Document and Entity Information - shares	3 Months Ended
Document and Entity Information - shares	Mar. 31, 2018	May 01, 2018
Document Information [Line Items]
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Mar. 31, 2018
Document Fiscal Year Focus	2018
Document Fiscal Period Focus	Q1
Trading Symbol	PLNT
Entity Registrant Name	PLANET FITNESS, INC.
Entity Central Index Key	0001637207
Current Fiscal Year End Date	--12-31
Entity Filer Category	Large Accelerated Filer
Class A Common Stock
Document Information [Line Items]
Entity Common Stock, Shares Outstanding		87,656,487
Class B Common Stock
Document Information [Line Items]
Entity Common Stock, Shares Outstanding		10,741,740

Condensed consolidated balance sheets (Unaudited) - USD ($) $ in Thousands	Mar. 31, 2018	Dec. 31, 2017
Current assets:
Cash and cash equivalents	$ 127,146	$ 113,080
Accounts receivable, net of allowance for bad debts of $18 and $32 at March 31, 2018 and December 31, 2017, respectively	18,620	37,272
Due from related parties	3,060	3,020
Inventory	4,056	2,692
Restricted assets – national advertising fund	78	499
Deferred expenses – national advertising fund	4,596	0
Prepaid expenses	4,051	3,929
Other receivables	14,550	9,562
Other current assets	5,355	6,947
Total current assets	181,512	177,001
Property and equipment, net of accumulated depreciation of $40,493, as of March 31, 2018 and $36,228 as of December 31, 2017	84,545	83,327
Intangible assets, net	241,105	235,657
Goodwill	191,038	176,981
Deferred income taxes	409,216	407,782
Other assets, net	8,437	11,717
Total assets	1,115,853	1,092,465
Current liabilities:
Current maturities of long-term debt	7,185	7,185
Accounts payable	15,664	28,648
Accrued expenses	14,787	18,590
Equipment deposits	14,283	6,498
Restricted liabilities – national advertising fund	78	490
Deferred revenue, current	20,842	19,083
Payable to related parties pursuant to tax benefit arrangements, current	31,062	31,062
Other current liabilities	493	474
Total current liabilities	104,394	112,030
Long-term debt, net of current maturities	695,264	696,576
Deferred rent, net of current portion	6,907	6,127
Deferred revenue, net of current portion	22,942	8,440
Deferred tax liabilities	1,379	1,629
Payable to related parties pursuant to tax benefit arrangements, net of current portion	403,022	400,298
Other liabilities	4,379	4,302
Total noncurrent liabilities	1,133,893	1,117,372
Commitments and contingencies (Note 12)
Stockholders' equity (deficit):
Accumulated other comprehensive loss	(370)	(648)
Additional paid in capital	13,011	12,118
Accumulated deficit	(120,245)	(130,966)
Total stockholders' deficit attributable to Planet Fitness Inc.	(107,594)	(119,486)
Non-controlling interests	(14,840)	(17,451)
Total stockholders' deficit	(122,434)	(136,937)
Total liabilities and stockholders' deficit	1,115,853	1,092,465
Class A Common Stock
Stockholders' equity (deficit):
Common stock, value	9	9
Class B Common Stock
Stockholders' equity (deficit):
Common stock, value	$ 1	$ 1

Condensed consolidated balance sheets (Unaudited) (Parenthetical) - USD ($) $ in Thousands	Mar. 31, 2018	Dec. 31, 2017
Accounts receivable, allowance for bad debts	$ 18	$ 32
Accumulated depreciation	$ 40,493	$ 36,228
Class A Common Stock
Common stock, par value (in dollars per share)	$ 0.0001	$ 0.0001
Common stock, shares authorized	300,000,000	300,000,000
Common stock, shares issued	87,505,000	87,188,000
Common stock, shares outstanding	87,505,000	87,188,000
Class B Common Stock
Common stock, par value (in dollars per share)	$ 0.0001	$ 0.0001
Common stock, shares authorized	100,000,000	100,000,000
Common stock, shares issued	10,893,000	11,193,000
Common stock, shares outstanding	10,893,000	11,193,000

Condensed consolidated statements of operations (Unaudited) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2018	Mar. 31, 2017
Revenue:
Franchise	$ 42,162	$ 30,281
Commission income	1,989	6,516
National advertising fund revenue	10,461	0
Corporate-owned stores	32,708	27,041
Equipment	34,013	27,264
Total revenue	121,333	91,102
Operating costs and expenses:
Cost of revenue	26,500	21,124
Store operations	18,356	15,184
Selling, general and administrative	17,623	13,820
National advertising fund expense	10,461	0
Depreciation and amortization	8,465	7,951
Other loss (gain)	1,010	(32)
Total operating costs and expenses	82,415	58,047
Income from operations	38,918	33,055
Other expense, net:
Interest expense, net	(8,734)	(8,763)
Other income	192	682
Total other expense, net	(8,542)	(8,081)
Income before income taxes	30,376	24,974
Provision for income taxes	6,883	7,108
Net income	23,493	17,866
Less net income attributable to non-controlling interests	3,613	9,024
Net income attributable to Planet Fitness, Inc.	$ 19,880	$ 8,842
Class A Common Stock
Net income per share of Class A common stock:
Basic (in dollars per share)	$ 0.23	$ 0.14
Diluted (in dollars per share)	$ 0.23	$ 0.14
Weighted-average shares of Class A common stock outstanding:
Basic (in shares)	87,434,384	64,120,677
Diluted (in shares)	87,697,685	64,149,941

Condensed consolidated statements of comprehensive income (loss) (Unaudited) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2018	Mar. 31, 2017
Statement of Comprehensive Income [Abstract]
Net income including non-controlling interests	$ 23,493	$ 17,866
Other comprehensive income (loss), net:
Unrealized gain on interest rate caps, net of tax	366	177
Foreign currency translation adjustments	(29)	(8)
Total other comprehensive income, net	337	169
Total comprehensive income including non-controlling interests	23,830	18,035
Less: total comprehensive income attributable to non-controlling interests	3,671	9,114
Total comprehensive income attributable to Planet Fitness, Inc.	$ 20,159	$ 8,921

Condensed consolidated statements of cash flows (Unaudited) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2018	Mar. 31, 2017
Cash flows from operating activities:
Net income	$ 23,493	$ 17,866
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	8,465	7,951
Amortization of deferred financing costs	484	465
Amortization of favorable leases and asset retirement obligations	93	94
Amortization of interest rate caps	195	432
Deferred tax expense	4,909	5,298
Gain on re-measurement of tax benefit arrangement	(396)	(541)
Provision for bad debts	(14)	27
Loss on reacquired franchise rights	350	0
Loss on disposal of property and equipment	650	0
Equity-based compensation	998	380
Changes in operating assets and liabilities, excluding effects of acquisitions:
Accounts receivable	18,637	11,859
Due to and due from related parties	165	(99)
Inventory	(1,364)	471
Other assets and other current assets	(1,341)	(2,187)
National advertising fund	(4,586)	0
Accounts payable and accrued expenses	(16,758)	(21,244)
Other liabilities and other current liabilities	83	188
Income taxes	1,898	310
Equipment deposits	7,784	8,569
Deferred revenue	3,536	527
Deferred rent	853	106
Net cash provided by operating activities	48,134	30,472
Cash flows from investing activities:
Additions to property and equipment	(2,036)	(5,336)
Acquisition of franchises	(28,503)	0
Proceeds from sale of property and equipment	40	0
Net cash used in investing activities	(30,499)	(5,336)
Cash flows from financing activities:
Principal payments on capital lease obligations	(11)	0
Repayment of long-term debt	(1,796)	(1,796)
Premiums paid for interest rate caps	0	(366)
Exercise of stock options	242	0
Dividend equivalent payments	(20)	(20)
Distributions to Continuing LLC Members	(1,734)	(3,142)
Net cash used in financing activities	(3,319)	(5,324)
Effects of exchange rate changes on cash and cash equivalents	(250)	31
Net increase in cash and cash equivalents	14,066	19,843
Cash and cash equivalents, beginning of period	113,080	40,393
Cash and cash equivalents, end of period	127,146	60,236
Supplemental cash flow information:
Net cash paid for income taxes	106	1,595
Cash paid for interest	8,146	7,857
Non-cash investing activities:
Non-cash additions to property and equipment	$ 453	$ 38

