Afternoon. My name is Jason. I will be your conference operator today. At this time, I would like to welcome everyone to the Planet Fitness First Quarter 2020 earnings call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question- and- answer session. To ask a question at that time, please press star, then the number one on your telephone keypad. To withdraw your question, press the pound key. I would now like to turn the call over to your speaker today, Brendon Frey. Thank you. Please go ahead, sir.
Thank you for joining us today to discuss Planet Fitness' first quarter 2020 earnings results. On today's call are Chris Rondeau, Chief Executive Officer, Dorvin Lively, President, and Tom Fitzgerald, Chief Financial Officer. Following the prepared remarks, we will open the call up for questions. I would like to remind you that certain statements we will make in this presentation are forward-looking statements. These forward-looking statements reflect Planet Fitness' judgment and analysis only as of today, and actual results may differ materially from current expectations based on a number of factors affecting Planet Fitness' business. Accordingly, you should not place undue reliance on these forward-looking statements.
For a more thorough discussion of the risks and uncertainties associated with the forward-looking statements to be made in this conference call and webcast, we refer you to the disclaimer regarding forward-looking statements included in our first quarter 2020 earnings release, which was furnished to the SEC today on Form 8-K, as well as our filings with the SEC reference in that disclaimer. We do not undertake any obligation to update or alter any forward-looking statements, whether as a result of new information, future events, or otherwise. In addition, the company may refer to certain adjusted non-GAAP metrics on this call. Explanation of these metrics can be found in the earnings release filed earlier today. With that, I'll turn the call over to Chris Rondeau, Chief Executive Officer of Planet Fitness. Chris?
Thank you, Brendon, and thank you everyone for joining us today. Before we dive into our Q1 results, I want to address the unprecedented COVID-19 situation. First and foremost, our thoughts are with the family members of those who have lost loved ones as a result of the pandemic, and healthcare providers, first responders, and essential workers on the front lines supporting our communities. COVID-19 has presented challenging realities for all businesses. On March 17th, we have closed all of our 99 corporate stores and encouraged our franchisees to do the same. By March 22nd, all of our more than 2,000 locations were closed. Throughout this evolving situation, we have been in constant communication with our franchisees and our team members and have also worked to keep our members informed and engaged with our brand.
Upon the closures of our stores in March, all members' accounts were frozen, and we communicated to them that they would not be charged any fees while our stores were closed. This includes monthly membership dues and annual fees. As a leader in the industry, we and our franchisees believe it is critical that Planet Fitness put our members' interests first and foremost. We believe this message has been extremely well-received and may have also helped minimize cancellation requests. In fact, we did not see any material change in our member count due to cancels in the second half of March during the initial closure period. Our corporate headquarters employees continued to work remotely to support the business and our franchisees during this time. Given stay-at-home orders still in place in many states, new store developments and equipment placements are on hold at this time.
Our teams and franchisees have been hard at work preparing for our reopening of our prospective stores, including developing a COVID-19 operational playbook to address things like enhanced sanitization policies, procedures, reduced contact between team members and members, and physical distancing, and more. As of May first, we began a thoughtful phased reopening approach and opened three stores, two in Georgia and one in Utah, in accordance with local official guidelines and with the safety of our teams and members our top priority. We will continue to monitor these guidelines and reopen additional stores throughout the system when we believe we can safely do so. In these first few clubs we have reopened, we are executing our updated operational procedures outlined in our COVID-19 operations playbook. We believe this is an important first step and will allow us to obtain key learnings in advance of a broader reopening rollout.
Now on to our Q1 results. 2020 got off to a strong start. Tom will go over it in more detail on how COVID-19 impacts our first quarter results, but I'm certainly pleased with our system-wide same-store sales increase of 9.8% on top of a 10.2% increase a year ago period. In total, we opened 39 new stores in the first three months of the year and ended the first quarter with 15.5 million members and 2,039 stores system-wide. To jumpstart 2020, Planet Fitness was the presenting sponsor of Times Square's iconic New Year's Eve celebration once again, which continues to be a great opportunity for us to put brand front and center on a global stage at a time when consumers are thinking about health and wellness and joining a gym.
Our partnership with The Biggest Loser also kicked off in January. This platform allowed us to reach captive viewers who are interested in health and fitness and may be looking to make the lifestyle change in brand messaging that reinforces how Planet Fitness is different than traditional gyms. As part of our marketing mix in Q1, we leaned heavily into TV advertising, debuting new creative, which we believe resonated with first-timers and casual gym-goers. As I said, new member sign-ups were strong in the first quarter. It was business as usual with both usage and new member sign-ups perspective right up until the stores started to close due to COVID-19 in mid-March.
Based on the enhancements we've made on our marketing mix, messaging and creative, and the strong new join trend in the first quarter leading up to the store closures in mid-March, we are confident that we have the right strategy in place for the future to continue to optimize overall effectiveness and results. In an effort to keep our members active and engaged with our brand while at home, we've accelerated our number of digital initiatives, including our United We Move marketing campaign. This includes daily live workouts on Facebook that are 20 minutes or less, featuring Planet Fitness trainers and special celebrity guests such as New England Patriots football player Julian Edelman, Biggest Loser trainer Erica Lugo, and famous actor and director, Jerry O'Connell. From an engagement and brand perspective, these workouts have been extremely successful, averaging more than 100,000 views per workout and 4.5 billion media impressions.
We've also encouraged people to download the Planet Fitness app for access to more than 500 exercises that can be done at home with minimal or no equipment. As a result, we've seen a 173% increase in average daily workouts on our mobile app. Finally, last month, we announced a new partnership with iFIT, a leader in streaming home workouts and interactive connected fitness technology to further accelerate our digital offering. The first step in our collaboration was a series of new streaming workouts available to anyone exclusively on the Planet Fitness app to be used with minimal or no equipment. The workouts are available for free to both Planet Fitness members and non-members, to span a broad range of fitness and wellness categories, including at-home cardio, at-home strength training, stretching, and more.
We continue to explore possibilities for expanding our partnership with iFIT in the future in order to deliver more value to our members. Looking ahead, our goal is to ensure that we come out of the COVID-19 situation with the same store count and member count we had when we began. I could not be more proud of the way our team members and franchisees have united to muscle through this together and support one another during this time. Our current focus is on creating and maintaining a healthy, safe environment inside our stores for our team and our members for when they reopen.
An example of just a few steps we have taken to ensure this include providing personal protective equipment for all employees, increased cleaning stations throughout our stores, enabling members to use our cardio equipment while adhering to physical distancing guidelines, touchless check-in for members via our mobile app, and more. These are difficult times for everyone. Impact on our industry and overall economy from COVID-19 is still unclear at this point. However, based on several factors such as the strength of the Planet Fitness brand, our differentiated business model, our attractive price points, and welcoming, non-intimidating store environment, our great group of employees and franchisees, and an increased focus on the importance of health and wellness, I'm confident we will emerge from this period well-positioned to further expand our leadership role in the fitness industry. I'll now turn the call over to Dorvin.
