current events and actions it may undertake in the future, they may ultimately differ from actual results. Significant areas where estimates and judgments are relied upon by management in the preparation of the consolidated financial statements include revenue recognition, valuation of assets and liabilities in connection with acquisitions, valuation of equity-based compensation awards, and the evaluation of the recoverability of goodwill and long-lived assets, including intangible assets.
(c) | Fair Value |
The table below presents information about the Company’s assets and liabilities that are measured at fair value on a recurring basis as of June 30, 2015 and December 31, 2014:
Total fair value at June 30, 2015 |
Quoted prices in active markets (Level 1) |
Significant other observable inputs (Level 2) |
Significant unobservable inputs (Level 3) |
|||||||||||||
Interest rate caps |
$ | 771 | $ | — | $ | 771 | $ | — | ||||||||
Total fair value at December 31, 2014 |
Quoted prices in active markets (Level 1) |
Significant other observable inputs (Level 2) |
Significant unobservable inputs (Level 3) |
|||||||||||||
Interest rate caps |
$ | 1,711 | $ | — | $ | 1,711 | $ | — |
(d) | Equity-based compensation |
The Company has granted equity awards to employees in the form of Class M Units. During the six months ended June 30, 2015, there were forfeitures of 21.053 Class M units. There were no grants or exercises of Class M Units during the six months ended June 30, 2015. During the six months ended June 30, 2015, the Company modified the vesting terms of 10.737 outstanding Class M Units such that those units are fully vested and eligible to receive distributions following a liquidity event. There were no other changes in awards during the six months ended June 30, 2015. As a result, the total vested awards outstanding at June 30, 2015 was 110.315. The amount of total unrecognized compensation cost related to all awards under this plan was $5,459 as of June 30, 2015.
(e) | Recent accounting pronouncements |
The FASB issued ASU No. 2015-03, Simplifying the Presentation of Debt Issuance Costs in April 2015. This guidance requires reporting entities present debt issuance costs as a direct deduction from the carrying amount of the related debt liability. The guidance is effective for public business entities for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2015. A reporting entity must apply this guidance retrospectively to all prior periods presented in the financial statements. The Company expects the only impact of the adoption of this guidance to be on balance sheet presentation.
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 does not expect the adoption of this guidance to have a material impact on its consolidated financial statements.
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. In July 2015, the FASB voted to defer the effective date of the new revenue recognition standard by one year, which would result in this guidance becoming effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2017 for public companies. The Company is currently evaluating the impact, if any, the adoption of this guidance will have on its consolidated financial statements.
|
(3) Stockholders’ equity
As of June 30, 2015, the Corporation was authorized to issue 1,000 shares of Common Stock, par value $0.01 per share, 100 shares of which were issued and outstanding at June 30, 2015 and March 16, 2015.
|
(4) Subsequent events
The recapitalization transactions
We refer to the Merger, Reclassification and entry into the Exchange agreement, each as described below, as the “recapitalization transactions.” The Merger was effected pursuant to a merger agreement by and among the Corporation and Planet Fitness Holdings, L.P. and the recapitalization transactions were effected pursuant to a recapitalization agreement by and among the Corporation, the Company, the Continuing LLC Owners and holders of interests in Planet Fitness Holdings, L.P. (“Direct TSG Investors”).
Merger
Prior to the Merger, the Direct TSG Investors held interests in Planet Fitness Holdings, L.P., a predecessor entity to the Corporation that held indirect interests in the Company. Planet Fitness Holdings, L.P. was formed in October 2014 and had no material assets, liabilities or operations, other than as a holding company owning indirect interests in the Company. The Direct TSG Investors consist of investment funds affiliated with TSG Consumer Partners, LLC (“TSG”). Pursuant to a merger agreement dated June 22, 2015, upon the pricing of the IPO, Planet Fitness Holdings, L.P. merged with and into the Corporation, and the interests in Planet Fitness Holdings, L.P. held by the Direct TSG Investors were converted into 26,106,930 shares of Class A common stock of the Corporation. We refer to this as the “Merger.” All shares of Class A common stock have both voting and economic rights in Planet Fitness, Inc.
The Merger was effected on August 5, 2015, prior to the time our Class A common stock was registered under the Exchange Act and prior to the completion of the IPO.
Reclassification
The equity interests of the Company previously consisted of three different classes of limited liability company units (Class M, Class T and Class O). Prior to the completion of the IPO, the limited liability company agreement of the Company was amended and restated to, among other things, modify its capital structure to create a single new class of units, the Holdings Units. We refer to this capital structure modification as the “Reclassification.”
The Direct TSG Investors’ indirect interest in the Company was held through Planet Fitness Holdings, L.P. As a result, following the Merger, in which Planet Fitness Holdings, L.P. merged with and into the Corporation, the Direct TSG Investors’ indirect interests in the Company are held through the Corporation. Therefore, the Holdings Units received in the Reclassification were allocated to: (1) the Continuing LLC Owners based on their existing interests in the Company; and (2) the Corporation to the extent of the Direct TSG Investors’ indirect interest in the Company. The number of Holdings Units allocated to the Corporation in the Reclassification was equal to the number of shares of Class A common stock that the Direct TSG Investors received in the Merger (on a one-for-one basis).
The Reclassification was effected on August 5, 2015, prior to the time our Class A common stock was registered under the Exchange Act and prior to the completion of the IPO.
Following the Merger and the Reclassification, the Corporation issued to Continuing LLC Owners 72,602,810 shares of Class B common stock, one share of Class B common stock for each Holdings Unit they held. The shares of Class B common stock have no rights to dividends or distributions, whether in cash or stock, but entitle the holder to one vote per share on matters presented to stockholders of the Corporation. Holdings Units are held by the Continuing LLC Owners and by the Corporation. The Continuing LLC Owners consist of investment funds affiliated with TSG and certain employees and directors.
Pursuant to the LLC agreement that went into effect at the time of the Reclassification (“New LLC Agreement”), the Corporation was designated as the sole managing member of the Company. Accordingly, the Corporation has the right to determine when distributions will be made by the Company to its members and the amount of any such distributions (subject to the requirements with respect to the tax distributions described below). If the Corporation authorizes a distribution by the Company, the distribution will be made to the members of the Company pro rata in accordance with the percentages of their respective Holdings Units.
The holders of Holdings Units will incur U.S. federal, state and local income taxes on their allocable share of any taxable income of the Company (as calculated pursuant to the New LLC Agreement). Net profits and net losses of the Company will generally be allocated to its members pursuant to the New LLC Agreement pro rata in accordance with the percentages of their respective Holdings Units. The New LLC Agreement will provide for cash distributions to the holders of Holdings Units for purposes of funding their tax obligations in respect of the income of the Company that is allocated to them, to the extent other distributions from the Company for the relevant year have been insufficient to cover such liability. Generally, these tax distributions will be computed based on the taxable income of the Company allocable to the holders of Holdings Units multiplied by an assumed, combined tax rate equal to the maximum rate applicable to an individual or corporation resident in San Francisco, California (taking into account the non-deductibility of certain expenses and the character of our income).
