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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2020
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________to ______________
Commission file number: 001-37534
PLANET FITNESS, INC.
(Exact Name of Registrant as Specified in Its Charter)
Delaware 38-3942097
(State or Other Jurisdiction of Incorporation or Organization) (I.R.S. Employer Identification No.)
4 Liberty Lane West, Hampton, NH 03842
(Address of Principal Executive Offices and Zip Code)
(603) 750-0001
(Registrant’s Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act: 
Title of each classTrading Symbol(s)Name of each exchange on which registered
Class A common stock, $0.0001 Par ValuePLNTNew York Stock Exchange
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes       No  
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes       No  
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer   Accelerated filer 
    
Non-accelerated filer   Smaller reporting company 
       
Emerging growth company     
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).    Yes      No  
As of October 30, 2020 there were 81,815,125 shares of the Registrant’s Class A Common Stock, par value $0.0001 per share, outstanding and 4,705,375 shares of the Registrant’s Class B Common Stock, par value $0.0001 per share, outstanding.



PLANET FITNESS, INC.
TABLE OF CONTENTS
  
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2


Cautionary Note Regarding Forward-Looking Statements
This Quarterly Report on Form 10-Q, as well as information included in oral statements or other written statements made or to be made by us, contain statements that constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are neither historical facts nor assurances of future performance. Instead, they are based on our current beliefs, expectations and assumptions regarding the future of our business, future plans and strategies, and other future conditions. Forward-looking statements can be identified by words such as “anticipate,” “believe,” “envision,” “estimate,” “expect,” “intend,” “may,” “plan,” “predict,” “project,” “target,” “potential,” “will,” “would,” “could,” “should,” “continue,” “ongoing,” “contemplate” and other similar expressions, although not all forward-looking statements contain these identifying words. Examples of forward-looking statements include, among others, statements we make regarding:
future financial position;
business strategy;
budgets, projected costs and plans;
future industry growth;
financing sources;
potential return of capital initiatives;
the impact of litigation, government inquiries and investigations;
the impact of the novel coronavirus disease (“COVID-19”) and actions taken in response; and
all other statements regarding our intent, plans, beliefs or expectations or those of our directors or officers.
We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements, and you should not place undue reliance on our forward-looking statements. Actual results or events could differ materially from the plans, intentions and expectations disclosed in the forward-looking statements we make. Important factors that could cause actual results and events to differ materially from those indicated in the forward-looking statements include, among others, risks and uncertainties associated with the following:
our dependence on the operational and financial results of, and our relationships with, our franchisees and the success of their new and existing stores;
damage to our brand and reputation;
our ability to successfully implement our growth strategy, including our and our franchisees’ ability to identify and secure suitable sites for new franchise stores;
technical, operational and regulatory risks related to our third-party providers’ systems and our own information systems, including failures, interruptions or security breaches of such systems;
our and our franchisees’ ability to attract and retain members;
the high level of competition in the health club industry generally;
our reliance on a limited number of vendors, suppliers and other third-party service providers;
our substantial increased indebtedness as a result of our refinancing and securitization transactions and our ability to incur additional indebtedness or refinance that indebtedness in the future;
our future financial performance and our ability to pay principal and interest on our indebtedness;
our corporate structure and tax receivable agreements;
the duration and impact of COVID-19, which has resulted and may continue to result in store closures and a decrease in our net membership base and may give rise to or heighten one or more of the other risks and uncertainties described above; and
the other factors identified under the heading “Risk Factors” herein and in our annual report on Form 10-K for the fiscal year ended December 31, 2019, our quarterly reports on Form 10-Q, and our other filings with the Securities and Exchange Commission.
