Town Sports International Holdings, Inc. Announces First Quarter 2015 Financial Results
Posted: May 5, 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 first quarter ended March 31, 2015.
First Quarter Overview:
- Total member count increased 21,000 to 505,000 during Q1 2015 compared to a decrease of 1,000 in Q1 2014.
- Membership monthly attrition averaged 3.7% per month in Q1 2015 compared to 3.5% per month in Q1 2014.
- Revenue was $111.4 million in Q1 2015, a decrease of 3.9% compared to Q1 2014.
- Comparable club revenue decreased 3.5% in Q1 2015 compared to a decrease of 4.7% in Q1 2014.
- Adjusted EBITDA was $6.8 million in Q1 2015 compared to $14.1 million in Q1 2014.
- Net loss was $12.8 million in Q1 2015, which included a non-cash fixed asset impairment charge of $1.1 million and a separation accrual related to our former Executive Chairman of $1.3 million. These charges did not have any tax effect due to the impact of the Company’s tax valuation allowance in Q1 2015. This compares to net loss of $3.5 million in Q1 2014, which included a non-cash fixed asset and goodwill impairment charge of $3.8 million ($2.1 million, net of taxes).
- Loss per share was $0.52 in Q1 2015, which included loss per share of $0.05 for a non-cash fixed asset impairment charge and $0.05 for a separation accrual related to our former Executive Chairman. Loss per share in Q1 2014 was $0.15, which included loss per share of $0.09 for a non-cash fixed asset and goodwill impairment charge.
- Cash collected for fees paid at the time of member enrollment in Q1 2015 increased $8.4 million from the prior-year period related to an increase in these join fees per membership as well as an increase in memberships sold. Our cash position was $110.8 million for a net debt level of $196.7 million compared to a net debt level of $214.8 million as of December 31, 2014.
Dan Gallagher, Chief Executive Officer of TSI, commented: “We added 21,000 members in the first quarter of 2015, a direct result of our HVLP conversion strategy. While this was our largest membership increase in at least five years, we continue to learn and make tactical adjustments to maximize the membership potential of this strategy. Our HVLP conversion process is now complete with 124 clubs operating under the HVLP umbrella and the remaining clubs are not planned to be converted and will principally comprise of our passport-only model. This has been a major initiative made possible by the significant efforts of the entire team and with the conversions now behind us, our focus is on improving our member experience while we increase memberships and drive efficiencies.”
Mr. Gallagher continued: “In March we welcomed new members to our Board, who had been designated by our largest shareholders. Our new Board members have been reviewing our business and current strategies as part of our on-going strategic review process, which is currently focused on strategies for improving our clubs, leveraging the HVLP model and seeking efficiencies to maximize profitability.”
First Quarter Ended March 31, 2015 Financial Results:
Total revenue for Q1 2015 decreased $4.5 million, or 3.9%, compared to Q1 2014, primarily due to the member loss in 2014 and the lower average dues associated with the implementation of our HVLP strategy. The HVLP clubs are expected to experience revenue pressure in the near-term. The effect of existing members opting for lower dues and new members enrolling at lower rates have not been offset by an increase in membership sales volume. However, we expect to attract additional new members at each of our clubs through this strategy in the long-term. As a result of the HVLP implementation, our total member count increased 21,000 to 505,000 in Q1 2015 compared to a decrease of 1,000 members in the same quarter last year. We believe this strategy will increase market share for our brands in the long-term from the increased membership sales volume.
Total operating expenses for Q1 2015 increased $1.4 million, or 1.2%, compared to Q1 2014. Operating expenses increased in 2015 including increased costs of $2.2 million related to our newly opened clubs and BFX Studio locations, and a $1.3 million separation accrual related to our former Executive Chairman. These increases were offset by a decrease in fixed asset and goodwill impairment charges of $2.6 million and a decrease in expenses of $2.5 million related to our closed clubs. Separate from these items, operating expenses increased $3.0 million primarily reflecting increased marketing expenses of $2.9 million due to the conversion to the HVLP pricing strategy and $809,000 of increased occupancy expenses at our mature clubs, offset by a decline in utilities expense of $1.0 million.
Payroll and related. Payroll and related expenses increased $2.3 million, or 5.1%, in Q1 2015 compared to the same prior-year period. The payroll expenses increase included a $1.3 million separation accrual related to our former Executive Chairman in 2015. Separate from this item, payroll and related expenses increased $1.0 million, primarily driven by increased payroll expenses of $506,000 from personal training which was directly related to higher personal training revenue. In addition, we had $1.4 million of payroll expenses related to higher wages and hours for membership consultants and front desk staffing associated with the conversion of HVLP clubs and minimum wage increases, offset by lower commissions of $900,000.
Club Operating. Club operating expenses increased $1.7 million, or 3.4%, in Q1 2015 compared to the same prior-year period, primarily reflecting increased advertising spend related to the introduction of our new HVLP pricing strategy at many of our locations and increased rent and occupancy expenses, partially offset by decreased utilities expenses.
General and administrative. General and administrative expenses increased $128,000, or 1.5%, in Q1 2015 compared to the same period last year. Included in this increase is $200,000 associated with stock awards granted to the new members of the Board of Directors and $385,000 related to legal and other costs in connection with a proxy contest and related settlement. Separate from these non-comparable items, general and administrative expenses decreased $457,000, or 5.5%, primarily reflecting decreases in general liability insurance expense of $245,000 and other cost savings.
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 $7.0 million to $8.0 million related to planned 2015 openings, including one club and one BFX Studio location that both opened in mid-March, and two future BFX Studio locations. Total capital expenditures also includes approximately $16.0 million to $18.0 million to continue enhancing or upgrading existing clubs and approximately $4.0 million to $5.0 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 caption “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.