Exchange agreement
Following the Merger and the Reclassification, the Corporation and the Continuing LLC Owners entered into an exchange agreement under which the Continuing LLC Owners (or certain permitted transferees thereof) have the right, from time to time and subject to the terms of the exchange agreement, to exchange their Holdings Units, along with a corresponding number of shares of Class B common stock, for shares of Class A common stock on a one-for-one basis, subject to customary conversion rate adjustments for stock splits, stock dividends, reclassifications and similar transactions. As a Continuing LLC Owner exchanges Holdings Units, along with a corresponding number of shares of Class B common stock, for shares of Class A common stock, the number of Holdings Units held by the Corporation will be correspondingly increased as it acquires the exchanged Holdings Units and cancels a corresponding number of shares of Class B common stock.
Offering transactions
In connection with the completion of the IPO on August 11, 2015, in order to facilitate the disposition of equity interests in the Company held by Continuing LLC Owners affiliated with TSG, the Corporation used the net proceeds received to purchase issued and outstanding Holdings Units from these Continuing LLC Owners that they received in the Reclassification. In connection with the IPO, the Corporation purchased 10,491,055 issued and outstanding Holdings Units from these Continuing LLC Owners for an aggregate of $156.9 million. As such, the Corporation acquired a minority equity percentage of the Holdings Units held by the Continuing LLC Owners issued to them in the Reclassification, which is in addition to the 26,106,930 Holdings Units that the Corporation acquired in the Reclassification on a one-for-one basis in relation to the number of shares of Class A common stock issued to the Direct TSG Investors in the Merger. Accordingly, following the IPO, the Corporation holds 36,597,985 Holdings Units that is equal to the number of shares of Class A common stock that were issued to the Direct TSG Investors and investors in the IPO. The Direct TSG Investors, who did not receive Holdings Units in the Reclassification but received shares of Class A common stock in the Merger, sold 5,033,945 shares of Class A common stock in the IPO as selling stockholders. All expenses of the IPO, other than underwriter discounts and commissions, were borne by the Company or reimbursed by the Company to the Corporation.
As a result of the recapitalization transactions and the offering transactions, upon completion of the IPO:
• | the investors in the IPO collectively own 15,525,000 shares of our Class A common, representing 15.7% of the voting power in the Corporation and, through the Corporation, 15.7% of the economic interest in the Company; |
• | the Direct TSG Investors own 21,072,985 shares of our Class A common stock, representing 21.4% of the voting power in the Corporation and, through the Corporation, 21.4% of the economic interest in the Company; and |
• | the Continuing LLC Owners collectively hold 62,111,755 Holdings Units, representing 62.9% of the economic interest in the Company and 62,111,755 shares of our Class B common stock, representing 62.9% of the voting power in the Corporation. |
Tax receivable agreements
The Corporation’s acquisition of Holdings Units in connection with the IPO and future and certain past exchanges of Holdings Units for shares of our Class A common stock (or cash) are expected to produce and have produced favorable tax attributes. In connection with the IPO, the Corporation entered into two tax receivable agreements. Under the first of those agreements, the Corporation generally is required to pay to the Continuing LLC Owners 85% of the applicable cash savings, if any, in U.S. federal and state income tax that the Corporation is deemed to realize as a result of certain tax attributes of their Holdings Units sold to the Corporation (or exchanged in a taxable sale) and that are created as a result of (i) the sales of their Holdings Units for shares of Class A common stock and (ii) tax benefits attributable to payments made under the tax receivable agreement (including imputed interest). Under the second tax receivable agreement, the Corporation generally is required to pay to the Direct TSG Investors 85% of the amount of cash savings, if any, that the Corporation is deemed to realize as a result of the tax attributes of the Holdings Units held in respect of the Direct TSG Investors’ interest in the Corporation, which resulted from the Direct TSG Investors’ purchase of interests in the Company in 2012, and certain other tax benefits. Under both agreements, the Corporation generally retains the benefit of the remaining 15% of the applicable tax savings.
|
(3) Variable interest entities
The carrying values of VIEs included in the consolidated financial statements as of June 30, 2015 and December 31, 2014 are as follows:
June 30, 2015 | December 31, 2014 | |||||||||||||||
Assets | Liabilities | Assets | Liabilities | |||||||||||||
PF Melville |
$ | 3,604 | $ | — | $ | 3,479 | $ | — | ||||||||
MMR |
$ | 2,851 | — | 2,750 | — | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
$ | 6,455 | $ | — | $ | 6,229 | $ | — | ||||||||
|
|
|
|
|
|
|
|
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 $2,270 and $2,896 as of June 30, 2015 and December 31, 2014, 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) Acquisition
On March 31, 2014, the Company purchased certain assets from one of its franchisees, including eight franchisee-owned stores in New York, for consideration of $42,931, including a cash payment of $39,931 and a $3,000 discount to be applied to future equipment purchases. The $3,000 equipment discount has been recorded as deferred revenue by the Company and is being recognized as future equipment sales are made by the Company to the franchisee. In addition, as a result of the transaction, the Company incurred a loss on unfavorable reacquired franchise rights of $1,293, which has been reflected in other operating costs in the statement of operations. The loss incurred reduced the net purchase price to $41,638. The Company financed the purchase through its credit facility. The purchase consideration was allocated as follows:
Amount | ||||
Fixed assets |
$ | 7,634 | ||
Reacquired franchise rights |
8,950 | |||
Membership relationships |
5,882 | |||
Favorable leases, net |
700 | |||
Other assets |
35 | |||
Goodwill |
19,771 | |||
Liabilities assumed, including deferred revenues |
(1,334 | ) | ||
|
|
|||
$ | 41,638 | |||
|
|
|
(5) National advertising fund
On July 26, 2011, the Company established Planet Fitness NAF, LLC (“NAF”) for the creation and development of marketing, advertising, and related programs and materials for all Planet Fitness stores. On behalf of the NAF, the Company collects 2% of gross monthly membership billings from franchisees, in accordance with the provisions of the franchise agreements. The Company also contributes 2% of monthly membership billings from stores owned by the Company to the NAF. The use of amounts received by NAF is restricted to advertising, product development, public relations, merchandising, and administrative expenses and programs to increase sales and further enhance the public reputation of the Planet Fitness brand. The Company consolidates and reports all assets and liabilities held by the NAF. Amounts received by NAF are reported as restricted assets and restricted liabilities within current assets and current liabilities on the condensed consolidated balance sheets. The Company provides administrative services to NAF and charges NAF a fee for providing those services. These services include accounting services, information technology, data processing, product development, legal and administrative support, and other operating expenses, which amounted to $355 and $278 for the three months ending June 30, 2015 and 2014, respectively, and $684 and $555 for the six months ending June 30, 2015 and 2014, respectively. The fees paid to the Company by NAF are included in the condensed consolidated statements of operations as a reduction in general and administrative expense, where the expense incurred by the Company was initially recorded.
