Town Sports International Holdings Announces Fourth Quarter and Full-Year 2014 Financial Results
Posted: February 25, 2015 in Chains
Town Sports International
NEW YORK, N.Y. – Town Sports International Holdings, Inc. (“TSI” or the “Company”) (NASDAQ:CLUB), one of the leading owners and operators of health clubs located primarily in major cities from Washington, DC north through New England, operating under the brand names “New York Sports Clubs,” “Boston Sports Clubs,” “Washington Sports Clubs”, “Philadelphia Sports Clubs” and “BFX Studio” announced its results for the fourth quarter and full-year ended December 31, 2014.
Fourth Quarter Overview:
- Total member count increased 5,000 to 484,000 during Q4 2014 compared to a decrease of 10,000 in Q4 2013.
- Membership monthly attrition averaged 3.9% per month in Q4 2014 compared to 3.4% per month in Q4 2013.
- Revenue was $109.7 million in Q4 2014, a decrease of 3.7% compared to Q4 2013.
- Comparable club revenue decreased 3.9% in Q4 2014 compared to 1.3% in Q4 2013.
- Adjusted EBITDA was $10.4 million in Q4 2014 compared to $18.4 million in Q4 2013. Q4 2014 Adjusted EBITDA exceeded our previous guidance of $8.8 million by 18%.
- Net loss for Q4 2014 was $63.7 million, which included a non-cash charge related to a tax valuation allowance of $60.4 million recorded against deferred tax assets. This compares to net loss of $695,000 in Q4 2013, which included an aggregate pre-tax net charge of $1.2 million (approximately $738,000, net of taxes) for certain items as previously disclosed.
- Loss per share was $2.62 in Q4 2014, which included loss per share of $2.48 for a non-cash tax charge related to a tax valuation allowance. Loss per share in Q4 2013 was $0.03, which included loss per share of $0.03 of certain items as previously disclosed.
- Continue to modify pricing at our clubs to a High Value Low Price (“HVLP”) strategy. As of December 31, 2014, 71 clubs were operating under this new pricing strategy. As of today, a total of 98 clubs have been converted to HVLP and another 19 clubs are operating as passport-only membership clubs. We expect most of our clubs to be converted to the HVLP pricing strategy by May 31, 2015, and approximately 25 clubs to be operating under our higher priced passport-only membership model.
Robert Giardina commented: “The fourth quarter capped a year of significant transformation and highlighted positive momentum for our business. Compelled by industry change, we embarked on a new pricing strategy which we expect will first result in membership growth and increased market share followed by renewed positive EBITDA growth combined with improved cash flow. In addition, to improve the productivity of our asset base, we closed eight clubs, slowed development and are focusing most of our efforts on maximizing the potential of our existing clubs. Everything we are doing leverages the established team, infrastructure and brand that our company has developed over many years, and we are energized by the continued focus on health and fitness in America.”
Fourth Quarter Ended December 31, 2014 Financial Results:
Total revenue for Q4 2014 decreased $4.2 million, or 3.7%, compared to Q4 2013. Revenue at clubs operated for over 12 months (“comparable club revenue”) decreased 3.9% in Q4 2014. Memberships at our comparable clubs were down 3.5% and the price of our membership dues were down 0.8%, which was partially offset by a 0.4% increase in the combined effect of ancillary club revenue, joining fees and other revenue.
Total operating expenses for Q4 2014 increased $2.8 million, or 2.6%, compared to Q4 2013, primarily reflecting $3.3 million of operating expenses for our newly opened clubs and BFX Studio, partially offset by $2.2 million of reduced operating costs at clubs that were closed. The increase also reflected increased HVLP marketing expense of approximately $1.6 million. Operating margin was (1.5)% for Q4 2014 compared to 4.7% for Q4 2013.
Payroll and related. Payroll and related expenses increased $772,000, or 1.8%, to $43.7 million in Q4 2014 compared to Q4 2013, primarily reflecting increases in employment levels relating to our new BFX Studio, as well as higher wages and hours for membership consultants and front desk staffing associated with the conversion of our HVLP clubs.
Club Operating. Club operating expenses increased $1.8 million, or 3.8%, to $47.8 million in Q4 2014 compared to Q4 2013, primarily reflecting increased advertising spend of $1.6 million, mainly related to the introduction of our new HVLP pricing strategy at many of our locations.
General and administrative. General and administrative expenses increased $306,000 in Q4 2014 when compared to the same prior-year period. Computer maintenance expenses increased $428,000 related to the implementation of our new club operating system and in Q4 2014, we incurred $136,000 in legal and other expenses related to club closures. These increases were partially offset by a reversal of $214,000 in accrued damages related to the Ajilon litigation.
Full-Year Ended December 31, 2014 Financial Results
For the full-year ended December 31, 2014, total revenue decreased $16.4 million, or 3.5%, compared to full-year 2013. Adjusted EBITDA was $53.2 million compared to $90.0 million for 2013. Operating margin was 0.2% for 2014 compared to 8.6% for 2013. Net loss was $69.0 million in 2014, which included a non-cash tax charge of $60.4 million related to a tax valuation allowance, compared to net income of $12.3 million in 2013. The valuation allowance was recorded based on our projection to be in a cumulative loss during the three year period ending December 31, 2015 as a result of the earnings pressure in the near-term and increased marketing spend due to the conversion to the HVLP pricing strategy.
First Quarter 2015 Financial Outlook:
Based on the current business environment, current trends in the marketplace and our expectations as we continue the implementation of our HVLP strategy, and subject to the risks and uncertainties inherent in forward-looking statements, our outlook for the first quarter of 2015 includes the following:
- Revenue for Q1 2015 is expected to be between $113.0 million and $114.0 million versus $115.9 million for Q1 2014. As percentages of revenue, we expect Q1 2015 payroll and related expenses to be approximately 41.5% and club operating expenses to approximate between 45.3% and 45.5%. We expect general and administrative expenses to approximate $7.7 million, depreciation and amortization to approximate $12.0 million and net interest expense to approximate $5.1 million. Included in interest expense is approximately $675,000 related to the building financing arrangement, of which $475,000 is non-cash.
- Expect net loss for Q1 2015 to be between $4.8 million and $5.3 million, and loss per share to be in the range of $0.20 per share to $0.22 per share, assuming approximately 24.5 million weighted average fully diluted shares outstanding and an effective tax rate of 46%.
- Estimate that Adjusted EBITDA will approximate $7.3 million in Q1 2015.
Q1 2015 outlook excludes any amounts related to the review of strategic alternatives previously announced.
Investing Activities Outlook
For the year ending December 31, 2015, we currently plan to invest $30.0 million to $34.0 million in capital expenditures. This amount includes approximately $5.4 million to $6.5 million related to planned 2015 openings, including both clubs and BFX Studio units. Total capital expenditures also includes approximately $17.0 million to $19.0 million to continue enhancing or upgrading existing clubs and approximately $5.0 million to $6.0 million principally related to major renovations at certain clubs. We also expect to invest approximately $3.0 million to continue to enhance our management information and communication systems. We expect these capital expenditures to be funded by cash flow from operations and available cash on hand.
Forward-Looking Statements:
This release contains “forward-looking” statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, including, without limitation, statements under the captions “First Quarter 2015 Financial Outlook” and “Investing Activities Outlook”, statements regarding future financial results and performance, potential sales revenue, potential club closures, HVLP conversions, our strategic review process, 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 HVLP 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.
