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Planet Fitness Inc (PLNT 0.65%)
Q2Â 2020 Earnings Call
Aug 4, 2020, 4:30 p.m. ET
Contents:
- Prepared Remarks
- Questions and Answers
- Call Participants
Prepared Remarks:
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. [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 -- Analyst
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'll turn the call over to Chris Rondeau, Chief Executive Officer of Planet Fitness. Chris?
Chris Rondeau -- Chief Executive Officer
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 front lines 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 continues to present challenges for our business. As we 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 worked closely with franchisees to develop a robust COVID-19 operations playbook that outlines enhanced safety and sanitization policies and procedures. This includes measures such as personal protective equipment for all staff; enhanced cleaning efforts using disinfection on the EPA list as effective against COVID-19; taxis check in physical distancing measures, whereby certain pieces of equipment are marked out of use to ensure additional space team members and much more. More recently, as a leader in the industry, we took additional steps and implemented a standard universal mass policy, requiring everyone to wear a mask inside of our stores, except while actively working out and in accordance with the local and state restrictions. We'll continue to proceed cautiously until there is greater certainty on when conditions will return to normal.
For the 1,409 stores that were opened, by the end of the second quarter, overall joint outpaced prior year levels, even as we executed 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 climb 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 the quarter, total membership was down a little over 1% to 15.2 million. As the third quarter got under way and consumer settlement begin to shift with the uptick of COVID-19 cases across the country, we are seeing a pent-up demand taper off and joint starting to stabilize as clubs have been open longer. For July, joins 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 has plateaued at about 60% average compared to prior year. To date, we have 1,477 stores opened in 46 states, D.C., five provinces in Canada and Australia. 1,426 of these stores are 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 sensitization policies and procedures to instill confidence in reassurance that 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 live United 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 accelerated our digital offerings on Planet Fitness' mobile app, with our recent partnership with I-Fit, a leader in streaming world more in a pioneer in interactive connected fitness. We continue to see encouraging usage of our I-Fit 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% of Planet Fitness digital content users were not existing members. Our accelerated digital strategy, while still in 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 at an all-time high in Q2, with nearly 60% of our new joins following 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 sign up period and was prior to COVID, 100% of our stores were opened.
We also recently released new features of functionality, including in-app messaging, allowing us to communicate to our members via the app. In a crowd meter, which gives them the ability to check the capacity of their club before they go to the gym. We believe this is particularly reassuring for 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, reequips, remote and a 15% discount off 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 reached development over the next couple of quarters, as franchisees focus primarily on training and supporting staff on new policies procedure in successfully reopening our stores, keeping our members engage with our brand and rebuilding their cash positions, which were reduced during this period. Health and wellness is more important now than ever. We see ourselves as an integral part of the healthcare delivery system, in part of the solution to COVID-19. Fitness plays a key role in positively impacting the overall mental and visible well-being, and 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 profitability, I'm confident in the long run, once the pandemic is behind us, that Planet Fitness will be able to significantly widen our competitive moat for several reasons.
First, the incredible strength and sophistication and diversification of our franchise system, where 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 struggle to survive financially. Third, the real estate market will be even more attractive in terms of availability of prime locations and lower rent costs and enhanced landlord incentives for our system. There's not many brands will be adding hundreds of locations in the coming years. And fourth, the encouraging early results of our opportunity we're 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'll now turn the call over to Tom.
Tom Fitzgerald -- Chief Financial Officer
Thanks, Chris, and good afternoon, everyone. As we outlined in our Q1 call in May, and as Chris just discussed, COVID-19 has 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 home store reopens. I'm going to walk through how this dynamic, among others, shaped our results, and then provide color by segments. 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 issued 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 NAF 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 credits 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 walk through the key drivers.
For some context, we reported 53 consecutive quarters of positive same-store sales before COVID-19 hit in March and shut down 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 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. Now of the 340 stores that had a full draft in June, 279 were in the comp base. These stores 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 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 per 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 compared with 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 systemwide 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 opened 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 store is 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 break down 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 a 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 member sign-ups and the recognition of fees paid to us for franchise agreements, area development agreement and the transfer of existing stores and fees received from processing dues. The decrease was primarily driven by lower online join 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 received for the assembly and placement of equipment sales to our franchise 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 placements, 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 to $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 expense 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 for interest, taxes, depreciation and amortization, adjusted for the impact of certain noncash 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, franchise 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 per 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 systems 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 a 120% and a 170% cushion to the first triggering event for our debt service coverage ratio and systemwide sales covenant, respectively. Similar to our liquidity position, we believe we have sufficient headroom for our two maintenance covenants. Given the uncertainty 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 moat and create value for our shareholders and our stakeholders.
