- Net loss of $2.4 million for the third quarter of 2019; Adjusted net income of $3.1 million, an increase of $1.0 million compared with the third quarter of 2018
- Domestic same store sales decreased 2.8% compared with the third quarter of 2018
- U.S. and Canada segment achieved third consecutive quarter of year-over-year operating income growth
PITTSBURGH, Oct. 24, 2019 (GLOBE NEWSWIRE) -- GNC Holdings, Inc. (NYSE: GNC) (the “Company”) reported consolidated revenue of $499.1 million in the third quarter of 2019, compared with consolidated revenue of $580.2 million in the third quarter of 2018. The decrease in revenue was primarily a result of the transfer of the Nutra manufacturing and China businesses to the newly formed joint ventures, the closure of company-owned stores under our store portfolio optimization strategy, U.S. and Canada negative same store sales of 2.8% and lower International franchise revenue.
Key Updates
- U.S. and Canada segment drove 190 bps of incremental operating income margin compared with the third quarter of 2018, excluding the long-lived asset impairment charges in the prior year quarter and immaterial gains on refranchising in the current quarter and prior year quarter
- E-Commerce revenues grew 12% compared with the third quarter of 2018 driven by increased conversion rates due to an improved site experience
- In early October, formally launched GNC4U, our personalized, high quality supplement program that delivers customized vitamin packs monthly to a customer’s home
- Company continues to evaluate debt refinancing alternatives and expects to complete the process in the fourth quarter of 2019
- Cash provided by operating activities is $98 million; Year-to-date free cash flow(1) is $87 million and Adjusted EBITDA(2) is $166 million
- Ended third quarter with $190 million in liquidity
For the third quarter of 2019, the Company reported net loss of $2.4 million compared with net loss of $8.6 million in the prior year quarter. Diluted loss per share was $0.09 in the current quarter compared with diluted loss per share of $0.10 in the prior year quarter. Excluding the expenses outlined in the table below, adjusted net income(3) was $3.1 million in the current quarter, compared with adjusted net income(3) of $2.1 million in the prior year quarter. Adjusted diluted loss per share(3) was $0.02 in the current quarter compared with adjusted diluted earnings per share(3) ("EPS") of $0.02 in the prior year quarter.
Adjusted EBITDA(2), as defined and reconciled to net income in the table below, was $37.1 million, or 7.4% of revenue, in the current quarter compared with $50.1 million, or 8.6% of revenue, in the prior year quarter.
“In the third quarter, GNC continued to make strides stabilizing the US retail business driven by continued success with our store optimization and cost saving initiatives. Additionally, as outlined on last quarter’s call, we made progress in addressing e-commerce opportunities and drove solid growth in the quarter,” said Ken Martindale, GNC’s Chairman and CEO. “While we did face headwinds in our international business, we remain excited about the long-term growth opportunities abroad.”
_____________________
(1) This Non-GAAP financial measure is reconciled to GAAP below, under the caption "Reconciliation of Net Cash Provided by Operating Activities to Free Cash Flow"
(2) This Non-GAAP financial measure is reconciled to GAAP below under the caption "Reconciliation of Net Income to Adjusted EBITDA"
(3) This Non-GAAP financial measure is reconciled to GAAP below under the caption "Reconciliation of Net Income and Diluted EPS to Adjusted Net Income and Adjusted EPS"
Segment Operating Performance
U.S. & Canada
Revenues in the U.S. and Canada segment decreased $31.8 million, or 6.7%, to $444.7 million for the three months ended September 30, 2019 compared with $476.5 million in the prior year quarter. E-commerce sales comprised 8.6% of U.S. and Canada revenue for the three months ended September 30, 2019 compared with 7.2% in the prior year quarter.
The decrease in revenue compared with the prior year quarter was largely due to the closure of company-owned stores under our store portfolio optimization strategy, which contributed a $14.8 million decrease in revenue, and negative same store sales of 2.8%, which resulted in a revenue decrease of $9.7 million. In domestic franchise locations, same store sales for the third quarter of 2019 decreased 0.8% over the prior year quarter.
Operating income increased $21.2 million to $32.7 million, or 7.4% of segment revenue, for the three months ended September 30, 2019 compared with $11.5 million, or 2.4% of segment revenue, for the same period in 2018. In the prior year quarter, we recorded long-lived asset impairment and other store closing charges totaling $14.6 million. Excluding the long-lived asset impairment charges in the prior year quarter and immaterial gains on refranchising in the current quarter and prior year quarter, operating income was $32.7 million, or 7.3% of segment revenue, in the current quarter, compared with $26.0 million, or 5.4% of segment revenue. The increase in operating income percentage was driven by lower occupancy expense, salaries and benefits.
