Town Sports International Holdings, Inc. (“TSI” or the
“Company”) (NASDAQ:CLUB) today reported financial results for its
third quarter ended September 30, 2016.
Third Quarter Results
- Total member count decreased 6,000 to
545,000 during Q3 2016 compared to an increase of 14,000 in Q3 2015
(Q3 2015 member count increase was associated with the roll out of
the lower pricing model).
- Membership monthly attrition averaged
4.2% per month in Q3 2016 compared to 4.4% per month in
Q3 2015.
- Q3 2016 net loss was $5.5 million, or
$0.21 loss per share, compared with Q3 2015 net loss of $22.0
million, or $0.89 loss per share. Net loss for Q3 2016 and Q3 2015
included non-cash fixed asset impairment charges of $742,000 and
$12.4 million, respectively. The fixed asset impairment charges did
not have any tax effect due to the impact of the Company’s tax
valuation allowance in Q3 2016 and Q3 2015.
- Adjusted EBITDA was $11.0 million in Q3
2016, an increase of 68.5% compared to Adjusted EBITDA of $6.6
million in Q3 2015 (refer to the reconciliation at the end of this
earnings release).
Patrick Walsh, Chairman and Chief Executive Officer of TSI,
commented: “The turnaround in Town Sports’ operations has led to a
material improvement in the Company's profitability. During the
third quarter, Adjusted EBITDA increased 68.5% from the prior
year to $11 million. We continue to focus on improving the member
experience through club remodels which include new, state of the
art equipment, specialized programming and an updated visual
aesthetic. In addition, we recently launched new digital tools
which include an enhanced and more user-friendly web site and TSI’s
first ever mobile member app, which will allow members to
personalize their club experience.”
Total revenue for Q3 2016 was $98.5 million compared to
$103.8 million for Q3 2015. Revenue decreased approximately $3.8
million at closed club locations and approximately $2.3 million at
our clubs operating longer than 24 months. These decreases were
partially offset by an $831,000 increase in revenue from clubs
opened in the last 24 months.
Q3 2016 vs. Q3 2015 (in millions) Membership
revenue $76.2 vs. $78.2 (down 2.5%) Personal training revenue $15.5
vs. $17.9 (down 13.4%)
Total operating expenses for Q3 2016 was $101.2 million
compared to $123.5 million for Q3 2015. The 2016 and 2015 period
included fixed asset impairment charges of $742,000 and $12.4
million, respectively. Excluding these charges, operating expenses
decreased $10.6 million primarily reflecting the results of our
cost-savings initiatives and club closures in 2015 and 2016; in
particular, overhead and club level savings as well as savings in
General and administrative expenses.
Q3 2016 vs. Q3 2015 (in millions) Payroll and
related $37.6 vs. $42.9 (down 12.2%) Club operating $46.0 vs. $49.3
(down 6.8%)
General and administrative
$5.8 vs. $6.7 (down 13.3%)
Total cash and total debt as of September 30, 2016
was $48.3 million and $202.5 million, respectively, and total cash
and total debt as of December 31, 2015 was $76.2 million and $275.4
million, respectively, resulting in a decrease in total debt of
26.5%. The decrease in both total cash and total debt was primarily
due to the purchases of long-term debt. In Q2 2016, TSI Holdings
purchased a total of $71.1 million principal amount of debt
outstanding under the 2013 Senior Credit Facility for $29.8
million, or an average of 42% of face value. The purchased debt was
transferred to Town Sports International, LLC and cancelled upon
settlement.
Forward-Looking Statements:
This release contains “forward-looking” statements within the
meaning of the Private Securities Litigation Reform Act of 1995,
including, without limitation, statements regarding future
financial results and performance, potential sales revenue,
potential club closures, results of cost savings initiatives, and
other statements that are predictive in nature or depend upon or
refer to events or conditions, or that include words such as
“outlook”, “believes”, “expects”, “potential”, “continues”, “may”,
“will”, “should”, “seeks”, “approximately”, “predicts”, “intends”,
“plans”, “estimates”, “anticipates”, “target”, “could” or the
negative version of these words or other comparable words. These
statements are subject to various risks and uncertainties, many of
which are outside the Company’s control, including, among others,
the level of market demand for the Company’s services, economic
conditions affecting the Company’s business, the success of our
pricing strategy, the geographic concentration of the Company’s
clubs, competitive pressure, the ability to achieve reductions in
operating costs and to continue to integrate acquisitions,
outsourcing of certain aspects of our business, environmental
matters, the application of Federal and state tax laws and
regulations, any security and privacy breaches involving customer
data, the levels and terms of the Company’s indebtedness, and other
specific factors discussed herein and in other releases and public
filings made by the Company (including the Company’s reports on
Forms 10-K and 10-Q filed with the Securities and Exchange
Commission). The Company believes that all forward-looking
statements are based on reasonable assumptions when made; however,
the Company cautions that it is impossible to predict actual
results or outcomes or the effects of risks, uncertainties or other
factors on anticipated results or outcomes and that, accordingly,
one should not place undue reliance on these statements.