Condensed consolidated statement of changes in equity (deficit) (Unaudited) - 3 months ended Mar. 31, 2018 - USD ($) shares in Thousands, $ in Thousands	Total	Accumulated other comprehensive (loss) income	Additional paid- in capital	Accumulated deficit	Non-controlling interests	Class A Common Stock	Class A Common Stock Common stock	Class B Common Stock	Class B Common Stock Common stock
Beginning balance (in shares) at Dec. 31, 2017						87,188	87,188	11,193	11,193
Beginning balance at Dec. 31, 2017	$ (136,937)	$ (648)	$ 12,118	$ (130,966)	$ (17,451)		$ 9		$ 1
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net income	23,493			19,880	3,613
Equity-based compensation expense	998		998
Exchanges of Class B common stock, shares issued							300		(300)
Exchanges of Class B common stock	0	(1)	(673)		674
Exercise of stock options and vesting of restricted share units (in shares)							17
Exercise of stock options and vesting of restricted share units	242		242
Tax benefit arrangement liability and deferred taxes arising from exchanges of Class B common stock	326		326
Forfeiture of dividend equivalents	33			33
Distributions paid to members of Pla-Fit Holdings	(1,734)				(1,734)
Cumulative effect adjustment (Note 15)	(9,192)			(9,192)
Other comprehensive income	337	279			58
Ending balance (in shares) at Mar. 31, 2018						87,505	87,505	10,893	10,893
Ending balance at Mar. 31, 2018	$ (122,434)	$ (370)	$ 13,011	$ (120,245)	$ (14,840)		$ 9		$ 1

Business Organization

3 Months Ended

Mar. 31, 2018

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Business Organization

Planet Fitness, Inc. (the “Company”), through its subsidiaries, is a franchisor and operator of fitness centers, with more than 11.8 million members and 1,565 owned and franchised locations (referred to as stores) in 50 states, the District of Columbia, Puerto Rico, Canada, the Dominican Republic and Panama as of March 31, 2018.

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. 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.

Subsequent to the IPO and the related recapitalization transactions, 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 March 31, 2018, Planet Fitness, Inc. held 100.0% of the voting interest and 88.9% 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 11.1% economic interest in Pla-Fit Holdings.

Summary of Significant Accounting Policies

3 Months Ended

Mar. 31, 2018

Accounting Policies [Abstract]

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 months ended March 31, 2018 are unaudited. The condensed consolidated balance sheet as of December 31, 2017 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, 2017 (the “Annual Report”) filed with the SEC on March 1, 2018. 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, as a result of the recapitalization transactions, 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”) and PF Melville LLC (“PF Melville”) based on the determination that the Company is the primary beneficiary with respect to these VIEs. These entities 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.

(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, and the liability for the Company’s tax benefit arrangements.

(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 table below presents information about the Company’s assets and liabilities that are measured at fair value on a recurring basis as of March 31, 2018 and December 31, 2017:



	Total fair value at March 31, 2018		Quoted prices in active markets (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)
Interest rate caps	$	636	$	—	$	636	$	—
	Total fair value at December 31, 2017		Quoted prices in active markets (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)
Interest rate caps	$	340	$	—	$	340	$	—

(d) Recent accounting pronouncements

The FASB issued ASU No. 2014-9, Revenue from Contracts with Customers, in September 2014. This guidance requires that an entity recognize revenue to depict the transfer of a promised good or service to its customers in an amount that reflects consideration to which the entity expects to be entitled in exchange for such transfer. This guidance also specifies accounting for certain costs incurred by an entity to obtain or fulfill a contract with a customer and provides for enhancements to revenue specific disclosures intended to allow users of the financial statements to clearly understand the nature, amount, timing and uncertainty of revenue and cash flows arising from an entity’s contracts with its customers. The Company has adopted the guidance as of January 1, 2018 on a modified retrospective basis. See Note 15 for details about the effect of adoption.

The FASB issued ASU No. 2016-2, Leases, in February 2016. This guidance is intended to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. This guidance is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years for public companies. Early application of the amendments in this update is permitted for all entities. The Company anticipates that adoption of this guidance will bring all current operating leases onto the statement of financial position as a right of use asset and related rent liability, and is currently evaluating the effect that implementation of this guidance will have on its consolidated statement of operations.

The FASB issued ASU No. 2016-15, Classification of Certain Cash Receipts and Cash Payments, in August 2016. This guidance is intended to reduce diversity in practice of the classification of certain cash receipts and cash payments. This guidance will be effective for fiscal years beginning after December 15, 2017, including interim periods within that year. The Company has adopted the guidance as of January 1, 2018 on a prospective basis, noting no material impact on its consolidated financial statements.

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. This guidance will be effective for fiscal years beginning after December 15, 2019, including interim periods within that year. This new guidance is not expected to have a material impact on the Company’s consolidated financial statements.

The FASB issued ASU No. 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities, in August 2017. The guidance simplifies the application of hedge accounting in certain situations and amends the hedge accounting model to enable entities to better portray the economics of their risk management activities in the financial statements. This guidance will be effective for fiscal years beginning after December 15, 2018, including interim periods within that year. The Company is currently evaluating the impact of this guidance on its consolidated financial statements.

Variable Interest Entities

3 Months Ended

Mar. 31, 2018

Variable Interest Entity, Consolidated, Carrying Amount, Assets and Liabilities, Net [Abstract]

Variable Interest Entities

The carrying values of VIEs included in the consolidated financial statements as of March 31, 2018 and December 31, 2017 are as follows:



	March 31, 2018				December 31, 2017
	Assets		Liabilities		Assets		Liabilities
PF Melville	$	4,512			$	4,420	$	—
MMR	3,410				3,360		—
Total	$	7,922	$	—	$	7,780	$	—

The Company also has variable interests in certain franchisees mainly through the guarantee of certain debt and lease agreements by the Company and by certain related parties to franchisees. The Company’s maximum obligation, as a result of its guarantees of leases and debt, is approximately $919 and $979 as of March 31, 2018 and December 31, 2017, respectively.

The amount of the Company’s maximum obligation represents a loss that the Company could incur from the variability in credit exposure without consideration of possible recoveries through insurance or other means. In addition, the amount bears no relation to the ultimate settlement anticipated to be incurred from the Company’s involvement with these entities, which is estimated at $0.

Acquisition

3 Months Ended

Mar. 31, 2018

Business Combinations [Abstract]

Acquisition

On January 1, 2018, the Company purchased from one of its franchisees certain assets associated with six franchisee-owned stores in New York for a cash payment of $28,503. As a result of the transaction, the Company incurred a loss on unfavorable reacquired franchise rights of $350, which has been reflected in other operating costs in the statement of operations. The loss incurred reduced the net purchase price to $28,153. The Company financed the purchase through cash on hand. The acquired stores are included in the Corporate-owned stores segment.