International
Revenues in the International segment decreased $14.5 million, or 28.1%, to $36.9 million for the three months ended September 30, 2019 compared with $51.4 million in the prior year quarter. Revenue from our international franchisees decreased $9.1 million in the current quarter compared with the prior year quarter primarily due to lower sales in Hong Kong and other temporary challenges in Saudi Arabia and South Korea. Revenue from China decreased by $5.1 million in the current quarter compared with the prior year quarter due to the transfer of the China business to the newly formed joint venture, effective February 13, 2019.
Operating income decreased $3.8 million to $12.7 million, or 34.3% of segment revenue, for the three months ended September 30, 2019 compared with $16.5 million, or 32.0% of segment revenue, for the same period in 2018. The prior year quarter included China joint venture start-up costs of $1.0 million, of which $0.6 million related to costs incurred in the first six months of 2018 within corporate costs that was reclassified to International in the third quarter of 2018. Excluding the China joint venture start-up costs, operating income was $17.4 million, or 33.9% of segment revenue, for the three months ended September 30, 2018. The increase in operating income percentage compared to the prior year quarter was primarily a result of the transfer of the China business to the newly formed joint venture.
Manufacturing / Wholesale
Revenues in the Manufacturing / Wholesale segment, excluding intersegment sales, decreased $34.9 million, or 66.7%, to $17.4 million for the three months ended September 30, 2019 compared with $52.3 million in the prior year quarter primarily due to the transfer of the Nutra manufacturing business to the newly formed manufacturing joint venture with International Vitamin Corporation, effective March 1, 2019.
Operating income decreased $11.8 million to $5.1 million, or 29.0% of segment revenue, for the three months ended September 30, 2019 compared with $16.9 million, or 14.5% of segment revenue, in the prior year quarter. Revenue decreased as a result of the transfer of the Nutra manufacturing business to the newly formed joined venture, however, operating income margins were positively impacted as the Manufacturing / Wholesale segment recognized profit margin that resulted from maintaining consistent pricing to what was charged to our other operating segments prior to the inception of the manufacturing joint venture, and recorded profit on intersegment sales associated with inventory produced prior to the transfer of the Nutra manufacturing business to the joint venture.
Year-to-Date Performance
For the first nine months of 2019, the Company reported consolidated revenue of $1,597.8 million, a decrease of $207.9 million compared with consolidated revenue of $1,805.7 million for the first nine months of 2018. The decrease in revenue during the first nine months of 2019 compared to the prior year period was largely due to the transfer of the Nutra manufacturing and China e-commerce businesses to the newly formed joint ventures, which resulted in a decrease in revenue of approximately $97 million, the closure of company-owned stores under our store portfolio optimization strategy, which resulted in a decrease in revenue of approximately $44 million, and negative same store sales of 3.0%, which resulted a decrease in revenue of approximately $33 million.
For the first nine months of 2019, the Company reported net loss of $1.6 million and diluted loss per share of $0.18 compared with net income of $10.9 million and diluted EPS of $0.13 for the first nine months of 2018. Excluding the expenses outlined in the reconciliation table below, adjusted EPS(3) was $0.30 and $0.47 in the first nine months of 2019 and 2018, respectively.
Cash Flow and Liquidity Metrics
For the nine months ended September 30, 2019, the Company generated net cash from operating activities of $97.6 million compared with $55.7 million for the nine months ended September 30, 2018. The increase was driven primarily by an increase in accounts payable as a result of the Company's cash management efforts as well as the establishment of payables associated with the manufacturing joint venture.
For the nine months ended September 30, 2019, the Company generated $86.7 million in free cash flow(1) compared with $42.3 million (1) for the nine months ended September 30, 2018. The Company defines free cash flow as cash provided by operating activities less capital expenditures. At September 30, 2019, the Company’s cash and cash equivalents were $121.9 million and debt was $858.6 million. No borrowings were outstanding on the Company's Revolving Credit Facility at the end of the third quarter of 2019.
The Company is reviewing a range of refinancing options, including discussions with financing sources in the United States and Asia, to further optimize the Company's capital structure and enhance its financial flexibility. The Board has created a committee of independent directors to conduct this review process. While there can be no assurances, the Company is pleased with its progress in reviewing refinancing options and expects to complete the process in the fourth quarter.
