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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, 2021
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 November 1, 2021 there were 83,344,564 shares of the Registrant’s Class A Common Stock, par value $0.0001 per share, outstanding and 3,263,075 shares of the Registrant’s Class B Common Stock, par value $0.0001 per share, outstanding.



PLANET FITNESS, INC.
TABLE OF CONTENTS
  
2


Cautionary Note Regarding Forward-Looking Statements
This Quarterly Report on Form 10-Q, as well as information included in oral statements or other written statements made or to be made by us, contain statements that constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are neither historical facts nor assurances of future performance. Instead, they are based on our current beliefs, expectations and assumptions regarding the future of our business, future plans and strategies, and other future conditions. Forward-looking statements can be identified by words such as “anticipate,” “believe,” “envision,” “estimate,” “expect,” “intend,” “may,” “plan,” “predict,” “project,” “target,” “potential,” “will,” “would,” “could,” “should,” “continue,” “ongoing,” “contemplate” and other similar expressions, although not all forward-looking statements contain these identifying words. Examples of forward-looking statements include, among others, statements we make regarding:
future financial position;
business strategy;
budgets, projected costs and plans;
future industry growth;
financing sources;
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 business and results of operations have been and in the future may be materially impacted by the ongoing COVID-19 pandemic, and could be impacted by similar events in the future;
•    our success depends substantially on the value of our brand, which could be materially and adversely affected by the high level of competition in the health and fitness industry, our ability to anticipate and satisfy consumer preferences, shifting views of health and fitness and our ability to obtain and retain high-profile strategic partnership arrangements;
•    our and our franchisees’ stores may be unable to attract and retain members, which would materially and adversely affect our business, results of operations and financial condition;
•    our intellectual property rights, including trademarks, trade names, copyrights and trade dress, may be infringed, misappropriated or challenged by others;
•    we and our franchisees rely heavily on information systems, including the use of email marketing and social media, and any material failure, interruption or weakness may prevent us from effectively operating our business, damage our reputation or subject us to potential fines or other penalties;
•    if we fail to properly maintain the confidentiality and integrity of our data, including member credit card, debit card, bank account information and other personally identifiable information, our reputation and business could be materially and adversely affected;
•    the occurrence of cyber incidents, or a deficiency in cybersecurity, could negatively impact our business by causing a disruption to our operations, a compromise or corruption of confidential information, and/or damage to our employee and business relationships and reputation, all of which could harm our brand and our business;
•    if we fail to successfully implement our growth strategy, which includes new store development by existing and new franchisees, our ability to increase our revenues and operating profits could be adversely affected;
•    our planned growth and changes in the industry could place strains on our management, employees, information systems and internal controls, which may adversely impact our business;
•    if we cannot retain our key employees and hire additional highly qualified employees, we may not be able to successfully manage our businesses and pursue our strategic objectives;
•    economic, political and other risks associated with our international operations could adversely affect our profitability and international growth prospect;
•    our financial results are affected by the operating and financial results of, our relationships with and actions taken by our franchisees;
•    we are subject to a variety of additional risks associated with our franchisees, such as potential franchisee bankruptcies, franchisee changes in control, franchisee turnover rising costs related to construction of new stores and maintenance of existing stores, which could adversely affect the attractiveness of our franchise model, and in turn our business, results of operations and financial condition;
3


•    we and our franchisees could be subject to claims related to health and safety risks to members that arise while at both our corporate-owned and franchise stores;
•    our business is subject to various laws and regulations including, among others, those governing indoor tanning, contract renewal and cancellation, electronic funds transfer, ACH, credit card, debit card and digital payment options, and changes in such laws and regulations, failure to comply with existing or future laws and regulations or failure to adjust to consumer sentiment regarding these matters, could harm our reputation and adversely affect our business;
•    we are subject to risks associated with leasing property subject to long-term non-cancelable leases;
•    if we and our franchisees are unable to identify and secure suitable sites for new franchise stores, our revenue growth rate and profits may be negatively impacted;
•    opening new stores in close proximity may negatively impact our existing stores’ revenues and profitability;
•    our franchisees may incur rising costs related to construction of new stores and maintenance of existing stores, which could adversely affect the attractiveness of our franchise model, and in turn our business, results of operations and financial condition;
•    our dependence on a limited number of suppliers for equipment and certain products and services could result in disruptions to our business and could adversely affect our revenues and gross profit; and
the other factors identified under the heading “Risk Factors” in our annual report on Form 10-K for the fiscal year ended December 31, 2020 filed with the Securities and Exchange Commission.
The forward-looking statements in this Quarterly Report on Form 10-Q represent our views as of the date of this Report. We undertake no obligation to publicly update any forward-looking statements whether as a result of new information, future developments or otherwise.
4