Thanks, Chris. As Chris said, we continue to be optimistic about the future of Planet Fitness for several reasons. One of the biggest being the overall strength of our franchise system and our size and scale advantage versus our competition. Our system is comprised of approximately 130 franchise groups, which compares with approximately 190 at the time of the IPO, as there have been some consolidation over the past five years. Today, the average franchisee owns approximately 15 stores, with our largest owning 169 stores, or approximately 8% of the store base. Of our 130 groups, 13 are majority owned by private equity and represent some of our largest operators. All in all, we have a very experienced group of seasoned operators that have been operating the Planet Fitness brand for many years.
While franchise stores' average EBITDA margin percentages have historically been in the high 30% range on an adjusted four-wall EBITDA basis, most franchisees have been reinvesting significant cash flows back into the business, growing their store fleet, replacing equipment, and remodeling older locations. In the past few years, we've had many franchisees either sell their business to another franchisee or, as I mentioned, taken significant investments from private equity. In the past, some of these private equity firms have indicated to us that they are seeing higher returns on their investment in the Planet Fitness brand than in many of their former or existing portfolio companies and have significant runway to build out more Planet Fitness stores. In fact, several of these private equity firms have indicated to us recently that they remained extremely interested in further investment in our brand.
When it comes to the capital structure of our franchisees and their balance sheets, it varies. Some of these businesses have put on leverage in recent times, while others have focused on increasing their financial flexibility and sustainability. Regardless of their financial condition, all of our franchisees are dealing with the same challenges as other businesses that have had to close due to COVID-19. With no revenue and related cash flows, they have taken actions to reduce their cash burn until these stores can start to reopen. In general, we're hearing that franchisees are having productive discussions with their landlords about different forms of rent relief. We know many of our groups were also successful in assessing the government assistance through the SBA Paycheck Protection Program to help cover their day-to-day expenses.
Some are choosing to continue to pay a portion of their workforce, while others have temporarily furloughed many of their employees. At the same time, we are providing flexibility on replacement equipment and store remodel requirements and will continue to do so over the near- term as we deem necessary. We're working closely with our entire system to prepare for when stores are able to reopen to ensure we provide a safe environment for our staff, team members, and our members. In terms of development, as the overall economy went into shutdown mode, this has had a significant impact on both existing and near-term construction projects, as well as the overall real estate pipeline activities.
As states and communities reopen and our conversations with franchisees continue, we'll be in a better position to evaluate what system-wide new store openings in 2020 will look like. While we're not providing guidance at this time due to the high degree of uncertainty created by COVID-19, we anticipate that expansion will ramp slowly once we emerge from this crisis. It's within the realm of possibility that our equipment placements and our replacement equipment sales could be down 50% or more from our record high in 2019, and this headwind could linger into 2021 as well. This is not a reflection of any change in our market opportunity. Rather, it is based on the uncertainty of how the economy will reopen, combined with the fact that franchisees are focused on preserving liquidity in the near- term.
That said, we believe the impact from COVID-19 on the real estate industry will provide a more favorable real estate environment for the Planet system over the long-term as we continue to build out toward 4,000 locations in the U.S. With that, I'll turn it over to Tom, who will review the Q1 financials.
Thanks, Dorvin. Good afternoon, everyone. For the first quarter, total revenue was $127.2 million, compared to $148.8 million in the prior year period. As you've heard, COVID-19 significantly disrupted our business starting in the middle of March. I'll walk through how the shutdown impacted our overall first quarter results and then provide color by segment. The biggest impact on our Q1 top and bottom line was the deferral of revenue related to monthly membership dues collected in March before stores closed due to COVID-19. As previously announced, members will be credited for any membership dues paid for periods when our stores were closed. We expect to recognize franchise revenue and corporate-owned store revenue associated with those membership dues that were drafted in March once stores reopen.
In addition, due to the outbreak of COVID-19, we were unable to move forward with planned new and replacement equipment sales over the last few weeks of March. Let me summarize the impacts to our top-line results due to COVID-19, which caused total revenues to be down $35.4 million due to the following three drivers. There was a $20 million deferral of revenue related to monthly membership dues collected in March before stores closed. That's made up of $14.1 million from franchise royalty and $5.9 million from corporate-owned stores' monthly dues. $4.6 million of NAF contributions were deferred. Lastly, in the equipment segment, new and replacement equipment sales were reduced by $10 million, and equipment placement revenues were $0.8 million lower in the franchise segment. With that as context, we are very pleased that first quarter same-store sales increased 9.8%.
From a segment perspective, franchise same-store sales increased 10.0%, and our corporate store same-store sales increased 7.3%. Approximately three-quarters of our Q1 comp increase was driven by net member growth, with the balance being rate growth. The rate growth was driven by a 26 basis point increase in our Black Card penetration to 60.9% compared with the prior year period, combined with higher Black Card pricing for new joins. The rate growth was mostly driven by Black Card pricing increase over the past two years. The impact from Black Card pricing drove approximately 210 basis points of the increase in system-wide same-store sales. Note that when stores are closed and don't draft monthly membership fees or don't execute a full draft upon opening, they are not included in the comp base and therefore are not included in the same-store sales calculation for that month.
There was a total of 164 stores that were closed prior to March 17th and therefore did not draft. Of the 164, 139 would have been in the comp base, including 130 franchise and nine corporate stores. Due to their closure, they were excluded from the same-store sales calculation for the month of March. Moving on to a review of our segment's revenue results. Franchise segment revenue was $58.5 million compared to $65.8 million in the prior year period. Now let me break down the drivers for the quarter. Royalty revenue, which consists of royalties on monthly membership dues and annual membership fees, was $40.6 million compared to $44.7 million in the same quarter of last year. The $40.6 million of revenue excludes $14.1 million of deferred revenue from stores that closed after the March draft as a result of COVID-19.
The average royalty rate for the first quarter was 6.3%, up from 5.9% in the same period last year, driven by more stores at higher royalty rates compared to the same period last year. Our franchise and other fees were $6.2 million, compared to $5.4 million in the prior year period. These are fees received from online new member sign-ups, the recognition of fees paid to us for franchise agreements, area development agreements, and the transfer of existing stores and fees received from processing dues through our point-of-sale system. The increase was primarily driven by higher web join fees due to higher web join acquisition % of total joins, and higher join volume compared to the same period last year. Within the franchise revenue segment is our placement revenue, which was $2.0 million in the first quarter, compared to $2.8 million a year ago.
These are fees we received for the assembly and placement of equipment sales to our franchisee-owned stores within the U.S. The decrease reflects the lower new store placements we executed in the quarter compared with a year-over-year ago, due to a challenging year-over-year comparison and our inability to place equipment late in the quarter due to COVID-19. I'll further discuss the number of new equipment placements later in my script when I discuss equipment revenues. Finally, National Advertising Fund revenue was $9.2 million, compared to $11.8 million last year. The NAF revenue in the current quarter does not include $4.6 million of deferred NAF revenue that was collected but not recognized related to COVID-19. Our corporate-owned store segment revenue increased 6.5% to $40.5 million from $38 million in the prior year period.
