Town Sports International Holdings, Inc. Reports Second Quarter 2016 Results
Posted: July 28, 2016 in Chains
Town Sports International
NEW YORK, N.Y. – Town Sports International Holdings, Inc. (NASDAQ:CLUB) reported financial results for its second quarter ended June 30, 2016.
Second Quarter Highlights:
- Total member count decreased 2,000 to 551,000 during Q2 2016 compared to an increase of 20,000 in Q2 2015 (Q2 2015 member count increase was associated with the roll out of the lower pricing model).
- Membership monthly attrition averaged 3.5% per month in Q2 2016 compared to 4.0% per month in Q2 2015.
- Q2 2016 net income was $20.7 million, or $0.79 diluted earnings per share, compared with Q2 2015 net loss of $31.1 million, or $1.26 loss per share. Net income for Q2 2016 included a gain on debt extinguishment of $38.5 million ($25.0 million, net of taxes). Net loss for Q2 2015 included a non-cash goodwill impairment charge of $31.6 million and non-cash fixed asset impairment charge of $1.0 million. The goodwill impairment charge had a non-cash income tax benefit of $11.9 million. The fixed asset impairment charge did not have any tax effect due to the impact of the Company’s tax valuation allowance in Q2 2015.
- Adjusted EBITDA was $9.6 million in Q2 2016, an increase of 74.8% compared to Adjusted EBITDA of $5.5 million in Q2 2015 (refer to the reconciliation at the end of this earnings release).
- In Q2 2016, TSI Holdings settled two transactions to purchase 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 cancelled upon settlement.
Patrick Walsh, Executive Chairman of TSI, commented: “We were particularly pleased with our Adjusted EBITDA and margin growth of 75% and 87% respectively, during the quarter. In less than one year, management has increased Adjusted EBITDA margins by 442 basis points. These results are a testament to the hard work and dedication of our current team of more than 7,000 employees supporting our effort to improve the Company’s operational efficiency. Our primarily focus now is to strengthen our membership base and increase revenue.”
Total revenue for Q2 2016 was $100.9 million compared to $108.3 million for Q2 2015. The revenue decrease was primarily due to club closures in 2015 and the first half of 2016, a decrease in initiation and processing fees, and a decline in sales volume for our personal training products.
Total operating expenses for Q2 2016 was $102.4 million compared to $149.7 million for Q2 2015. The 2015 period included fixed asset and goodwill impairment charges of $32.6 million. Not including from these items, operating expenses decreased $14.8 million primarily reflecting the results of our cost savings initiatives, in particular, overhead and club level savings as well as savings in General and administrative expenses.
Total cash as of June 30, 2016 was $58.9 million and total debt was $203.0 million, for net debt of $144.1 million. This was a decrease of 27.7% compared to the net debt as of December 31, 2015. Total cash as of December 31, 2015 was $76.2 million and total debt was $275.4 million, for net debt of $199.2 million.
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.