Town Sports International Holdings, Inc. (“TSI” or the
“Company”) (NASDAQ: CLUB) today reported financial results for its
fourth quarter and year-ended December 31, 2016.
Fourth Quarter Results
- Total member count decreased 1,000 to
544,000 during Q4 2016 compared to an increase of 9,000 in Q4
2015.
- Membership monthly attrition averaged
3.5% per month in Q4 2016 compared to 3.4% per month in
Q4 2015.
- Q4 2016 net loss was $259,000, or $0.01
loss per share, compared to Q4 2015 net income of $87.0 million, or
$3.47 diluted earnings per share. Net income for Q4 2015 included a
gain on the previously completed sale of the East 86th Street
property of $77.1 million ($73.6 million was non-cash), gain on
extinguishment of debt of $17.9 million and gain related to a lease
termination of $3.0 million.
- Adjusted EBITDA was $12.3 million in Q4
2016, an increase of 23.7% compared to Adjusted EBITDA of $10.0
million in Q4 2015 (refer to the reconciliation at the end of this
earnings release).
Full Year Results
- Total member count increased 3,000 to
544,000 during 2016 compared to an increase of 64,000 in 2015.
(2015 member count increase was associated with the roll out of the
lower pricing model).
- Membership monthly attrition averaged
3.7% per month in 2016 compared to 3.9% per month in
2015.
- 2016 net income was $8.0 million, or
$0.31 diluted earnings per share, compared to 2015 net income of
$21.2 million, or $0.84 diluted earnings per share. Net income for
2016 included a gain on extinguishment of debt of $37.9 million and
a non-cash fixed asset impairment charge of $742,000. Net income
for 2015 included a gain on the previously completed sale of the
East 86th Street property of $77.1 million ($73.6 million was
non-cash), gain on extinguishment of debt of $17.9 million, gain
related to a lease termination of $3.0 million, non-cash goodwill
impairment charge of $31.6 million and non-cash fixed asset
impairment charge of $14.6 million.
- Adjusted EBITDA was $40.9 million in
2016, an increase of 41.7% compared to Adjusted EBITDA of $28.8
million in 2015 (refer to the reconciliation at the end of this
earnings release).
Patrick Walsh, Chairman and Chief Executive Officer of TSI,
commented: “2016 was an extraordinary year for our Company. I want
to thank the 7,500 plus TSI team members that delivered exceptional
results this past year. During the fourth quarter, Adjusted EBITDA
increased 23.7% from the prior year to $12.3 million. The Company's
profitability continued to improve throughout the year with the
fourth quarter's Adjusted EBITDA margin increasing to 12.8%. The
Company's improvement in profitability is a material achievement
given the margin pressure from declining revenues. The annual
Chairman's letter will be released on February 27, 2017 and posted
on the Company's website and will provide further commentary on the
business.”
Total revenue for Q4 2016 was $96.1 million compared to
$100.8 million for Q4 2015. Revenue decreased approximately $3.2
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 $836,000 increase in revenue from clubs
opened in the last 24 months.
Q4 2016 vs. Q4 2015 (in
millions) Membership revenue $74.7 vs. $76.9 (down 2.8%) Personal
training revenue $15.4 vs. $17.7 (down 12.7%)
Total operating expenses for Q4 2016 was $94.7 million
compared to $24.6 million for Q4 2015. Q4 2015 included a gain on
the previously completed sale of the East 86th Street property of
$77.1 million ($73.6 million was non-cash) and a $3.0 million net
gain related to the termination of a lease for a planned club
opening that was not yet effective. Excluding these charges,
operating expenses decreased $10.1 million primarily reflecting the
results of our cost-savings initiatives and club closures; in
particular, overhead and club level savings as well as General and
administrative expenses.
Q4 2016 vs. Q4 2015 (in
millions) Payroll and related $33.8 vs. $40.0 (down 15.5%) Club
operating $44.7 vs. $45.3 (down 1.3%) General and administrative
$5.5 vs. $7.5 (down 27.2%)
Total cash and total debt as of December 31, 2016 was
$45.6 million and $202.0 million, respectively, and total cash and
total debt as of December 31, 2015 was $76.2 million and $275.4
million, respectively. 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 canceled 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 150 fitness clubs as of
December 31, 2016, comprising 102 New York Sports Clubs, 28
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 544,000 members as of December 31, 2016. For
more information on TSI, 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
December 31, 2016 and December 31, 2015 (All figures in
thousands) (Unaudited) December 31,
2016 December 31, 2015
ASSETS
Current assets: Cash and cash equivalents $ 45,596 $ 76,217
Accounts receivable, net 1,221 1,923 Inventory 238 337 Deferred tax
assets — 1,549 Prepaid corporate income taxes 1,505 6,895 Prepaid
expenses and other current assets 10,274 13,170 Total
current assets 58,834 100,091 Fixed assets, net 170,580 195,341
Goodwill 1,008 1,025 Intangible assets, net 135 171 Deferred tax
assets — 219 Deferred membership costs 1,092 3,029 Other assets
4,229 3,225 Total assets $ 235,878 $ 303,101
LIABILITIES AND STOCKHOLDERS’
DEFICIT
Current liabilities: Current portion of long-term debt $ 2,082 $
2,810 Accounts payable 2,477 2,615 Accrued expenses 25,907 26,129
Accrued interest 119 129 Deferred revenue 34,572 40,225 Deferred
tax liabilities — 236 Total current liabilities
65,157 72,144 Long-term debt 194,743 263,930 Deferred lease
liabilities 49,660 51,136 Deferred tax liabilities 61 1,593
Deferred revenue 440 319 Other liabilities 11,487 10,224
Total liabilities 321,548 399,346 Stockholders’ deficit:
Common stock 24 24 Additional paid-in capital (6,261 ) (8,386 )
Accumulated other comprehensive loss (168 ) (523 ) Accumulated
deficit (79,265 ) (87,360 ) Total stockholders’ deficit (85,670 )
(96,245 ) Total liabilities and stockholders’ deficit $ 235,878
$ 303,101
TOWN SPORTS INTERNATIONAL HOLDINGS, INC.
AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS For the Three and Twelve Months Ended December
31, 2016 and 2015 (All figures in thousands except share and
per share data) (Unaudited) Three
Months Ended December 31, Twelve Months Ended
December 31, 2016 2015 2016
2015 Revenues: Club operations $ 94,502 $
99,321 $ 390,560 $ 418,069 Fees and other 1,605 1,518
6,361 6,254 96,107 100,839 396,921
424,323
Operating Expenses: Payroll and
related 33,827 40,012 149,029 175,898 Club operating 44,739 45,339
185,104 196,725 General and administrative 5,486 7,539 24,702
30,683 Depreciation and amortization 10,630 11,845 43,727 47,887
Impairment of fixed assets — — 742 14,571 Impairment of goodwill —
— — 31,558 Gain on sale of building — (77,146 ) — (77,146 ) Gain on
lease termination — (2,967 ) — (2,967 ) 94,682
24,622 403,304 417,209 Operating income (loss)
1,425 76,217 (6,383 ) 7,114 Gain on extinguishment of debt —
(17,911 ) (37,893 ) (17,911 ) Interest expense 3,194 5,017 13,940
20,579 Interest income — — (2 ) — Equity in the earnings of
investees and rental income (41 ) (600 ) (242 ) (2,361 ) (Loss)
income before (benefit) provision for corporate income taxes (1,728
) 89,711 17,814 6,807 (Benefit) provision for corporate income
taxes (1,469 ) 2,715 9,771 (14,351 ) Net (loss)
income $ (259 ) $ 86,996 $ 8,043 $ 21,158
(Loss) earnings per share: Basic $ (0.01 ) $ 3.50 $ 0.31 $ 0.86
Diluted $ (0.01 ) $ 3.47 $ 0.31 $ 0.84 Weighted average number of
shares used in calculating (loss) earnings per share: Basic
25,809,667 24,857,928 25,568,371 24,630,898 Diluted 25,809,667
25,049,813 26,074,735 25,114,057
TOWN SPORTS INTERNATIONAL
HOLDINGS, INC. AND SUBSIDIARIES Reconciliation of Net
Loss (Income) to EBITDA and Adjusted EBITDA For the Three
and Twelve Months Ended December 31, 2016 and 2015 (All
figures in thousands) (Unaudited) Three
Months Ended December 31, Twelve Months Ended
December 31, 2016 2015 2016
2015 Net (loss) income $ (259 ) $ 86,996 $ 8,043 $
21,158 Interest expense, net of interest income 3,194 5,017 13,938
20,579 (Benefit) provision for corporate income taxes (1,469 )
2,715 9,771 (14,351 ) Depreciation and amortization 10,630
11,845 43,727 47,887 EBITDA 12,096 106,573
75,479 75,273 Gain on extinguishment of debt — (17,911 ) (37,893 )
(17,911 ) Impairment of fixed assets — — 742 14,571 Impairment of
goodwill — — — 31,558 Gain on sale of building — (77,146 ) —
(77,146 ) Gain on lease termination — (2,967 ) — (2,967 )
Separation expense related to headcount reductions and former
executive officers 107 844 2,042 4,039 Net costs related to closing
clubs and other cost savings initiatives 129 1,217 513 3,209
Non-cash rental income from former tenant (1) — (450 ) — (1,926 )
Rent related to building financing arrangement (2) — (187 ) — (750
) Legal and other costs in connection with changes to the Board of
Directors — — — 899 Adjusted EBITDA $
12,332 $ 9,973 $ 40,883 $ 28,849 (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 closing clubs and other
cost-savings initiatives and separation expense related to
headcount reductions and former executive officers. In 2015,
Adjusted EBITDA also excludes gain on sale of building, gain on
lease termination, legal and other costs in connection with changes
to the Board of Directors, 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.
Adjusted EBITDA margin is calculated as Adjusted EBITDA over
total revenue.
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version on businesswire.com: http://www.businesswire.com/news/home/20170216006193/en/
Town Sports International Holdings, Inc., New
YorkInvestor:917-765-9974Investor.relations@town-sports.com
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