Conference Call
GNC has scheduled a live webcast to report its third quarter 2019 financial results on October 24, 2019 at 8:30 a.m. ET. To participate on the live call, listeners in North America may dial 1-888-254-3590 and international listeners may dial 1-323-994-2093. In addition, a live webcast of the call will be available on www.gnc.com via the Investor Relations section under “About GNC.” A replay of this webcast will be available through November 7, 2019.
About Us
GNC Holdings, Inc. (NYSE: GNC) is a leading global health and wellness brand that provides high quality science-based products and solutions consumers need to live mighty, live fit, live long and live well.
The brand touches consumers worldwide by providing its products and services through company-owned retail locations, domestic and international franchise locations, digital commerce and strong wholesale and retail partnerships across the globe. GNC’s diversified, multi-channel business model has worldwide reach and a well-recognized, trusted brand. By combining exceptional innovation, product development capabilities and an extensive global distribution network, GNC manages a best in class product portfolio. As of September 30, 2019, GNC had approximately 7,800 locations, of which approximately 5,700 retail locations are in the United States (including approximately 1,900 Rite Aid licensed store-within-a-store locations) and the remainder are locations in approximately 50 countries.
Forward-Looking Statements Involving Known and Unknown Risks and Uncertainties
This release contains certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 with respect to the Company’s financial condition, results of operations and business that is not historical information. Forward-looking statements can be identified by the use of terminology such as “subject to,” “believes,” “anticipates,” “plans,” “expects,” “intends,” “estimates,” “projects,” “may,” “will,” “should,” “can,” the negatives thereof, variations thereon and similar expressions, or by discussions regarding dividend, share repurchase plan, strategy and outlook. While GNC believes there is a reasonable basis for its expectations and beliefs, they are inherently uncertain. The Company may not realize its expectations and its beliefs may not prove correct. Many factors could affect future performance and cause actual results to differ materially from those matters expressed in or implied by forward-looking statements, including but not limited to competition; our ability execute on, or realize the expected benefit from the implementation of, our strategic initiatives; resources devoted to product innovation may not yield new products that achieve commercial success; difficulties with our vendors; failure to maintain and/or upgrade our information technology systems, including electronic payments systems; risks and costs associated with security breaches, data loss, credit card fraud and identity theft; risks associated with our international operations; impact of our current debt profile and obligations under our debt instruments; deployment of real estate strategy and significant lease obligation; successful development and maintenance of a relevant omni-channel experience for our customers; disruptions in our manufacturing system; unfavorable publicity or consumer perception of our products; any significant disruption to our distribution network, inventory management system, or to the timely receipt of inventory; issues with franchisees; material product liability claims, or product recalls; any increase in the price and shortage of supply of key raw materials; general economic conditions, including a prolonged weakness in the economy; compliance with new and existing laws and governmental regulations; failure to comply with FTC regulations; failure to protect our brand name and intellectual property; potential impact of issuance of Series A Convertible Preferred Stock including dividend and repurchase obligations; the terms and features of our current Notes may have a negative impact on our liquidity, dilution or reported financial results; issues related to joint ventures; failure to attract or retain key employees; not being insured for a significant portion of our claims exposure; our use of derivative instruments for hedging purposes; impact of potential future impairment charges; our holding company structure; historic volatility of our common stock price; and the impact of natural disasters (whether or not caused by climate change), unusually adverse weather conditions, pandemic outbreaks, terrorist acts and global politics.
The Company undertakes no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise. Actual results could differ materially from those described or implied by such forward-looking statements. For a listing of factors that may materially affect such forward-looking statements, please refer to the Company’s Annual Report on Form 10-K for the year ended December 31, 2018.
Non-GAAP Measures
Management has included non-GAAP financial measures in this press release, including adjusted net income, adjusted EPS, adjusted EBITDA, adjusted as reflected in this release, and free cash flow, because it believes they represent an effective supplemental means by which to measure the Company’s operating performance.
Management believes that these measures are useful to investors as they enable the Company and its investors to evaluate and compare the Company’s results from operations in a more meaningful and consistent manner by excluding specific items which are not reflective of ongoing operating results and that can differ significantly from company to company depending on long-term strategic decisions regarding capital structure, the tax jurisdictions in which companies operate and capital investments.
However, these measures are not measurements of the Company’s performance under GAAP and should not be considered as alternatives to earnings per share, net income or any other performance measures derived in accordance with GAAP, or as an alternative to GAAP cash flow from operating activities, or as a measure of the Company’s profitability or liquidity. For more information, see the attached reconciliations of non-GAAP financial measures.