The preliminary purchase consideration was allocated as follows:



	Amount
Fixed assets	$	4,672
Reacquired franchise rights	7,640
Customer relationships	1,150
Favorable leases, net	520
Reacquired area development rights	150
Other assets	275
Goodwill	14,056
Liabilities assumed, including deferred revenues	(310		)
	$	28,153

The goodwill created through the purchase is attributable to the assumed future value of the cash flows from the stores acquired. The goodwill is deductible for tax purposes over 15 years.

The acquisition was not material to the results of operations, financial position or cash flows of the Company.

Certain estimated values for the acquisition, including goodwill and intangible assets, are not yet finalized and are subject to revision as additional information becomes available and more detailed analyses are completed.

Goodwill and Intangible Assets

3 Months Ended

Mar. 31, 2018

Goodwill and Intangible Assets Disclosure [Abstract]

Goodwill and Intangible assets

Goodwill and Intangible Assets

A summary of goodwill and intangible assets at March 31, 2018 and December 31, 2017 is as follows:



March 31, 2018	Weighted average amortization period (years)	Gross carrying amount		Accumulated amortization			Net carrying Amount
Customer relationships	11.1	$	172,932	(89,733		)	$	83,199
Noncompete agreements	5.0	14,500		(14,500		)	—
Favorable leases	7.7	3,455		(2,064		)	1,391
Order backlog	0.4	3,400		(3,400		)	—
Reacquired franchise rights	6.8	16,590		(6,518		)	10,072
Reacquired ADA rights	5.0	150		(7		)	143
		211,027		(116,222		)	94,805
Indefinite-lived intangible:
Trade and brand names	N/A	146,300		—			146,300
Total intangible assets		$	357,327	$	(116,222	)	$	241,105
Goodwill		$	191,038	$	—		$	191,038



December 31, 2017	Weighted average amortization period (years)	Gross carrying amount		Accumulated amortization			Net carrying Amount
Customer relationships	11.1	$	171,782	$	(86,501	)	$	85,281
Noncompete agreements	5.0	14,500		(14,500		)	—
Favorable leases	7.5	2,935		(1,972		)	963
Order backlog	0.4	3,400		(3,400		)	—
Reacquired franchise rights	5.8	8,950		(5,837		)	3,113
		201,567		(112,210		)	89,357
Indefinite-lived intangible:
Trade and brand names	N/A	146,300		—			146,300
Total intangible assets		$	347,867	$	(112,210	)	$	235,657
Goodwill		$	176,981	$	—		$	176,981

The Company determined that no impairment charges were required during any periods presented and the increase to goodwill was due to the acquisition of six franchisee-owned stores on January 1, 2018 (Note 4).

Amortization expense related to the intangible assets totaled $3,966 and $4,715 for the three months ended March 31, 2018 and 2017, respectively. Included within these total amortization expense amounts are $93 and $94 related to amortization of favorable and unfavorable leases for the three months ended March 31, 2018 and 2017, respectively. Amortization of favorable and unfavorable leases is recorded within store operations as a component of rent expense in the consolidated statements of operations. The anticipated annual amortization expense to be recognized in future years as of March 31, 2018 is as follows:



	Amount
Remainder of 2018	$	12,029
2019	15,536
2020	13,676
2021	13,701
2022	13,789
Thereafter	26,074
Total	$	94,805

- Definition

The entire disclosure for the aggregate amount of goodwill and a description of intangible assets, which may include (a) for amortizable intangible assets (also referred to as finite-lived intangible assets), the carrying amount, the amount of any significant residual value, and the weighted-average amortization period, (b) for intangible assets not subject to amortization (also referred to as indefinite-lived intangible assets), the carrying amount, and (c) the amount of research and development assets acquired and written off in the period, including the line item in the income statement in which the amounts written off are aggregated, if not readily apparent from the income statement. Also discloses (a) for amortizable intangibles assets in total and by major class, the gross carrying amount and accumulated amortization, the total amortization expense for the period, and the estimated aggregate amortization expense for each of the five succeeding fiscal years, (b) for intangible assets not subject to amortization the carrying amount in total and by major class, and (c) for goodwill, in total and for each reportable segment, the changes in the carrying amount of goodwill during the period (including the aggregate amount of goodwill acquired, the aggregate amount of impairment losses recognized, and the amount of goodwill included in the gain (loss) on disposal of a reporting unit). If any part of goodwill has not been allocated to a reportable segment, discloses the unallocated amount and the reasons for not allocating. For each impairment loss recognized related to an intangible asset (excluding goodwill), discloses: (a) a description of the impaired intangible asset and the facts and circumstances leading to the impairment, (b) the amount of the impairment loss and the method for determining fair value, (c) the caption in the income statement or the statement of activities in which the impairment loss is aggregated, and (d) the segment in which the impaired intangible asset is reported. For each goodwill impairment loss recognized, discloses: (a) a description of the facts and circumstances leading to the impairment, (b) the amount of the impairment loss and the method of determining the fair value of the associated reporting unit, and (c) if a recognized impairment loss is an estimate not finalized and the reasons why the estimate is not final. May also disclose the nature and amount of any significant adjustments made to a previous estimate of an impairment loss.

+ References + Details

Long-Term Debt

3 Months Ended

Mar. 31, 2018

Debt Disclosure [Abstract]

Long-Term Debt

Long-term debt as of March 31, 2018 and December 31, 2017 consists of the following:



	March 31, 2018			December 31, 2017
Term loan B requires quarterly installments plus interest through the term of the loan, maturing March 31, 2021. Outstanding borrowings bear interest at LIBOR or base rate (as defined) plus a margin at the election of the borrower (4.71% at March 31, 2018 and 4.59% at December 31, 2017)	$	707,673		$	709,470
Revolving credit line, requires interest only payments through the term of the loan, maturing March 31, 2019. Outstanding borrowings bear interest at LIBOR or base rate (as defined) plus a margin at the election of the borrower (6.50% at March 31, 2018 and 6.25% at December 31, 2017)	—			—
Total debt, excluding deferred financing costs	$	707,673		709,470
Deferred financing costs, net of accumulated amortization	(5,224		)	(5,709		)
Total debt	702,449			703,761
Current portion of long-term debt and line of credit	7,185			7,185
Long-term debt, net of current portion	$	695,264		$	696,576

Term loan B payments are payable in quarterly installments with the final scheduled principal payment on the outstanding term loan borrowings due on March 31, 2021.

Future annual principal payments of long-term debt as of March 31, 2018 are as follows:



	Amount
Remainder of 2018	$	5,389
2019	7,185
2020	7,185
2021	687,914
2022	—
Total	$	707,673

