YogaWorks Photo courtesy YogaWorks
YogaWorks CEO Rosanna McCollough said that the company has completed much of the integration of the 16 studios that it acquired in 2017. The company plans to acquire more studios in 2018.

YogaWorks Reports 2017 Revenue Decrease Despite Q4 Growth

YogaWorks’ 13 studio acquisitions in fourth quarter 2017 helped to lift revenue by more than 10 percent for the quarter, but that was not enough to give the new public company an increase in annual revenue.

YogaWorks Inc., Los Angeles, reported 2017 revenue of $54.5 million and fourth quarter 2017 revenue of $14.5 million, according to financials released this week.

The year-end revenue was down 1 percent from the company’s 2016 revenue of $55.1 million while the fourth quarter revenue was a 10.2 percent increase compared to $13.2 million in fourth quarter 2016.

The company attributed the growth in the fourth quarter partly to revenue from the 13 studios that the company acquired for $5.6 million in the fourth quarter. The company acquired 16 studios in total in 2017 and opened one studio during the year, according to a media release from the company. The company now has 66 locations in nine regions.

Adjusted net loss for the year was $11.7 million compared to adjusted net loss of $9.1 million for 2016.

Rosanna McCollough, YogaWorks president and CEO, said that the company delivered financial results that were in line with the company’s expectation in the fourth quarter. During 2017, the company opened studios in the new markets of Atlanta and Houston and increased the density of its presence in the Washington DC metro area.

“As we look ahead, we will continue to build on our momentum,” McCollough said in the media release. “We remain committed to leveraging our robust pipeline of potential acquisitions and our unique position as the acquirer of choice within the fragmented industry, while also focusing on driving solid performance across our existing studios.”

During 2017, YogaWorks not only completed its initial public offering, but it also hosted approximately 190,000 classes for 250,000 students, which generated 3 million visits and held 100 teacher trainings in 16 countries.

Excluding acquired studios, visits in the fourth quarter declined 1 percent year-over-year, which is an improvement from the third quarter when visits were down 2.6 percent year-over-year, McCollough said in a call with analysts on April 2. This number is on track with the company’s expectations as it transitioned from its legacy membership-only model to also offer class packages in all studios.

“We expected this transition to have an impact on visits as members tend to visit more frequently than class package holders,” McCollough said in the call. “This does, however, enable us to attract new students who do not want to commit to a membership mainly because they enjoy various types of exercise or have limited time in their schedules.”

The company grew its user base nearly 40 percent to 25,000 on its digital platform, MyYogaWorks.com and streamed more than 700,000 classes in 185 countries. The company adds more than 100 videos to its online platform each year.

“Our growth has been exciting and the opportunity ahead of us is incredible,” McCollough said in the analyst call. “As we have said in the past, the yoga industry is large and highly fragmented with over 36 million practitioners and more than 33,000 studios. These studios are primarily owned by independent operators with a natural lifecycle to ownership making it ripe for acquisitions.”

The company’s 30-year history and its record of acquiring studios across the country continue to make it the acquirer of choice for many studio owners, McCollough said.

“How do we do this?” she asked. “Well, we’ve been studying this market for a long time, carefully reviewing each studio and tracking its progress. We have an amazing database of thousands of studios and have spoken with or are in conversations with literally hundreds of studios to assess the potential acquisition.

“We have a proven method of negotiating fair and favorable deal terms, and most importantly, we have a unique way of integrating studios that maintains the local spirit in community while centralizing functions to leverage our overhead and best practices.”

The integration plans for the 16 studios acquired in 2017 are all on track with all studio locations, schedules and programs added to the YogaWorks website, McCollough said. All the back-end functions and reporting have been centralized, and YogaWorks has taken over the marketing of most studios and have redirected most of the websites to yogaworks.com. All signage will be changed in the second quarter subject to city permitting processes.

The company also is offering free YogaWorks teacher training in several of its newly acquired regions to help new teachers learn the core elements of the YogaWorks method, she said.

“This investment in our teachers is not only important to further their education, which is the strength of YogaWorks, but a wonderful way to unify all teachers under a common language and create consistency across markets,” McCollough said.

Release of the financials was postponed from March 22 to April 2 due to a “delay in finalizing a goodwill impairment charge related to the book value of the company relative to the company’s current market capitalization.”

Vance Change, YogaWorks CFO, noted in the analyst call: “Due to our decreasing stock price in markets following completion of our IPO, the accounting rules dictate that our goodwill is impaired. As a result, we took a goodwill impairment charge of $7.5 million in the quarter. This charge does not impact adjusted EBITDA or free cash flow.”

According to Investopedia.com, goodwill impairment is “a charge that companies record when goodwill's carrying value on financial statements exceeds its fair value. In accounting, goodwill is recorded after a company acquires assets and liabilities, and pays a price in excess of their identifiable value. Goodwill impairment arises when there is deterioration in the capabilities of acquired assets to generate cash flows, and the fair value of the goodwill dips below its book value.”

YogaWorks focused on enhancing its infrastructure to support its growth plans. In January, the company completed the conversion to a new payroll system that in part will assist with an electronic onboarding process for all studios.

The company plans to advance its market leadership position through acquisitions, McCollough said.

“We continue to have a strong pipeline of additional acquisitions, and we are continuously qualifying new opportunities and managing multiple negotiations simultaneously and we expect acquisitions throughout the year will continue to contribute to revenue growth,” McCollough said.

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