GNC HOLDINGS, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
(in thousands, except per share amounts)
| | Three months ended September 30, | | Nine months ended September 30, |
| | 2019 | | 2018 | | 2019 | | 2018 |
| | (unaudited) |
| Revenue | $ | 499,076 | | | $ | 580,185 | | | $ | 1,597,837 | | | $ | 1,805,662 | |
| Cost of sales, including warehousing, distribution and occupancy | 336,448 | | | 395,483 | | | 1,038,374 | | | 1,206,351 | |
| Gross profit | 162,628 | | | 184,702 | | | 559,463 | | | 599,311 | |
| Selling, general, and administrative | 135,795 | | | 149,903 | | | 427,938 | | | 469,164 | |
| Long-lived asset impairments | — | | | 14,556 | | | — | | | 14,556 | |
| Loss on net asset exchange for the formation of the joint ventures | — | | | — | | | 21,293 | | | — | |
| Other loss (income), net | 179 | | | 282 | | | (622 | ) | | 357 | |
| Operating income | 26,654 | | | 19,961 | | | 110,854 | | | 115,234 | |
| Interest expense, net | 24,456 | | | 35,732 | | | 82,376 | | | 90,448 | |
| Gain on convertible debt repurchase | — | | | — | | | (3,214 | ) | | — | |
| Loss on forward contracts for the issuance of convertible preferred stock | — | | | — | | | 16,787 | | | — | |
| Loss on debt refinancing | — | | | — | | | — | | | 16,740 | |
| Income (loss) before income taxes | 2,198 | | | (15,771 | ) | | 14,905 | | | 8,046 | |
| Income tax expense (benefit) | 5,733 | | | (7,181 | ) | | 20,719 | | | (2,895 | ) |
| (Loss) income before income from equity method investments | (3,535 | ) | | (8,590 | ) | | (5,814 | ) | | 10,941 | |
| Income from equity method investments | 1,117 | | | — | | | 4,192 | | | — | |
| Net (loss) income | $ | (2,418 | ) | | $ | (8,590 | ) | | $ | (1,622 | ) | | $ | 10,941 | |
| (Loss) earnings per share: | | | | | | | |
| Basic | $ | (0.09 | ) | | $ | (0.10 | ) | | $ | (0.18 | ) | | $ | 0.13 | |
| Diluted | $ | (0.09 | ) | | $ | (0.10 | ) | | $ | (0.18 | ) | | $ | 0.13 | |
| Weighted average common shares outstanding: | | | | | | | |
| Basic | 83,823 | | | 83,412 | | | 83,667 | | | 83,326 | |
| Diluted | 83,823 | | | 83,412 | | | 83,667 | | | 83,431 | |
GNC HOLDINGS, INC. AND SUBSIDIARIES
Reconciliation of Net (Loss) Income and Diluted EPS to Adjusted Net Income and Adjusted EPS
(in thousands, except per share data)
| | Three months ended September 30, | | Nine months ended September 30, |
| | 2019 | | 2018 | | 2019 | | 2018 |
| | Net (Loss) Income | | Diluted EPS (1) | | Net (Loss) Income | | Diluted EPS | | Net (Loss) Income | | Diluted EPS (2) | | Net Income | | Diluted EPS |
| | (unaudited) |
| Reported | $ | (2,418 | ) | | $ | (0.09 | ) | | $ | (8,590 | ) | | $ | (0.10 | ) | | $ | (1,622 | ) | | $ | (0.18 | ) | | $ | 10,941 | | | $ | 0.13 | |
| Loss on net asset exchange for the formation of the joint ventures | — | | | — | | | — | | | — | | | 21,293 | | | 0.16 | | | — | | | — | |
| Gain on convertible notes repurchase | — | | | — | | | — | | | — | | | (3,214 | ) | | (0.02 | ) | | — | | | — | |
| Amortization of discount in connection with early debt payment | — | | | — | | | — | | | — | | | 3,119 | | | 0.02 | | | — | | | — | |
| Loss on forward contracts related to the issuance of convertible preferred stock | — | | | — | | | — | | | — | | | 16,787 | | | 0.12 | | | — | | | — | |
| Loss on debt refinancing | — | | | | — | | | — | | | — | | | — | | | — | | | 16,740 | | | 0.20 | |
| Long-lived asset impairments | — | | | | | 14,556 | | | 0.17 | | | — | | | | | 14,556 | | | 0.17 | |
| Other (3) | 825 | | | 0.01 | | | 3,689 | | | 0.05 | | | 2,002 | | | 0.01 | | | 7,152 | | | 0.08 | |
| Tax effect (4) | 4,675 | | | 0.06 | | | (4,010 | ) | | (0.06 | ) | | 2,058 | | | 0.02 | | | (6,721 | ) | | (0.07 | ) |
| Discrete tax benefit (5) | — | | | — | | | (3,583 | ) | | (0.04 | ) | | — | | | — | | | (3,583 | ) | | (0.04 | ) |