|
(6) Property and equipment
Property and equipment as of June 30, 2015 and December 31, 2014 consists of the following:
June 30, 2015 | December 31, 2014 | |||||||
Land |
$ | 910 | $ | 910 | ||||
Equipment |
24,934 | 22,137 | ||||||
Leasehold improvements |
34,705 | 27,361 | ||||||
Buildings and improvements |
5,107 | 5,119 | ||||||
Vehicles |
155 | 155 | ||||||
Other |
4,570 | 4,250 | ||||||
Construction in progress |
2,204 | 5,375 | ||||||
|
|
|
|
|||||
72,585 | 65,307 | |||||||
Accumulated Depreciation |
(20,684 | ) | (15,728 | ) | ||||
|
|
|
|
|||||
Total |
$ | 51,901 | $ | 49,579 | ||||
|
|
|
|
The Company recorded depreciation expense of $2,710 and $2,460 for the three months ended June 30, 2015 and 2014, respectively, and $5,643 and $4,122 for the six months ended June 30, 2015 and 2014, respectively.
|
(7) Goodwill and intangible assets
A summary of goodwill and intangible assets at June 30, 2015 and December 31, 2014 is as follows:
June 30, 2015 |
Weighted average amortization period (years) |
Gross carrying amount |
Accumulated amortization |
Net carrying Amount |
||||||||||||
Customer relationships |
11.1 | $ | 171,782 | $ | (49,437 | ) | $ | 122,345 | ||||||||
Noncompete agreements |
5.0 | 14,500 | (7,679 | ) | 6,821 | |||||||||||
Favorable leases |
7.5 | 2,935 | (1,016 | ) | 1,919 | |||||||||||
Order backlog |
0.4 | 3,400 | (3,400 | ) | — | |||||||||||
Reacquired franchise rights |
5.8 | 8,950 | (1,945 | ) | 7,005 | |||||||||||
|
|
|
|
|
|
|||||||||||
201,567 | (63,477 | ) | 138,090 | |||||||||||||
Indefinite-lived intangible: |
||||||||||||||||
Trade and brand names |
N/A | 146,300 | — | 146,300 | ||||||||||||
|
|
|
|
|
|
|||||||||||
Total intangible assets |
$ | 347,867 | $ | (63,477 | ) | $ | 284,390 | |||||||||
|
|
|
|
|
|
|||||||||||
Goodwill |
$ | 176,981 | $ | — | $ | 176,981 | ||||||||||
|
|
|
|
|
|
|||||||||||
December 31, 2014 |
Weighted average amortization period (years) |
Gross carrying amount |
Accumulated amortization |
Net carrying Amount |
||||||||||||
Customer relationships |
11.1 | $ | 171,782 | $ | (41,130 | ) | $ | 130,652 | ||||||||
Noncompete agreements |
5.0 | 14,500 | (6,229 | ) | 8,271 | |||||||||||
Favorable leases |
7.5 | 2,935 | (779 | ) | 2,156 | |||||||||||
Order backlog |
0.4 | 3,400 | (3,400 | ) | — | |||||||||||
Reacquired franchise rights |
5.8 | 8,950 | (1,167 | ) | 7,783 | |||||||||||
|
|
|
|
|
|
|||||||||||
201,567 | (52,705 | ) | 148,862 | |||||||||||||
Indefinite-lived intangible: |
||||||||||||||||
Trade and brand names |
N/A | 146,300 | — | 146,300 | ||||||||||||
|
|
|
|
|
|
|||||||||||
Total intangible assets |
$ | 347,867 | $ | (52,705 | ) | $ | 295,162 | |||||||||
|
|
|
|
|
|
|||||||||||
Goodwill |
$ | 176,981 | $ | — | $ | 176,981 | ||||||||||
|
|
|
|
|
|
The Company determined that no impairment charges were required during any periods presented.
|
(8) Long-term debt
Long-term debt as of June 30, 2015 and December 31, 2014 consists of the following:
June 30, 2015 | December 31, 2014 | |||||||
Term loan B requires quarterly installments plus interest through the term of the loan, maturing March 31, 2021. Outstanding borrowings bear interest at LIBOR or base rate (as defined) plus a margin at the election of the borrower (4.75% at June 30, 2015 and December 31, 2014) |
$ | 504,825 | $ | 387,075 | ||||
Revolving credit line, requires interest only payments through the term of the loan, maturing March 31, 2019. Outstanding borrowings bear interest at LIBOR or base rate (as defined) plus a margin at the election of the borrower (4.25% at June 30, 2015 and December 31, 2014) |
— | — | ||||||
|
|
|
|
|||||
Total debt |
$ | 504,825 | $ | 387,075 | ||||
Current portion of long-term debt and line of credit |
5,100 | 3,900 | ||||||
|
|
|
|
|||||
Long-term debt, net of current portion |
$ | 499,725 | $ | 383,175 | ||||
|
|
|
|
On March 31, 2014, the Company entered into a five-year $430,000 credit facility with a consortium of banks and lenders to refinance its existing indebtedness, as well as to provide funds for working capital, capital expenditures, acquisitions, a $173,900 dividend and general corporate purposes. The facility consists of a $390,000 Term Loan and a $40,000 Revolving Credit Facility. On March 31, 2015, the Company amended this credit facility to increase the Term Loan to $510,000 to fund a cash dividend of $140,000. The unused portion of the Revolving Credit Facility as of June 30, 2015 was $40,000. The Term Loan calls for quarterly principal installment payments of $1,275 through March 2021. Capitalized debt issuance costs associated with the outstanding term loan and revolving credit line totaled $9,930 and are reflected in other long-term assets in the Company’s condensed consolidated balance sheet, net of accumulated amortization of $1,623 as of June 30, 2015.
The credit facility requires the Company to meet certain financial covenants, which the Company was in compliance with as of June 30, 2015. The facility is secured by all of the Company’s assets, excluding the assets attributable to the consolidated VIEs (see note 3).
Future annual principal payments of long-term debt as of June 30, 2015 are as follows:
Amount | ||||
Remainder of 2015 |
$ | 2,550 | ||
2016 |
5,100 | |||
2017 |
5,100 | |||
2018 |
5,100 | |||
2019 |
5,100 | |||
Thereafter |
481,875 | |||
|
|
|||
Total |
$ | 504,825 | ||
|
|
|
(9) Derivative instruments and hedging activities
The Company utilizes interest-rate-related derivative instruments to manage its exposure related to changes in interest rates on its variable-rate debt instruments. The Company does not enter into derivative instruments for any purpose other than cash flow hedging. The Company does not speculate using derivative instruments.