I'll now turn the call back to the operator for questions.
Operator
[Operator Instructions] Your first question comes from the line of Jonathan Komp of Baird. Your line is open.
Jonathan Robert Komp -- Analyst
I want to just ask, firstly, the recent trend you highlighted in the membership, with more of the headlines impacting the business in July here. Just curious to get your thoughts. Any perspective on whether what you've seen in July? You have a reason to think it might continue here in the short term? And when you think about marketing plans in the second half, is there any plans that you have in place that you think could really restart to meet new joins and the trend there that you're seeing?
Chris Rondeau -- Chief Executive Officer
Sure, Jon. Yes, this is Chris. Yes. So as you know, the join billing day for our members the 17th of the month, and we started opening up beginning of May. And most of these clubs did have a month credit. So we started building a good portion of our members in June 17 would have been the first go around of a smaller number, and then the larger build day would have been July 17. So after that June 17 billing, we begin to see that spike. And we've seen, historically, forever, in and around build dates before a slightly a few days after cancellations spike around that. So there's a lot of noise because also it was the same timing around the California reshutdown, Arizona reshutdown and then the news in the surgeon state. So a lot of noise is going on. But based 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 17 the July one annual fee, then July 17 billing, which is a big chunk of clubs of that 1,400, which we believe is driving most of those cancellations that we saw that 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 it's a marketing question. As now, we have three quarters of the stores open, hopefully, the next 500 or so will 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 we now collect in the NAF again, which is the 2% on EFT, we're lining up to probably start the first natural sales in September. But time will tell on that. I think the one thing I would add to this is that we're I'm 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 lab mix and have agreed to slightly change that mix, increase the NAF slightly for the rest of the year to help kick in that flywheel here as we hopefully get a sense of some normalcy in the world.
Jonathan Robert Komp -- Analyst
Okay. That's great. And maybe just one broader question on the health system. I know you certainly mentioned the potential to see consolidation across the industry. When you think of your system, and we can see the pressure on your own company segment, just any 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 systems?
Chris Rondeau -- Chief Executive Officer
Sure. I'll go quickly on the competition side and then let Tom fill in on the we do what franchise business reviews with all the franchisees now where we're going through them as we speak here. So we've got some good financials and updates there. But yes, I mean, competition, besides the 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 no above 40,000 different independent gyms out there, that you don't see the mom-and-pops are hair bottom at the national level of closures are not reopening. And we have franchisees in most markets now even some corporate stores that have been reached out by a competitor that just decide not to open. So it is going to be, I think, probably a six or 12-month timing of which people are either going to try to open, just not reopen, just based on the financial standpoint. So I think there's definitely some opportunity there for us from a Planet Fitness system for sure in that world. but from Dubai quickest businesses reviews?
Tom Fitzgerald -- Chief Financial Officer
Yes. Jon, so as Chris said, we've been in touch with our franchisees, as we said all along, but more recently doing franchise business use, as we call them, but also reaching out in certain situations like in California, where the gyms closed and talking to all those franchisees who were affected. And I think we're fortunate in as Chris said, in his prepared remarks, 75% of our stores our franchise stores our owned by franchisees who operate in more than one state. So they're 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, as we've talked about before, we've been in touch with lenders and through these 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've talked to them directly, as I said, and the franchisees are obviously in touch with them. And for the most part, they're waving as long as the stores are closed, and then they're going to revisit the metrics upon reopening, which is the franchisee share with them for their own stores. And so we feel like they're 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're all financially sound, working with lenders who are being accommodating. And once the stores reopen, then they can start to build 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.
Operator
Our next question comes from the line of John Heinbockel of Guggenheim Securities. Your line is open.
John Edward Heinbockel -- Analyst
So Chris, let me start with if you look at the 600,000 or $700,000 reduction in members from where you were 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 -- Chief Executive Officer
Yes. I'd say from a high level, the boomers are proportionately higher than what we normally see as well as Gen Xers, where millennials and Gen Zs are not. In some of the higher spiking states, we were seeing some higher indexing joins. So like the Texas, the Florida Arizona, for example, those are also skew slightly higher than the peers here and through out the rest of the country. In Canada, which is very different. Canada has had increased joint less cancels and lack of a lot more usage up there than the U.S. stores.