| Adjusted | $ | 3,082 | | | $ | (0.02 | ) | | $ | 2,062 | | | $ | 0.02 | | | $ | 40,423 | | | $ | 0.30 | | | $ | 39,085 | | | $ | 0.47 | |
| | | | | | | | | | | | | | | | |
| Weighted average diluted common shares outstanding | 83,823 | | | | | 83,515 | | | | | 136,589 | | | | 83,431 | | |
Reconciliation of Net (Loss) Income to Adjusted EBITDA
(in thousands)
| | Three months ended
September 30, | | Nine months ended
September 30, |
| | 2019 | | 2018 | | 2019 | | 2018 |
| | (unaudited) |
| Net (loss) income | $ | (2,418 | ) | | $ | (8,590 | ) | | $ | (1,622 | ) | | $ | 10,941 | |
| Income tax expense | 5,733 | | | (7,181 | ) | | 20,719 | | | (2,895 | ) |
| Interest expense, net | 24,456 | | | 35,732 | | | 82,376 | | | 90,448 | |
| Loss on debt refinancing | — | | | — | | | — | | | 16,740 | |
| Depreciation and amortization | 8,466 | | | 11,896 | | | 27,170 | | | 36,002 | |
| Loss on net asset exchange for equity method investments | — | | | — | | | 21,293 | | | — | |
| Gain on convertible notes repurchase | — | | | — | | | (3,214 | ) | | — | |
| Loss on forward contracts related to the issuance of convertible preferred stock | — | | | — | | | 16,787 | | | — | |
| Long-lived asset impairments | — | | | 14,556 | | | — | | | 14,556 | |
| Other (3) | 825 | | | 3,689 | | | 2,002 | | | 7,152 | |
| Adjusted EBITDA | $ | 37,062 | | | $ | 50,102 | | | $ | 165,511 | | | $ | 172,944 | |
(1) The Company applies the if-converted method to calculate dilution impact of the convertible senior notes and the convertible preferred stock. For reported and adjusted diluted EPS for the three months ended September 30, 2019, the underlying shares of the convertible preferred stock and the convertible senior notes are anti-dilutive. Therefore, the diluted EPS included a reduction to net (loss) income for the cumulative undeclared dividends of $5.0 million.
(2) For reported diluted EPS for the nine months ended September 30, 2019, the underlying shares of the convertible preferred stock and the convertible senior notes are anti-dilutive. Therefore, the reported diluted EPS included a reduction to net loss for the cumulative undeclared dividends of $13.7 million. For the adjusted EPS for the nine months ended September 30, 2019, the underlying shares of the convertible preferred stock is dilutive and the convertible senior notes are anti-dilutive. As a result of the difference in the calculation for reported diluted EPS and adjusted diluted EPS, amounts do not sum.
(3) The three months ended September 30, 2019 includes retention of $0.5 million, severance expense of $0.4 million, and immaterial refranchising gains. The three months ended September 30, 2018 included retention of $2.1 million, a legal-related charge of $1.3 million, long-lived asset impairments of $14.6 million, China joint venture start-up costs of $0.3 million and immaterial refranchising gains. The nine months ended September 30, 2019 included retention of $1.9 million, severance expense of $0.4 million and immaterial refranchising gains. The nine months ended September 30, 2018 included retention of $5.2 million, a legal related charge of $1.3 million, long-lived asset impairments of $14.6 million, China joint venture start-up costs of $1.0 million and immaterial refranchising gains. The retention expense recognized in 2019 and 2018 relates to an incentive program to retain senior executives and certain other key personnel who are critical to the execution and success of the Company's strategy. The total amount awarded was approximately $10 million, of which approximately $1 million has been forfeited as of September 30, 2019, and which vests in four installments of 25% each on November 2018, February 2019, August 2019 and February 2020.