Derivative Instruments and Hedging Activities	3 Months Ended
Derivative Instruments and Hedging Activities	Mar. 31, 2018
Derivative Instruments and Hedging Activities Disclosure [Abstract]
Derivative Instruments and Hedging Activities	Derivative Instruments and Hedging Activities The Company utilizes interest-rate-related derivative instruments to manage its exposure related to changes in interest rates on its variable-rate debt instruments. The Company does not enter into derivative instruments for any purpose other than cash flow hedging. The Company does not speculate using derivative instruments. By using derivative financial instruments to hedge exposures to changes in interest rates, the Company exposes itself to credit risk and market risk. Credit risk is the failure of the counterparty to perform under the terms of the derivative contract. When the fair value of a derivative contract is an asset, the counterparty owes the Company, which creates credit risk for the Company. When the fair value of a derivative contract is a liability, the Company owes the counterparty and, therefore, the Company is not exposed to the counterparty’s credit risk in those circumstances. The Company minimizes counterparty credit risk in derivative instruments by entering into transactions with high-quality counterparties whose credit rating is higher than A1/A+ at the inception of the derivative transaction. The derivative instruments entered into by the Company do not contain credit-risk-related contingent features. Market risk is the adverse effect on the value of a derivative instrument that results from a change in interest rates. The market risk associated with interest-rate contracts is managed by establishing and monitoring parameters that limit the types and degree of market risk that may be undertaken. The Company assesses interest rate risk by continually identifying and monitoring changes in interest rate exposures that may adversely impact expected future cash flows and by evaluating hedging opportunities. The Company monitors interest rate risk attributable to both the Company’s outstanding or forecasted debt obligations as well as the Company’s offsetting hedge positions. In order to manage the market risk arising from the outstanding term loans, the Company has entered into a series of interest rate caps. As of March 31, 2018, the Company had interest rate cap agreements with notional amounts of $134,000 outstanding that were entered into in order to hedge three month LIBOR greater than 1.5% through September 30, 2018, and interest rate cap agreements with notional amounts of $220,735 that were entered into in order to hedge one month LIBOR greater than 2.5% through March 31, 2019. The interest rate cap balances of $636 and $340 were recorded within other assets in the condensed consolidated balance sheets as of March 31, 2018 and December 31, 2017, respectively. These amounts have been measured at fair value and are considered to be a Level 2 fair value measurement. The Company recorded an increase to the value of its interest rate caps of $366, net of tax of $125 and $177, net of tax of $57, within other comprehensive income (loss) during the three months ended March 31, 2018 and 2017, respectively. As of March 31, 2018, the Company does not expect to reclassify any amounts included in accumulated other comprehensive income (loss) into earnings during the next 12 months. Transactions and events expected to occur over the next 12 months that could necessitate reclassifying these derivatives’ loss to earnings include the re-pricing of variable-rate debt.

Related Party Transactions

3 Months Ended

Mar. 31, 2018

Related Party Transactions

Amounts due from related parties of $3,060 and $3,020 as of March 31, 2018 and December 31, 2017, respectively, primarily relate to potential reimbursements for certain taxes accrued or paid by the Company (see Note 11).

Activity with entities considered to be related parties is summarized below:



	For the three months ended March 31,
	2018		2017
Franchise revenue	$	882	$	448
Equipment revenue	591		19
Total revenue from related parties	$	1,473	$	467

Additionally, the Company had deferred area development agreement revenue from related parties of $784 and $389 as of March 31, 2018 and December 31, 2017, respectively.

The Company entered into a consulting agreement that continues through December 31, 2018 with a shareholder and former executive officer of the Company.

The Company had payables to related parties pursuant to tax benefit arrangements of $45,125 and $44,794, as of March 31, 2018 and December 31, 2017, respectively (see Note 11).

The Company provides administrative services to Planet Fitness NAF, LLC (“NAF”) and charges NAF a fee for providing these services. The services provided include accounting services, information technology, data processing, product development, legal and administrative support, and other operating expenses, which amounted to $640 and $573 for the three months ended March 31, 2018 and 2017, respectively.

Stockholder's Equity

3 Months Ended

Mar. 31, 2018

Equity [Abstract]

Stockholder's Equity

Stockholder’s Equity

Pursuant to the exchange agreement between the Company and the Continuing LLC Owners, the Continuing LLC Owners (or certain permitted transferees thereof) have the right, from time to time and subject to the terms of the exchange agreement, to exchange their Holdings Units, along with a corresponding number of shares of Class B common stock, for shares of Class A common stock (or cash at the option of the Company) on a one-for-one basis, subject to customary conversion rate adjustments for stock splits, stock dividends, reclassifications and similar transactions. In connection with any exchange of Holdings Units for shares of Class A common stock by a Continuing LLC Owner , the number of Holdings Units held by the Company is correspondingly increased as it acquires the exchanged Holdings Units, and a corresponding number of shares of Class B common stock are canceled.

During the three months ended March 31, 2018, certain existing holders of Holdings Units exercised their exchange rights and exchanged 300,000 Holdings Units for 300,000 newly-issued shares of Class A common stock. Simultaneously, and in connection with these exchanges, 300,000 shares of Class B common stock were surrendered by the holders of Holdings Units that exercised their exchange rights and canceled. Additionally, in connection with these exchanges, Planet Fitness, Inc. received 300,000 Holdings Units, increasing its total ownership interest in Pla-Fit Holdings.

As a result of these transactions, as of March 31, 2018:


•	Holders of our Class A common stock owned 87,505,487 shares of our Class A common stock, representing 88.9% of the voting power in the Company and, through the Company, 87,505,487 Holdings Units representing 88.9% of the economic interest in Pla-Fit Holdings; and


•	the Continuing LLC Owners collectively owned 10,892,740 Holdings Units, representing 11.1% of the economic interest in Pla-Fit Holdings and 10,892,740 shares of our Class B common stock, representing 11.1% of the voting power in the Company.

Earnings Per Share

3 Months Ended

Mar. 31, 2018

Earnings Per Share [Abstract]

Earnings Per Share

Basic earnings per share of Class A common stock is computed by dividing net income attributable to Planet Fitness, Inc. by the weighted-average number of shares of Class A common stock outstanding during the same period. Diluted earnings per share of Class A common stock is computed by dividing net income attributable to Planet Fitness, Inc. by the weighted-average number of shares of Class A common stock outstanding adjusted to give effect to potentially dilutive securities.

Shares of the Company’s Class B common stock do not share in the earnings or losses attributable to Planet Fitness, Inc. and are therefore not participating securities. As such, separate presentation of basic and diluted earnings per share of Class B common stock under the two-class method has not been presented. Shares of the Company’s Class B common stock are, however, considered potentially dilutive shares of Class A common stock because shares of Class B common stock, together with the related Holdings Units, are exchangeable into shares of Class A common stock on a one-for-one basis.

The following table sets forth reconciliations used to compute basic and diluted earnings per share of Class A common stock:



	Three months ended March 31,
	2018		2017
Numerator
Net income	$	23,493	$	17,866
Less: net income attributable to non-controlling interests	3,613		9,024
Net income attributable to Planet Fitness, Inc.	$	19,880	$	8,842
Denominator
Weighted-average shares of Class A common stock outstanding - basic	87,434,384		64,120,677
Effect of dilutive securities:
Stock options	255,527		24,739
Restricted stock units	7,774		4,525
Weighted-average shares of Class A common stock outstanding - diluted	87,697,685		64,149,941
Earnings per share of Class A common stock - basic	$	0.23	$	0.14
Earnings per share of Class A common stock - diluted	$	0.23	$	0.14

Weighted average shares of Class B common stock of 10,953,521 and 34,378,046 for the three months ended March 31, 2018 and 2017, respectively, were evaluated under the if-converted method for potential dilutive effects and were not determined to be dilutive. Weighted average stock options outstanding of 0 and 111,912 for the three months ended March 31, 2018 and 2017, respectively, were evaluated under the treasury stock method for potential dilutive effects and were determined to be anti-dilutive. Weighted average RSUs outstanding of 0 and 8,160 for the three months ended March 31, 2018 and 2017, respectively, were evaluated under the treasury stock method for potential dilutive effects and were determined to be anti-dilutive.

Income Taxes

3 Months Ended

Mar. 31, 2018

Income Tax Disclosure [Abstract]

Income Taxes

The Company is the sole managing member of Pla-Fit Holdings, which is treated as a partnership for U.S. federal and certain state and local income taxes. As a partnership, Pla-Fit Holdings is not subject to U.S. federal and certain state and local income taxes. Any taxable income or loss generated by Pla-Fit Holdings is passed through to and included in the taxable income or loss of its members, including the Company, on a pro-rata basis. The provision for income taxes also reflects a state tax rate of 2.0% for the three months ended March 31, 2018 and 2017, applied to non-controlling interests, representing the remaining percentage of income before taxes, excluding income from variable interest entities, related to Pla-Fit Holdings.