John Edward Heinbockel -- Analyst
Okay. And then, secondly, when you think about I don't know where you what plans you've started to put together for New Year's Eve heading into January. I guess, you would assume that you'd 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 the focus? So this year, the joins are trying to limit the cancellations in your marketing?
Chris Rondeau -- Chief Executive Officer
Yes. I mean, cancels, first and foremost, we got to make sure people not using the club. I mean the reason be cancellations, generally, people are using the workouts or 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're seeing here from customer sentiment that a lot of it is going to be reassurance as opposed to strictly $1 down. I think the financial piece, our membership is in $10 a month anyway. So that's always really affordable. I think now what we're seeing is it's reassurance that we're clean, that the members are going to be safe. And all the surveys we've done so far, on our side, have shown that people are extremely happy with everything we've put in place and employees as well. We've had even corporate, we've had about 85% retention of our employees as they've come back from furlough. So people are excited to get back in and see what they've put see. And I think to that, as we said in the past, like our average member works out five to six times a month. And that same usage pattern is holding true. So of the PPs in the store they're using the same amount, which is great to see. New Year's Eve, yes, they're still in play. They still plan on having it. Hypothesis is that they can because this is here or there's some social distancing or issues going to bars or night clubs that maybe viewership could be up, because people stuck at home. So but they still think we get a lot of airplay out of it, with the message and get people, hopefully, to get 2021 off to a better start.
Operator
Your next question comes from the line of Simeon Siegel of BMO. Your line is open.
Simeon Avram Siegel -- Analyst
Chris, any way to quantify gross adds versus cancellations? and how you're thinking about that trajectory? And then just given the color on the current numbers, any thoughts on where that end the quarter and the year? And then sorry if I missed it, did you give any differentiation in Black Card versus classic for the reopened gyms or cancellations?
Chris Rondeau -- Chief Executive Officer
Yes. For Q2, we were about 58% Black Card acquisition for Q2, the system there. I think the ads question, I think the bigger question now is back to what I just mentioned here is from an acquisition standpoint, are we going to be able to drive a lot of high acquisition join on exploration dates, for example, is it just more rebranding and reassurance messaging, which is yet to be seen. I think back to my previous question from the first John comp is that we believe that most of these cans machines today are draft related. So the question is, now that these people are going through the first second round does it get back to more normalcy, right? Because they haven't been dressed it for three or four months, which we've seen we always have cancels around draft dates, so we just playing catch up at this point because we're building, which time will tell, so the next couple of drafts here. about August, September, for example, do we start to see people are going down the their second or third draft? Now they're back to the normal attrition.
Simeon Avram Siegel -- Analyst
Great. And then Tom or Dorvin, what's the right way to think about your ability to flex SG&A and store ops at various levels of revenue for the rest of the year?
Operator
Your next question comes from the line of Randy Konik of Jefferies. Your line is open.
Randal J. Konik -- Analyst
I guess, Chris, I just wanted 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 does it feel like? Or what is it looking like to you? Any kind of color you can provide on what you're hearing about the non-usual suspects in the industry on how they're doing financially, meaning like not the change more the mom and pops? Just curious on your thoughts there.
Chris Rondeau -- Chief Executive Officer
Yes. I mean, moms and pops, as I mentioned earlier, definitely, we're getting the franchisees of the Kong that the one E2s and even corporately, we've had a couple of heralding that the competitive dentistry, they call it direct, they're not going to open. So they want to sell the membership to us or if we're interested in the location. So there's a lot more smaller book smaller one-off scenarios, but there's a lot more of those than there are national chains, right? So if we look at as we've always talked about, we take us and LA Fitness and 24 Hour Fitness and put them all together, you're lucky if you get to 3,000 or 4,000 stores. So there's still another 35,000 mom-and-pops out there. So I think there'll be a lot more of those that we realized. I think you look at our franchisees, and Tom mentioned earlier, the diversification, I mean our average franchisee has 20 locations. They're in multiple states, so 75% of our multiple states. So they might not have all their stores open, but they've got half their portfolio open. So they're able to weather the form a heck of a lot longer. And I think the probability of this model, which, as you know, I mean, is extremely profitable where if you look at crunch, for example, in their FDD, 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 looked back in 2009 when we had this happened, and we were much smaller back then in the average franchisee probably at three locations. Luckily, we were low cost. So we got a lot of people trading down from higher-priced clubs, but the sophistication in our system at that point was a very it was a lot a lot harder to weather that kind of storm. Now this situation is even worse, right? Whether this is kind of closing period, we wouldn't have a close back to that, right? So I think if you look at the EBITDA margins of our stores, the veteran ownership in our system, now we doing this for almost 20 years in franchising, it's just a much stronger system as a whole to get through this. So in the thing is once we open, it's a different story. We have clubs on our opening, but when people get in deferred rent, they get deferred lease payments on their equipment leases and so on and so forth. Now deferred. That means they're not they still have to pay them. So now when you reopen your doors, and you're paying 1.5 times rent and 1.5 times lease on your equipment, and 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 margins as we do.