The $2.5 million increase was due to higher revenue of $5.5 million from corporate-owned stores opened or acquired since the end of the first quarter of last year, partially offset by lower revenue of $3 million from stores included in the same-store sales base, but whose monthly membership dues were deferred for the month of March. The $40.5 million of revenue for the quarter excludes a total of $5.9 million of deferred revenue from stores closed after the March draft due to COVID-19. Turning to our equipment segment, revenue decreased by $16.8 million or 37.4% to $28.2 million from $45 million. The decrease was primarily due to lower new store equipment sales, as well as lower replacement equipment sales to existing franchisee-owned stores.
As we discussed on our fourth quarter call in February, we were up against a record high number of new store placements in the first quarter of last year and expected this figure to be down year-over-year. In addition to the challenging comparison, the decrease reflects approximately $10 million of lower revenue from new and replacement sales due to COVID-19. In the first quarter, we had 30 new store equipment placements, including one international, which was down 24 from the prior year period and 10 below our expectations due to the COVID-19 impact. Our cost of revenue, which primarily relates to the direct cost of equipment sales to new and existing franchisee-owned stores, amounted to $21.8 million compared to $34.5 million a year ago, a 36.7% decrease and in line with the revenue decrease I previously mentioned.
Store operation expenses, which are associated with our corporate-owned stores, increased to $26.2 million compared to $20.9 million a year ago. The increase was primarily driven by costs associated with the seven new stores opened and 16 stores acquired since the end of the first quarter of last year. SG&A for the quarter was $17 million, compared to $18.2 million a year ago. The decrease was driven primarily by reductions in variable and equity compensation related to COVID-19. National advertising fund expense was $15.2 million. The difference between NAF expenses and NAF revenue this quarter primarily reflects the deferral of the NAF revenue associated with the March draft.
Adjusted EBITDA, which is defined as net income before interest, taxes, depreciation, and amortization, adjusted for the impact of certain non-cash and other items that are not considered in the evaluation of ongoing operating performance, was $46.5 million compared to $63.4 million in the prior year period. A reconciliation of adjusted EBITDA to GAAP net income can also be found in the earnings release. The overall impact from COVID-19 due to the deferral of revenue discussed previously on our first quarter adjusted EBITDA was approximately $24.6 million. Additionally, as previously mentioned, there was a $10 million decrease in equipment sales, which would equate to $2.5 million decrease in adjusted EBITDA. Adjusted net income was $14.4 million, down $18.3 million from a year ago, and adjusted net income per diluted share was $0.16, a decrease of $0.19.
The declines reflect the $24.6 million impact to adjusted EBITDA due to the deferral of revenue discussed previously, which equates to $18 million of adjusted net income and $0.21 of adjusted net income per share. Our adjusted net income and EPS in the first quarter also includes the $10 million of reduced equipment sales due to the impact of COVID-19. Turning to the balance sheet. As of March 31, 2020, we had cash and cash equivalents of $547.5 million, compared to $436.3 million on December 31, 2019. The increase in cash and cash equivalents since the end of 2019 was driven by free cash flow generated in the first quarter of approximately $64.1 million, combined with the $75 million we drew down on the variable funding notes during quarter one.
Based on the current situation and our focus on preserving liquidity, we announced in March that we were halting our share repurchase activity for the time being. Additionally, we took additional measures to reduce our monthly cash burn, including the previously announced compensation reductions for our leadership team and our board of directors. Total long-term debt, excluding deferred financing costs, was $1.81 billion as of March 31, 2020, consisting of our three tranches of debt and $75 million related to the fully drawing on our variable funding notes in March of 2020 to preserve liquidity and flexibility. Our WBS debt structure is covenant light. We have two maintenance covenants, a debt service coverage ratio, and a total system-wide sales threshold. These are both tested at the end of every quarter and calculated on a trailing 12-month basis.
In our most recent debt covenant reporting period of March 5th, 2020, our debt service coverage ratio stood at 4.16 x, and total system-wide sales was $3.25 billion. Both of these levels are well above a potential triggering event. For the DSCR, the first trigger would occur when that ratio falls below 1.75 x, at which point 50% of our cash inflows would be automatically trapped to service the principal and interest. For our other maintenance covenant, the trigger occurs when total system-wide sales on a trailing 12-month basis fall below $1.25 billion. If this were to happen, rapid amortization would only kick in if it was declared by the control party. At the end of the first quarter, we had a cushion of approximately 50% and 60% to those thresholds for our DSCR and system-wide sales maintenance covenants, respectively.
Finally, we would only be at risk of tripping the rapid amortization DSCR covenant if our stores remain closed through the end of the year. Again, the control party would have to declare rapid amort as it does not trigger automatically. Similar to our liquidity position, we believe we have sufficient headroom for our two maintenance covenants. As Dorvin alluded to with respect to guidance, based on the significant near-term disruption to our business caused by COVID-19 and uncertainty around when conditions will normalize, we are not providing an updated financial outlook at this time. While these are undoubtedly the most difficult operating conditions the company has ever faced, we feel very good about our ability to weather the storm, and are confident that Planet Fitness will be able to resume its long track record, delivering growth and delivering increased profitability.
I'll now turn the call back to the operator for questions.
At this time, I would like to remind everyone, if you would like to ask a question, please press star, then the number one on your telephone keypad. We will pause for just a moment to compile the Q&A roster. Your first question comes from the line of Randal Konik from Jefferies. Your line is open.
Yeah, thanks a lot. Good afternoon, everybody. I guess my first question I wanted to ask of Chris. Chris, you've been a lifelong participant in the industry, and we're starting to see more and more news around bankruptcies. Can you give us your perspective on what this movie looks like right now compared to other movies in the industry in the past, and talk about the market share opportunities that are afforded from that based on your perspective? Thanks.
Sure. Thanks, Randal. This is Chris. I think the silver lining, I think in all of this is that it's definitely going to probably accelerate a lot of the, I guess, longevity of a lot of our competition that we've been talking about for a few years now. I think with the strength of our model and profitability of our model compared to others and in the recent Gold's Gym bankruptcy and closing of their 30 stores and what you hear about 24- Hour Fitness and others, I think it's, unfortunately, it's a lot of what they've been, I guess, known for and a lot of what we've been known for being the opposite of, and it's really catered to that casual first-timer. Keeping up on CapEx, which is a big one, Randal. I mean, our stores are always fresh. They're always new.
We're not built it once and let it sit until it lives a low, slow death. I think this is definitely accelerating the timing it would have probably taken if this pandemic didn't happen. I guess that's the silver lining here. Honestly, I do think that when situations like this, that people will have, and there's some surveys been done already, there's definitely a renewed appreciation, I think, for the importance of being healthy and the importance of your health and being fit. This longer- term will help the industry, but you've got to weather the storm to get through it. I think we're in a good spot, and I think you're right, this will
Pave the way to widen our moat even more so than it already is, and excited to get back to work here.