Planet Fitness, Inc. is subject to U.S. federal income taxes, in addition to state and local income taxes with respect to our allocable share of any taxable income of Pla-Fit Holdings. The Company’s effective tax rate was 22.7% and 28.5% for the three months ended March 31, 2018 and 2017, respectively. The reduction in the current tax rate was primarily attributable to the lower U.S. statutory tax rate in 2018, partially offset by the Company’s increased pro rata share of income from Pla-Fit Holdings. The impact of discrete items was not material. The Company was also subject to taxes in foreign jurisdictions. Undistributed earnings of foreign operations were not material for the three months ended March 31, 2018 and 2017.

Net deferred tax assets of $407,837 and $406,153 as of March 31, 2018 and December 31, 2017, respectively, relate primarily to the tax effects of temporary differences in the book basis as compared to the tax basis of our investment in Pla-Fit Holdings as a result of the secondary offerings, other exchanges, recapitalization transactions and IPO. As of March 31, 2018, the Company does not have any material net operating loss carryforwards.

As of March 31, 2018 and December 31, 2017, the total liability related to uncertain tax positions was $2,608. The Company recognizes interest accrued and penalties, if applicable, related to unrecognized tax benefits in income tax expense. As of March 31, 2018, the Company anticipates that the liability for unrecognized tax benefits could decrease by up to $2,608 within the next 12 months due to the expiration of certain statutes of limitation or the settlement of examinations or issues with tax authorities. Interest and penalties for the three months ended March 31, 2018 and 2017 were not material.

On December 22, 2017, Staff Accounting Bulletin No. 118 ("SAB 118") was issued to address the application of U.S. GAAP in situations when a registrant does not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of H.R. 1, originally known as the Tax Cuts and Jobs Act ("2017 Tax Act"). As of December 31, 2017, the Company made reasonable provisional estimates of the effects of the Tax Act on our consolidated financial statements and tax disclosures, including changes to existing deferred tax balances, the mandatory repatriation tax and remeasurement of our tax benefit arrangements. At March 31, 2018 the Company has not obtained the additional information needed to complete the accounting for the effects of the 2017 Tax Act and has not revised any of its 2017 provisional estimates.

Tax benefit arrangements

The Company’s acquisition of Holdings Units in connection with the IPO and future and certain past exchanges of Holdings Units for shares of the Company’s Class A common stock (or cash at the option of the Company) are expected to produce and have produced favorable tax attributes. In connection with the IPO, the Company entered into two tax receivable agreements. Under the first of those agreements, the Company generally is required to pay to certain existing and previous equity owners of Pla-Fit Holdings (the “TRA Holders”) 85% of the applicable tax savings, if any, in U.S. federal and state income tax that the Company is deemed to realize as a result of certain tax attributes of their Holdings Units sold to the Company (or exchanged in a taxable sale) and that are created as a result of (i) the sales of their Holdings Units for shares of Class A common stock and (ii) tax benefits attributable to payments made under the tax receivable agreement (including imputed interest). Under the second tax receivable agreement, the Company generally is required to pay to TSG AIV II-A L.P and TSG PF Co-Investors A L.P. (the "Direct TSG Investors") 85% of the amount of tax savings, if any, that the Company is deemed to realize as a result of the tax attributes of the Holdings Units held in respect of the Direct TSG Investors’ interest in the Company, which resulted from the Direct TSG Investors’ purchase of interests in Pla-Fit Holdings in 2012, and certain other tax benefits. Under both agreements, the Company generally retains the benefit of the remaining 15% of the applicable tax savings.

During the three months ended March 31, 2018, 300,000 Holdings Units were redeemed by the TRA Holders for newly issued shares of Class A common stock, resulting in an increase in the tax basis of the net assets of Pla-Fit Holdings subject to the provisions of the tax receivable agreements. As a result of the change in Planet Fitness, Inc.’s ownership percentage of Pla-Fit Holdings that occurred in conjunction with the exchanges, we recorded a decrease to our net deferred tax assets of $188 during the three months ended March 31, 2018. As a result of these exchanges, during the three months ended March 31, 2018, we also recognized deferred tax assets in the amount of $3,633, and corresponding tax benefit arrangement liabilities of $3,119, representing 85% of the tax benefits due to the TRA Holders. The offset to the entries recorded in connection with exchanges was to equity.

As of March 31, 2018 and December 31, 2017, the Company had a liability of $434,084 and $431,360, respectively, related to its projected obligations under the tax benefit arrangements. Projected future payments under the tax benefit arrangements are as follows:



	Amount
Remainder of 2018	$	31,062
2019	23,479
2020	23,776
2021	24,191
2022	24,663
Thereafter	306,913
Total	$	434,084

Commitments and contingencies	3 Months Ended
Commitments and contingencies	Mar. 31, 2018
Commitments and Contingencies Disclosure [Abstract]
Commitments and contingencies	Commitments and contingencies From time to time, and in the ordinary course of business, the Company is subject to various claims, charges, and litigation, such as employment-related claims and slip and fall cases. The Company is not currently aware of any legal proceedings or claims that the Company believes will have, individually or in the aggregate, a material adverse effect on the Company’s financial position or result of operations.

Segments

3 Months Ended

Mar. 31, 2018

Segment Reporting [Abstract]

Segments

The Company has three reportable segments: (i) Franchise; (ii) Corporate-owned stores; and (iii) Equipment.

The Company’s operations are organized and managed by type of products and services and segment information is reported accordingly. The Company’s chief operating decision maker (the “CODM”) is its Chief Executive Officer. The CODM reviews financial performance and allocates resources by reportable segment. There have been no operating segments aggregated to arrive at the Company’s reportable segments.

The Franchise segment includes operations related to the Company’s franchising business in the United States, Puerto Rico, Canada, the Dominican Republic and Panama, including revenues and expenses from the national advertising fund beginning on January 1, 2018 (see Note 15). The Corporate-owned stores segment includes operations with respect to all Corporate-owned stores throughout the United States and Canada. The Equipment segment includes the sale of equipment to franchisee-owned stores.

The accounting policies of the reportable segments are the same as those described in Note 2. The Company evaluates the performance of its segments and allocates resources to them based on revenue and earnings before interest, taxes, depreciation, and amortization, referred to as Segment EBITDA. Revenues for all operating segments include only transactions with unaffiliated customers and include no intersegment revenues.

The tables below summarize the financial information for the Company’s reportable segments for the three months ended March 31, 2018 and 2017. The “Corporate and other” category, as it relates to Segment EBITDA, primarily includes corporate overhead costs, such as payroll and related benefit costs and professional services which are not directly attributable to any individual segment.



	Three months ended March 31,
	2018		2017
Revenue
Franchise segment revenue - U.S.	$	53,445	$	36,428
Franchise segment revenue - International	1,167		369
Franchise segment total	54,612		36,797
Corporate-owned stores - U.S.	31,573		25,973
Corporate-owned stores - International	1,135		1,068
Corporate-owned stores total	32,708		27,041
Equipment segment - U.S.	34,013		27,264
Equipment segment total	34,013		27,264
Total revenue	$	121,333	$	91,102

Franchise segment revenue includes franchise revenue, national advertising fund revenue, and commission income.

Franchise revenue includes revenue generated from placement services of $2,097 and $2,106 for the three months ended March 31, 2018 and 2017, respectively.