The forward-looking statements in this Quarterly Report on Form 10-Q represent our views as of the date of this Report. We undertake no obligation to publicly update any forward-looking statements whether as a result of new information, future developments or otherwise.
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Table of Contents
PART I-FINANCIAL INFORMATION
1. Financial Statements
Planet Fitness, Inc. and subsidiaries
Condensed consolidated balance sheets
(Unaudited)
(Amounts in thousands, except per share amounts) 
 September 30,December 31,
 20202019
Assets  
Current assets:  
Cash and cash equivalents
$419,658 $436,256 
Restricted cash
81,944 42,539 
Accounts receivable, net of allowance for bad debts of $65 and $111 at September 30, 2020 and December 31, 2019, respectively
11,899 42,268 
Inventory
1,806 877 
Prepaid expenses
15,274 8,025 
Other receivables
20,513 9,226 
Income tax receivables10,036 947 
Total current assets561,130 540,138 
Property and equipment, net of accumulated depreciation of $97,832 and $73,621 at September 30, 2020 and December 31, 2019, respectively
159,053 145,481 
Right-of-use assets, net163,119 155,633 
Intangible assets, net221,286 233,921 
Goodwill227,821 227,821 
Deferred income taxes467,229 412,293 
Other assets, net1,914 1,903 
Total assets$1,801,552 $1,717,190 
Liabilities and stockholders’ deficit
Current liabilities:
Current maturities of long-term debt
$17,500 $17,500 
Accounts payable
19,783 21,267 
Accrued expenses
25,669 31,623 
Equipment deposits
1,522 3,008 
Restricted liabilities – national advertising fund
3,446  
Deferred revenue, current
23,921 27,596 
Payable pursuant to tax benefit arrangements, current
8,027 26,468 
Other current liabilities
20,497 18,016 
Total current liabilities120,365 145,478 
Long-term debt, net of current maturities1,679,191 1,687,505 
Borrowings under Variable Funding Notes75,000  
Lease liabilities, net of current portion165,372 152,920 
Deferred revenue, net of current portion33,002 34,458 
Deferred tax liabilities1,194 1,116 
Payable pursuant to tax benefit arrangements, net of current portion447,979 400,748 
Other liabilities2,368 2,719 
Total noncurrent liabilities2,404,106 2,279,466 
Commitments and contingencies (Note 13)
Stockholders’ equity (deficit):
Class A common stock, $.0001 par value - 300,000 authorized, 80,473 and 78,525 shares issued and outstanding as of September 30, 2020 and December 31, 2019, respectively
8 8 
Class B common stock, $.0001 par value - 100,000 authorized, 6,044 and 8,562 shares issued and outstanding as of September 30, 2020 and December 31, 2019, respectively
1 1 
Accumulated other comprehensive (loss) income
(38)303 
Additional paid in capital
40,671 29,820 
Accumulated deficit
(760,268)(736,587)
Total stockholders’ deficit attributable to Planet Fitness Inc.(719,626)(706,455)
Non-controlling interests
(3,293)(1,299)
Total stockholders’ deficit(722,919)(707,754)
Total liabilities and stockholders’ deficit$1,801,552 $1,717,190 
 See accompanying notes to condensed consolidated financial statements
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Table of Contents
Planet Fitness, Inc. and subsidiaries
Condensed consolidated statements of operations
(Unaudited)
(Amounts in thousands, except per share amounts)
 
 For the three months ended
September 30,
For the nine months ended
September 30,
 2020201920202019
Revenue:  
Franchise$47,171 $53,443 $112,296 $164,624 
Commission income48 614 483 2,673 
National advertising fund revenue12,538 12,652 26,509 36,986 
Corporate-owned stores28,289 40,742 78,224 118,481 
Equipment17,337 59,364 55,335 174,528 
Total revenue105,383 166,815 272,847 497,292 
Operating costs and expenses:
Cost of revenue15,302 46,194 45,625 135,071 
Store operations21,371 22,295 62,209 63,363 
Selling, general and administrative18,295 20,928 51,143 57,944 
National advertising fund expense20,157 12,652 46,240 36,986 
Depreciation and amortization13,636 11,832 39,436 32,316 
Other loss (gain)580 (147)606 99 
Total operating costs and expenses89,341 113,754 245,259 325,779 
Income from operations16,042 53,061 27,588 171,513 
Other expense, net:
Interest income349 1,808 2,635 5,585 
Interest expense(20,686)(14,807)(61,394)(44,192)
Other expense(24)(61)(784)(4,824)
Total other expense, net(20,361)(13,060)(59,543)(43,431)
(Loss) income before income taxes(4,319)40,001 (31,955)128,082 
(Benefit) provision for income taxes(1,035)10,309 (7,069)26,924 
Net (loss) income(3,284)29,692 (24,886)101,158 
Less net (loss) income attributable to non-controlling interests(173)3,915 (1,205)13,128 
Net (loss) income attributable to Planet Fitness, Inc.$(3,111)$25,777 (23,681)$88,030 
Net (loss) income per share of Class A common stock:
Basic$(0.04)$0.31 $(0.30)$1.05 
Diluted$(0.04)$0.31 $(0.30)$1.04 
Weighted-average shares of Class A common stock outstanding:
Basic80,221 83,157 79,763 83,700 
Diluted80,221 83,807 79,763 84,354 
 