Randal J. Konik -- Analyst
And OK. That's super helpful. And just kind of try to parse out a little bit of the geographic differences you're seeing. Are there any states to call out that 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 what are anything to kind of call out there? In contrast, states that look like they're really not business as usual and anything that stands out there as well?
Chris Rondeau -- Chief Executive Officer
I mean, from a high level, it's definitely states that we see less in the news. People are kind of like back to the mask mandate that we did, that we had 25%, 30% of our stores, they had 0 math policy. 0, nothing at all. And we saw a lot of customer sentiment in even staffing that there was a little bit there was some ans there about being careful walk it in when they didn't even demand anything. So some stays, look at it very differently, but people are still somewhat concerned. So those they definitely have a little less angst, I guess, in the world and probably Florida or Texas, for example, or Arizona or California. But I wouldn't say that the spread is that drastic.
Operator
Your next question comes from the line of Oliver Chen of Cowen. Your line is open.
Oliver Chen -- Analyst
Regarding the cancellations that you're seeing, what would you say is ahead that's 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're up against last year? And a follow-up, you have a number of strategies to help the franchisees, whether that be equipment or development delays, which of those have the franchisees taking most advantage of?
Chris Rondeau -- Chief Executive Officer
Sure. I'll talk about joining the cancels and Tamica fill in on the part there. The cancel because I think it's billing-related, I think we really have to get through that bill cycle that I mentioned that once a couple of months of these go through, which is, I think what we're seeing, the bigger part of the increase. Now remember that the other 500 stores that open those 500 still have to go through that same process of starting that back up. And I think, unfortunately, the longer that they've probably closed we'll be interested to see what happens with that. As these stores now. They opened the stores in North Carolina, for example, if they open tomorrow, they're not building their first bill cycle until September. So we got to get through that 500 clubs as well. But I believe that we start seeing the cancel side of things on the existing stores that are opened by September, October. This is now their second, third or fourth draft in a row, that you've probably gone through some of the bumps we're seeing today. Time will tell. As long as you don't have more closures, like California and Arizona, and that doesn't seem to ramp. But it's so fluid, as we all see on TV, day by day, it changes based on reports of the day. So I think more or less is going to be just how can we drive the messaging and the marketing because not only is it reassuring potential members. It's a car member at home that says cheerleading stuff they've done and the protocols in place. So in the advertising, you might get you're kind of talking to both. You're talking to both members and non-members, I think, in the advertising in the second half of the year.
Dorvin Lively -- President
Oliver, this is Dorvin. Just one other thing to add on Chris' comments on the cancellations. And the fact that we went for basically three months without billing. And as you mentioned, we build a few clubs in June, and then 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 1. So the April monthly annual fee, the May and the June, those fees did not get built to the member fee did not get billed until basically, in July, we did a catch up, in other words. So those months that we didn't billed the members, so you had a lot of members that got built their annual fee for the first time in over a year because they didn't get their April, May, June annual fee. So there's always been historically a higher spike of cancels around an annual fee time period. When you go back years ago, we only had two months we 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 join the membership with Planet. And so that's another factor that really occurred during this time period of July as well.
Tom Fitzgerald -- Chief Financial Officer
Yes. And then, Oliver, I think the things that franchisees have taken advantage of, I mean they all essentially got the 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 potentially experience a default if they weren't in compliance with our agreement. So pushing those dates out just alleviates the pressure from the lenders. So essentially, everybody took advantage of that. And then, as we mentioned, we did offer a 15% discount if 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 cut our margins in half, but we thought that was the right long-term thing to do.