By using derivative financial instruments to hedge exposures to changes in interest rates, the Company exposes itself to credit risk and market risk. Credit risk is the failure of the counterparty to perform under the terms of the derivative contract. When the fair value of a derivative contract is an asset, the counterparty owes the Company, which creates credit risk for the Company. When the fair value of a derivative contract is a liability, the Company owes the counterparty and, therefore, the Company is not exposed to the counterparty’s credit risk in those circumstances. The Company minimizes counterparty credit risk in derivative instruments by entering into transactions with high-quality counterparties whose credit rating is higher than A1/A+ at the inception of the derivative transaction. The derivative instruments entered into by the Company do not contain credit-risk-related contingent features.
Market risk is the adverse effect on the value of a derivative instrument that results from a change in interest rates. The market risk associated with interest-rate contracts is managed by establishing and monitoring parameters that limit the types and degree of market risk that may be undertaken.
The Company assesses interest rate risk by continually identifying and monitoring changes in interest rate exposures that may adversely impact expected future cash flows and by evaluating hedging opportunities. The Company monitors interest rate risk attributable to both the Company’s outstanding or forecasted debt obligations as well as the Company’s offsetting hedge positions.
As of June 30, 2014, the total notional amount of the Company’s outstanding LIBOR based interest-rate swap agreements that were entered into to manage fluctuations in cash flows resulting from changes in the benchmark interest rate of LIBOR was $59,774. It was determined on March 31, 2014 that the hedge was ineffective and expense of $92 was reclassified from other comprehensive income to interest expense. The interest rate swaps were terminated in September 2014.
In September 2014, the Company entered into a series of interest rate caps. As of June 30, 2015, the Company had interest rate cap agreements with notional amounts of $194,000 outstanding that were entered into in order to hedge LIBOR greater than 1.5%.
The interest rate cap balances of $771 and $1,711 were recorded within other assets in the condensed consolidated balance sheets as of June 30, 2015 and December 31, 2014, respectively. These amounts have been measured at fair value and are considered to be a Level 2 fair value measurement. The Company recorded a reduction to the value of its interest rate caps of $940 within other comprehensive loss during the six months ended June 30, 2015.
As of June 30, 2015, the Company does not expect to reclassify any amounts included in accumulated other comprehensive income into earnings during the next 12 months. Transactions and events expected to occur over the next twelve months that will necessitate reclassifying these derivatives’ loss to earnings include the re-pricing of variable-rate debt.
|
(10) Deferred revenue
The summary set forth below represents the balances in deferred revenue as of June 30, 2015 and December 31, 2014:
June 30, 2015 | December 31, 2014 | |||||||
Prepaid membership fees |
$ | 4,757 | $ | 5,382 | ||||
Enrollment fees |
1,727 | 1,692 | ||||||
Equipment discount |
2,534 | 2,689 | ||||||
Annual membership fees |
7,789 | 5,696 | ||||||
Area development and franchise fees |
10,298 | 8,420 | ||||||
|
|
|
|
|||||
Total deferred revenue |
27,105 | 23,879 | ||||||
Long-term portion of deferred revenue |
9,308 | 9,330 | ||||||
|
|
|
|
|||||
Current portion of deferred revenue |
$ | 17,797 | $ | 14,549 | ||||
|
|
|
|
Equipment deposits received in advance of delivery, placement and customer acceptance as of June 30, 2015 and December 31, 2014 were $2,805 and $6,675, respectively.
|
(11) Related party transactions
Amounts due from members as of June 30, 2015 and December 31, 2014 relate to reimbursements for taxes owed and paid by the Company on their behalf.
June 30, 2015 | December 31, 2014 | |||||||
Accounts receivable – related entities |
$ | 17 | $ | 11 | ||||
Accounts receivable – members |
627 | 1,130 | ||||||
|
|
|
|
|||||
644 | 1,141 | |||||||
Due from related parties, current portion |
644 | 1,141 | ||||||
|
|
|
|
|||||
Due from related parties, net of current portion |
$ | — | $ | — | ||||
|
|
|
|
Activity with entities considered to be related parties is summarized below.
Three months ended June 30, | Six months ended June 30, | |||||||||||||||
2015 | 2014 | 2015 | 2014 | |||||||||||||
Franchise revenue |
$ | 305 | $ | 201 | $ | 567 | $ | 346 | ||||||||
Equipment revenue |
47 | 650 | 102 | 1,319 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total revenue from related parties |
$ | 352 | $ | 851 | $ | 669 | $ | 1,665 | ||||||||
|
|
|
|
|
|
|
|
The Company paid management fees to TSG totaling $250 during each of the three months ended June 30, 2015 and 2014, and $515 and $580 for the six months ended June 30, 2015 and 2014, respectively.
|
(12) Income taxes
The Company’s effective tax rate during all periods presented is significantly lower than the U.S. federal statutory tax rate of 35% due to its election to be treated as a pass-through entity for U.S. federal income taxes and for most state income taxes. Net deferred tax liabilities of $396 and $343 as of June 30, 2015 and December 31, 2014, respectively, relate primarily to the tax effects of temporary differences for acquired intangible assets. Deferred tax assets as of June 30, 2015 and December 31, 2014 are immaterial and included in other assets in the accompanying condensed consolidated balance sheets. The Company has net operating loss carryforwards related to its Canada operations of approximately $176, which begin to expire in 2034. It is more likely than not that the results of future operations will generate sufficient taxable income to realize the deferred tax assets.
As of June 30, 2015, the total liability related to uncertain tax positions is $300. The Company recognizes interest accrued and penalties, if applicable, related to unrecognized tax benefits in income tax expense. Interest and penalties for the six months ending June 30, 2015 were not material.
|
(13) Commitments and contingencies
The Company rents equipment, office, and warehouse space at various locations in the United States and Canada under noncancelable operating leases. Rental expense was $4,511 and $4,109 for the three months ending June 30, 2015 and 2014, respectively, and $8,971 and $7,451 for the six months ending June 30, 2015 and 2014, respectively. Approximate annual future commitments under noncancelable operating leases as of June 30, 2015 are as follows:
Amount | ||||
Remainder of 2015 |
$ | 6,651 | ||
2016 |
13,245 | |||
2017 |
12,730 | |||
2018 |
11,773 | |||
2019 |
10,379 | |||
Thereafter |
54,088 | |||
|
|
|||
Total |
$ | 108,866 | ||
|
|
From time to time, and in the ordinary course of business, the Company is subject to various claims, charges, and litigation, such as employment-related claims and slip and fall cases. The Company is not currently aware of any legal proceedings or claims that the Company believes will have, individually or in the aggregate, a material adverse effect on the Company’s financial position or result of operations.
As of June 30, 2015, the Company had advertising purchase commitments of approximately $16,168, including commitments made by the NAF. In addition, the Company had open purchase orders of approximately $11,310 primarily related to equipment to be sold to franchisees.
The Company’s maximum obligation, as a result of its guarantees of leases and debt, is approximately $2,270 and $2,896 as of June 30, 2015 and December 31, 2014, respectively.
