Town Sports International Holdings Inc. (TSI), New York, reported second quarter 2015 revenue of $108.3 million, a decrease of 6.4 percent compared to second quarter 2014, according to financials filed Thursday by the company.
TSI Executive Chairman Patrick Walsh blamed the decline on the lower average monthly dues from the company's high-value, low-price model, which it began rolling out in 2014 and completed earlier this year.
The average monthly dues charged in the second quarter decreased 13.9 percent to $51.40 from $59.70 per member in second quarter 2014 primarily due to existing members downgrading their memberships to those with lower monthly dues and new members enrolling at lower rates.
A decline in average monthly dues was only partially offset by an 8 percent increase in memberships, a personal training revenue increase of 6 percent and increased joining and annual fees recognized, according to the release.
"We will continue to adjust pricing in order to find the balance that results in increased revenue while also focusing on driving membership growth," Walsh, who was featured this week in a Forbes article, said in a release from the company. "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."
The company's adjusted EBITDA was $5.5 million in second quarter 2015 compared to $15.5 million in second quarter 2014. Comparable club revenue decreased 5.4 percent in the second quarter compared to a decrease of 4.5 percent in the same quarter last year.
Since the beginning of the year, TSI's management has undergone some changes. Longtime CEO Robert Giardina handed the CEO role to Daniel Gallagher in February when Giardina became executive chairman of the board. At that time, the executives were considering a sale of the company. However, in March, Giardina's employment with the company was terminated, and he became a nonemployee board member, as several activist investors, including Walsh, took seats on the board. Then, in June, Gallagher left the company, and Walsh became executive chairman of the board.
Other notable items include:
- Membership monthly attrition averaged 4 percent per month in second quarter 2015 compared to 3.4 percent per month in second quarter 2014.
- Average joining fees per sale, including the upfront annual fee, increased 10 percent, or $6, to $66 in second quarter 2015 from an average of $60 per sale the same quarter last year. This was a 44.4 percent, or $52.60, decrease compared to average joining fees per sale of $118.60 in first quarter 2015.
- Cash collected for joining fees in second quarter 2015 increased $3.5 million from second quarter 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 first quarter 2015 primarily due to the elimination of the initiation fee in certain clubs during second quarter 2015 and expanding this elimination to all clubs for the last week of the quarter.
- Net loss was $31.1 million in second quarter 2015, which included a non-cash goodwill impairment charge of $31.6 million, non-cash fixed asset impairment charge of $1 million and a separation expense related to TSI's former CEO of $776,000. The goodwill impairment charge had a non-cash income tax benefit of $11.9 million.
- As of June 30, 2015, TSI's 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 Dec. 31, 2014.
As of June 30, 2015, 123 of TSI's 154 clubs were under its new HVLP pricing strategy. The remaining clubs are under its passport-only model.
TSI operates under the brand names New York Sports Clubs, Boston Sports Clubs, Washington Sports Clubs, Philadelphia Sports Clubs and BFX Studio.