(4) The Company generally utilizes a blended federal rate plus a net state rate that excludes the impact of certain state net operating losses, state credits and valuation allowance to calculate the impact of adjusted items. In connection with the transfer of the Nutra manufacturing net assets to the newly formed manufacturing joint venture in the first quarter of 2019, the Company recorded a gain for tax purposes which was treated as ordinary and impacts the Company’s annual effective tax rate. Therefore, for adjusted diluted EPS, the tax effect for the impact of the loss on net asset exchange for equity method investments related to the manufacturing joint venture transaction was adjusted consistent with the annual treatment for tax purposes. For the three and nine months ended September 30, 2018, the Company utilized an annual effective tax rate, adjusted to exclude discrete items and the tax impact of loss on debt financing.
(5) Relates to discrete tax benefits associated with finalization of the Company's 2017 federal income tax return.
GNC HOLDINGS, INC. AND SUBSIDIARIES
U.S. Company-Owned Same Store Sales (including GNC.com)
| | 2019 | | 2018 |
| | Q1 3/31 | | Q2 6/30 | | Q3 9/30 | | Q1 3/31 | | Q2 6/30 | | Q3 9/30 |
| Contribution to same store sales: | | | | | | | | | | | |
| Domestic retail same store sales | (1.9 | )% | | (3.9 | )% | | (4.4 | )% | | (1.2 | )% | | (4.2 | )% | | (3.4 | )% |
| GNC.com contribution to same store sales | 0.3 | % | | (0.7 | )% | | 1.6 | % | | 1.7 | % | | 3.8 | % | | 1.3 | % |
| Total same store sales | (1.6 | )% | | (4.6 | )% | | (2.8 | )% | | 0.5 | % | | (0.4 | )% | | (2.1 | )% |
GNC HOLDINGS, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(in thousands)
| | September 30, | | December 31, |
| | 2019 | | 2018 |
| | (unaudited) |
| Current assets: | | | |
| Cash and cash equivalents | $ | 121,857 | | | $ | 67,224 | |
| Receivables, net | 111,053 | | | 127,317 | |
| Inventory | 394,763 | | | 465,572 | |
| Forward contracts for the issuance of convertible preferred stock | — | | | 88,942 | |
| Prepaid and other current assets | 17,378 | | | 55,109 | |
| Total current assets | 645,051 | | | 804,164 | |
| Long-term assets: | | | |
| Goodwill | 79,041 | | | 140,764 | |
| Brand name | 300,720 | | | 300,720 | |
| Other intangible assets, net | 72,710 | | | 92,727 | |
| Property, plant and equipment, net | 89,104 | | | 155,095 | |
| Right-of-use assets | 362,774 | | | — | |
| Equity method investments | 99,729 | | | — | |
| Other long-term assets | 34,752 | | | 34,380 | |
| Total long-term assets | 1,038,830 | | | 723,686 | |
| Total assets | $ | 1,683,881 | | | $ | 1,527,850 | |
| Current liabilities: | | | |
| Accounts payable | $ | 166,527 | | | $ | 148,782 | |
| Current portion of long-term debt | 152,919 | | | 158,756 | |
| Current portion of lease liabilities | 115,473 | | | — | |
| Deferred revenue and other current liabilities | 97,169 | | | 120,169 | |
| Total current liabilities | 532,088 | | | 427,707 | |
| Long-term liabilities: | | | |
| Long-term debt | 705,667 | | | 993,566 | |
| Deferred income taxes | 15,223 | | | 39,834 | |
| Lease liabilities | 347,658 | | | — | |
| Other long-term liabilities | 47,518 | | | 82,249 | |
| Total long-term liabilities | 1,116,066 | | | 1,115,649 | |
| Total liabilities | 1,648,154 | | | 1,543,356 | |
| | | | |
| Mezzanine equity: | | | |
| Convertible preferred stock | 211,395 | | | 98,804 | |
| | | | |
| Stockholders’ deficit: | | | |
| Common stock | 130 | | | 130 | |
| Additional paid-in capital | 1,011,857 | | | 1,007,827 | |
| Retained earnings | 552,095 | | | 613,637 | |
| Treasury stock, at cost | (1,725,349 | ) | | (1,725,349 | ) |