	Three months ended March 31,
	2018			2017
Segment EBITDA
Franchise	$	36,677		$	32,032
Corporate-owned stores	12,170			10,693
Equipment	7,469			6,094
Corporate and other	(8,741		)	(7,131		)
Total Segment EBITDA	$	47,575		$	41,688

The following table reconciles total Segment EBITDA to income before taxes:



	Three months ended March 31,
	2018			2017
Total Segment EBITDA	$	47,575		$	41,688
Less:
Depreciation and amortization	8,465			7,951
Other (income) expense	192			682
Income from operations	38,918			33,055
Interest expense, net	(8,734		)	(8,763		)
Other (income) expense	192			682
Income before income taxes	$	30,376		$	24,974

The following table summarizes the Company’s assets by reportable segment:



	March 31, 2018		December 31, 2017
Franchise	$	222,269	$	243,348
Corporate-owned stores	191,978		167,367
Equipment	188,630		206,632
Unallocated	512,976		475,118
Total consolidated assets	$	1,115,853	$	1,092,465

The table above includes $2,362 and $2,558 of long-lived assets located in the Company’s corporate-owned stores in Canada as of March 31, 2018 and December 31, 2017, respectively. All other assets are located in the U.S.

The following table summarizes the Company’s goodwill by reportable segment:



	March 31, 2018		December 31, 2017
Franchise	$	16,938	$	16,938
Corporate-owned stores	81,434		67,377
Equipment	92,666		92,666
Consolidated goodwill	$	191,038	$	176,981

Corporate-Owned and Franchisee-Owned Stores

3 Months Ended

Mar. 31, 2018

Franchisors [Abstract]

Corporate-Owned and Franchisee-Owned Stores

The following table shows changes in our corporate-owned and franchisee-owned stores for the three months ended March 31, 2018 and 2017:



	For the three months ended March 31,
	2018		2017
Franchisee-owned stores:
Stores operated at beginning of period	1,456		1,255
New stores opened	47		54
Stores debranded, sold or consolidated⁽¹⁾	(6	)	—
Stores operated at end of period	1,497		1,309

Corporate-owned stores:
Stores operated at beginning of period	62		58
New stores opened	—		—
Stores acquired from franchisees	6		—
Stores operated at end of period	68		58

Total stores:
Stores operated at beginning of period	1,518		1,313
New stores opened	47		54
Stores acquired, debranded, sold or consolidated⁽¹⁾	—		—
Stores operated at end of period	1,565		1,367

(1)

The term “debrand” refers to a franchisee-owned store whose right to use the Planet Fitness brand and marks has been terminated in accordance with the franchise agreement. We retain the right to prevent debranded stores from continuing to operate as fitness centers. The term “consolidated” refers to the combination of a franchisee’s store with another store located in close proximity with our prior approval. This often coincides with an enlargement, re-equipment and/or refurbishment of the remaining store.

Revenue recognition

3 Months Ended

Mar. 31, 2018

Revenue from Contract with Customer [Abstract]

Revenue recognition

Revenue from Contracts with Customers

We transitioned to FASB Accounting Standards Codification (“ASC”) Topic 606, Revenue From Contracts with Customers (“ASC 606”), from ASC Topic 605, Revenue Recognition and ASC Subtopic 952-605, Franchisors - Revenue Recognition (together, the “Previous Standards”) on January 1, 2018 using the modified retrospective transition method. Our Financial Statements reflect the application of ASC 606 guidance beginning in 2018, while our consolidated financial statements for prior periods were prepared under the guidance of Previous Standards. The $9,192 cumulative effect of our transition to ASC 606 is reflected as an adjustment to January 1, 2018 stockholders' deficit.

Our transition to ASC 606 represents a change in accounting principle. ASC 606 eliminates industry-specific guidance and provides a single revenue recognition model for recognizing revenue from contracts with customers. The core principle of ASC 606 is that a reporting entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the reporting entity expects to be entitled in exchange for those goods or services.

Revenue Recognition Significant Accounting Policies under ASC 606

The Company's revenues are comprised of franchise revenue, equipment revenue, and corporate-owned stores revenue.

Franchise revenue

Franchise revenues consist primarily of royalties, national advertising fund contributions, initial and renewal franchise fees and upfront fees from area development agreements ("ADAs"), transfer fees, equipment placement revenue, other fees and commission income.

The Company's primary performance obligation under the franchise license is granting certain rights to use the Company's intellectual property, and all other services the Company provides under the ADA and franchise agreement are highly interrelated, not distinct within the contract, and therefore accounted for under ASC 606 as a single performance obligation, which is satisfied by granting certain rights to use our intellectual property over the term of each franchise agreement.

Royalties, including franchisee contributions to national advertising funds, are calculated as a percentage of franchise sales over the term of the franchise agreement. Under our franchise agreements, advertising contributions paid by franchisees must be spent on advertising, marketing and related activities. Initial and renewal franchise fees are payable by the franchisee upon signing a new franchise agreement or renewal of an existing franchise agreement, and transfer fees are paid to the Company when one franchisee transfers a franchise agreement to a different franchisee. Our franchise royalties, as well as our advertising fund contributions, represent sales-based royalties that are related entirely to our performance obligation under the franchise agreement and are recognized as franchise sales occur.

Additionally, under ASC 606, initial and renewal franchise fees as well as transfer fees are recognized as revenue on a straight-line basis over the term of the respective franchise agreement. Under the Previous Standards, initial franchise fees were recognized as revenue when the related franchisees signed a lease and completed the Company's new franchisee training. Renewal franchise fees and transfer fees were recognized as revenue upon execution of a new franchise agreement. Our performance obligation under area development agreements generally consists of an obligation to grant geographic exclusive area development rights. These development rights are not distinct from franchise agreements, so upfront fees paid by franchisees for exclusive development rights are deferred and apportioned to each franchise agreement signed by the franchisee. The pro-rata amount apportioned to each franchise agreement is accounted for identically to the initial franchise fee.

The Company is generally responsible for assembly and placement of equipment it sells to U.S. based franchisee-owned stores. Placement revenue is recognized upon completion and acceptance of the services at the franchise location.

The Company recognizes commission income from its franchisees’ use of certain preferred vendor arrangements. Commissions are recognized when amounts have been earned and collectability from the vendor is reasonably assured.

Online member join fees are paid to the Company by franchisees for processing new membership transactions when a new member signs up for a membership to a franchisee-owned store through the Company’s website. These fees are recognized as revenue as each transaction occurs.

Billing transaction fees are paid to the Company for the processing of franchisee membership dues and annual fees through the Company’s third-party hosted point-of-sale system and are recognized as revenue as they are earned.

Equipment revenue

The Company sells and delivers equipment purchased from third-party equipment manufacturers to U.S. based franchisee-owned stores. Revenue is recognized upon transfer of control of ordered items, generally upon delivery to the customer, which is when the customer obtains physical possession of the goods, legal title is transferred, the customer has all risks and rewards of ownership and an obligation to pay for the goods is created. Franchisees are charged for all freight costs incurred for the delivery of equipment. Freight revenue is recorded within equipment revenue and freight costs are recorded within cost of revenue. The Company recognizes revenue on a gross basis in these transactions as management has determined the Company to be the principal in these transactions. Management determined the Company to be the principal in the transaction because the Company controls the equipment prior to delivery to the final customer as evidenced by its pricing discretion over the goods, inventory transfer of title and risk of loss while the inventory is in transit, and having the primary responsibility to fulfill the customer order and direct the third-party vendor.

Corporate-owned stores revenue

The following revenues are generated from stores owned and operated by the Company.

