Crunch CEO on Range of Emotions Over Virus

nice to talk to you again. And I think it's been eight or nine months. It was in July after it was after TPG made that investment, wasn't it. That's right, that was I think we spoke probably a week later. You're right, that's exactly right. So give us an update. I mean, what's going on as you look at what's you know, what's happening in the world. Obviously the world is shut down, but people still thinking about staying well, staying fit. How does it look from where you sit? Well,

I'm encouraged, I'm frustrated, and I'm angry. So I'm I'm feeling a lot of emotion, as I think a lot of people are. Um you know, we had to close over three hundred gems between our own gyms and our franchise network in a matter of seventy two hours, and we've gone from a significant amount of revenue to zero since March sixteenth, and we've tried to be considerate of our team members and our and our members along the way.

I was able and fortunate enough to pay our all of our team members from March sixteenth through March thirty one, regardless of the fact that we were closed and unfortunately had to furlough nearly three thousand employees on April one. I've been able to pick up their healthcare costs associated with their benefits plans. So that's been a little bit of a good feeling that we could do something for employees while they're not working. But yeah, it's been a

difficult time for us. We've spent the majority of the last three weeks just really working on our on how we re emerge, how do we reinvent ourselves during this period, and what does it look like to be the new Crunch, bigger, better, stronger as we emerge. Can you do anything while you know, in terms of online we you know, Jason, I've talked a lot about I've been doing yoga closes online. I guess it's different because you've got gyms and people want

to use equipment. But I do wonder how do you can you take advantage of the online world in any any form? Yeah, Carrol is a great question, and we have And we had a program um years ago that we established called Crunch Live, and the Crunch Live had over a hundred workouts on it as a digital format, and we were doing probably two thousand workouts a day

and over a hundred countries pre COVID. Since we've hit nearly a hundred thirty five countries and we've reached a peak of almost a hundred thousand workouts a day UM, so they're able to get into the Crunch library. We've also done Facebook workouts. We've put a lot of material upon Instagram around the benefits of nutrition supplementation UM, and

we've done some workout challenges and so forth. We also partnered with a group called LIPS Session and we've allowed our personal trainers to continue to do their one on one personal training sessions with their clients and that's been really beneficial for both the trainers and the members. Yeah.

I mean it's interesting too to think about. And you alluded to this earlier, Jim, this notion that you know, you you have your you have your staff, but so many people in this world, uh, you know, we're sort of independent contractors that they've got a side hustle or you know, they sort of make it work in this fitness business that that we all know, all three of us know. Uh, it's sort of pieced together in a

lot of ways. There's a it's very fragmented. Uh So I do wonder, you know, how the business model changes from here or does it effectively revert what are you finding as you you know, sort of work through re emerging. Yeah, so look, I think that we're all a where that you know, the morbidity rates skyrocket if you've got hypertension,

heart disease, obesity, diabetes, diabetes, or any respiratory illness. Right, So when it comes to obesity, diabetes, hypertension, and heart as, we know that exercise are are great things that you can do to a law with nutrition and proper diet, exercise right, that you can do to kind of be in better shape and and help in the event that you get a virus like this. So look, when you talk about encouraged, we're encouraged by the members that are

participating with Crunch Live. We're encouraged by the fact that the feedback we've received has been tremendous. Um get open, get open, We can't wait for our Crunch members are putting up memes showing, like, you know, thousands of people rushing the front door of Crunch when it opens, and it had a little bit of fun with it. But we think there's a lot of pent up demand. We also think that there's a lot of baking and a lot of calorie construction going on during this period. You

cannot buy flower. I have been trying for weeks and I cannot buy flower. It's crazy flowerless baking. There's flowerless bag. But we we are encouraged. Our members have sent us a lot of goodwill via social media, just saying we can't wait to get open, and and and and start up again and and again. Yesterday with the White House and the CDC um you know, releasing the Open America,

Opening America again. Plan to have Jim's mentioned for the first time to be in the power point deck to talk about the fact that Jim's can be open in phase one with social distancing and sanitary requirements and so forth. That was really encouraging. So we're we're excited about that, and we've been partnying with some ministry veterans in China and other parts of Asia to really understand like how

have they been emerging? What is this right? So we we we've got a lot of intelligence as to what to expect, and we've spent the better part of the last three weeks working on kind of our readiness plan, which is a thirty seven page document for both our franchise network and our sinnings are detwork. That was really fun. Hold that thought, Jim. We're gonna continue this conversation in just a minute. Excited to be talking to Jim Rowley,

