Town Sports International (TSI), New York, revenue fell to $424.3 million in 2015, a 6.5 percent decline from 2014 revenue despite having its highest member count ever, according to the company's financial disclosure released Monday.
Revenue in the fourth quarter of 2015 also declined, dropping 8.1 percent to $100.8 million compared to the same period in 2014. TSI's total revenue has declined every year since 2011 when it was $466.9 million, according to the company's SEC filing.
"The company has been experiencing declining revenue from members for several years as the fitness industry continues to be highly competitive in the geographic regions in which the company competes," TSI stated in its filing with the Securities and Exchange Commission (SEC). "New members have been joining at lower monthly rates and cancelations of members paying higher rates, primarily from the conversion to the lower pricing model, will continue to negatively impact our liquidity if these trends are not reversed."
The full-year and fourth-quarter revenue totals were down despite TSI's growth in total membership to 541,000 at the end of the fourth quarter, which is the highest member count in the company's history. The company had 484,000 total members at the end of 2014 after experiencing a net loss of 13,000 members in 2014. The increase in 2015 membership over 2014 was primarily due to the introduction of a lower pricing membership model, TSI noted in the SEC filing.
"We made significant progress in 2015," TSI Executive Chairman Patrick Walsh said in a statement. "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 percent 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."
TSI completed the introduction of the lower pricing model, which offers members a reduced monthly membership rate, in the second quarter of 2015. Approximately 80 percent of the company's clubs were operating under the lower pricing model at the end of 2015 with the remaining clubs compromising the passport-only model. TSI's Premier membership dues range from $19.99 to $49.99 per month, and the Passport membership ranges from $59.99 to $69.99 per month.
"This model gives us an opportunity to recapture market share and compete against certain other gyms that opened in our markets," TSI stated in the SEC filing. "We believe our offerings are compelling because we include group exercise classes, top-of-the-line equipment, pools and courts with price of certain memberships, when available. We continue to consider and make pricing adjustments in order to increase revenue while also driving membership growth."
TSI's total outstanding consolidated debt fell to $275.4 million at the end of 2015 compared to $308.3 million at the end of 2014. The company's balance sheet showed a decline in cash and cash equivalents from $93.4 million in 2014 to $76.2 million in 2015. In December 2015, TSI purchased $29.9 million principal amount of debt.
TSI initiated cost savings initiatives in 2015 that will continue into 2016 to help mitigate the impact the decline in revenue has had on the company's profitability and cash flow operations, according to the SEC filing. A headcount reduction combined with the cost savings initiatives resulted in payroll decrease of $5.1 million. Further details on the cost savings initiatives and the headcount reduction were not disclosed in the SEC filing.
The company may consider the sale of certain assets, closing additional clubs and entering arrangements with revenue generating partnerships, according to the SEC filing. TSI may also consider strategic alternatives including opportunities to reduce existing debt and further cost savings initiatives. TSI closed six clubs in 2015 after closing eight clubs in 2014, and opened one club in 2015 (Manhattan) after opening four clubs in 2014.
In March 2015, TSI said it was working with Deutsche Bank Securities to look at strategic alternatives, including a possible sale and move to become a private company. It also reworked its board, moving Bob Giardina, who had been chairman, into the role of a non-employee member of the board. In June 2015, Daniel Gallagher, who had been CEO, left the company and was replaced by Walsh, who had been an active investor in the company and who had moved onto the board in March 2015 when the board was reworked.
TSI operated 152 fitness clubs and three BFX Studio locations at the end of 2015. There were 105 clubs under the New York Sports Clubs brand, 27 in the Boston region under the Boston Sports Clubs brand, 12 in the Washington, DC, region under the Washington Sports Clubs brand, five clubs in the Philadelphia region under the Philadelphia Sports Clubs brand, and three clubs in Switzerland.
Town Sports International was trading up just under one percent at $1.17 per share in early after-hours trading (NASDAQ:CLUB) on Monday. The stock has traded in a 52-week range between 92 cents and $7.01 per share.
UPDATE: Investment firm Piper Jaffray maintained a hold rating and a $2 price target on TSI shares in a new note after Monday's disclosure, according to a CNBC report published after Tuesday's market close. The note caused TSI stock to rise over 1.6 percent to $1.89 per share in after-hours trading on Tuesday. Planet Fitness, which reported financials last week, fell nearly 10 percent in Tuesday's after-hours trading to $13.35 per share.