Forward-looking statements speak only as of the date when made, and
the Company undertakes no obligation to update these statements in
light of subsequent events or developments. Actual results may
differ materially from anticipated results or outcomes discussed in
any forward-looking statement.
About Town Sports International Holdings, Inc.:
New York-based Town Sports International Holdings, Inc. is one
of the leading owners and operators of fitness clubs in the
Northeast and mid-Atlantic regions of the United States and,
through its subsidiaries, operated 148 fitness clubs as of
September 30, 2016, comprising 101 New York Sports Clubs, 27
Boston Sports Clubs, 12 Washington Sports Clubs (one of which is
partly-owned), five Philadelphia Sports Clubs, and three clubs
located in Switzerland. These clubs collectively served
approximately 545,000 members as of September 30, 2016. In
addition, the Company also owned two BFX Studio locations and had
one partly-owned club that operated under a different brand name in
Washington, D.C. as of September 30, 2016. For more
information on TSI, including the Company's Form 10-Q for the
quarterly period ended September 30, 2016, visit http://investor.mysportsclubs.com.
Until further notice, the Company will not be hosting conference
calls to discuss quarterly results. The Company intends to continue
to issue press releases reporting quarterly and annual
earnings.
From time to time the Company may use its Web site as a channel
of distribution of material company information. Financial and
other material information regarding the Company is routinely
posted on and accessible at http://investor.mysportsclubs.com. In
addition, you may automatically receive email alerts and other
information about the Company by enrolling through the “Email
Alerts” section at http://investor.mysportsclubs.com.
TOWN SPORTS INTERNATIONAL HOLDINGS, INC. AND
SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE
SHEETS
As of September 30, 2016 and December 31, 2015 (All
figures in thousands) (Unaudited)
September 30, 2016 December 31, 2015
ASSETS Current assets: Cash and cash equivalents $ 48,330 $
76,217 Accounts receivable, net 1,243 1,923 Inventory 283 337
Deferred tax assets — 1,549 Prepaid corporate income taxes 715
6,895 Prepaid expenses and other current assets 11,832
13,170 Total current assets 62,403 100,091 Fixed assets, net
175,625 195,341 Goodwill 1,065 1,025 Intangible assets, net 144 171
Deferred tax assets — 219 Deferred membership costs 1,364 3,029
Other assets 4,730 3,225 Total assets $ 245,331
$ 303,101
LIABILITIES AND STOCKHOLDERS’
DEFICIT Current liabilities: Current portion of long-term debt
$ 2,082 $ 2,810 Accounts payable 3,136 2,615 Accrued expenses
30,772 26,129 Accrued interest 89 129 Deferred revenue 37,076
40,225 Deferred tax liabilities — 236 Total current
liabilities 73,155 72,144 Long-term debt 194,947 263,930 Deferred
lease liabilities 50,324 51,136 Deferred tax liabilities 61 1,593
Deferred revenue 434 319 Other liabilities 12,441 10,224
Total liabilities 331,362 399,346 Stockholders’ deficit:
Common stock 24 24 Additional paid-in capital (6,537 ) (8,386 )
Accumulated other comprehensive loss (510 ) (523 ) Accumulated
deficit (79,008 ) (87,360 ) Total stockholders’ deficit (86,031 )
(96,245 ) Total liabilities and stockholders’ deficit $ 245,331
$ 303,101
TOWN SPORTS INTERNATIONAL
HOLDINGS, INC. AND SUBSIDIARIES CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS For the Three and Nine
Months Ended September 30, 2016 and 2015 (All figures in
thousands except share and per share data) (Unaudited)
Three Months EndedSeptember
30,
Nine Months EndedSeptember
30,
2016 2015 2016 2015
Revenues: Club operations $ 96,846 $ 102,119 $ 296,058 $
318,748 Fees and other 1,688 1,645 4,756 4,736
98,534 103,764 300,814 323,484
Operating Expenses: Payroll and related 37,643 42,889
115,202 135,886 Club operating 45,952 49,280 140,365 151,386
General and administrative 5,806 6,696 19,216 23,144 Depreciation
and amortization 11,015 12,190 33,097 36,042 Impairment of fixed
assets 742 12,420 742 14,571 Impairment of goodwill — —
— 31,558 101,158 123,475 308,622
392,587 Operating loss (2,624 ) (19,711 ) (7,808 )
(69,103 ) Loss (gain) on extinguishment of debt 604 — (37,893 ) —
Interest expense 3,177 5,204 10,746 15,562 Interest income (2 ) —
(2 ) — Equity in the earnings of investees and rental income (55 )
(571 ) (201 ) (1,761 ) (Loss) income before provision (benefit) for
corporate income taxes (6,348 ) (24,344 ) 19,542 (82,904 )
(Benefit) provision for corporate income taxes (842 ) (2,338 )
11,240 (17,066 ) Net (loss) income $ (5,506 ) $ (22,006 ) $
8,302 $ (65,838 ) (Loss) earnings per share: Basic $ (0.21 )
$ (0.89 ) $ 0.33 $ (2.68 ) Diluted $ (0.21 ) $ (0.89 ) $ 0.32 $
(2.68 )
Weighted average number of shares used in
calculating (loss) earnings per share:
Basic 25,748,400 24,654,267 25,487,352 24,554,390 Diluted
25,748,400 24,654,267 26,147,729 24,554,390
TOWN