Oliver Chen -- Analyst
Got it. A quick follow up to Black Card penetration going forward. Should we expect that to be a headwind on the comp when we do year-over-year? I would love any color there to the extent that you can provide it.
Chris Rondeau -- Chief Executive Officer
I mean, 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'm not sure that, that's necessarily going to be the normal as opposed. We're 60% across the system, so I think it was more probably impactful because we didn't have a Black Card sale in that quarter.
Tom Fitzgerald -- Chief Financial Officer
Which was the same thing that happened in Q1, we were up against the Black Card sales. Last March, and 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 makes sense from a marketing calendar based on what's going on.
Chris Rondeau -- Chief Executive Officer
Yes, which plays in part to what I mentioned earlier on the NAF last bolt change we did with the franchisees on changing that mix slightly here for the remainder of the year to get that flywheel back going.
Oliver Chen -- Analyst
Yeah. Thank you very much.
Operator
Your next question comes from the line of Sharon Zackfia of William Blair. Your line is open.
Sharon Zackfia -- Analyst
I may have missed this, but did you indicate if you're profitable at 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?
Tom Fitzgerald -- Chief Financial Officer
So Sharon, I'm going to make sure I understand the first part of the question. When you say profitable, do you mean across the stores that are reopened? Are they now profitable? Is that what you're...
Sharon Zackfia -- Analyst
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 -- Chief Financial Officer
From an EBITDA standpoint, we were negative. So I'm not sure if that...
Sharon Zackfia -- Analyst
No, I'm asking as of July. So in July, I think you indicated you have 72% of stores opened at this point. So I'm just wondering, at that level, I mean, I understand the June quarter. But in at the current run rate, are you profitable?
Tom Fitzgerald -- Chief Financial Officer
Yes. So at that level, we would be profitable. Sorry about that, I misunderstood. Yes, from an equipment standpoint, it's hard to understand what would have been because as things have evolved, franchisees, new store development, and Dorvin, feel free to add, have has shifted as well based on whether a store sorry, whether a state has remained closed, in a couple of cases, has reclosed. So but we believe that at the end of the day, we'll do more placements, we'll 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 -- President
Yes. I think, Sharon, what I'd add to that is that it's Tom makes a good point in states like California, where clubs are shut down 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 we're 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're in good financial shape, they got a territory where they're seeing this as an aggressive opportunity to kind of double down against the competition, and they're 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.
Operator
Your next question comes from the line of John Ivankoe of JPMorgan. Your line is open.
John William Ivankoe -- Analyst
And I apologize if I missed this. Can you say how many units are actually in some form of either signed lease or groundbreaking for the second half of 2020, from a company and a franchise perspective? In terms of the new gyms and new placements that we could actually expect? And I did hear in the prepared remarks, comments about getting better lease terms from landlords, more sites coming available, more flexible terms, what have you? I mean, I guess, what do you think in terms of what's happened to the near-term market opportunity? And I know it's a really hard question, but I mean, assuming that and I think a lot of people kind of think we get a vaccine at some point by early 2021, mid-2021, maybe at the latest. What do you think that could really mean for development in 2021 and '22? Do you think we can get back to 2019 levels? I mean, this really is and I guess, the biggest and most important kind of part of the question at this point. I mean, what the overall kind of appetite is for opening stores? I mean, I guess, that's making the assumption that you believe that, that proposition is true?
Dorvin Lively -- President
Yes, 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're at in the construction phase. But we opened stores in Q2, and we'll open stores over the balance of the year. Some of that is, to my last comment, is literally in timing and that their site setting out there that franchisees are waiting until they know that their clubs are going to be able to be open, and they'll be able to continue the construction side and get it closed. There are clearly franchisees that are sitting and waiting and saying given that we're 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're just going to wait and see. And some of that, quite frankly, is to build back up their cash reserves. I mean, if you go through a period of three, four months or longer for close to 600 stores are closed, they're 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 or see this as an opportunity to really get aggressive. And we've had a conversation just last week on one 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've 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 their real estate teams, and what we're hearing from the broker communities, are that there's 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 pushed them hard on abatements and deferrals, etc. And so they're dealing more with the immediacy of that than they are out there trying to release 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, 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 moats 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 does it take to get there? And that's just really, at this point, John, it's just still too much of an unknown.