Yeah, helpful. I think a follow-up, you mentioned that, I believe, some of the clubs have started to open a little bit here. In the first few that have kind of opened, any particular learnings about what you're seeing from the members or the club operators? Related to that, when you have your, I think you have a franchisee council, what are the topics that are being discussed the most in the franchisee council right now and how are you using that position, the opening plans and other things for the business going forward?
Sure, yeah. Great questions. The openings, it's been just three clubs right now. We have two in Georgia, one in Utah. It's only been a few days, so it was the 1st of May we opened those. As I mentioned in my opening remarks, it was war. We had about a 100-page COVID-19 operations list of all the protocols and policies we put in place for members and staff and cleaning procedures. We're using these five clubs to make sure we have all our T's crossed and I's dotted before we roll out to the broader system, which right now we're planning about 150 stores between May 13th and May 15th to open. It's early, again, it's been four days, but I'd say, so far, really pleased with the joining momentum early on.
I think there was a little bit of a pent-up demand. Cancellations aren't really anything surprising or out of whack there, which was great. Usage is a bit slower, I think. I'm on a CEO roundtable of about seven gym chains around the world, and one in particular who's ahead of us in this whole pandemic, and he's been open now seven weeks with about 170 stores. A lot of what he's seeing is a pent-up demand. His joins are ahead of last year. His cancellations are on par with last year, so definitely pent-up demand. The member usage, which is a little bit different, is slow out of the gate. Seven weeks in now, they're about 80% of last year's member usage.
I think the demand is the most encouraging and exciting thing for me, which back to what I just said a minute ago, is I think there is a renewed interest in exercise and being healthier. I honestly see it, Randal, in my own neighborhood. I mean, the people you see walking around, I didn't even know I had neighbors until this all happened. I think people are just paying more attention to that. The other question was on the, what was the other one there?
Franchisee council.
Franchisee council. The big one there, Randal, and Dorvin, feel free to jump in here. The big one there really is the opening procedures manual. We use our franchisee committees to help design that 100-page document. The big one is they're excited to get open and grow, and it's more or less getting through the storm and how they want to stay on the right side of their ADA schedules and re-equip schedules and stuff. Is there any concessions that we can make to give them some leeway so they're not having to re-equip right now when they're not even open? It's more or less conversations around that and giving them some rope here so they can go and get their feet under them, start drafting again and build up their till here.
Yeah, really helpful. Sounds like great partnership with the members and your franchisee partners, so that's really great. Thanks a lot and I'll move on.
Thanks, Randal.
Your next question comes from the line of John Heinbockel from Guggenheim. Your line is open.
Hey, Chris, two things. How are you sort of, or plan to communicate with members to get them comfortable to come back in once that particular gym opens? Remind us of two things, your demographics, which I think skew younger, one, and then two, kind of usage even at peak times, that would seem to not be an issue, right? Your clubs are not overwhelmed with members and they're not staying for more than probably 45 minutes. Touch on those, please.
Sure. For the members, not unlike when we closed down, is communicating that they weren't going to be billed for time when we weren't going to be open. Just like that communication is now communicating when the club plans to reopen, what your billing process looks like. As Tom had mentioned in his opening remarks how some members were billed, and then we closed shortly after because of the government regulations, so we owe them credit. How that credit gets applied to their opening time. It's a lot of that communication on top of what they can expect when they see and they walk in. The gyms will definitely be different that first opening compared to what they saw when we closed.
More cleaning sanitization stations than we had before, which we've always had them for decades, which is not all that common unfortunately in the gym world, but we've always had them. More of those. More signage. More signage reiterating our already cleaning policies and procedures where in our stores, our members are cleaning as much as our staff is. I mean, before and after they use a bench, they're cleaning the treadmill or the workout apparatus that they're on. Reiterating a lot of that. Self-checking in a way. We're now forcing app downloads using the barcode there. There's no more of the staff taking the person's keys or key tag from their hand and handing it back to them or their phone. They're actually doing it themselves on the way they check in. That's some of the things that we're expressing to the member.
On the age thing, you're right. Yeah. We have 15 million members, about 50% are millennial, and Gen Z is another big part of that. I think the other thing on the usage is a big one there, is that as we've always said, we have about 5,000 workouts in a store, about two-thirds of those are Monday through Wednesday. Majority of those are evenings. It's called between 4:00 and 7:00. If you do 1,500 workouts on a Monday. That same club on a Friday is doing 700. On a weekend, it's doing 300 or 400 a day. On 1,500 visits, they're probably doing 500 or 600 of those between five and seven or four and eight. It's really condensed in the evening.
Really quick to that one, though, John, it is interesting is with work from home and those three recent clubs that are open, the 9:00 A.M. in the morning and 3:00 P.M. in the afternoon hours are busier than I've seen. I think people are not having to come in the crack of dawn before work, and they're not coming in afterward. They're just using it throughout the day. Any stipulations on opening, which these first three clubs there is, where you can't have more than 150 people in a club at one time, which technically even a Monday night for one hour is not that bad. Even in January, it wouldn't be that bad. This time of year on a Monday night's not that bad, 150 now, if they're spreading their usage out throughout the day, is even better for us.
Lastly, maybe just the mechanics of the deferred revenue. Right? It sounds like that will get realized when each of those clubs opens. A lot of that would be, I guess, will be spread over 2Q and 3Q. Is that fair?
Yeah. Hey, John, it's Tom. It really depends on when the club reopens. The vast majority, as Chris said, and we said in the opening, drafted and then based on the advice of the authorities, the gyms closed. I think there was 164 clubs who actually closed before the draft. It just depends on when those clubs open up and the member essentially burns off what is essentially a 30-day credit in most cases.
Okay. Thank you.
Yep.
Your next question comes from the line of Joe Altobello from Raymond James. Your line is open.
Thanks. Hey, guys. Good afternoon. First question, I want to go back to the notion of communicating with your members. I'm curious, have you guys done any surveys among your members to try to gauge how readily and how quickly they intend to return to the gym? I think Equinox did something like that, I'm curious if you guys have any sense for, A, once a store opens, how quickly they come to the gym and, B, how long it might take to build back up to normal volume.
Yeah, we've done some. We did do one where it was saying that, compared to even our peers where, who was looking to resume their memberships and continue their memberships post. Some were unanswered, and we were skewed higher than our competitors. On the cancellation, how many wanted to discontinue after we opened, and where our competitors were at about 6% wanted to discontinue, we were only at about 3%. That was some there. As far as working out and wanting to get active, I'm trying to think if I had anything that pointed that part out exactly. I don't believe so.
