Town Sports International Holdings, Inc. Reports Fourth Quarter and Full-Year 2016 Results
NEW YORK–(BUSINESS WIRE)–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.
Contacts
Town Sports International Holdings, Inc., New York
Investor:
917-765-9974
Investor.relations@town-sports.com