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,
 20212020
Assets  
Current assets:  
Cash and cash equivalents
$527,346 $439,478 
Restricted cash
58,128 76,322 
Accounts receivable, net of allowance for bad debts of $0 and $7 at September 30, 2021 and December 31, 2020, respectively
11,137 16,447 
Inventory
4,099 473 
Deferred expenses – national advertising fund
1,162  
Prepaid expenses
12,827 11,881 
Other receivables
9,453 16,754 
Income tax receivables4,960 5,461 
Total current assets629,112 566,816 
Property and equipment, net of accumulated depreciation of $140,738 and $107,720 at September 30, 2021 and December 31, 2020, respectively
162,378 160,677 
Investments35,949  
Right-of-use assets, net177,733 164,252 
Intangible assets, net204,598 217,075 
Goodwill227,821 227,821 
Deferred income taxes510,255 511,200 
Other assets, net1,851 1,896 
Total assets$1,949,697 $1,849,737 
Liabilities and stockholders’ deficit
Current liabilities:
Current maturities of long-term debt
$17,500 $17,500 
Accounts payable
21,703 19,388 
Accrued expenses
33,042 22,042 
Equipment deposits
20,889 795 
Deferred revenue, current
31,120 26,691 
Payable pursuant to tax benefit arrangements, current
12,456  
Other current liabilities
23,475 25,479 
Total current liabilities160,185 111,895 
Long-term debt, net of current maturities1,668,054 1,676,426 
Borrowings under Variable Funding Notes75,000 75,000 
Lease liabilities, net of current portion183,942 167,910 
Deferred revenue, net of current portion31,641 32,587 
Deferred tax liabilities724 881 
Payable pursuant to tax benefit arrangements, net of current portion485,906 488,200 
Other liabilities2,650 2,511 
Total noncurrent liabilities2,447,917 2,443,515 
Commitments and contingencies (Note 13)
Stockholders’ equity (deficit):
Class A common stock, $.0001 par value - 300,000 authorized, 83,342 and 82,821 shares issued and outstanding as of September 30, 2021 and December 31, 2020, respectively
8 8 
Class B common stock, $.0001 par value - 100,000 authorized, 3,263 and 3,722 shares issued and outstanding as of September 30, 2021 and December 31, 2020, respectively
1 1 
Accumulated other comprehensive income12 27 
Additional paid in capital
53,970 45,673 
Accumulated deficit
(714,544)(751,578)
Total stockholders’ deficit attributable to Planet Fitness Inc.(660,553)(705,869)
Non-controlling interests
2,148 196 
Total stockholders’ deficit(658,405)(705,673)
Total liabilities and stockholders’ deficit$1,949,697 $1,849,737 
 See accompanying notes to condensed consolidated financial statements
5

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,
 2021202020212020
Revenue:  
Franchise$61,481 $47,171 $173,419 $112,296 
Commission income39 48 381 483 
National advertising fund revenue13,863 12,538 38,493 26,509 
Corporate-owned stores43,899 28,289 122,355 78,224 
Equipment34,973 17,337 68,735 55,335 
Total revenue154,255 105,383 403,383 272,847 
Operating costs and expenses:
Cost of revenue27,097 15,302 53,579 45,625 
Store operations27,751 21,371 82,088 62,209 
Selling, general and administrative22,969 18,295 67,248 51,143 
National advertising fund expense15,586 20,157 41,868 46,240 
Depreciation and amortization16,248 13,636 46,758 39,436 
Other (gain) loss57 580 (2,363)606 
Total operating costs and expenses109,708 89,341 289,178 245,259 
Income from operations44,547 16,042 114,205 27,588 
Other expense, net:
Interest income233 349 645 2,635 
Interest expense(20,350)(20,686)(60,719)(61,394)
Other income (expense)677 (24)695 (784)
Total other expense, net(19,440)(20,361)(59,379)(59,543)
Income (loss) before income taxes25,107 (4,319)54,826 (31,955)
Provision (benefit) for income taxes6,475 (1,035)14,988 (7,069)
Net income (loss)18,632 (3,284)39,838 (24,886)
Less net income (loss) attributable to non-controlling interests1,189 (173)2,804 (1,205)
Net income (loss) attributable to Planet Fitness, Inc.$17,443 $(3,111)37,034 $(23,681)
Net income (loss) per share of Class A common stock:
Basic$0.21 $(0.04)$0.45 $(0.30)
Diluted$0.21 $(0.04)$0.44 $(0.30)
Weighted-average shares of Class A common stock outstanding:
Basic83,274 80,221 83,194 79,763 
Diluted83,879 80,221 83,808 79,763 
 
