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CST: 15/11/2019 06:49:03   

GNC Holdings, Inc. Reports Third Quarter 2019 Results

22 Days ago

  • 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

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