| Accumulated other comprehensive loss | (14,401 | ) | | (10,555 | ) |
| Total stockholders’ deficit | (175,668 | ) | | (114,310 | ) |
| Total liabilities, mezzanine equity and stockholders’ deficit | $ | 1,683,881 | | | $ | 1,527,850 | |
GNC HOLDINGS, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(in thousands)
| | Nine months ended September 30, |
| | 2019 | | 2018 |
| Cash flows from operating activities: | (unaudited) |
| Net (loss) income | $ | (1,622 | ) | | $ | 10,941 | |
| Adjustments to reconcile net income to net cash provided by operating activities: | | | |
| Depreciation and amortization expense | 27,170 | | | 36,002 | |
| Income from equity method investments | (4,192 | ) | | — | |
| Amortization of debt costs | 16,491 | | | 14,583 | |
| Stock-based compensation | 4,343 | | | 5,102 | |
| Long-lived asset impairments | — | | | 14,556 | |
| Loss on forward contracts related to the issuance of convertible preferred stock | 16,787 | | | — | |
| Loss on net asset exchange for the formation of the joint ventures1 | 21,293 | | | — | |
| Gain on convertible notes repurchase | (3,214 | ) | | |
| Gains on refranchising | (440 | ) | | (276 | ) |
| Loss on debt refinancing | — | | | 16,740 | |
| Third-party fees associated with refinancing | — | | | (16,322 | ) |
| Distributions received from equity method investments | 791 | | | — | |
| Changes in assets and liabilities(1): | | | |
| Increase in receivables | (4,933 | ) | | (6,080 | ) |
| Decrease (increase) in inventory | 9,718 | | | (5,794 | ) |
| Increase in prepaid and other current assets | (843 | ) | | (6,552 | ) |
| Increase in accounts payable | 48,795 | | | 6,860 | |
| Decrease in deferred revenue and accrued liabilities | (9,456 | ) | | (10,565 | ) |
| Decrease in net lease liabilities | (25,382 | ) | | — | |
| Other operating activities | 2,332 | | | (3,506 | ) |
| Net cash provided by operating activities | 97,638 | | | 55,689 | |
| | | | |
| Cash flows from investing activities: | | | |
| Capital expenditures | (10,933 | ) | | (13,355 | ) |
| Refranchising proceeds, net of store acquisition costs | 2,062 | | | 1,916 | |
| Proceeds from net asset exchange | 99,221 | | | — | |
| Capital contribution to the newly formed joint ventures | (13,079 | ) | | — | |
| Net cash provided by (used in) investing activities | 77,271 | | | (11,439 | ) |
| | | | |
| Cash flows from financing activities: | | | |
| Borrowings under revolving credit facility | 22,000 | | | 261,500 | |
| Payments on revolving credit facility | (22,000 | ) | | (261,500 | ) |
| Proceeds from the issuance of convertible preferred stock | 199,950 | | | — | |
| Payments on Tranche B-1 Term Loan | (147,312 | ) | | (3,413 | ) |
| Payments on Tranche B-2 Term Loan | (123,774 | ) | | (32,100 | ) |
| Convertible notes repurchase | (24,708 | ) | | — | |
| Original Issuance Discount and revolving credit facility fees | (10,365 | ) | | (35,235 | ) |
| Fees associated with the issuance of convertible preferred stock | (12,814 | ) | | (3,443 | ) |
| Minimum tax withholding requirements | (233 | ) | | (296 | ) |
| Net cash used in financing activities | (119,256 | ) | | (74,487 | ) |
| | | | |
| Effect of exchange rate changes on cash and cash equivalents | (1,020 | ) | | (416 | ) |
| Net increase (decrease) in cash and cash equivalents | 54,633 | | | (30,653 | ) |
| Beginning balance, cash and cash equivalents | 67,224 | | | 64,001 | |
| Ending balance, cash and cash equivalents | $ | 121,857 | | | $ | 33,348 | |
(1) Change in working capital amounts related to the transfer of net assets to the newly formed joint ventures are included in the caption "Loss on net asset exchange for the formation of joint ventures".