See accompanying notes to condensed consolidated financial statements.
6

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,
 2021202020212020
Net income (loss) including non-controlling interests$18,632 $(3,284)$39,838 $(24,886)
Other comprehensive income (loss), net:
Foreign currency translation adjustments(44)19 (15)(341)
Total other comprehensive income (loss), net(44)19 (15)(341)
Total comprehensive income (loss) including non-controlling
interests
18,588 (3,265)39,823 (25,227)
Less: total comprehensive income (loss) attributable to non-controlling interests1,189 (173)2,804 (1,205)
Total comprehensive income (loss) attributable to Planet Fitness,
Inc.
$17,399 $(3,092)$37,019 $(24,022)
 
See accompanying notes to condensed consolidated financial statements.
7

Planet Fitness, Inc. and subsidiaries
Condensed consolidated statements of cash flows
(Unaudited)
(Amounts in thousands)
 For the nine months ended September 30,
 20212020
Cash flows from operating activities:  
Net income (loss)$39,838 $(24,886)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation and amortization46,758 39,436 
Amortization of deferred financing costs4,753 4,801 
Amortization of asset retirement obligations55 48 
Dividends accrued on investment(949) 
Deferred tax expense (benefit)12,774 (7,506)
Gain on re-measurement of tax benefit arrangement(348)(502)
Provision for bad debts10 (45)
Gain on disposal of property and equipment(46) 
Equity-based compensation6,267 3,564 
Other(1)(93)
Changes in operating assets and liabilities, excluding effects of acquisitions:
Accounts receivable5,321 28,146 
Inventory(3,625)(929)
Other assets and other current assets9,618 (11,364)
National advertising fund(1,162)3,446 
Accounts payable and accrued expenses9,413 (11,148)
Other liabilities and other current liabilities(3,540)461 
Income taxes452 (1,885)
Payable pursuant to tax benefit arrangements (18,396)
Equipment deposits20,099 (1,486)
Deferred revenue3,483 (5,052)
Leases and deferred rent320 1,275 
Net cash provided by (used in) operating activities149,490 (2,115)
Cash flows from investing activities:
Additions to property and equipment(31,791)(36,719)
Proceeds from sale of property and equipment19 282 
Investments(35,000) 
Net cash used in investing activities(66,772)(36,437)
Cash flows from financing activities:
Principal payments on capital lease obligations(146)(118)
Proceeds from borrowings under Variable Funding Notes 75,000 
Repayment of long-term debt(13,125)(13,125)
Proceeds from issuance of Class A common stock916 1,881 
Dividend equivalent payments (227)
Distributions to Continuing LLC Members(670)(1,658)
Net cash (used in) provided by financing activities(13,025)61,753 
Effects of exchange rate changes on cash and cash equivalents(19)(394)
Net increase in cash, cash equivalents and restricted cash69,674 22,807 
Cash, cash equivalents and restricted cash, beginning of period515,800 478,795 
Cash, cash equivalents and restricted cash, end of period$585,474 $501,602 
Supplemental cash flow information:
Net cash paid for income taxes$1,683 $2,319 
Cash paid for interest$56,231 $56,750 
Non-cash investing activities:
Non-cash additions to property and equipment$5,507 $7,629 
 See accompanying notes to condensed consolidated financial statements.
8

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, 202082,821 $8 3,722 $1 $27 $45,673 $(751,578)$196 $(705,673)
Net income— — — — — — 37,034 2,804 39,838 
Equity-based compensation expense
— — — — — 6,267 — — 6,267 
Exchanges of Class B common stock
459 — (459)— — (487)— 487  
Exercise of stock options, vesting of restricted share units and ESPP share purchase
62 — — — — 1,025 — — 1,025 
Tax benefit arrangement liability and deferred taxes arising from exchanges of Class B common stock
— — — — — 1,492 — — 1,492 
Non-cash adjustments to VIEs
— — — — — — — (669)(669)
Distributions paid to members of Pla-Fit Holdings
— — — — — — — (670)(670)
Other comprehensive loss— — — — (15)— — — (15)
Balance at September 30, 202183,342 $8 3,263 $1 $12 $53,970 $(714,544)$2,148 $(658,405)
 
