It’s not too often we see Dick Clark and Ryan Seacrest mentioned in SEC comments, so this recent SEC comment letter issued to Planet Fitness caught our attention. The Staff’s letter to Planet Fitness indicates that it performed a full review on the company’s Annual Report on Form 10-K, which included its definitive proxy statement incorporated by reference.
(You can tell it was a full review (legal and accounting) because the first sentence of the letter says, “We have reviewed your filing and have the following comments.” In contrast, a limited review (or monitor) would have said something like “We have limited our review of your filing to the financial statements and related disclosures and have the following comments.”)
Comment two in the letter draws attention to disclosure in Planet Fitness’ Form 10-K where the company states that its media partnership with “Dick Clark’s Rockin’ Eve with Ryan Seacrest” has allowed Planet Fitness “to showcase the Planet Fitness brand and [its] judgement-free philosophy to over a billion TV viewers annually.”
The filing also included the number of gyms and gym members for Planet Fitness across the United States, which showed a much higher rate of membership for Planet Fitness’ gyms than industry average pursuant to an industry study. The Staff requested Planet Fitness to substantiate these claims, requiring Planet Fitness to publicly explain its method of calculating TV viewers, as well as the definition of “gym,” and “gym member.”
The Staff’s comment and the company’s response is provided below. It appears the Staff accepted the company’s response as no follow-up comment letter was issued to the company.
- We note that according to the IHRSA, there are 60.9 million gym members across the U. S. We further note that that the IHRSA states there are over 38,500 clubs across the U. S., of which, Planet Fitness has 1,742 or 4.5%. Please explain why your membership represents 12.5 million members, or 20.5% of total gym memberships in the U. S. when your clubs represent only 4.5% of total clubs. Please include your definition of “member” in your response. Additionally, we note in your disclosure on page 13 regarding your media partnerships, where you indicate that sponsoring Dick Clark’s Rockin’ Eve with Ryan Seacrest “has allowed [you] to showcase the Planet Fitness brand and [y]our judgement-free philosophy to over a billion TV viewers annually.” In this regard, the viewership for this program appears to reach anywhere from 5 to 9 million people according to our research. Please substantiate this claim and revise your disclosure as necessary.
Response: In response to the Staff’s comment, the Company confirms the referenced Planet Fitness member and club statistics as of December 31, 2018. The Company defines “member” as persons who have memberships at franchisee-owned and corporate-owned stores that have not been terminated, canceled or expired. The Company also confirms the number of members and clubs disclosed as reported by IHRSA are consistent with IHRSA’s 2018 Global Report, that it appears from such report that Planet Fitness’ metrics are included within IHRSA’s data, and that the Company believes IHRSA is a reliable source. Taking the Company membership and club statistics together with the industry data published by IHRSA, the Company agrees with the Staff’s assessment that Planet Fitness clubs have a higher ratio of total members to total clubs than the average derived from the IHRSA data, resulting in the percentage of Planet Fitness members over total U. S. gym members being greater than the percentage of total Planet Fitness clubs over total U. S. clubs. For example, the 2018 Global Report identifies 38,477 total clubs in the United States with a total membership of 60,866,000, for an average per-club membership of 1,582 in 2017. The Company, on the other hand, had a per-club membership average of approximately 6,983 as of December 31, 2017, which is higher than the industry average.
With respect to the Company’s cornerstone New Year’s Eve sponsorship event in New York City, please note that the Company’s brand exposure is not limited to the specific TV program referenced in the Staff’s comment. In addition to the Company’s sponsorship of “Dick Clark’s Rockin’ Eve with Ryan Seacrest”, the Company is the sole presenting sponsor of the Times Square New Year’s Eve celebration through the Times Square Alliance, allowing the brand to be featured prominently in every TV broadcast covering Times Square during the celebration. For the 2018 New Year’s Eve celebration, for example, the Company provided festive Planet Fitness branded purple and yellow New Year’s Eve hats broadly to people in Times Square, branded the main stage and secondary stage, utilized several billboards and other signs, distributed branded purple and yellow balloons, executed a purple and yellow confetti drop, and included multiple on-air brand integrations, among other things. Based on third-party viewership data provided to the Company by the Times Square Alliance, worldwide viewership is over one billion, which serves as support for the statement in the Company’s filings. The Times Square Alliance relies on the following sources for its data: NYPD, Cision, Ernst & Young, YP&B Yankelovich & Partners, Google Analytics, AP, Nielsen Household Ratings, and Splash PR.
While a Staff comment to substantiate certain factual information is not unusual in the offering context, our experience is that these types of comments are somewhat less frequent in the periodic reporting context. However, we believe the above comment serves as a helpful reminder to companies to prepare the disclosure in their Exchange Act filings with the same or similar vigor and due diligence process as they would in the offering context. (The Exchange Act filings are often incorporated by reference into Securities Act filings anyway.) This means counsel should ensure that “marketing-speak” in the document is fully vetted and factually supportable.
On a related note, readers of this blog may also find interesting the other comments in the letter, which touch on issues like ASC 450 accruals, system-wide sales that include franchisees’ revenues as an operating measure not in accordance with GAAP, revenue recognition, and even a question on director independence under NYSE rules.
If you have questions about this or other issues related to securities filings, please contact any member of our Corporate & Securities practice for more information.