Customers are offered multiple membership choices varying in length. Membership dues are earned and recognized over the membership term on a straight-line basis.

Enrollment fee revenue

Enrollment fees are charged to new members at the commencement of their membership. The Company recognizes enrollment fees ratably over the estimated duration of the membership life, which is generally two years.

Annual membership fee revenue

Annual membership fees are annual fees charged to members in addition to and in order to maintain low monthly membership dues. The Company recognizes annual membership fees ratably over the 12-month membership period.

Retail sales

The Company sells Planet Fitness branded apparel, food, beverages, and other accessories. The revenue for these items is recognized at the point of sale.

Contract Liabilities

Contract liabilities consist of deferred revenue resulting from initial and renewal franchise fees and ADA fees paid by franchisees, as well as transfer fees, which are generally recognized on a straight-line basis over the term of the underlying franchise agreement. Also included are corporate store enrollment fees, annual fees and monthly fees. We classify these contract liabilities as deferred revenue in our condensed consolidated balance sheets. The following table reflects the change in contract liabilities between the date of adoption (January 1, 2018) and March 31, 2018, :



	Contract liabilities
Balance at January 1, 2018	$	40,000
Revenue recognized that was included in the contract liability at the beginning of the year	(10,355		)
Increase, excluding amounts recognized as revenue during the period	14,139
Balance at March 31, 2018	$	43,784

The following table illustrates estimated revenues expected to be recognized in the future related to performance obligations that are unsatisfied (or partially unsatisfied) as of March 31, 2018. The Company has elected to exclude short term contracts, sales and usage based royalties and any other variable consideration recognized on an "as invoiced" basis.



Contract liabilities to be recognized in:		Amount
2018		19,327
2019		3,178
2020		1,977
2021		1,868
2022		1,732
Thereafter		15,702
Total		43,784

Financial Statement Impact of Transition to ASC 606

As noted above, we transitioned to ASC 606 using the modified retrospective method on January 1, 2018. The cumulative effect of this transition to applicable contracts with customers that were not completed as of January 1, 2018 was recorded as an adjustment to stockholders' deficit as of that date. As a result of applying the modified retrospective method to transition to ASC 606, the following adjustments were made to the consolidated balance sheet as of January 1, 2018 (in millions):



	As Reported December 31,			Total adjustments			Adjusted January 1,
	2017						2018
Assets
Current assets:
Cash and cash equivalents	$	113,080		$	—		$	113,080
Accounts receivable, net	37,272			—			37,272
Due from related parties	3,020			—			3,020
Inventory	2,692			—			2,692
Restricted assets – national advertising fund	499			—			499
Prepaid expenses	3,929			—			3,929
Other receivables	9,562			—			9,562
Other current assets	6,947			—			6,947
Total current assets	177,001			—			177,001
Property and equipment, net	83,327			—			83,327
Intangible assets, net	235,657			—			235,657
Goodwill	176,981			—			176,981
Deferred income taxes	407,782			3,285			411,067
Other assets, net	11,717			—			11,717
Total assets	$	1,092,465		$	3,285		$	1,095,750
Liabilities and stockholders' equity (deficit)
Current liabilities:
Current maturities of long-term debt	$	7,185		$	—		$	7,185
Accounts payable	28,648			—			28,648
Accrued expenses	18,590			—			18,590
Equipment deposits	6,498			—			6,498
Restricted liabilities – national advertising fund	490			—			490
Deferred revenue, current	19,083			(764		)	18,319
Payable pursuant to tax benefit arrangements, current	31,062			—			31,062
Other current liabilities	474			—			474
Total current liabilities	112,030			(764		)	111,266
Long-term debt, net of current maturities	696,576			—			696,576
Deferred rent, net of current portion	6,127			—			6,127
Deferred revenue, net of current portion	8,440			13,241			21,681
Deferred tax liabilities	1,629			—			1,629
Payable pursuant to tax benefit arrangements, net of current portion	400,298			—			400,298
Other liabilities	4,302			—			4,302
Total noncurrent liabilities	1,117,372			13,241			1,130,613
Stockholders' equity (deficit):
Class A common stock	9			—			9
Class B common stock	1			—			1
Accumulated other comprehensive loss	(648		)	—			(648		)
Additional paid in capital	12,118			—			12,118
Accumulated deficit	(130,966		)	(9,192		)	(140,158		)
Total stockholders' deficit attributable to Planet Fitness Inc.	(119,486		)	(9,192		)	(128,678		)
Non-controlling interests	(17,451		)	—			(17,451		)
Total stockholders' deficit	(136,937		)	(9,192		)	(146,129		)
Total liabilities and stockholders' deficit	$	1,092,465		$	3,285		$	1,095,750

Franchise Fees

The cumulative adjustment for franchise fees, including ADA fees, renewal fees and transfer fees which will all be recognized over the franchise contract term consist of the following:

•

An increase in deferred revenue, net of $12,477 for the cumulative reversal and deferral of previously recognized fees related to franchise agreements in effect at January 1, 2018 that were entered into subsequent to the acquisition of Pla-Fit Holdings on November 8, 2012 by TSG Consumer Partners, LLC (the “2012 Acquisition”) (net of the cumulative revenue attributable for the period through January 1, 2018), with a corresponding decrease to Shareholders’ equity.


•	An increase to deferred income taxes, net of $3,285 for the tax effects of the adjustment noted above, with a corresponding increase to stockholders' equity.

Comparison to Amounts if Previous Standards Had Been in Effect

The following tables reflect the impact of adoption of ASC 606 on our consolidated statements of operations and cash flows from operating activities for the three months ended March 31, 2018 and our condensed consolidated balance sheet as of March 31, 2018 and the amounts as if the Previous Standards were in effect (“Amounts Under Previous Standards”):

Consolidated statement of operations



	As reported March 31, 2018			Total adjustments			Amounts under Previous Standards
Revenue:
Franchise	$	42,162		$	1,765		$	43,927
Commission income	1,989			—			1,989
National advertising fund revenue	10,461			(10,461		)	—
Corporate-owned stores	32,708			—			32,708
Equipment	34,013			—			34,013
Total revenue	121,333			(8,696		)	112,637
Operating costs and expenses:
Cost of revenue	26,500			—			26,500
Store operations	18,356			—			18,356
Selling, general and administrative	17,623			—			17,623
National advertising fund expense	10,461			(10,461		)	—
Depreciation and amortization	8,465			—			8,465
Other loss (gain)	1,010			—			1,010
Total operating costs and expenses	82,415			(10,461		)	71,954
Income from operations	38,918			1,765			40,683
Other expense, net:
Interest expense, net	(8,734		)	—			(8,734		)
Other (expense) income	192			—			192
Total other expense, net	(8,542		)	—			(8,542		)
Income before income taxes	30,376			1,765			32,141
Provision for income taxes	6,883			424			7,307
Net income	23,493			1,341			24,834
Less net income attributable to non-controlling interests	3,613			196			3,809
Net income attributable to Planet Fitness, Inc.	$	19,880		$	1,145		$	21,025
Net income per share of Class A common stock:
Basic	$	0.23					$	0.24
Diluted	$	0.23					$	0.24