See accompanying notes to condensed consolidated financial statements.
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Table of Contents
Planet Fitness, Inc. and subsidiaries
Condensed consolidated statements of comprehensive income (loss)
(Unaudited)
(Amounts in thousands)
 
 For the three months ended
September 30,
For the nine months ended
September 30,
 2020201920202019
Net (loss) income including non-controlling interests$(3,284)$29,692 $(24,886)$101,158 
Other comprehensive income (loss), net:
Foreign currency translation adjustments19 (62)(341)95 
Total other comprehensive income (loss), net19 (62)(341)95 
Total comprehensive (loss) income including non-controlling
interests
(3,265)29,630 (25,227)101,253 
Less: total comprehensive (loss) income attributable to non-controlling interests(173)3,915 (1,205)13,128 
Total comprehensive (loss) income attributable to Planet Fitness,
Inc.
$(3,092)$25,715 $(24,022)$88,125 
 
See accompanying notes to condensed consolidated financial statements.
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Table of Contents
Planet Fitness, Inc. and subsidiaries
Condensed consolidated statements of cash flows
(Unaudited)
(Amounts in thousands)
 For the nine months ended September 30,
 20202019
Cash flows from operating activities:  
Net (loss) income$(24,886)$101,158 
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Depreciation and amortization39,436 32,316 
Amortization of deferred financing costs4,801 4,014 
Amortization of asset retirement obligations48 178 
Deferred tax (benefit) expense(7,506)15,666 
(Gain) loss on re-measurement of tax benefit arrangement(502)4,638 
Provision for bad debts(45)13 
Equity-based compensation3,564 3,565 
Other(93)(428)
Changes in operating assets and liabilities, excluding effects of acquisitions:
Accounts receivable28,146 12,779 
Inventory(929)2,509 
Other assets and other current assets(11,364)(4,628)
National advertising fund3,446  
Accounts payable and accrued expenses(11,148)(12,939)
Other liabilities and other current liabilities461 1,510 
Income taxes(1,885)3,047 
Payable pursuant to tax benefit arrangements(18,396)(17,476)
Equipment deposits(1,486)658 
Deferred revenue(5,052)6,103 
Leases and deferred rent1,275 54 
Net cash (used in) provided by operating activities(2,115)152,737 
Cash flows from investing activities:
Additions to property and equipment(36,719)(37,138)
Acquisition of franchises (14,801)
Proceeds from sale of property and equipment282 84 
Purchase of intellectual property (300)
Net cash used in investing activities(36,437)(52,155)
Cash flows from financing activities:
Principal payments on capital lease obligations(118)(59)
Proceeds from borrowings under Variable Funding Notes75,000  
Repayment of long-term debt(13,125)(9,000)
Proceeds from issuance of Class A common stock1,881 1,892 
Repurchase and retirement of Class A common stock (157,945)
Dividend equivalent payments(227)(229)
Distributions to Continuing LLC Members(1,658)(5,499)
Net cash provided by (used in) financing activities61,753 (170,840)
Effects of exchange rate changes on cash and cash equivalents(394)370 
Net increase (decrease) in cash, cash equivalents and restricted cash22,807 (69,888)
Cash, cash equivalents and restricted cash, beginning of period478,795 320,139 
Cash, cash equivalents and restricted cash, end of period$501,602 $250,251 
Supplemental cash flow information:
Net cash paid for income taxes$2,319 $9,061 
Cash paid for interest$56,750 $40,335 
Non-cash investing activities:
Non-cash additions to property and equipment$7,629 $4,837 
 See accompanying notes to condensed consolidated financial statements.
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Planet Fitness, Inc. and subsidiaries
Condensed consolidated statements of changes in equity (deficit)
(Unaudited)
(Amounts in thousands) 
 Class A
common stock
Class B
common stock
Accumulated
other
comprehensive
(loss) income
Additional paid-
in capital
Accumulated
deficit
Non-controlling
interests
Total (deficit)
equity
 SharesAmountSharesAmount
Balance at December 31, 201978,525 $8 8,562 $1 $303 $29,820 $(736,587)$(1,299)$(707,754)
Net loss
— — — — — — (23,681)(1,205)(24,886)
Equity-based compensation expense
— — — — — 3,564 — — 3,564 
Exchanges of Class B common stock
2,518 — (2,518)— — (1,526)— 1,526 — 
Exercise of stock options, vesting of restricted share units and ESPP share purchase
97 — — — — 2,153 — — 2,153 
Repurchase and retirement of Class A common stock
(667)— — — — — — —  
Tax benefit arrangement liability and deferred taxes arising from exchanges of Class B common stock
— — — — — 6,660 — — 6,660 
Non-cash adjustments to VIEs
— — — — — — — (657)(657)
Distributions paid to members of Pla-Fit Holdings
— — — — — — — (1,658)(1,658)
Other comprehensive income (loss)— — — — (341)— — — (341)
Balance at September 30, 202080,473 $8 6,044 $1 $(38)$40,671 $(760,268)$(3,293)$(722,919)
 