Okay, that's helpful. Just maybe secondly, you guys mentioned earlier that you're still targeting 4,000 stores in the U.S., so it doesn't sound like this has impacted that in any big way. Has this pushed out that target in terms of timing a couple of years or so?
Hard to really say. I mean, Joe, I can add to it, but it really depends on how fast we can fill the pipeline with real estate and get that opening flywheel moving again.
Yeah, I think, Joe, the only thing I'd add to that is, in my remarks a while ago, I said that obviously with the shutdown across the country, all the way down to construction crews generally had to shut down as well. The working of the pipeline, in essence, came to a halt because no one knew when and how, and how long it would take, et cetera. I indicated that we would expect total units to be down this year over our high last year, and that could even go into next year just because you got to get the pipeline back up and going again. A couple of things, I guess, I would say is, one, we obviously still don't know, we're in that time period as to how the country will reopen and exactly what that will look like.
I think a little bit to maybe, I think it might have been Randal's question earlier that Chris answered in terms of competition. I think that not only from a competitor perspective, the landscape's going to look a lot different, but the whole retail landscape is going to look a lot different coming out of this as well. I just think there's going to be a whole repositioning in retail world, and I think that also then provides opportunities in the nearer to even longer- term. We've always said we believe and had a lot of confidence in that 4,000. Obviously, that's still, even pre-COVID, was still a few years down the road. I don't see this impacting that. At the same time, we got to see what maybe the new norm will look like.
We expect to take advantage of that size and scale, in terms of our base of members, our sophisticated franchisees and the ability to continue to grow this brand and in all the markets we're at because we still have considerable pipeline in almost every market, certainly every regional market in the U.S.
Great. Thank you, guys.
Thanks, Joe.
Thank you, Joe.
Your next question comes from the line of Peter Keith from Piper Sandler. Your line is open.
Hi. Thank you. Good afternoon. Wanted to just get a little more detail on the reopening. Chris, you made some interesting comments on CNBC around maybe unplugging half the cardio machines. To go back to some of the earlier questions around gym capacity, are you ever at a point where your gyms are well over 50% capacity? I think there's some concern that members might have issues with gym crowding, and on the other hand, maybe you've never really faced that issue. Could you help clarify those comments?
Sure, yeah. We have about 120 or so pieces of cardiovascular equipment in the clubs, and how we are, these three clubs are open now, if there is a social distancing mandated by that area, we're doing every other piece of cardio unplugged and then signage so that people are spaced out. 120 pieces of cardio, so you have 60 pieces usable. If it was a Monday night in January, kind of in good ways, we're opening here in May and June, things generally get quieter for the gym world. Back to what I mentioned with John Heinbockel with the question where, people coming in here with the work from home, people coming in midday, which is not something you generally see a lot of. Luckily, it'll spread that out quite a bit for us.
I don't really see an issue, one, time of year. Two is, people are spacing out their workouts and also, our workout schedule, because people work out generally Monday, Tuesday, Wednesday. As I mentioned, 1,500 workouts on a club on a Monday, that same club will do 700 on a Friday. Not unlike January, people wonder why the crowds are can't get in, and they just come a different day of the week and spread that usage out. I don't really see us being a difference. The thing about 50% of our members don't use the club in a 30-day period either. I guess maybe back a little bit of Joe's question about how many people were wanting to come back to work out. Well, half of our members generally don't use the club in a 30-day period.
A little different customer than a general SoulCycle or Gold's Gym customer that's a six, seven-day-a-week person, hell or high water.
Okay. That's interesting. One other question I wanted to ask was around franchisee concessions. Maybe there were some implied comments in there with regard to equipment replacement. Is there any concessions that you are looking at right now for that reopening process, maybe with ad spending? Curious if you can help us frame up some of the possibilities we might see unfold over the coming months or quarters.
Yeah. This is Dorvin, Peter. One of the things that Chris said earlier, I think in his remarks, and maybe Tom even referred to it, but I think the franchisees obviously are most interested in getting these stores open. That's not the highest priority to come out and try to re-equip clubs here while clubs are down or to plan on it in maybe a July or August when we don't know when clubs are open, et cetera. One of the things that we want to make sure, because obviously our biggest asset are our franchisees out there, is to, in essence, take that worry off their plate in terms of being in default of their franchise agreements for not being in compliance with that.
What we've done is we have communicated to our franchisee base that we would push out all re-equips as well as all new store requirements under the development schedules, just push everything out a year. What that does is a couple things. Number one is it allows them to focus on their business, focus on getting ready to open the clubs back up, focus on taking care of the members and making sure that we're ready for that. Not have that issue of losing their territory, because quite frankly, the pipeline is a huge asset that they have. We wanted to do that to provide them that level of comfort. That's number one. The second thing that we've done is to make sure that we're there to help support them in ways that they need to.
On the flip side of that is, you've heard Chris say that we're as much an advertising company as anything else. We still have the same requirements in terms of the local marketing spend, et cetera. As we get these clubs back open, we want to make sure that we're out there with a brand and being able to market to prospective members as well. I think that, Tom, you had a couple things that you wanted to add as well.
Yeah, sure thing. We may have mentioned this before, but our development team, led by Ray Miolla, has worked with the franchise groups to really share his team's best practices on how to really have productive conversations with landlords about abatements and deferrals. I'd say, as Dorvin touched on earlier, for the most part, those have been very fruitful conversations, the majority of landlords giving deferrals, very few abatements, but deferrals on rent while the stores are closed. If that's for a month or two months, that rent that was forgone would get added on to the subsequent six or nine months, depending on the situation. I'd say that the final thing is we've tried to help as we think about, to Chris's point, our leadership position in cleanliness and sanitization
Taking that to another level, given the situation and people's expectations, we are investing on behalf of the franchisees to secure what is difficult products and tools to secure, so we can elevate our ability to enhance our sanitization capabilities at store level. We're essentially buying that inventory in advance, so we make sure we could secure it, and then as they order it and get it in their clubs, they'll pay it off. That helps with their liquidity.
I'd say, a combination of things that we think in the sum of franchisees are, based on calls we have with them every week, I think, appreciative and understand that we're all in this together and all looking to come out stronger, both in terms of how we've treated the customer from a billing standpoint, how we're going to run the clubs going forward and really continue to widen the moat that we have competitively.
Okay. Thank you. That's very helpful feedback, and good luck in the coming months with the reopening.
Great. Thank you.
Thanks, Peter.
Your next question comes from the line of Oliver Chen from Cowen. Your line is open.
Hi. Thank you, everybody. Building on your comments, tonight you mentioned equipment replacement sales could be down as much as 50% or more and the headwind lingering. What does that imply roughly for how you're thinking about what might be possible more generally with net openings and some things that you're looking at, as there are a lot of unknowns with the environment? A second question was around churn and thinking about managing churn amidst the crisis and in relation to marketing or strategies that are underway as you monitor that. I'm sure the nature of marketing spend is quite different with what's been happening. Thank you.