During 2013, the Company adopted the 2013 Performance Incentive Plan, which calls for pre-determined bonuses to be paid to employees of the Company upon a future liquidity event of the Company, including an initial public offering that exceeds a predetermined threshold. As of June 30, 2015, awards outstanding under this plan total $1,707. Given the uncertainty of the underlying event, no compensation expense has been recorded as of June 30, 2015 related to this plan. The bonuses will be recorded in the third quarter of 2015 as a result of the IPO that was completed on August 11, 2015.
|
(14) Segments
The Company has three reportable segments: (i) Franchise; (ii) Corporate-owned stores; and (iii) Equipment.
The Company’s operations are organized and managed by type of products and services and segment information is reported accordingly. The Company’s chief operating decision maker (the “CODM”) is its Chief Executive Officer. The CODM reviews financial performance and allocates resources by reportable segment. There have been no operating segments aggregated to arrive at the Company’s reportable segments.
The Franchise segment includes operations related to the Company’s franchising business in the United States, Puerto Rico, and Canada. The Corporate-owned stores segment includes operations with respect to all Corporate-owned stores throughout the United States and Canada. The Equipment segment includes the sale of equipment to franchisee-owned stores.
The accounting policies of the reportable segments are the same as those described in note 2. The Company evaluates the performance of its segments and allocates resources to them based on revenue and earnings before interest, taxes, depreciation, and amortization, referred to as Segment EBITDA. Revenues for all operating segments include only transactions with unaffiliated customers and include no intersegment revenues.
The tables below summarize the financial information for the Company’s reportable segments for the three and six months ended June 30, 2015 and 2014. The “Corporate and other” column, as it relates to Segment EBITDA, primarily includes corporate overhead costs, such as payroll and related benefit costs and professional services which are not directly attributable to any individual segment.
Three months ended June 30, | Six months ended June 30, | |||||||||||||||
2015 | 2014 | 2015 | 2014 | |||||||||||||
Revenue |
||||||||||||||||
Franchise segment |
$ | 21,879 | $ | 18,427 | $ | 43,636 | $ | 34,927 | ||||||||
Corporate-owned stores segment |
24,975 | 22,428 | 48,521 | 40,131 | ||||||||||||
Equipment segment |
32,099 | 21,842 | 63,718 | 45,233 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total revenue |
$ | 78,953 | $ | 62,697 | $ | 155,875 | $ | 120,291 | ||||||||
|
|
|
|
|
|
|
|
Franchise segment revenue includes franchise revenue and commission income.
Franchise revenue includes revenues generated from franchisee-owned stores in Puerto Rico of $105 and $84 for the three months ended June 30, 2015 and 2014, respectively, and $205 and $161 for the six months ended June 30, 2015 and 2014, respectively. The Company’s Canadian corporate-owned stores generated revenue of $705 and $0 for the three months ended June 30, 2015 and 2014, respectively, and $1,008 and $0 for the six months ended June 30, 2015 and 2014, respectively. Equipment revenue includes revenues from equipment sold in Puerto Rico of $0 and $583 for both the three and six months ended June 30, 2015 and 2014, respectively. All other revenue for the periods presented was generated from corporate-owned and franchisee-owned stores within the United States. Franchise revenue includes revenue generated from placement services of $2,298 and $1,507 for the three months ended June 30, 2015 and 2014, respectively, and $4,272 and $3,098 for the six months ended June 30, 2015 and 2014, respectively. Included in selling, general and administrative expenses were costs related to placement services of $756 and $510 for the three months ended June 30, 2015 and 2014, respectively, and $1,511 and $1,007 for the six months ended June 30, 2015 and 2014, respectively.
Three months ended June 30, | Six months ended June 30, | |||||||||||||||
2015 | 2014 | 2015 | 2014 | |||||||||||||
Segment EBITDA |
||||||||||||||||
Franchise |
$ | 17,704 | $ | 14,579 | $ | 31,282 | $ | 27,432 | ||||||||
Corporate-owned stores |
9,288 | 8,342 | 17,086 | 14,784 | ||||||||||||
Equipment |
7,242 | 4,461 | 14,005 | 9,479 | ||||||||||||
Corporate and other |
(7,658 | ) | (4,433 | ) | (14,030 | ) | (9,051 | ) | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Total Segment EBITDA |
$ | 26,576 | $ | 22,949 | $ | 48,343 | $ | 42,644 | ||||||||
|
|
|
|
|
|
|
|
The following table reconciles total Segment EBITDA to income before taxes:
Three months ended June 30, | Six months ended June 30, | |||||||||||||||
2015 | 2014 | 2015 | 2014 | |||||||||||||
Total Segment EBITDA |
$ | 26,576 | $ | 22,949 | $ | 48,343 | $ | 42,644 | ||||||||
Less: |
||||||||||||||||
Depreciation and amortization |
7,983 | 8,507 | 16,184 | 15,043 | ||||||||||||
Other expense |
(76 | ) | (263 | ) | (812 | ) | (642 | ) | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Income from operations |
18,669 | 14,705 | 32,971 | 28,243 | ||||||||||||
Interest expense, net |
(6,560 | ) | (5,046 | ) | (11,316 | ) | (11,608 | ) | ||||||||
Other expense |
(76 | ) | (263 | ) | (812 | ) | (642 | ) | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Income before income taxes |
$ | 12,033 | $ | 9,396 | $ | 20,843 | $ | 15,993 | ||||||||
|
|
|
|
|
|
|
|
The following table summarizes the Company’s assets by reportable segment:
June 30, 2015 | December 31, 2014 | |||||||
Franchise |
$ | 145,266 | $ | 183,964 | ||||
Corporate-owned stores |
170,635 | 161,183 | ||||||
Equipment |
251,183 | 250,578 | ||||||
Unallocated |
12,606 | 13,551 | ||||||
|
|
|
|
|||||
Total consolidated assets |
$ | 579,690 | $ | 609,276 | ||||
|
|
|
|
The table above includes $3,829 and $2,011 of long-lived assets located in the Company’s corporate-owned stores in Canada as of June 30, 2015 and December 31, 2014, respectively.