John William Ivankoe -- Analyst
Yes. I understood. Certainly, at least wanted to hear your perspective on that, which is very helpful. And in terms of 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. What is the performance of attracting new members to new gyms, which I would imagine would be kind of a very different proposition than basically maintaining existing members at existing gyms?
Tom Fitzgerald -- Chief Financial Officer
Dorvin, you want to take that?
Dorvin Lively -- President
Yes. So earlier in the year, our stores that we opened up, were performing just in line with the way stores have performed in the past. Typical average store, how it opened up in its first month segment that 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 presale because that's a big deal for us. You've heard us talk about we typically open a gym with over 1,000 members. When the gym opens, and then it starts to ramp up for that. And so when you throw the pandemic during a time period of where you're in the middle of a presale, and you maybe 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've got the issue of 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, particularly because earlier in the year, we were seeing our performance of our business similar to the past. So I think it still comes back to a lot of the comments that we've been talking about, and that is that there's still demand out there. There's still people that want to join the gym. There's a hesitancy for workouts, so workouts been down, as Chris talked about earlier, but we don't see that as a detriment to our overall fourwall store model.
John William Ivankoe -- Analyst
Thank You.
Operator
Your next question comes from the line of Joe Altobello of Raymond James. Your line is open.
Joseph Nicholas Altobello -- Analyst
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 open is about 60%. But I think you mentioned that some stores are actually approaching usage levels that you saw at this time last year? I was curious, what's the key difference or differences in those stores that are approaching 20% usage index? Is it largely geography? Are these more rural stores? Does the average age of members within those stores? Is there something unusual about those stores where the usage indexes is about 100% of last year?
Chris Rondeau -- Chief Executive Officer
Yes. Those are like the earlier stores that opened up. So there's definitely a key piece is the longer they've been open. And in most cases, the longer ones have been opened, is also the ones that the states are less. I guess, COVID. So the people who have less angst. So those club definitely long they're open, we're getting up into that 80-plus and somewhere actually almost on power last year. The thing though, what happened I think, in July, when you just started seeing the reclosing through more of the type of resurgence, things kind of just went flat, where we were saying before how every week, it was going up five, 10 points in usage, and then it kind of got to 60% just kind of stayed there, and it hasn't really progressed since some resurgence to some of the states. So I think it just more of that angst out there that's kind of held kind of where it's at right now, I think. So I think we've just got to wait for the consumers to get a little bit more comfortable he had to begin to venture out and start to work out again. I mean I worked out this morning in my local store here at New Hampshire, it was I mean I thought I was only five people cleaning equipment down more than they ever did. They walked around. They've said wait for each other. The problem is you got to get in to see it. And they want to see, like, oh, this is no big deal. So I think that's probably more of it is just getting them in the initial the first time.
Joseph Nicholas Altobello -- Analyst
Got it. That's helpful, Chris. And just secondly, in terms of the health of your franchisees, how do the discussions regarding acquiring stores for many struggling franchisees? Or how do you facilitated any transactions between franchisees on that front?
Dorvin Lively -- President
Yes. I'll start. This is Dorvin. So one of the things, and Tom has talked about it in our model, Joe, is that because of the returns of the investment of the model and the margins that these furloughs tool even with some contractions or store being closed for a period of time, I mean, although always hurts to I have revenue 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 to broker any transaction between one franchisee and the other franchisee because somebody had to get out. 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've been able to weather the storm up to this point. And with 70% plus have stores in multiple states, they've 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've done the same things that Tom was talking about that we did with our corporate stores. In most cases, they furloughed all their team members, except their managers. And they took a hard look at their kind of their headquarter's SG&A and started cutting expenses there. So they've been really very financial prudent during this process leading up to where we are today.
Chris Rondeau -- Chief Executive Officer
Yes, I think I think the O thing I'd add to that is we've somewhat extended all the brands to be sure that if there's anybody out there, there is we have white flagged and nervous that to give us a call at us now or even other franchise big franchise groups, private equity back that have reached out on their own. And I think back to Doron's earlier point, I mean, the franchisees are bush to get extensive normalcy and then to begin to develop again because none nobody is taking us up or anybody up in that scenario, they all kind of just want to they're bullish about the future. So that's kind of hanging in there just waiting this the past.