GNC HOLDINGS, INC. AND SUBSIDIARIES
Reconciliation of Net Cash Provided by Operating Activities to Free Cash Flow
(in thousands)
| | Nine months ended September 30, |
| | 2019 | | 2018 |
| | (unaudited) |
| | | | |
| Net cash provided by operating activities | $ | 97,638 | | | $ | 55,689 | |
| Capital expenditures | (10,933 | ) | | (13,355 | ) |
| Free cash flow | $ | 86,705 | | | $ | 42,334 | |
| | | | |
GNC HOLDINGS, INC. AND SUBSIDIARIES
Segment Financial Data
(in thousands)
| | Three months ended September 30, | | Nine months ended September 30, |
| | 2019 | | 2018 | | 2019 | | 2018 |
| | (unaudited) |
| Revenue: | | | | | | | |
| U.S. and Canada | $ | 444,734 | | | $ | 476,519 | | | $ | 1,409,951 | | | $ | 1,506,250 | |
| International | 36,940 | | | 51,407 | | | 117,311 | | | 140,107 | |
| Manufacturing / Wholesale: | | | | | | | |
| Intersegment revenues | — | | | 63,695 | | | 35,505 | | | 193,596 | |
| Third-party | 17,402 | | | 52,259 | | | 70,575 | | | 159,305 | |
| Subtotal Manufacturing / Wholesale | 17,402 | | | 115,954 | | | 106,080 | | | 352,901 | |
| Total reportable segment revenues | 499,076 | | | 643,880 | | | 1,633,342 | | | 1,999,258 | |
| Elimination of intersegment revenues | — | | | (63,695 | ) | | (35,505 | ) | | (193,596 | ) |
| Total revenue | $ | 499,076 | | | $ | 580,185 | | | $ | 1,597,837 | | | $ | 1,805,662 | |
| Operating income: | | | | | | | |
| U.S. and Canada | $ | 32,715 | | | $ | 11,466 | | | $ | 134,017 | | | $ | 100,559 | |
| International | 12,653 | | | 16,468 | | | 40,972 | | | 46,624 | |
| Manufacturing / Wholesale | 5,052 | | | 16,869 | | | 32,514 | | | 47,722 | |
| Total reportable segment operating income | 50,420 | | | 44,803 | | | 207,503 | | | 194,905 | |
| Corporate costs | (23,766 | ) | | (24,732 | ) | | (75,106 | ) | | (79,511 | ) |
| Loss on net asset exchange for the formation of the joint ventures | — | | | — | | | (21,293 | ) | | — | |
| Other | — | | | (110 | ) | | (250 | ) | | (160 | ) |
| Unallocated corporate costs, loss on net asset exchange and other | (23,766 | ) | | (24,842 | ) | | (96,649 | ) | | (79,671 | ) |
| Total operating income | $ | 26,654 | | | $ | 19,961 | | | $ | 110,854 | | | $ | 115,234 | |
GNC HOLDINGS, INC. AND SUBSIDIARIES
Consolidated Store Count Activity
| | Nine months ended September 30, |
| | 2019 | | 2018 |
| U.S. & Canada | | | |
| Company-owned(1): | | | |
| Beginning of period balance | 3,206 | | | 3,423 | |
| Openings | 21 | | | 18 | |
| Acquired franchise locations(2) | 21 | | | 20 | |
| Franchise conversions(3) | (5 | ) | | (4 | ) |
| Closings | (244 | ) | | (174 | ) |
| End of period balance | 2,999 | | | 3,283 | |
| Domestic Franchise: | | | |
| Beginning of period balance | 1,037 | | | 1,099 | |
| Openings | 6 | | | 10 | |
| Acquired franchise locations(2) | (21 | ) | | (20 | ) |
| Franchise conversions(3) | 5 | | | 4 | |
| Closings | (40 | ) | | (45 | ) |
| End of period balance | 987 | | | 1,048 | |
| International(4): | | | |
| Beginning of period balance | 1,957 | | | 2,015 | |
| Openings | 63 | | | 42 | |
| Closings | (94 | ) | | (89 | ) |
| China locations contributed to the China joint venture | (5 | ) | | — | |
| End of period balance | 1,921 | | | 1,968 | |
| Store-within-a-store (Rite Aid): | | | |
| Beginning of period balance | 2,183 | | | 2,418 | |
| Openings | 31 | | | 42 | |
| Closings | (342 | ) | | (218 | ) |
| End of period balance | 1,872 | | | 2,242 | |
| Total Locations | 7,779 | | | 8,541 | |
_______________________________________________________________________________
(1) Includes Canada.
(2) Stores that were acquired from franchisees and subsequently converted into company-owned store locations.
(3) Company-owned store locations sold to franchisees.
(4) Includes franchise locations in approximately 50 countries (including distribution centers where sales are made) and company-owned locations in Ireland. Prior year also includes company-owned locations in China.
Contacts:
Investors: Matt Milanovich, VP- Investor Relations & Treasury, (412) 402-7260; or
John Mills, Partner - ICR, (646) 277-1254
SOURCE: GNC Holdings, Inc.
Web site: http://www.gnc.com