 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 loss— — — — (341)— — — (341)
Balance at September 30, 202080,473 $8 6,044 $1 $(38)$40,671 $(760,268)$(3,293)$(722,919)

9

 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, 202183,225 $8 3,363 $1 $56 $50,917 $(731,987)$1,635 $(679,370)
Net income— — — — — — 17,443 1,189 18,632 
Equity-based compensation expense— — — — — 2,218 — — 2,218 
Exchanges of Class B common stock100 — (100)— — (72)— 72 — 
Exercise of stock options, vesting of restricted share units and ESPP share purchase17 — — — — 579 — — 579 
Tax benefit arrangement liability and deferred taxes arising from exchanges of Class B common stock— — — — — 328 — — 328 
Non-cash adjustments to VIEs— — — — — — — (223)(223)
Distributions paid to members of Pla-Fit Holdings— — — — — — — (525)(525)
Other comprehensive loss— — — — (44)— — — (44)
Balance at September 30, 202183,342 $8 3,263 $1 $12 $53,970 $(714,544)$2,148 $(658,405)

 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 stock456 — (456)— — (570)— 570 — 
Exercise of stock options and vesting of restricted share units23 — — — — 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)
Forfeiture of dividend equivalents— — — — — — (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)
See accompanying notes to condensed consolidated financial statements.
10

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 15.0 million members and 2,193 owned and franchised locations (referred to as stores) in 50 states, the District of Columbia, Puerto Rico, Canada, Panama, Mexico and Australia as of September 30, 2021.
In March 2020, the Company proactively closed all of its stores system wide in response to COVID-19 in order to promote the health and safety of its members, team members and their communities. As of September 30, 2021, 2,189 stores had reopened, of which 2,083 were franchisee-owned stores and 106 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, 2021, Planet Fitness, Inc. held 100.0% of the voting interest and 96.2% 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 3.8% 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, 2021 and 2020 are unaudited. The condensed consolidated balance sheet as of December 31, 2020 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, 2020 (the “Annual Report”) filed with the SEC on March 1, 2021. Operating results for the interim periods are not necessarily indicative of the results that may be expected for the full year.
As discussed in Note 1, 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
11

Planet Fitness, Inc. and subsidiaries
Notes to Condensed Consolidated financial statements
(Unaudited)
(Amounts in thousands, except share and per share amounts)

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 annually 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 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 certain assets and liabilities as of September 30, 2021 and December 31, 2020 were as follows:
September 30, 2021December 31, 2020
Carrying value
Estimated fair value(1)
Carrying value
Estimated fair value(1)
Assets
Investments - held-to-maturity(1)
$25,949 $25,949 $ $ 
Liabilities
Long-term debt(2)
$1,704,375 $1,733,448 $1,717,500 $1,699,749 
Variable Funding Notes(2)
$75,000 $75,000 $75,000 $75,000 
(1) The estimated fair value of the security is determined using unobservable inputs including assumptions by the investee's management including quantitative information such as valuations in recently completed or proposed financings. These inputs are classified as Level 3.
12

Planet Fitness, Inc. and subsidiaries
Notes to Condensed Consolidated financial statements
(Unaudited)
(Amounts in thousands, except share and per share amounts)

(2) 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.
(d) Recent accounting pronouncements
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 is effective for fiscal years beginning after December 15, 2020. The Company adopted the standard beginning January 1, 2021 with no material impact to its financial statements.
(3) Variable Interest Entities
The carrying values of VIEs included in the consolidated financial statements as of September 30, 2021 and December 31, 2020 are as follows: 
 September 30, 2021December 31, 2020
 AssetsLiabilitiesAssetsLiabilities
PF Melville$2,403 $ $2,523 $ 
MMR2,018  2,099  
Total$4,421 $ $4,622 $ 
 
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 $6,852 and $7,842 as of September 30, 2021 and December 31, 2020, 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.










(4) Investments
Investments - Debt securities
At September 30, 2021, we held preferred shares in certain privately held entities, accounted for under ASC Topic 320, Investments—Debt Securities, which are included in Investments in our condensed consolidated balance sheets. As of September 30, 2021, our investments consist of held-to-maturity preferred shares that we have the positive intent and ability to hold to maturity, and which are measured at amortized cost. We review our held-to-maturity securities for estimated credit losses under ASC Topic 326, Credit Impairment, noting we did not recognize significant credit losses and the ending allowance for credit losses was immaterial.
The amortized cost of our held-to-maturity debt security investments was $25,949 and $0 at September 30, 2021 and December 31, 2020, respectively. There were