 Class A
common stock
Class B
common stock
Accumulated
other
comprehensive
(loss) income
Additional paid-
in capital
Accumulated
deficit
Non-controlling
interests
Total (deficit)
equity
 SharesAmountSharesAmount
Balance at December 31, 201883,584 $9 9,448 $1 $94 $19,732 $(394,410)$(8,215)$(382,789)
Net income
— — — — — — 88,030 13,128 101,158 
Equity-based compensation expense
— — — — — 3,565 — — 3,565 
Exchanges of Class B common stock
886 — (886)— — (1,172)— 1,172 — 
Exercise of stock options, vesting of restricted share units and ESPP share purchase
99 — — — — 2,035 — — 2,035 
Repurchase and retirement of Class A common stock
(2,796)(1)— — — 273 (157,945)(273)(157,946)
Tax benefit arrangement liability and deferred taxes arising from exchanges of Class B common stock
— — — — — 2,807 — — 2,807 
Non-cash adjustments to VIEs
— — — — — — — (3,836)(3,836)
Distributions paid to members of Pla-Fit Holdings
— — — — — — — (5,499)(5,499)
Cumulative effect adjustment - ASC 842
— — — — — — (1,713)— (1,713)
Forfeiture of dividend equivalents— — — — — — 6 — 6 
Other comprehensive income
— — — — 95 — — — 95 
Balance at September 30, 201981,773 $8 8,562 $1 $189 $27,240 $(466,032)$(3,523)$(442,117)
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 Class A
common stock
Class B
common stock
Accumulated
other
comprehensive
(loss) income
Additional paid-
in capital
Accumulated
deficit
Non-controlling
interests
Total (deficit)
equity
 SharesAmountSharesAmount
Balance at June 30, 202079,994 $8 6,500 $1 $(57)$38,900 $(757,139)$(3,413)$(721,700)
Net loss
— — — — — — (3,111)(173)(3,284)
Equity-based compensation expense
— — — — — 1,071 — — 1,071 
Exchanges of Class B common stock
456 — (456)— — (570)— 570 — 
Exercise of stock options, vesting of restricted share units and ESPP share purchase
23 — — — — 800 — — 800 
Tax benefit arrangement liability and deferred taxes arising from exchanges of Class B common stock
— — — — — 470 — — 470 
Non-cash adjustments to VIEs
— — — — — — — (219)(219)
Distributions paid to members of Pla-Fit Holdings
— — — — — — — (58)(58)
Other
— — — — — — (18)— (18)
Other comprehensive income
— — — — 19 — — — 19 
Balance at September 30, 202080,473 $8 6,044 $1 $(38)$40,671 $(760,268)$(3,293)$(722,919)
 Class A
common stock
Class B
common stock
Accumulated
other
comprehensive
(loss) income
Additional paid-
in capital
Accumulated
deficit
Non-controlling
interests
Total (deficit)
equity
 SharesAmountSharesAmount
Balance at June 30, 201983,995 $8 8,582 $1 $251 $24,495 $(333,870)$(5,257)$(314,372)
Net income
— — — — — — 25,777 3,915 29,692 
Equity-based compensation expense
— — — — — 1,286 — — 1,286 
Exchanges of Class B common stock
20 — (20)— — — — — — 
Exercise of stock options and vesting of restricted share units
30 — — — — 826 — — 826 
Repurchase and retirement of Class A common stock
(2,272)— — — — 209 (157,945)(209)(157,945)
Tax benefit arrangement liability and deferred taxes arising from exchanges of Class B common stock
— — — — — 424 — — 424 
Non-cash adjustments to VIEs
— — — — — — — (215)(215)
Distributions paid to members of Pla-Fit Holdings
— — — — — — — (1,757)(1,757)
Forfeiture of dividend equivalents— — — — — — 6 — 6 
Other comprehensive income
— — — — (62)— — — (62)
Balance at September 30, 201981,773 $8 8,562 $1 $189 $27,240 $(466,032)$(3,523)$(442,117)