The following table summarizes the Company’s goodwill by reportable segment:
June 30, 2015 |
December 31, 2014 |
|||||||
Franchise |
$ | 16,938 | $ | 16,938 | ||||
Corporate-owned stores |
67,377 | 67,377 | ||||||
Equipment |
92,666 | 92,666 | ||||||
|
|
|
|
|||||
Consolidated goodwill |
$ | 176,981 | $ | 176,981 | ||||
|
|
|
|
|
(15) Corporate-owned and franchisee-owned stores
The following table shows changes in our corporate-owned and franchisee-owned stores for the three and six months ended June 30, 2015 and 2014:
Three months ended June 30, | Six months ended June 30, | |||||||||||||||
2015 | 2014 | 2015 | 2014 | |||||||||||||
Franchisee-owned stores: |
||||||||||||||||
Stores operated at beginning of period |
919 | 732 | 863 | 704 | ||||||||||||
New stores opened |
37 | 33 | 96 | 69 | ||||||||||||
Stores debranded, sold or consolidated(1) |
— | (1 | ) | (3 | ) | (9 | ) | |||||||||
|
|
|
|
|
|
|
|
|||||||||
Stores operated at end of period |
956 | 764 | 956 | 764 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Corporate-owned stores: |
||||||||||||||||
Stores operated at beginning of period |
57 | 53 | 55 | 45 | ||||||||||||
New stores opened |
1 | 1 | 3 | 1 | ||||||||||||
Stores acquired from franchisees |
— | — | — | 8 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Stores operated at end of period |
58 | 54 | 58 | 54 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total stores: |
||||||||||||||||
Stores operated at beginning of period |
976 | 785 | 918 | 749 | ||||||||||||
New stores opened |
38 | 34 | 99 | 70 | ||||||||||||
Stores debranded, sold or consolidated(1) |
— | (1 | ) | (3 | ) | (1 | ) | |||||||||
|
|
|
|
|
|
|
|
|||||||||
Stores operated at end of period |
1,014 | 818 | 1,014 | 818 | ||||||||||||
|
|
|
|
|
|
|
|
(1) | The term “debrand” refers to a franchisee-owned store whose right to use the Planet Fitness brand and marks has been terminated due to non-compliance with brand standards in accordance with the franchise agreement. We retain the right to prevent debranded stores from continuing to operate as fitness centers. The term “consolidation” refers to the combination of a franchisee’s store with another store located in close proximity owned by the same franchisee, with our prior approval. This often coincides with an enlargement, re-equipment and/or refurbishment of the remaining store. |
|
Basis of Accounting
The balance sheet as of June 30, 2015 is unaudited. The balance sheets have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). Separate statements of operations, comprehensive income, changes in stockholder’s equity, and cash flows have not been presented in the financial statements because there have been no activities in this entity since its inception through June 30, 2015. These interim condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements as of March 16, 2015 and related notes included in our final prospectus for the Corporation’s IPO dated August 6, 2015 filed pursuant to Rule 424(b) under the Securities Act of 1933, as amended (the “Securities Act”), with the SEC (the “Prospectus”). Operating results for the interim periods are not necessarily indicative of the results that may be expected for the full year.
(a) | Basis of presentation and consolidation |
The accompanying unaudited interim condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP) for interim financial information and pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Accordingly, these interim financial statements do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) necessary for a fair presentation of the results of operations, financial position and cash flows for the periods presented have been reflected. All significant intercompany balances and transactions have been eliminated in consolidation.
The condensed consolidated financial statements as of and for the three and six months ended June 30, 2015 and 2014 are unaudited. The condensed consolidated balance sheet as of December 31, 2014 has been derived from the audited financial statements at that date but does not include all of the disclosures required by U.S. GAAP. These interim condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements as of and for the year ended December 31, 2014 and related notes included in our final prospectus for the Corporation’s IPO dated August 6, 2015 filed pursuant to Rule 424(b) under the Securities Act of 1933, as amended (the “Securities Act”), with the SEC (the “Prospectus”). Operating results for the interim periods are not necessarily indicative of the results that may be expected for the full year.
The Company also consolidates entities in which it has a controlling financial interest, the usual condition of which is ownership of a majority voting interest. The Company also considers for consolidation certain interests where the controlling financial interest may be achieved through arrangements that do not involve voting interests. Such an entity, known as a VIE, is required to be consolidated by its primary beneficiary. The primary beneficiary of a VIE is considered to possess the power to direct the activities of the VIE that most significantly impact its economic performance and has the obligation to absorb losses or the rights to receive benefits from the VIE that are significant to it. The principal entities in which the Company possesses a variable interest include franchise entities and certain other entities. The Company is not deemed to be the primary beneficiary for Planet Fitness franchise entities. Therefore, these entities are not consolidated. See note 3 for further information related to the Company’s VIEs.
(b) | Use of estimates |
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Although these estimates are based on management’s knowledge of current events and actions it may undertake in the future, they may ultimately differ from actual results. Significant areas where estimates and judgments are relied upon by management in the preparation of the consolidated financial statements include revenue recognition, valuation of assets and liabilities in connection with acquisitions, valuation of equity-based compensation awards, and the evaluation of the recoverability of goodwill and long-lived assets, including intangible assets.
(c) | Fair Value |
The table below presents information about the Company’s assets and liabilities that are measured at fair value on a recurring basis as of June 30, 2015 and December 31, 2014:
Total fair value at June 30, 2015 |
Quoted prices in active markets (Level 1) |
Significant other observable inputs (Level 2) |
Significant unobservable inputs (Level 3) |
|||||||||||||
Interest rate caps |
$ | 771 | $ | — | $ | 771 | $ | — | ||||||||
Total fair value at December 31, 2014 |
Quoted prices in active markets (Level 1) |
Significant other observable inputs (Level 2) |
Significant unobservable inputs (Level 3) |
|||||||||||||
Interest rate caps |
$ | 1,711 | $ | — | $ | 1,711 | $ | — |
(d) | Equity-based compensation |
The Company has granted equity awards to employees in the form of Class M Units. During the six months ended June 30, 2015, there were forfeitures of 21.053 Class M units. There were no grants or exercises of Class M Units during the six months ended June 30, 2015. During the six months ended June 30, 2015, the Company modified the vesting terms of 10.737 outstanding Class M Units such that those units are fully vested and eligible to receive distributions following a liquidity event. There were no other changes in awards during the six months ended June 30, 2015. As a result, the total vested awards outstanding at June 30, 2015 was 110.315. The amount of total unrecognized compensation cost related to all awards under this plan was $5,459 as of June 30, 2015.
(e) | Recent accounting pronouncements |
The FASB issued ASU No. 2015-03, Simplifying the Presentation of Debt Issuance Costs in April 2015. This guidance requires reporting entities present debt issuance costs as a direct deduction from the carrying amount of the related debt liability. The guidance is effective for public business entities for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2015. A reporting entity must apply this guidance retrospectively to all prior periods presented in the financial statements. The Company expects the only impact of the adoption of this guidance to be on balance sheet presentation.
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 does not expect the adoption of this guidance to have a material impact on its consolidated financial statements.