Oliver, you were cutting out a lot there. If I didn't get the question exactly right, you can come back. The first part of the question, I think, was on specifically re-equips and maybe what the expectation is now versus where we were or where we had in our initial guidance, I think was your question. We withdrew our guidance back earlier this year. As Tom said a few months ago, we're not providing guidance over the balance of the year.
In terms of that balance of the year or full year rather, development of new store openings as well as replacement equipment, I made the comment in my remarks that it could likely be down 50% or more over what it was last year as a result of the fact that stores are closed now, except for the three stores that Chris mentioned earlier that have opened, with the uncertainty of when those stores would open back up. Ultimately, regenerate the pipeline for new sales down the road.
What we said then, the comment I made just a couple of minutes ago, was to be able to give the franchisees some confidence that we were not going to step in and require them to be putting replacement equipment in here in May or June or July or August or something when we're still trying to get clubs open. That's not the highest priority on our list, and we didn't want it to be the highest priority on their list. That's why I made the comment, we were pushing everything out 12 months from its original date. We think that is the right thing to do for the brand, the right thing to do for our franchisees, and will ultimately pay dividends back to us as a brand and to take care of our members.
I think on your other question on the churn, Oliver, I think in the marketing piece is that, I think the first and foremost most important thing is that we notified members we weren't billing them. We froze them. Our cancellations leading up to and enduring the closure are fractions of what we're used to seeing when we're open. The member base is trucking along pretty solid, even though we're not open and selling memberships per se. I think as far as the churn piece of it, and keeping them active, I think, you look at all the digital stuff we've been doing between Facebook Live. We launched that March 16th, as soon as we closed our stores, and we're doing over 100,000 workouts per night on those videos. It's really unbelievable transaction for both members and non-members.
The people that are really watching this and building some brand affinity there is big. We post them on YouTube, and our YouTube subscribers are up 229% since closing and have over 10 million views. This is all happening in real time. When you go back and think about our digital strategy for a bit that we've been talking about for over a year now and getting the app going and all the content, we were definitely going down the right road, and luckily that we were able to continue to engage our members along the way. The new iFIT partnership we did, we launched a bunch of videos there. We were already doing 173% increase in average daily workouts in our mobile app, and then we launched that, and that's up 122%.
I think keeping them engaged and giving them some value, even though our four walls aren't open, is going to keep them engaged in the brand and then hopefully keep them longer- term that we're their partner in fitness here.
Chris, what are your thoughts with at-home and the long-term of changes there that you're making to the customer experience as well as those capabilities that you're building? How are you thinking about the platforms versus your app and what may happen with that digital on-demand side of the business?
Yeah, I think it definitely has caused an acceleration in the adoption of digital content, where people are taking advantage of it at home, and you've seen it, whether even the stuff that I was just rattling off from Staff and just even other Peloton and iFIT and NordicTrack and everything else. I think we've accelerated. There's also been a recent study that showed even though there's been a big influx of new customers there, also when their bricks and mortar open, they can't wait to get back to that and not maintain necessarily the digital, although they're not going to write it off 100%. It'll never go back to pre-COVID numbers. It'll stay ahead of where it was, will not stay to the level it's at today.
I think like what we've been talking about, I think it's a big part of what we want to do longer- term, that we're going to be engaged and be the trusted source in their wellness journey, whether it's in-club or at home or running outside. I think it's proof in the pudding. I think it's really accelerated our point of view on it, just on what we're seeing from consumption and the feedback we get from the members and non-members that are doing the Facebook Live at night. Facebook Live is something we're looking at now as just it's going to be probably something we do forever at this point. I think it's a must-have. I don't think it's the end-all, be-all working out at home by any means.
I think the bricks and mortar experience of being around others and the camaraderie it builds and the motivation it builds is not replaceable. I think it's a good place to be, and I'm glad we got the app going last summer.
Your next question comes from the line of Jonathan Komp from Baird. Your line is open.
Yeah. Hi, thank you. I want to just follow up on the new units and the re-equipment side of things, and just curious broader question of how you and your franchise partners are thinking about this. Just maybe to be clear, are you thinking, with the communicated relaxing the requirements for the next year here, are you thinking after that period, you get back on to something close to the prior trajectory for those? Are you thinking there's some sort of a catch-up before you then get to more of a normalized level? Just how are you thinking about post everything going on here?
Yeah, I think, John, what we're doing is we're saying that requirements that exist now in the pipeline, that gets, in essence, pushed out 12 months from its original date. All replacement equipment when it's done and all new stores when they're open, they still have the same deadline, the same five and seven. Chris mentioned that a little bit earlier as to one of the reasons we are where we are is that we can't be out-newed, and we think that's critical to the brand and critical to having that high-value, affordable option for what our brand stands for today. No, that's how we're handling it. It's the existing requirements as they are being pushed out a year for what's out there today, but then everything new going in place going forward still has the five and seven .
Okay. Maybe one other topic then. Curious your thoughts more on as things reopen, more on the behavior of your members? I know, Chris, you've always talked about non-use as being the biggest driver of voluntary cancellations. I'm just wondering how you're thinking about how far you need to get out and what the risk is that if there's some contingent of members who don't use the club for a certain period of time, how are you thinking about that extended risk of cancellation?
Yeah, I don't think things are going to really change. When I look at, even when I go back to 2009, when it was more of a banking or recession issue, where our same-store sales were great back then. I don't think becoming out of this, people are going to want to be less healthy or less active. I think in one survey, one of ours that we did said that there was over 50% of the members would consider downsizing or downgrading from their higher priced gym membership to a more affordable option. Which is what we saw in 2009, where people were down trading. I don't think we're going to see nothing points to any direction that I would feel any differently than something we saw in 2009.
Have you seen during the downturn any requests or inquiries about downgrading from a Black Card to a Classic Card membership, or would you expect to see any of that?
Possibly. I think like the upgrade situation we talked about, no one really upgrades necessarily for the Black Card. They join on it. There might be a slight chance upon joining, maybe more members take a Classic Card in that example. We're not talking about a big ticket because even the Black Card is much cheaper than probably where they're coming from.
Okay, great. I appreciate the perspective. Best of luck.
Thanks, John.
Your next question comes from the line of Sharon Zackfia from William Blair. Your line is open.
Hi, good afternoon. I wanted to follow up on the digital dynamic because obviously it's important to keep your members engaged, but it's also pretty intriguing how many non-members you've been able to attract via the different classes you've been offering. Can you talk about, and I don't know if you have this data, but is there any demographic difference at all between what you're seeing in terms of engagement online versus people who come into the club? Any evidence that is kind of widening the aperture for Planet? How do you follow up once clubs start to reopen in trying to engage these folks to move from the digital realm into the club?
Yeah. Facebook Live is hard. We don't really know who those members are or non-members are, unfortunately, out of those 100,000 a night. One thing that will be interesting with our app is a lot of the content that we have on there now is all free. Members or non-members, if you download the app, you get the access to it. We don't have the data yet, but we're going to work on where we'll be able to report on people who have the app, who is actually a member and who's actually just utilizing the content for free. With the in-app messaging, which is launching as we speak today, that we'll be able to then message to them separately.