See accompanying notes to condensed consolidated financial statements.
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Table of Contents
Planet Fitness, Inc. and subsidiaries
Notes to Condensed Consolidated financial statements
(Unaudited)
(Amounts in thousands, except share and per share amounts)


(1) Business Organization
Planet Fitness, Inc. (the “Company”), through its subsidiaries, is a franchisor and operator of fitness centers, with more than 14.1 million members and 2,086 owned and franchised locations (referred to as stores) in 50 states, the District of Columbia, Puerto Rico, Canada, the Dominican Republic, Panama, Mexico and Australia as of September 30, 2020.
In March 2020, the Company proactively closed all of its stores system wide in response to the novel coronavirus disease (“COVID-19”) pandemic in order to promote the health and safety of its members, team members and their communities. As of September 30, 2020, 1,983 stores had reopened, of which 1,884 were franchisee-owned stores and 99 were corporate-owned stores.
The Company serves as the reporting entity for its various subsidiaries that operate three distinct lines of business:
Licensing and selling franchises under the Planet Fitness trade name.
Owning and operating fitness centers under the Planet Fitness trade name.
Selling fitness-related equipment to franchisee-owned stores.
The Company was formed as a Delaware corporation on March 16, 2015 for the purpose of facilitating an initial public offering (the “IPO”), which was completed on August 11, 2015 and related transactions in order to carry on the business of Pla-Fit Holdings, LLC and its subsidiaries (“Pla-Fit Holdings”). As of August 5, 2015, in connection with the recapitalization transactions that occurred prior to the IPO, the Company became the sole managing member and holder of 100% of the voting power of Pla-Fit Holdings. Pla-Fit Holdings owns 100% of Planet Intermediate, LLC, which has no operations but is the 100% owner of Planet Fitness Holdings, LLC, a franchisor and operator of fitness centers through its subsidiaries. With respect to the Company, Pla-Fit Holdings and Planet Intermediate, LLC, each entity owns nothing other than the respective entity below it in the corporate structure and each entity has no other material operations.
The Company is a holding company whose principal asset is a controlling equity interest in Pla-Fit Holdings. As the sole managing member of Pla-Fit Holdings, the Company operates and controls all of the business and affairs of Pla-Fit Holdings, and through Pla-Fit Holdings, conducts its business. As a result, the Company consolidates Pla-Fit Holdings’ financial results and reports a non-controlling interest related to the portion of limited liability company units of Pla-Fit Holdings (“Holdings Units”) not owned by the Company. Unless otherwise specified, “the Company” refers to both Planet Fitness, Inc. and Pla-Fit Holdings throughout the remainder of these notes.
As of September 30, 2020, Planet Fitness, Inc. held 100.0% of the voting interest and 93.0% of the economic interest of Pla-Fit Holdings and the holders of Holdings Units of Pla-Fit Holdings (the “Continuing LLC Owners”) held the remaining 7.0% economic interest in Pla-Fit Holdings.

