Town Sports International Holdings, Inc. Announces Second Quarter 2015 Financial Results
Posted: July 30, 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 second quarter ended June 30, 2015.
Second Quarter Overview:
- Total member count increased 20,000 to 525,000 during Q2 2015 compared to a decrease of 8,000 in Q2 2014. Membership compared to the end of Q2 2014 increased by 7.6%.
- Membership monthly attrition averaged 4.0% per month in Q2 2015 compared to 3.4% per month in Q2 2014.
- Revenue was $108.3 million in Q2 2015, a decrease of 6.4% compared to Q2 2014. A decline in average monthly dues was only partially offset by an increased membership level, a personal training revenue increase of 6.0% and increased joining and annual fees recognized.
- The average monthly dues charged in Q2 2015 decreased 13.9% to $51.40 from $59.70 per member in Q2 2014 primarily due to existing members downgrading their memberships to those with lower monthly dues and new members enrolling at lower rates, both as a result of the new HVLP strategy.
- Average joining fees per sale, including the upfront annual fee, increased 10.0%, or $6.00, to $66.00 in Q2 2015 from an average of $60.00 per sale in Q2 2014. This was a 44.4%, or $52.60, decrease compared to average joining fees per sale of $118.60 in Q1 2015.
- Cash collected for joining fees in Q2 2015 increased $3.5 million from Q2 2014 related to an increase in joining fees per membership as well as an increase in memberships sold but decreased $5.3 million when compared to Q1 2015 primarily due to the elimination of the initiation fee in certain clubs during Q2 2015 and expanding this elimination to all clubs for the last week of the quarter.
- Comparable club revenue decreased 5.4% in Q2 2015 compared to a decrease of 4.5% in Q2 2014.
- Adjusted EBITDA was $5.5 million in Q2 2015 compared to $15.5 million in Q2 2014.
- Net loss was $31.1 million in Q2 2015, which included a non-cash goodwill impairment charge of $31.6 million, non-cash fixed asset impairment charge of $1.0 million and a separation expense related to our former Chief Executive Officer of $776,000. The goodwill impairment charge had a non-cash income tax benefit of $11.9 million. The fixed asset impairment charge and the separation expense did not have any tax effect due to the impact of the Company’s tax valuation allowance in Q2 2015.
- Loss per share was $1.26 in Q2 2015, which included loss per share of $0.84 for non-cash fixed asset and goodwill impairment charges, net of taxes, and $0.03 for a separation obligation related to our former Chief Executive Officer. Loss per share in Q2 2014 was $0.04, which included loss per share of $0.02 for a non-cash fixed asset impairment charge.
- As of June 30, 2015, our cash position was $98.4 million (approximately $41.2 million of which was held at the holding company) for a net debt level of $208.4 million compared to a net debt level of $214.8 million as of December 31, 2014.
Patrick Walsh, Executive Chairman of TSI, commented: “While revenue and EBITDA declined in the quarter, our net member gain of 20,000 was a second quarter record for the company, and year-over-year our membership increased by 8.0%. However, the net result of our HVLP rollout is still pressuring total revenue and EBITDA due to lower average monthly dues. We will continue to adjust pricing in order to find the balance that results in increased revenue while also focusing on driving membership growth.”
Mr. Walsh continued: “We are currently undergoing an exhaustive examination of the Company’s strategy and operations, and are focused on optimizing cash flow and creating long-term value for our shareholders. Town Sports possesses well-recognized brands and talented people throughout the organization, which creates a strong foundation for all of our initiatives.”
Second Quarter Ended June 30, 2015 Financial Results:
Total revenue for Q2 2015 decreased $7.4 million, or 6.4%, compared to Q2 2014, primarily due to existing members downgrading their memberships to those with lower monthly dues and new members enrolling at lower rates, both as a result of the new HVLP strategy. The effect of existing members opting for lower dues and new members enrolling at lower rates were only partially offset by an increase in membership sales volume. Our total member count increased 20,000 to 525,000 in the three months ended June 30, 2015 compared to a decrease of 8,000 in the same prior-year period. We continue to adjust pricing in order to increase revenue while also focusing on driving membership growth.
Total operating expenses for Q2 2015 increased $36.1 million, or 31.8%, compared to Q2 2014. The 2015 period included increased fixed asset and goodwill impairment charges of $31.7 million, resulting from tests due to triggering events, and a separation obligation of $776,000 related to our former Chief Executive Officer. Separate from these items, operating expenses increased $3.7 million, or 3.2%, primarily reflecting increased marketing expenses of $2.2 million primarily due to advertising for the HVLP pricing strategy and increased payroll expenses of $631,000 from personal training which was directly related to higher personal training revenue.
Payroll and related. Payroll and related expenses increased $1.4 million, or 3.1%, in Q2 2015 compared to the same prior-year period. The payroll expenses increase included a $776,000 separation obligation related to our former Chief Executive Officer in the three months ended June 30, 2015. Separate from this item, payroll and related expenses increased $599,000, or 1.3%, primarily driven by increased personal training payroll of $631,000 which was directly related to the increase in personal training revenue.
Club Operating. Club operating expenses increased $2.2 million, or 4.5%, in Q2 2015 compared to the same prior-year period, primarily reflecting increased advertising spend associated with the HVLP pricing strategy and increased rent and occupancy expenses, partially offset by decreased utilities and maintenance expenses.
General and administrative. General and administrative expenses increased $533,000, or 7.1%, in Q2 2015 compared to the same period last year, primarily reflecting costs of $314,000 associated with the changes to our Board of Directors and other related expenses. Separate from this non-comparable item, general and administrative expenses increased $219,000 principally reflecting increased consulting expenses of $239,000.
As of June 30, 2015, our cash position was $98.4 million, which was a $12.5 million decrease compared to March 31, 2015. The decrease in our cash position reflected capital expenditures of $10.4 million related to club maintenance, club remodeling and planned 2015 openings, including one BFX Studio location opened in Q2 2015 and one future BFX Studio location, as well as $4.3 million in interest payments.
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 $9.0 million to $10.0 million related to planned 2015 openings, including one club and two BFX Studio locations that opened in the six months ended June 30, 2015, and one future BFX Studio location. Total capital expenditures also includes approximately $13.0 million to $15.0 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.
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.