It could create a second marketing avenue for us to use or not second, another marketing avenue for us to use to, no different than Teen Summer Challenge in a lot of ways, is introduce our brand to a non-member to give them a taste of what we're like so that hopefully we can market to them to get them to come in. Honestly, it could be somebody that we always say we go after the first timer or casual gym user because the intimidation is a big piece. It could be a level of intimidation that this breaks through that is something that they still can't walk in the gym, but if we can give them some access to some content at home and know Planet to be that brand, maybe we can build up some courage to come in.
That's helpful. Then, I don't think I heard you guys talk about this, but on SG&A, obviously there's a lot you can't control right now, but you can control the SG&A. Is $17 million what we saw this quarter, is that kind of the rough, correct run rate right now for quarterly SG&A?
Yeah. Hey, Sharon, it's Tom. I think there are some things that hit in Q1 or that some of the actions we've taken since Q1 that really weren't reflective. That rate will continue to come down. I think when we look at our cash burn rate, and we made the statements we've made about liquidity, and if clubs remain closed through the year, we had enough liquidity to carry us well beyond the year. That's still true, very true. We've taken our cash burn rate, which we don't disclose, but through the actions we've taken, we've reduced that by about a third. We will continue to monitor the situation and take additional actions if necessary to the extent this is prolonged. Short answer is it'll come down from where it was in Q1 because some of the actions weren't fully reflected.
Thank you.
Yep.
Your next question comes from the line of John Ivankoe from JPMorgan. Your line is open.
Hi. Thank you. I appreciate the fact that many of your franchisees are in different financial positions from a debt perspective, some of them were using debt to expand. I think your business model was the type of one where expecting recurring cash flows was, all but, quote unquote, "guaranteed" in normal times. We're obviously not in normal times now. Do you have a sense of how many franchisees, how many stores within that franchise base you think really are financially challenged? If that's the case, are there other franchisees willing to buy in other franchisees and give them some value for their equity? Given your own cash balance, is this an opportunity to significantly increase your own company store count?
Hey, John, it's Tom. I'll start off and maybe Dorvin build on it. Yeah, I think we've had discussions with some of our lenders of our franchisees. To your point and what Dorvin said earlier, the business just produces so much cash for a franchisee that lenders were very willing to put some leverage on the business based on the economics and the profitability. I think basically no one, including our own structure, no one ever contemplated a situation where the revenues go to zero. Most of the lenders, as we, I think communicated on other calls, we assumed that lenders would want to work with our franchisees just because of the fact that they're growing, that they're so profitable.
If in fact, they have to look across their portfolio as lenders, we would be near the top, if not the top of the list of folks they'd want to be accommodating to. That's borne out in the conversations we've had with some of the lenders who are pretty deep in our system of franchisees. They've basically said they're going to provide, to the extent it's needed, they would provide waivers while the clubs are closed just until things reopen and they get a better sense of where the trends are, where the key metrics are, as you'd imagine. All in all, the short answer would be understanding and accommodating, knowing that they were very strong coming into this and will likely be stronger coming out of it, given what's happening competitively and with the overall strengthening tailwinds for health and wellness.
Yeah. John, this is Dorvin. We've had actually inbound calls from some of our franchisees and some of the private equity-backed franchisees that are saying that if there's anybody that would love to sell, we want to buy. I'm sure they're probably reaching out to some of the franchisees themselves as they have in the past to try to build a bigger overall portfolio within the Planet system. To your latter point, corporately, we have 99 stores, and we've stated that although we like the asset-light model, we're less than 5% of the base. It's not inconceivable that if something came up and we knew a franchisee wanted to sell, needed to sell, we clearly would be there at the table as well.
I think that what you've got here is, you've got franchisees that have a varying degree of a capital structure. To Tom's point, we believe, based on just conversations with various banks in the system, they're willing to work with this business and the portfolio that they have. We've got guys on the sideline, and we would even be there as well, if need be.
Understood. Thank you.
Thank you, John.
Thanks, John.
Your next question comes from the line of Simeon Siegel from BMO Capital Markets. Your line is open.
Thanks. Hey, guys. Hope you're all doing well enough through all this. Dorvin, just to that last point, looking further out, do you envision any meaningful changes to just the composition of the franchisee base? Does the base get further consolidated to a top few? Does it get spread out more? Any thoughts there, Chris, just coming back to a point you had made, how are you thinking about the value adds from the Black Card post-COVID? Does anything change there? I don't know if people stay home more as you think through the benefits.
Sure, Simeon. I think that there will be continued consolidation. We don't know what the world's going to look like coming out of this, obviously. There were deals in the works, going into this, where both new potential private equity guys from the outside, were looking in, as well as guys on the inside that were looking to grow. I think that will still be there. We've gone from about 190 down to roughly 130. I don't see that accelerating. I see it probably moderating, because we've got a lot of guys that bleed purple and yellow, and they like the business, and they want to stay in the business, and want to grow. Then, over time, a few of the smaller guys will probably end up selling out to some of the larger guys. We think that's fine. We like the composition of where it's at today.
We'd be fine with it staying where it's at. We also don't see it really accelerating to the point that you'd have a significant reduction in the number of franchisees today. Quite frankly, we like the partners we have today that's in the system today.
Yeah, this is Chris. I think on the Black Card amenity, I think what the pandemic has shown us, and like I mentioned earlier, I think it has definitely reinforced our direction with content and the road we were going down, but definitely just reassured that we were going down the right road with all the consumption that we're seeing within our app and then the Facebook Live and YouTube. The others in the industry, our industry, their consumption or even people that have just their app company and what they've seen from a consumption standpoint because of the work from home and this. I think it just reinforces that it is something that we luckily were already going down. I guess the big question, is it a Black Card benefit? Is it a third-tier membership? Is it an add-on to any membership?
People are getting this content somewhere anyway. I see people in the gym all the time when I go to Planet and they got their phone next to the bench or on the wall, and they're following a routine. Why aren't they getting that from us as a benefit? I think it definitely is the world we'll be in going forward, even more so than before, and then figuring out how to capitalize on that.
Great. Thanks a lot, guys. Best of luck and stay healthy.
Thank you. You too, Simeon.
Your next question comes from the line of Alex Maroccia from Berenberg. Your line is open.
Hi, guys. Good afternoon. I'm thinking about competitor bankruptcies both in the U.S. and abroad. Do you think forced competitor store closures opens up some opportunities in larger U.S. cities that might have been oversaturated previously or even some of the international regions that were previously unattractive to you guys?
Yeah, I think it's definitely something to look at. One of the bigger hurdles we have with those bankruptcies is because our model is very different in the sense that we don't have pools or basketball courts and so on, is what model is it? In a lot of ways, it could be strictly a real estate play. If it's somebody who has a big coverage in a city that's hard up on real estate, in Boston or New York, for example, and they have a lot of real estate that could be available, it could be more around a real estate play, quite frankly, than necessarily, a perfect box, but we could just renovate it, and make it look like ours. There's no doubt that there could free up some of that.