(2) Summary of Significant Accounting Policies
(a) Basis of presentation and consolidation
The accompanying unaudited interim condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Accordingly, these interim financial statements do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) necessary for a fair presentation of the results of operations, financial position and cash flows for the periods presented have been reflected. All significant intercompany balances and transactions have been eliminated in consolidation.
The condensed consolidated financial statements as of and for the three and nine months ended September 30, 2020 and 2019 are unaudited. The condensed consolidated balance sheet as of December 31, 2019 has been derived from the audited financial statements at that date but does not include all of the disclosures required by U.S. GAAP. These interim condensed consolidated financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2019 (the “Annual Report”) filed with the SEC on February 28, 2020. Operating results for the interim periods are not necessarily indicative of the results that may be expected for the full year.
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Table of Contents
Planet Fitness, Inc. and subsidiaries
Notes to Condensed Consolidated financial statements
(Unaudited)
(Amounts in thousands, except share and per share amounts)

As discussed in Note 1, Planet Fitness, Inc. consolidates Pla-Fit Holdings. The Company also consolidates entities in which it has a controlling financial interest, the usual condition of which is ownership of a majority voting interest. The Company also considers for consolidation certain interests where the controlling financial interest may be achieved through arrangements that do not involve voting interests. Such an entity, known as a variable interest entity (“VIE”), is required to be consolidated by its primary beneficiary. The primary beneficiary of a VIE is considered to possess the power to direct the activities of the VIE that most significantly impact its economic performance and has the obligation to absorb losses or the rights to receive benefits from the VIE that are significant to it. The principal entities in which the Company possesses a variable interest include franchise entities and certain other entities. The Company is not deemed to be the primary beneficiary for Planet Fitness franchise entities. Therefore, these entities are not consolidated.
The results of the Company have been consolidated with Matthew Michael Realty LLC (“MMR”), PF Melville LLC (“PF Melville”), and Planet Fitness NAF, LLC (the “NAF”) based on the determination that the Company is the primary beneficiary with respect to these VIEs. MMR and PF Melville are real estate holding companies that derive a majority of their financial support from the Company through lease agreements for corporate stores. See Note 3 for further information related to the Company’s VIEs. The NAF is an advertising fund on behalf of which the Company typically collects 2% of gross monthly membership dues from franchisees, in accordance with the provisions of the franchise agreements, and uses the amounts received to support our national marketing campaigns, its social media platforms and the development of local advertising materials.
(b) Use of estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Although these estimates are based on management’s knowledge of current events and actions it may undertake in the future, they may ultimately differ from actual results. Significant areas where estimates and judgments are relied upon by management in the preparation of the consolidated financial statements include revenue recognition, valuation of assets and liabilities in connection with acquisitions, valuation of equity-based compensation awards, the evaluation of the recoverability of goodwill and long-lived assets, including intangible assets, income taxes, including deferred tax assets and liabilities and reserves for unrecognized tax benefits, the liability for the Company’s tax benefit arrangements, and the value of the lease liability and related right-of-use asset recorded in accordance with ASC 842 (see Note 7).
(c) Fair Value
ASC 820, Fair Value Measurements and Disclosures, establishes a three-level valuation hierarchy for disclosure of fair value measurements. The valuation hierarchy is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date. Categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The three levels are defined as follows:
Level 1—Inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.
Level 2—Inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.
Level 3—Inputs to the valuation methodology are unobservable and significant to the fair value measurement.
 