Operator
Your next question comes from the line of Rafe Jadrosich of Bank of America. Your line is open.
Rafe Jason Jadrosich -- Analyst
The first question I have is just, can you just remind us I know you're providing a 12-month extension for the club opening requirements and the replacement equipment. Can you just remind us of the commitments that your franchisees have over the next couple of years? Have you look a little bit further out in terms of like what's in the ADA pipeline that they're committed to?
Dorvin Lively -- President
Yes, Ray, this is Dorvin. As we've said in the past, franchisees have over 1,000 committed under their air development agreements. And at any point in time, if you go back and look now, the past three, four, five years or so, generally, about half of those are required to be developed over the next three years. And so what we did is we, in essence, just said, we give you an extra 12 months and just pushed everything out 12 months. So the commitment is sort of the same. It's just been pushed out in next 12 months.
Rafe Jason Jadrosich -- Analyst
Okay. And you're not seeing any pushback or change to the next year or the outer years of that commitment?
Dorvin Lively -- President
We don't yes. I mean, I don't think what we're going to see is that if franchisee had five stores this year and five next year, we pushed it out. He has the what he has the ability to do is just to do five next year, and then five following year. In some cases, franchisees, we'll see where as we've been talking about kind of the normalcy what it's going to look like, many of our franchisees have been ahead of schedule. So they technically, in the past that we've made comments about it, could have slowed down their development, because they were ahead of what they had to do, but capability, redeploying their cash. So we don't know what will happen in this case. Once we kind of get past some of 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 next year. It's I think it's still going to take a little bit of time to get kind of to the other side of this to see how fast they might try to get their development schedule back opening.
Rafe Jason Jadrosich -- Analyst
Okay. And then the second question was just in terms of was there any additional revenue deferrals in the second quarter that will be recognized in 3Q or later on in the year?
Tom Fitzgerald -- Chief Financial Officer
Rafe, it's Tom. No, there weren't any additional ones. It's more the what was deferred from Q1 and March hasn't fully been recognized. So that will just get recognized whenever those stores reopen.
Rafe Jason Jadrosich -- Analyst
Do you have a real good I think it was $20 million, and then I think you mentioned on the first quarter call, and you recognized $11 million of that? Is that roughly the right amount?
Tom Fitzgerald -- Chief Financial Officer
Yes, there's about $12 million left to be recognized.
Operator
That is all the questions we have time for today. At this time, I turn the call back over to the presenters.
Chris Rondeau -- Chief Executive Officer
Great. Thank you, everybody, for taking the time today and listening on our Q2 call and small updates from the beginning of Q3. Looking forward to getting through this here and get the rest of these stores open. Excited about the second half of the year. Hopefully, we can get things back on track and get this franchisees, take care of them and make sure that the staff and members are all happy with all our cleaning and things we're doing. And like the one thing that I always like to reiterate. I've heard you on my few calls recently with some interviews is that we're definitely the solution here to this and not the problem. I think what the industry is lacking is representation. I think one thing we've got to work as a team here from Planet's standpoint is that if you think about we're really a key integral piece of the healthcare distribution process. And the closed gyms is just really not really counterproductive in my view. And 20% of the U.S. has a gym membership, you make a case of the other 80% did, we probably wouldn't be here. So a lot of upside here for this industry, and I think Planet is well positioned to take a full advantage of all of it. So it's I think it's a good spot. We should get through this together. Thank you, everybody. Have a good day.
Operator
[Operator Closing Remarks]
Questions and Answers:
Duration: 69 minutes
Call participants:
Chris Rondeau -- Chief Executive Officer
Tom Fitzgerald -- Chief Financial Officer
Dorvin Lively -- President
Brendon Frey -- ICR, LLC -- Analyst
Jonathan Robert Komp -- Robert W. Baird & Co -- Analyst
John Edward Heinbockel -- Guggenheim Securities -- Analyst
Simeon Avram Siegel -- BMO Capital Markets -- Analyst
Randal J. Konik -- Jefferies LLC, -- Analyst
Oliver Chen -- Cowen and Company, -- Analyst
Sharon Zackfia -- William Blair & Company -- Analyst
John William Ivankoe -- JPMorgan Chase & Co -- Analyst
Joseph Nicholas Altobello -- Raymond James & Associates -- Analyst
Rafe Jason Jadrosich -- BofA Merrill Lynch, -- Analyst