Consolidated Statement of Cash Flows



	As reported March 31, 2018			Total adjustments			Amounts under Previous Standards
Cash flows from operating activities:
Net income	$	23,493		$	1,341		$	24,834
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	8,465			—			8,465
Amortization of deferred financing costs	484			—			484
Amortization of favorable leases and asset retirement obligations	93			—			93
Amortization of interest rate caps	195			—			195
Deferred tax expense	4,909			—			4,909
Gain on re-measurement of tax benefit arrangement	(396		)	—			(396		)
Provision for bad debts	(14		)	—			(14		)
Loss on reacquired franchise rights	350			—			350
Loss (gain) on disposal of property and equipment	650			—			650
Equity-based compensation	998			—			998
Changes in operating assets and liabilities, excluding effects of acquisitions:
Accounts receivable	18,637			—			18,637
Due to and due from related parties	165			—			165
Inventory	(1,364		)	—			(1,364		)
Other assets and other current assets	(1,341		)	—			(1,341		)
National advertising fund	(4,586		)	—			(4,586		)
Accounts payable and accrued expenses	(16,758		)	—			(16,758		)
Other liabilities and other current liabilities	83			—			83
Income taxes	1,898			424			2,322
Equipment deposits	7,784			—			7,784
Deferred revenue	3,536			(1,765		)	1,771
Deferred rent	853			—			853
Net cash provided by operating activities	$	48,134		$	—		$	48,134

Consolidated Balance Sheet



	As reported March 31, 2018			Total adjustments			Amounts under Previous Standards
Assets
Current assets:
Cash and cash equivalents	$	127,146		$	—		$	127,146
Accounts receivable, net	18,620			—			18,620
Due from related parties	3,060			—			3,060
Inventory	4,056			—			4,056
Restricted assets – national advertising fund	78			—			78
Deferred expenses – national advertising fund	4,596			—			4,596
Prepaid expenses	4,051			—			4,051
Other receivables	14,550			—			14,550
Other current assets	5,355			—			5,355
Total current assets	181,512			—			181,512
Property and equipment, net	84,545			—			84,545
Intangible assets, net	241,105			—			241,105
Goodwill	191,038			—			191,038
Deferred income taxes	409,216			(3,285		)	405,931
Other assets, net	8,437			—			8,437
Total assets	$	1,115,853		$	(3,285	)	$	1,112,568
Liabilities and stockholders' equity (deficit)
Current liabilities:
Current maturities of long-term debt	$	7,185		$	—		$	7,185
Accounts payable	15,664			—			15,664
Accrued expenses	14,787			424			15,211
Equipment deposits	14,283			—			14,283
Restricted liabilities – national advertising fund	78			—			78
Deferred revenue, current	20,842			499			21,341
Payable pursuant to tax benefit arrangements, current	31,062			—			31,062
Other current liabilities	493			—			493
Total current liabilities	104,394			923			105,317
Long-term debt, net of current maturities	695,264			—			695,264
Deferred rent, net of current portion	6,907			—			6,907
Deferred revenue, net of current portion	22,942			(14,741		)	8,201
Deferred tax liabilities	1,379			—			1,379
Payable pursuant to tax benefit arrangements, net of current portion	403,022			—			403,022
Other liabilities	4,379			—			4,379
Total noncurrent liabilities	1,133,893			(14,741		)	1,119,152
Stockholders' equity (deficit):
Class A common stock	9			—			9
Class B common stock	1			—			1
Accumulated other comprehensive loss	(370		)	—			(370		)
Additional paid in capital	13,011			—			13,011
Accumulated deficit	(120,245		)	10,337			(109,908		)
Total stockholders' deficit attributable to Planet Fitness Inc.	(107,594		)	10,337			(97,257		)
Non-controlling interests	(14,840		)	196			(14,644		)
Total stockholders' deficit	(122,434		)	10,533			(111,901		)
Total liabilities and stockholders' deficit	$	1,115,853		$	(3,285	)	$	1,112,568

The following summarizes the adjustments to our consolidated statement of operations for the three months ended March 31, 2018 to reflect our consolidated statement of operations as if we had continued to recognize revenue under the Previous Standards:


•	As described above, our transition to ASC 606 resulted in the deferral of franchise fees, ADA fees, and transfer fees. The adjustments for the three months ended March 31, 2018 to reflect the recognition of this revenue as if the Previous Standards were in effect consists of a $1,765 increase in franchise revenue and a $196 increase in non-controlling interest.

•

As described above, under the Previous Standards our statement of operations did not reflect gross presentations of national advertising fund revenue and expenses. Our transition to ASC 606 requires the presentation of advertising fund contributions and advertising fund expenses on a gross basis. The adjustments for the three months ended March 31, 2018 to reflect national advertising fund contributions and expenses as if the Previous Standards were in effect consist of a $10,461 decrease to revenue and a corresponding $10,461 decrease to operating expenses.

The transition to ASC 606 had no net impact on our cash used for operating activities and no impact on our cash provided by investing activities or cash used for financing activities during the three months ended March 31, 2018.

Summary of significant accounting policies (Policies)

3 Months Ended

Mar. 31, 2018

Accounting Policies [Abstract]

Basis of presentation and consolidation

(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 months ended March 31, 2018 are unaudited. The condensed consolidated balance sheet as of December 31, 2017 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, 2017 (the “Annual Report”) filed with the SEC on March 1, 2018. 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, as a result of the recapitalization transactions, 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”) and PF Melville LLC (“PF Melville”) based on the determination that the Company is the primary beneficiary with respect to these VIEs. These entities 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.

Use of estimates

(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, and the liability for the Company’s tax benefit arrangements.

Fair Value

(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 table below presents information about the Company’s assets and liabilities that are measured at fair value on a recurring basis as of March 31, 2018 and December 31, 2017:



	Total fair value at March 31, 2018		Quoted prices in active markets (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)
Interest rate caps	$	636	$	—	$	636	$	—
	Total fair value at December 31, 2017		Quoted prices in active markets (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)
Interest rate caps	$	340	$	—	$	340	$	—

Recent accounting pronouncements

(d) Recent accounting pronouncements

The FASB issued ASU No. 2014-9, Revenue from Contracts with Customers, in September 2014. This guidance requires that an entity recognize revenue to depict the transfer of a promised good or service to its customers in an amount that reflects consideration to which the entity expects to be entitled in exchange for such transfer. This guidance also specifies accounting for certain costs incurred by an entity to obtain or fulfill a contract with a customer and provides for enhancements to revenue specific disclosures intended to allow users of the financial statements to clearly understand the nature, amount, timing and uncertainty of revenue and cash flows arising from an entity’s contracts with its customers. The Company has adopted the guidance as of January 1, 2018 on a modified retrospective basis. See Note 15 for details about the effect of adoption.

The FASB issued ASU No. 2016-2, Leases, in February 2016. This guidance is intended to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. This guidance is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years for public companies. Early application of the amendments in this update is permitted for all entities. The Company anticipates that adoption of this guidance will bring all current operating leases onto the statement of financial position as a right of use asset and related rent liability, and is currently evaluating the effect that implementation of this guidance will have on its consolidated statement of operations.

The FASB issued ASU No. 2016-15, Classification of Certain Cash Receipts and Cash Payments, in August 2016. This guidance is intended to reduce diversity in practice of the classification of certain cash receipts and cash payments. This guidance will be effective for fiscal years beginning after December 15, 2017, including interim periods within that year. The Company has adopted the guidance as of January 1, 2018 on a prospective basis, noting no material impact on its consolidated financial statements.

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. This guidance will be effective for fiscal years beginning after December 15, 2019, including interim periods within that year. This new guidance is not expected to have a material impact on the Company’s consolidated financial statements.

The FASB issued ASU No. 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities, in August 2017. The guidance simplifies the application of hedge accounting in certain situations and amends the hedge accounting model to enable entities to better portray the economics of their risk management activities in the financial statements. This guidance will be effective for fiscal years beginning after December 15, 2018, including interim periods within that year. The Company is currently evaluating the impact of this guidance on its consolidated financial statements.

Revenue Recognition