Most markets, we always talk about with the real estate the way it is with retailers, real estate is not that hard to come by in most rural markets. Probably out of this will be even better for us longer- term. Definitely I think in some of these really dense markets, it could definitely free up some potential new locations for us that generally aren't available. In the international front, it probably looks.
I'm sorry. You can finish.
I think in the international front, I don't know anything off the top of my head yet, but there's something, as I said, if we go to some of these countries where there's already some pretty large players that, I don't know if I'd want to go in onesie, twosie at a time, but if there was an opportunity to come in and make a bigger presence at one time, might make some sense for sure.
Okay. The second one is on the SBA loans. I know that labor cost is the main metric for how much some of the small businesses were able to get. Can you give us a general sense of what labor costs are as a percentage of total OpEx for the franchisees?
Yeah. Hey, it's Tom. Between labor and occupancy combined, they're 30-ish. It depends on the location. It's generally 50/50 between labor and occupancy, might be a little more in some circumstances, a little less than others, but that's pretty close.
Okay, great. That's helpful. Thank you.
Your next question comes from the line of Rafe Jadrosich from Bank of America. Your line is open.
Hi, it's Rafe. Good afternoon. Thanks for taking my question.
Hey. How are you?
Hey, Rafe.
Yeah. I just wanted to clarify. The revenue deferrals from the store closures, would you expect to recognize that in the second quarter as the clubs start to reopen?
Hey, Rafe. It's Tom. It really depends on when they reopen. As soon as the clubs reopen and that membership clock starts ticking, where we're burning off the 30 days that folks, roughly 30 days folks paid for, then we can recognize the revenue. Yeah, if that's inside the quarter, then we're good. In some clubs, which we've heard different things from different states, if that extends, it could be Q3. It really is a club-by-club basis, which is how we'll recognize it.
Got it. Chris, you mentioned that the membership has stayed steady, and you didn't see an uptick in cancellations in the second half of March. Just in prior periods where you've seen an individual club maybe close for an extended period of time, when that club reopened, did you see an uptick in churn, or can you just talk about what's happened in the past when you've had club closures? How it reopens and how long it takes to return to prior productivity?
Yeah. I think the only thing that'd probably be anything somewhat close to this would be Puerto Rico in 2017 when Hurricane Maria devastated the island, and they had 11 stores at that time that were completely closed. Probably half of those, let's say, were closed for even three to six months because they had to completely rebuild. Those stores reopened and continued to bill the EFT once they rebuilt the store, and essentially it was business as usual. Within a year, those stores were doing better than they were pre-hurricane. That franchisee went on to build another store in that market. They recovered and pretty resilient. If you remember back then, they were saying that about 30% of the island might have moved off the island at that point because there was no work or housing.
We were really pleasantly surprised with how it turned out when they reopened the stores from being closed. That's probably the only thing that's that similar. We have a lot of closures in Florida, but they're really weak at best.
If you look at some of the clubs that are a little bit more expensive, some of your competitors, when you've seen them close clubs in the past, have you picked up new members from them? Is there a crossover in membership, or will you guys gain share if they exit the market?
Bigger clubs that may have 1,000 or 2,000 members, you start to see an uptick when they cancel. All these boutiques too, where they have 300 or 400 members, it's such a small number of members when they close. We just see a lot of those too, and I think we'll see a lot more of those when this comes out. It's such a few members of the store, you don't really see the uptick. I think longer- term, you just see new joins not having really any place to really shop, and we're the only option at the end of the day.
Okay, great. Thank you.
Thanks, Rafe.
Your next question comes from the line of Paul Golding from Macquarie. Your line is open.
Hi. Thank you so much for taking my question. I was hoping you could give us some color around the mechanics of the resumption and around membership dues turning back on. If I think about a Black Card member and reciprocity there, is this turned on when the home gym turns back on, or is there the ability to, if we look at urban versus suburban, I could see there being some differential there in when members may have access and the membership dues turn back on. Any light you could shed on that?
Yeah, that's a good question, actually. I'd probably say that we probably would let them use the club close by if their club wasn't open, as we do when there's a flood or a small hurricane in certain clubs. We even do that during presale and construction, where if somebody joins a club during the construction presale period and they're a Black Card member, we allow them to use one of the other locations nearby while we're not open yet and not even billing them yet. That would probably be something that now that you mentioned that's a great idea. I think we'll look at that for sure.
Great. I appreciate the color on that, Chris. On understanding contactless and virtual uptake, looking out into the future, and sort of offset with the increased physical cleanliness protocols, anything you can say on what the stickiness of any margin improvement or decrement could look like going forward on a longer-term basis from this?
Yeah, there's really no more or less payroll. We don't need more people to do. A lot of our protocols, as I mentioned, It's just, I guess, reinforcing what we've already done and just taking credit for it, and calling it out. We've always done it and always have, but we never really took credit for the fact that we have sanitization stations throughout the entire gym with paper towels, probably within 30, 40 feet of any given machine. It actually happens to be, luckily, one of the approved disinfectants, and always was, for this virus. I think a lot of it's just taking credit for what credit's due and just reinforcing with the members that's proper gym etiquette. In our club, if you don't wipe equipment down, our members are going to call you out.
It's not even the staff that has to do it.
Understood. Potentially contactless and having more virtual consumption of your fitness content, whether it's through iFIT or whatever, could potentially benefit margins longer- term, would you say? Less need to maintain certain things from usage? Just trying to get a picture of how the environment could look from a cost side.
Yeah. Well, I think one thing is, the unknown is, will it create some retention benefit?
As I mentioned, 50% of our members don't use the gym. We don't know, and the app will tell us now, is what we don't know is that because they're working out at home and they're not using the gym? If they're using our content, then maybe they'll keep the membership longer because they're not using somebody else's. That'd be probably the bigger upside I think I'd look to track and try to watch, is that we're providing some value, so maybe people stay a little longer because they're not getting value somewhere else.
Got it. Thanks so much. Appreciate it.
Thank you. Pleasure.
Your last question comes from the line of Linda Bolton Weiser from D.A. Davidson. Your line is open.
Hi. Actually, my question has been asked and answered. Thank you very much.
Okay. Thanks, Linda.
Thanks, Linda.
There are no further questions at this time. I turn the call back to Chris Rondeau for closing remarks.
Great. Well, thank you everybody for attending the call today for our first quarter release under pretty different times for all of us. I'm still happy to see the business and the franchisees excited about getting these things open, excited about the future. I really think that this silver lining around this will, as I mentioned, widen our moat longer- term and being the trusted source for wellness for our members in the future and non-members that we don't have just yet. Look forward to our second quarter call and give you an update at that time. Thank you.
That concludes today's conference call. You may now disconnect.