EX-99.1 2 earningsreleaseexhibit9913.htm EXHIBIT 99.1 Exhibit


GNC Holdings, Inc. Reports Third Quarter 2019 Results

•
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, October 24, 2019 - 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