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. In July 2015, the FASB voted to defer the effective date of the new revenue recognition standard by one year, which would result in this guidance becoming effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2017 for public companies. The Company is currently evaluating the impact, if any, the adoption of this guidance will have on its consolidated financial statements.
|
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, 2015 and December 31, 2014:
Total fair value at June 30, 2015 |
Quoted prices in active markets (Level 1) |
Significant other observable inputs (Level 2) |
Significant unobservable inputs (Level 3) |
|||||||||||||
Interest rate caps |
$ | 771 | $ | — | $ | 771 | $ | — | ||||||||
Total fair value at December 31, 2014 |
Quoted prices in active markets (Level 1) |
Significant other observable inputs (Level 2) |
Significant unobservable inputs (Level 3) |
|||||||||||||
Interest rate caps |
$ | 1,711 | $ | — | $ | 1,711 | $ | — |
|
The carrying values of VIEs included in the consolidated financial statements as of June 30, 2015 and December 31, 2014 are as follows:
June 30, 2015 | December 31, 2014 | |||||||||||||||
Assets | Liabilities | Assets | Liabilities | |||||||||||||
PF Melville |
$ | 3,604 | $ | — | $ | 3,479 | $ | — | ||||||||
MMR |
$ | 2,851 | — | 2,750 | — | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
$ | 6,455 | $ | — | $ | 6,229 | $ | — | ||||||||
|
|
|
|
|
|
|
|
|
The purchase consideration was allocated as follows:
Amount | ||||
Fixed assets |
$ | 7,634 | ||
Reacquired franchise rights |
8,950 | |||
Membership relationships |
5,882 | |||
Favorable leases, net |
700 | |||
Other assets |
35 | |||
Goodwill |
19,771 | |||
Liabilities assumed, including deferred revenues |
(1,334 | ) | ||
|
|
|||
$ | 41,638 | |||
|
|
|
Property and equipment as of June 30, 2015 and December 31, 2014 consists of the following:
June 30, 2015 | December 31, 2014 | |||||||
Land |
$ | 910 | $ | 910 | ||||
Equipment |
24,934 | 22,137 | ||||||
Leasehold improvements |
34,705 | 27,361 | ||||||
Buildings and improvements |
5,107 | 5,119 | ||||||
Vehicles |
155 | 155 | ||||||
Other |
4,570 | 4,250 | ||||||
Construction in progress |
2,204 | 5,375 | ||||||
|
|
|
|
|||||
72,585 | 65,307 | |||||||
Accumulated Depreciation |
(20,684 | ) | (15,728 | ) | ||||
|
|
|
|
|||||
Total |
$ | 51,901 | $ | 49,579 | ||||
|
|
|
|
|
A summary of goodwill and intangible assets at June 30, 2015 and December 31, 2014 is as follows:
June 30, 2015 |
Weighted average amortization period (years) |
Gross carrying amount |
Accumulated amortization |
Net carrying Amount |
||||||||||||
Customer relationships |
11.1 | $ | 171,782 | $ | (49,437 | ) | $ | 122,345 | ||||||||
Noncompete agreements |
5.0 | 14,500 | (7,679 | ) | 6,821 | |||||||||||
Favorable leases |
7.5 | 2,935 | (1,016 | ) | 1,919 | |||||||||||
Order backlog |
0.4 | 3,400 | (3,400 | ) | — | |||||||||||
Reacquired franchise rights |
5.8 | 8,950 | (1,945 | ) | 7,005 | |||||||||||
|
|
|
|
|
|
|||||||||||
201,567 | (63,477 | ) | 138,090 | |||||||||||||
Indefinite-lived intangible: |
||||||||||||||||
Trade and brand names |
N/A | 146,300 | — | 146,300 | ||||||||||||
|
|
|
|
|
|
|||||||||||
Total intangible assets |
$ | 347,867 | $ | (63,477 | ) | $ | 284,390 | |||||||||
|
|
|
|
|
|
|||||||||||
Goodwill |
$ | 176,981 | $ | — | $ | 176,981 | ||||||||||
|
|
|
|
|
|
|||||||||||
December 31, 2014 |
Weighted average amortization period (years) |
Gross carrying amount |
Accumulated amortization |
Net carrying Amount |
||||||||||||
Customer relationships |
11.1 | $ | 171,782 | $ | (41,130 | ) | $ | 130,652 | ||||||||
Noncompete agreements |
5.0 | 14,500 | (6,229 | ) | 8,271 | |||||||||||
Favorable leases |
7.5 | 2,935 | (779 | ) | 2,156 | |||||||||||
Order backlog |
0.4 | 3,400 | (3,400 | ) | — | |||||||||||
Reacquired franchise rights |
5.8 | 8,950 | (1,167 | ) | 7,783 | |||||||||||
|
|
|
|
|
|
|||||||||||
201,567 | (52,705 | ) | 148,862 | |||||||||||||
Indefinite-lived intangible: |
||||||||||||||||
Trade and brand names |
N/A | 146,300 | — | 146,300 | ||||||||||||
|
|
|
|
|
|
|||||||||||
Total intangible assets |
$ | 347,867 | $ | (52,705 | ) | $ | 295,162 | |||||||||
|
|
|
|
|
|
|||||||||||
Goodwill |
$ | 176,981 | $ | — | $ | 176,981 | ||||||||||
|
|
|
|
|
|
|
Long-term debt as of June 30, 2015 and December 31, 2014 consists of the following:
June 30, 2015 | December 31, 2014 | |||||||
Term loan B requires quarterly installments plus interest through the term of the loan, maturing March 31, 2021. Outstanding borrowings bear interest at LIBOR or base rate (as defined) plus a margin at the election of the borrower (4.75% at June 30, 2015 and December 31, 2014) |
$ | 504,825 | $ | 387,075 | ||||
Revolving credit line, requires interest only payments through the term of the loan, maturing March 31, 2019. Outstanding borrowings bear interest at LIBOR or base rate (as defined) plus a margin at the election of the borrower (4.25% at June 30, 2015 and December 31, 2014) |
— | — | ||||||
|
|
|
|
|||||
Total debt |
$ | 504,825 | $ | 387,075 | ||||
Current portion of long-term debt and line of credit |
5,100 | 3,900 | ||||||
|
|
|
|
|||||
Long-term debt, net of current portion |
$ | 499,725 | $ | 383,175 | ||||
|
|
|
|
Future annual principal payments of long-term debt as of June 30, 2015 are as follows:
Amount | ||||
Remainder of 2015 |
$ | 2,550 | ||
2016 |
5,100 | |||
2017 |
5,100 | |||
2018 |
5,100 | |||
2019 |
5,100 | |||
Thereafter |
481,875 | |||
|
|
|||
Total |
$ | 504,825 | ||
|
|
|
The summary set forth below represents the balances in deferred revenue as of June 30, 2015 and December 31, 2014:
June 30, 2015 | December 31, 2014 | |||||||
Prepaid membership fees |
$ | 4,757 | $ | 5,382 | ||||
Enrollment fees |
1,727 | 1,692 | ||||||
Equipment discount |
2,534 | 2,689 | ||||||
Annual membership fees |
7,789 | 5,696 | ||||||
Area development and franchise fees |
10,298 | 8,420 | ||||||
|
|
|
|
|||||
Total deferred revenue |
27,105 | 23,879 | ||||||
Long-term portion of deferred revenue |
9,308 | 9,330 | ||||||
|
|
|
|
|||||
Current portion of deferred revenue |
$ | 17,797 | $ | 14,549 | ||||
|
|
|
|
|
Amounts due from members as of June 30, 2015 and December 31, 2014 relate to reimbursements for taxes owed and paid by the Company on their behalf.
