Town Sports International Holdings, Inc. Announces Fourth Quarter and Full-Year 2015 Financial Results
Posted: March 7, 2016 in Chains
Town Sports International
NEW YORK, N.Y. – Town Sports International Holdings, Inc. (“TSI”, “TSI Holdings”, the “Company”, “our” or “we”) (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, 2015.
Fourth Quarter Overview:
- Total member count increased 9,000 to 541,000 during Q4 2015 compared to an increase of 5,000 in Q4 2014. This is the highest member count in the Company’s history.
- Monthly membership attrition declined to 3.4% per month in Q4 2015 compared to 4.4% per month in Q3 2015 and 3.9% per month in Q4 2014.
- Our cost savings initiatives are on track to exceed our previous estimate of $25.0 million of annualized savings.
- Adjusted EBITDA of $10.0 million in Q4 2015 increased 52.3% when compared to Q3 2015.
- Net income was $87.0 million in Q4 2015, which included the gain on the previously completed sale of the East 86th Street property of $77.1 million ($73.6 million of which was non-cash). Q4 2015 net income also included gain on extinguishment of debt of $17.9 million and gain related to a lease termination of $3.0 million. Net loss was $63.7 million in Q4 2014, which included a non-cash charge related to a tax valuation allowance of $60.4 million recorded against deferred taxes.
- As of December 31, 2015, our cash position was $76.2 million (approximately $30.3 million of which was held at the holding company) for a net debt level of $199.2 million, a decrease of 7.3% when compared to net debt level of $214.8 million at the end of Q4 2014. In December 2015, TSI Holdings purchased $29.8 million principal amount of debt outstanding under the 2013 Senior Credit Facility in the open market for $10.9 million, or 37% of face value, and such debt was subsequently transferred to Town Sports International, LLC’s (“TSI, LLC”) and cancelled.
Patrick Walsh, Executive Chairman of TSI, commented: “We made significant progress in 2015. We increased our membership to a record level of 541,000 as we added 64,000 net members in the last year and an additional 9,000 members in January 2016. Fourth quarter adjusted EBITDA grew 52.3% sequentially to $10 million, our second consecutive double-digit increase. This improvement was largely the result of strong cost controls and our intense focus on unit level economics. While we expect continued revenue headwinds in 2016 we will continue to look for ways to manage expenses as we also implement new strategies to improve sales trends, further drive membership growth and improve free cash flow generation.”
Total revenue for Q4 2015 decreased $8.9 million, or 8.1%, compared to Q4 2014. The effect of new members enrolling at lower monthly dues combined with members who cancelled who were paying higher monthly dues was only partially offset by an increase in membership sales volume. The decline was also partially offset by an increase in annual fees recognized of $3.7 million. During Q4 2015, we increased the selling price of our Premier membership (membership with unlimited use of a single club) at many of our clubs which resulted in an overall average selling price increase of over 20%. We continue to consider and make pricing adjustments in order to increase revenue while also driving membership growth.
Payroll and related. Payroll and related expenses decreased $3.7 million, or 8.4%, in Q4 2015 compared to Q4 2014. Payroll and related for overhead and club expenses decreased $5.1 million primarily associated with the results of our cost savings initiatives, including headcount reduction. These decreases were partially offset by severance charges of $844,000 in the 2015 period, including $492,000 in separation obligations related to the departure of executive officers. In addition, personal training payroll increased $697,000, which was related to an increase in personal training revenue.
Club Operating. Club operating expenses decreased $2.5 million, or 5.2%, in Q4 2015 compared to Q4 2014, primarily reflecting decreased marketing expenses of $1.8 million and other cost savings initiatives. The decrease in marketing expenses was primarily due to the increased advertising spend in Q4 2014 associated with the roll out of the lower pricing model.
General and administrative. General and administrative expenses decreased $213,000, or 2.7%, in Q4 2015 compared to Q4 2014, primarily reflecting the results of our cost savings initiatives of $1.6 million, partially offset by one-time charges of $1.1 million related to these cost savings initiatives.
Gain on Sale of Building. In September 2014, we completed the previously announced legal sale of our East 86th Street property for gross proceeds of $85.7 million to an unaffiliated third-party, which housed one of our New York Sports Clubs as well as a retail tenant that generated rental income for us. This sale-leaseback transaction was characterized for accounting purposes as a financing rather than a sale until any continuing involvement in the property ceased. In December 2015, we terminated our current lease and the agreement to enter into our future lease with the purchaser/landlord, and received gross proceeds of $3.5 million in connection with the termination. Because the lease was terminated with no continuing involvement, this sale-leaseback transaction was accounted for as a completed sale. Under this treatment, we have recorded a $77.1 million gain on the sale of the property, recorded in Gain on sale of building in our condensed consolidated statements of operations for Q4 2015.
Gain on lease termination. In Q4 2015, we recorded a $3.0 million net gain on lease termination related to the termination of a future lease for a planned club opening that was not yet effective.
Cash:
As of December 31, 2015, our cash position was $76.2 million, which was a $12.1 million decrease compared to September 30, 2015, primarily reflecting the repayment of a portion of our 2013 Senior Credit Facility. In December 2015, TSI Holdings purchased $29.8 million principal amount of debt outstanding under the 2013 Senior Credit Facility in the open market for $10.9 million, or 37% of face value, and such debt was subsequently transferred to TSI, LLC and cancelled. The decrease in our cash position also reflected capital expenditures of $6.4 million related to club maintenance, club remodeling and the planned opening of one location. These decreases were partially offset by $3.5 million of cash proceeds received from the sale of the East 86th Street property, and $3.1 million cash proceeds received from the termination of a lease that was not yet effective for a planned club opening.
Member Count Adjustment:
We added 64,000 net members in the year ended December 31, 2015 compared to a net member loss of 13,000 in 2014. The ending member count of 541,000 included two adjustments decreasing the count during the year. In the third quarter we completed the conversion from our internally developed Club Management legacy system to a third-party developed software system which resulted in a one-time adjustment to our historical legacy member count of approximately 5,000 members. We believe this adjustment was non-revenue generated and therefore does not impact our consolidated financial statements. In addition there are approximately 2,000 members at one partly-owned club operating under a different brand name that were not included in the total member count as of December 31, 2015 however were included as of December 31, 2014 when the club was operating as a Washington Sports Club. We continue to account for this club as an equity investment.
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 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.