CEO of Crunch Fitness. All right, I want to get back to Crunch the EO Jim Rowley, he's with us on the phone. So, Jim, you were just before we had to take a break here, we were talking about the reopening and what your team has been focusing on. Tell us the kind of things that the discussions you've been having, you know, kind of what does life look like as we say, you know, after the virus, after COVID nineteen, what are the discussions you're having and how

do you think you're reopen. So we're looking at a phased approach for understanding what the consumer demand, the member demand is going to be. We've we've already got a class registration system that's done through our apps, and we're able to manage inventory that way. We're considering doing that with reservations in terms of workout if there's a need

from from each of the governors and so forth. We're really looking kind of calling it the crunch way, which is informing members we want them to be kind, consider it and be mindful, and then from there, we've got conference of protocols around social distancing, social spacing, spacing, cleanliness, sanitation, disinfection. We've been upgrading all of our systems for the past

three weeks. Uh, you know, despite the fact that we've been making no money, we've been working on infrastructure changes to ensure that the clubs are clean, disinfected, that all of our products kill the COVID nineteen virus. Buying mass buying gloves um really being comprehensive in that nature and just looking at at the at the whole protocol soup to nuts, so as you enter a crunch, you'll be informed of what the new guidelines are as you go to check in six ft spacing with with intervals on

the floor that say ready, set, go. But there's six six ft apart right, So what are the mannerism is going to be like when you're with a personal trainer with the personal trainer be gloved in mass and what what kind of separation will be required to still get that instruction? Um. We put a grid system on our on our floors of our group fitness classes to ensure

that there's six ft um from member to member. We've shut off every other treadmill to ensure that there's six ft between people that are using the treadmills or the ellipticals or the bikes or what have you. So we've tried to look at every single aspect of the club, turn it upside now and say how can we reinvent this ensure that it's clean, sanitary and uh, and it's a healthy environment for our members and our team members

and uh. Again. We put out a thirty seven page document that is relatively comprehensive and really looked at it from a tactical strategic standpoint. Wow. I mean you answered a lot of my questions Jim, just there in terms of like what is this actually or my next question, which was what does this actually look like? I do? I want to ask you before we get too far away from what's happening right now, about the financial support, if any, that you're getting on a federal or state level.

Understanding the sort of complexities to some extent of your business sort of being a company but also having franchisees, are you able to tap into any of these sources of funds that are out there? Jason, I always feel like you and I are mind melding. I was hoping you were going to ask this question. Unfortunately, we're we're too big to qualify and too small to matter, so we are not as a corporation. We haven't been able

to participate in anything. And when I opened, I said, look, I'm encouraged, I'm hopeful, but I'm also frustrated and angry because as a company we've been left out. We don't qualify for the SBA loans. Many of our franchise e s have have applied and so forth. Some have been turned down, some are getting negative feedback and so forth. And we know that the three billions already been utilized, so we're anxious to see if the two fifty will

be part of the next stimulus. But where I'm really angry is while I'm making no revenue and I'm not able to qualify for the Cares Act or the p p P and so forth. I've got landlords, some of which are being tremendous. They've they've given us deferrals on rent and they consider our circumstances. Others are being deaf here. They don't want to talk about it there wait and see.

And then I've got about a third of our landlords that are sending default notices that they're being opportunistic, trying to get us into a place where they can terminate our leases, and they're really being almost vengeful in nature. And you know, you watch these commercials. I even listen to the Bloomboog commercials, and we talked about we're all in this together. It doesn't have here. The landlords are

and I don't think anybody's speaking about that. Um they even if they gave me a deferral, they'll they'll get their money at some point. Whereas I generate no revenue, I have no recourse to get it back. So that's where I get angry. I'm also frustrated that the business interruption insurance nobody qualifies, yes from from a lot of restaurants too. Yeah, do you have any sense that that

could change? Well, we're lobbying with We're working with Congress from Brian Fitzpatrick out of Pennsylvania, and our industry UM is the International Health and Racket Sports Association. We've got a lobbying team together. We're trying to work UM through Capitol Hill to get something and play both for understanding the qualifications for s b A, but also for in the future to understand that business and interruption insurance should

include pandemics such as this. It's impossible for me to get my head wrapped around the fact that we've been paying all this money for all this time and we're excluded from something like this. This seems like the perfect opportunity for the insurance. But he's a step up if nothing else, have them administer a program the government backed. Yeah. Hey, hey, Jim, just twenty seconds. You gotta be quick. What about TPG they've made an investment before. Can't you get some funds

from them? I mean, they've got deep pockets, Carol, I told you this when we met in July. They've been they were incredible during the process. They've been even better during UH kind of the honeymoon phase and into the first year. They've been tremendous. And of course, um, they're not gonna let Crunch fail there. They've they've made that commendment to us. Right now, we've got enough cash to get probably through July UH and hopefully you know, we'll

be way ahead of that. But our forecasts are okay. But imagine imagine our partners saying we've got you. If we get into dark waters, yeah, all right, we're gonna leave it there. Can't wait to catch up with you. On the other side, Jim really see of Crunch Fitness