June 30, 2015 | December 31, 2014 | |||||||
Accounts receivable – related entities |
$ | 17 | $ | 11 | ||||
Accounts receivable – members |
627 | 1,130 | ||||||
|
|
|
|
|||||
644 | 1,141 | |||||||
Due from related parties, current portion |
644 | 1,141 | ||||||
|
|
|
|
|||||
Due from related parties, net of current portion |
$ | — | $ | — | ||||
|
|
|
|
Activity with entities considered to be related parties is summarized below.
Three months ended June 30, | Six months ended June 30, | |||||||||||||||
2015 | 2014 | 2015 | 2014 | |||||||||||||
Franchise revenue |
$ | 305 | $ | 201 | $ | 567 | $ | 346 | ||||||||
Equipment revenue |
47 | 650 | 102 | 1,319 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total revenue from related parties |
$ | 352 | $ | 851 | $ | 669 | $ | 1,665 | ||||||||
|
|
|
|
|
|
|
|
|
Approximate annual future commitments under noncancelable operating leases as of June 30, 2015 are as follows:
Amount | ||||
Remainder of 2015 |
$ | 6,651 | ||
2016 |
13,245 | |||
2017 |
12,730 | |||
2018 |
11,773 | |||
2019 |
10,379 | |||
Thereafter |
54,088 | |||
|
|
|||
Total |
$ | 108,866 | ||
|
|
|
The tables below summarize the financial information for the Company’s reportable segments for the three and six months ended June 30, 2015 and 2014.
Three months ended June 30, | Six months ended June 30, | |||||||||||||||
2015 | 2014 | 2015 | 2014 | |||||||||||||
Revenue |
||||||||||||||||
Franchise segment |
$ | 21,879 | $ | 18,427 | $ | 43,636 | $ | 34,927 | ||||||||
Corporate-owned stores segment |
24,975 | 22,428 | 48,521 | 40,131 | ||||||||||||
Equipment segment |
32,099 | 21,842 | 63,718 | 45,233 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total revenue |
$ | 78,953 | $ | 62,697 | $ | 155,875 | $ | 120,291 | ||||||||
|
|
|
|
|
|
|
|
Three months ended June 30, | Six months ended June 30, | |||||||||||||||
2015 | 2014 | 2015 | 2014 | |||||||||||||
Segment EBITDA |
||||||||||||||||
Franchise |
$ | 17,704 | $ | 14,579 | $ | 31,282 | $ | 27,432 | ||||||||
Corporate-owned stores |
9,288 | 8,342 | 17,086 | 14,784 | ||||||||||||
Equipment |
7,242 | 4,461 | 14,005 | 9,479 | ||||||||||||
Corporate and other |
(7,658 | ) | (4,433 | ) | (14,030 | ) | (9,051 | ) | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Total Segment EBITDA |
$ | 26,576 | $ | 22,949 | $ | 48,343 | $ | 42,644 | ||||||||
|
|
|
|
|
|
|
|
The following table reconciles total Segment EBITDA to income before taxes:
Three months ended June 30, | Six months ended June 30, | |||||||||||||||
2015 | 2014 | 2015 | 2014 | |||||||||||||
Total Segment EBITDA |
$ | 26,576 | $ | 22,949 | $ | 48,343 | $ | 42,644 | ||||||||
Less: |
||||||||||||||||
Depreciation and amortization |
7,983 | 8,507 | 16,184 | 15,043 | ||||||||||||
Other expense |
(76 | ) | (263 | ) | (812 | ) | (642 | ) | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Income from operations |
18,669 | 14,705 | 32,971 | 28,243 | ||||||||||||
Interest expense, net |
(6,560 | ) | (5,046 | ) | (11,316 | ) | (11,608 | ) | ||||||||
Other expense |
(76 | ) | (263 | ) | (812 | ) | (642 | ) | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Income before income taxes |
$ | 12,033 | $ | 9,396 | $ | 20,843 | $ | 15,993 | ||||||||
|
|
|
|
|
|
|
|
The following table summarizes the Company’s assets by reportable segment:
June 30, 2015 | December 31, 2014 | |||||||
Franchise |
$ | 145,266 | $ | 183,964 | ||||
Corporate-owned stores |
170,635 | 161,183 | ||||||
Equipment |
251,183 | 250,578 | ||||||
Unallocated |
12,606 | 13,551 | ||||||
|
|
|
|
|||||
Total consolidated assets |
$ | 579,690 | $ | 609,276 | ||||
|
|
|
|
The following table summarizes the Company’s goodwill by reportable segment:
June 30, 2015 |
December 31, 2014 |
|||||||
Franchise |
$ | 16,938 | $ | 16,938 | ||||
Corporate-owned stores |
67,377 | 67,377 | ||||||
Equipment |
92,666 | 92,666 | ||||||
|
|
|
|
|||||
Consolidated goodwill |
$ | 176,981 | $ | 176,981 | ||||
|
|
|
|
|
The following table shows changes in our corporate-owned and franchisee-owned stores for the three and six months ended June 30, 2015 and 2014:
Three months ended June 30, | Six months ended June 30, | |||||||||||||||
2015 | 2014 | 2015 | 2014 | |||||||||||||
Franchisee-owned stores: |
||||||||||||||||
Stores operated at beginning of period |
919 | 732 | 863 | 704 | ||||||||||||
New stores opened |
37 | 33 | 96 | 69 | ||||||||||||
Stores debranded, sold or consolidated(1) |
— | (1 | ) | (3 | ) | (9 | ) | |||||||||
|
|
|
|
|
|
|
|
|||||||||
Stores operated at end of period |
956 | 764 | 956 | 764 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Corporate-owned stores: |
||||||||||||||||
Stores operated at beginning of period |
57 | 53 | 55 | 45 | ||||||||||||
New stores opened |
1 | 1 | 3 | 1 | ||||||||||||
Stores acquired from franchisees |
— | — | — | 8 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Stores operated at end of period |
58 | 54 | 58 | 54 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total stores: |
||||||||||||||||
Stores operated at beginning of period |
976 | 785 | 918 | 749 | ||||||||||||
New stores opened |
38 | 34 | 99 | 70 | ||||||||||||
Stores debranded, sold or consolidated(1) |
— | (1 | ) | (3 | ) | (1 | ) | |||||||||
|
|
|
|
|
|
|
|
|||||||||
Stores operated at end of period |
1,014 | 818 | 1,014 | 818 | ||||||||||||
|
|
|
|
|
|
|
|
(1) | The term “debrand” refers to a franchisee-owned store whose right to use the Planet Fitness brand and marks has been terminated due to non-compliance with brand standards in accordance with the franchise agreement. We retain the right to prevent debranded stores from continuing to operate as fitness centers. The term “consolidation” refers to the combination of a franchisee’s store with another store located in close proximity owned by the same franchisee, with our prior approval. This often coincides with an enlargement, re-equipment and/or refurbishment of the remaining store. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|