SPORTS INTERNATIONAL HOLDINGS, INC. AND SUBSIDIARIES
Reconciliation of Net Loss to EBITDA and Adjusted EBITDA
For the Three Months Ended September 30, 2016 and 2015
(All figures in thousands) (Unaudited)
Quarter Ended September 30, 2016 2015
Net loss $ (5,506 ) $ (22,006 ) Interest expense, net of interest
income 3,175 5,204 Benefit for corporate income taxes (842 ) (2,338
) Depreciation and amortization 11,015 12,190 EBITDA
7,842 (6,950 ) Loss on extinguishment of debt 604 — Impairment of
fixed assets 742 12,420 Separation expense related to headcount
reductions and former Executive Officers 1,657 1,031 Net costs
related to closing clubs and other cost savings initiatives 190 729
Non-cash rental income from former tenant (1) — (492 ) Rent related
to building financing arrangement (2) — (188 ) Adjusted
EBITDA $ 11,035 $ 6,550 (1) Represents
non-cash rental income from our former tenant in connection with
the East 86th Street building financing arrangement. (2)
Rent paid in connection with our previously owned club at the East
86th Street property was recorded as interest expense on the
consolidated statement of operations.
Non-GAAP Financial Measures - EBITDA and Adjusted
EBITDA
EBITDA consists of net income (loss) plus interest expense (net
of interest income), provision (benefit) for corporate income
taxes, and depreciation and amortization. Adjusted EBITDA is the
Company’s EBITDA excluding certain items, such as any fixed asset
or goodwill impairments, gain (loss) on extinguishment of debt, net
occupancy gain (loss) related to club closures, cost-savings
initiatives and separation expense related to headcount reductions
and former Executive Officers. In the case of Q3 2015, Adjusted
EBITDA also excludes non-cash rental income from a former tenant
and rent related to building financing arrangement. EBITDA is not a
measure of liquidity or financial performance presented in
accordance with GAAP. EBITDA, as we define it, may not be identical
to similarly titled measures used by some other companies.
EBITDA has material limitations as an analytical tool and should
not be considered in isolation or as a substitute for net income
(loss), operating income (loss), cash flows from operating
activities or other cash flow data prepared in accordance with
GAAP. The items excluded from EBITDA, but included in the
calculation of reported net income and operating income, are
significant and must be considered in performing a comprehensive
assessment of our performance.
Investors or prospective investors in the Company regularly
request EBITDA as a supplemental analytical measure to, and in
conjunction with, our GAAP financial data. We understand that these
investors use EBITDA, among other things, to assess our ability to
service our existing debt and to incur debt in the future, to
evaluate our executive compensation programs, to assess our ability
to fund our capital expenditure program, and to gain insight into
the manner in which the Company’s management and board of directors
analyze our performance. We believe that investors find the
inclusion of EBITDA in our press releases to be useful and helpful
to them.
Our management and board of directors also use EBITDA as a
supplemental measure to our GAAP financial data for purposes
broadly similar to those used by investors.
The purposes to which EBITDA may be used by investors, and is
used by our management and board of directors, include the
following:
- The Company is required to comply with
financial covenants and borrowing limitations that are based on
variations of EBITDA as defined in our 2013 Senior Credit Facility,
as amended.
- Our discussions with prospective
lenders and investors in recent years, including in relation to our
2013 Senior Credit Facility, have confirmed the importance of
EBITDA in their decision-making processes relating to the making of
loans to us or investing in our debt securities.
- The Company uses EBITDA as a key factor
in determining annual incentive bonuses for executive officers (as
discussed in our proxy statement).
- The Company considers EBITDA to be a
useful supplemental measure to GAAP financial data because it
provides a performance measure to assess results without regard to
capital structure and taxes.
- Quarterly, equity analysts who follow
our company often report on our EBITDA with respect to valuation
commentary.
Adjusted EBITDA has similar uses and limitations as EBITDA. We
have excluded additional items in the calculation of Adjusted
EBITDA because management believes that this metric is useful in
making period to period comparisons of our performance. We do not,
and investors should not, place undue reliance on EBITDA or
Adjusted EBITDA as a measure of our performance.
View source
version on businesswire.com: http://www.businesswire.com/news/home/20161026006622/en/
Town Sports International Holdings, Inc., New
YorkInvestor:(917) 765-9974Investor.relations@town-sports.com
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