The carrying value and estimated fair value of long-term debt as of September 30, 2020 and December 31, 2019 were as follows:
September 30, 2020December 31, 2019
Carrying value
Estimated fair value(1)
Carrying value
Estimated fair value(1)
Long-term debt$1,721,875 $1,672,404 $1,735,000 $1,765,805 
Variable Funding Notes$75,000 $75,000 $ $ 
(1) The Company’s Variable Funding Notes are a variable rate loan and the fair value of this loan approximates book value based on the borrowing rates currently available for variable rate loans obtained from third party lending institutions. The estimated fair value of our fixed rate long-term debt is estimated primarily based on current bid prices for our long-term debt. Judgment is required to develop these estimates. As such, the fair value of our long-term debt is classified within Level 2, as defined under U.S. GAAP.
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Table of Contents
Planet Fitness, Inc. and subsidiaries
Notes to Condensed Consolidated financial statements
(Unaudited)
(Amounts in thousands, except share and per share amounts)

As a result of the COVID-19 pandemic, the fair value of our long-term debt has fluctuated significantly and may continue to fluctuate based on market conditions and other factors, including changes in the target federal funds rate.
(d) Recent accounting pronouncements
The FASB issued ASU No. 2017-4, Intangibles–Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment, in January 2017. This guidance eliminates the requirement to calculate the implied fair value, essentially eliminating step two from the goodwill impairment test. The new standard requires goodwill impairment to be based upon the results of step one of the impairment test, which is defined as the excess of the carrying value of a reporting unit over its fair value. The impairment charge will be limited to the amount of goodwill allocated to that reporting unit. The Company adopted this guidance on January 1, 2020 noting no material impact on the Company’s consolidated financial statements.
The FASB issued ASU No. 2018-15, Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract, in August 2018. The guidance helps align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). The Company adopted this guidance on January 1, 2020 on a prospective basis, noting no material impact on the Company’s consolidated financial statements.
The FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, in December 2019. The amendments in this Update simplify the accounting for income taxes by removing certain exceptions to the general principles in Topic 740. The amendments also improve consistent application of and simplify GAAP for other areas of Topic 740 by clarifying and amending existing guidance. This guidance will be effective for fiscal years beginning after December 15, 2020, and early adoption is permitted. The Company is currently evaluating the impact of this guidance on its consolidated financial statements.
(3) Variable Interest Entities
The carrying values of VIEs included in the consolidated financial statements as of September 30, 2020 and December 31, 2019 are as follows: 
 September 30, 2020December 31, 2019
 AssetsLiabilitiesAssetsLiabilities
PF Melville$2,563 $ $2,682 $ 
MMR2,126  2,206  
Total$4,689 $ $4,888 $ 
 
The Company also has variable interests in certain franchisees mainly through the guarantee of lease agreements up to a maximum period of ten years with earlier expiration dates possible if certain conditions are met. The Company’s maximum obligation, as a result of its guarantees of leases, is approximately $14,345 and $10,309 as of September 30, 2020 and December 31, 2019, 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 estimated fair value of the guarantees, which is not material.
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Table of Contents
Planet Fitness, Inc. and subsidiaries
Notes to Condensed Consolidated financial statements
(Unaudited)
(Amounts in thousands, except share and per share amounts)

(4) Acquisitions
New Jersey Acquisition
On December 16, 2019, the Company purchased from one of its franchisees certain assets associated with twelve franchisee-owned stores in New Jersey for a cash payment of $37,812. As a result of the transaction, the Company incurred a loss on unfavorable reacquired franchise rights of $1,810. The loss incurred reduced the net purchase price to $36,002. The Company financed the purchase through cash on hand. The acquired stores are included in the Corporate-owned stores segment.
The purchase consideration was allocated as follows: