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Lowers Fiscal 2008 Guidance
NEW YORK--(BUSINESS WIRE)--Oct. 30, 2008--Town Sports International Holdings, Inc. ("TSI" or the "Company") (NASDAQ: CLUB), a leading owner and operator of health clubs located primarily in major cities from Washington, DC north through New England, operating under the brand names "New York Sports Clubs," "Boston Sports Clubs," "Washington Sports Clubs" and "Philadelphia Sports Clubs," announced its results for the third quarter ended September 30, 2008.
3rd Quarter Highlights:
-- Revenues increased 7.8% to $128.1 million.
-- Comparable club revenue increased 2.2%.
-- Personal training revenues grew 12.3%, to $14.9 million.
-- EBITDA increased 1.4% to $25.6 million.
-- Diluted earnings per share decreased 26.3% to $0.14, including
a $0.02 fixed asset impairment charge.
-- Membership attrition averaged 3.6% per month.
Alex Alimanestianu, Chief Executive Officer of TSI, commented: "After a solid first half of the year, we were able to post increases in membership and same club revenue in the third quarter, but fell below our overall financial targets for the period. As the quarter progressed, we felt the increasing effects of the recessionary economy, and the outlook we are giving for the fourth quarter reflects the worsening consumer spending environment. We are convinced that health and fitness will continue to be a high priority for our target customers and we remain extremely confident in our strategy, the operational initiatives we have undertaken, and the long-term growth potential of our company. Until conditions improve, we will manage costs and capital expenditures to match the environment, while continuing to focus on delivering a high quality experience to our members."
Quarter Ended September 30, 2008 Financial Highlights:
Revenue (in $'000s) was comprised of the following:
----------------------------------------------------------------------
Quarter Ended September 30,
2008 2007
------------------ ------------------
Revenue % Revenue Revenue % Revenue % Growth
-------- --------- -------- --------- --------
Membership dues $101,025 78.9% $ 93,735 78.8% 7.8%
Initiation fees 3,505 2.7% 3,202 2.7% 9.5%
-------- --------- -------- ---------
Membership revenue 104,530 81.6% 96,937 81.5% 7.8%
-------- --------- -------- ---------
Personal training
revenue 14,871 11.6% 13,243 11.2% 12.3%
Other ancillary club
revenue 7,281 5.7% 7,245 6.1% 0.5%
-------- --------- -------- ---------
Ancillary club
revenue 22,152 17.3% 20,488 17.3% 8.1%
-------- --------- -------- ---------
Fees and other revenue 1,427 1.1% 1,461 1.2% (2.3)%
-------- --------- -------- ---------
Total revenue $128,109 100.0% $118,886 100.0% 7.8%
======== ========= ======== =========
Total revenue for Q3 2008 increased 7.8% compared to Q3 2007 driven by growth in membership and personal training revenue. Revenue at clubs operated by us for over 12 months ("comparable club revenue") increased 2.2% during the three months ended September 30, 2008. Of this 2.2% increase, 0.9% was due to an increase in membership, 0.9% was due to an increase in price and 0.4% was due to an increase in ancillary club revenue and fees and other revenue.
Operating expenses (in $'000s) were comprised of the following:
Quarter Ended September 30,
2008 2007
------------------ ------------------
Expense % Revenue Expense % Revenue % Change
-------- --------- -------- --------- --------
Payroll and related $ 49,171 38.4% $ 43,331 36.5% 13.5%
Club operating 44,398 34.6% 42,360 35.6% 4.8%
General and
administrative 8,697 6.8% 8,368 7.0% 3.9%
Depreciation and
amortization 13,423 10.5% 10,950 9.2% 22.6%
Impairment of fixed
assets 839 0.7% -- 0.0% 100.0%
-------- --------- -------- ---------
Operating expenses $116,528 91.0% $105,009 88.3% 11.0%
======== ========= ======== =========
Total operating expenses increased 11.0% for Q3 2008 compared to Q3 2007. Operating margin was 9.0% for Q3 2008 and 11.7% in Q3 2007.
-- The increases in payroll and related and club operating
expenses were principally attributable to a 7.8% increase in
the total months of club operation from 451 in Q3 2007 to 486
in Q3 2008. There was a net increase of 10 clubs in the twelve
months ended September 30, 2008. In addition, we have been
discounting our new member initiation fees in an effort to
drive membership sales. Our payroll costs that we defer are
limited to the amount of these initiation fees, thus causing a
pre-tax increase in payroll of approximately $2.1 million when
compared to Q3 2007; a $1.3 million effect, net of tax. In
addition, payroll costs directly related to our personal
training, group fitness training, and programming for children
increased $1.8 million or 17.9%, principally due to the
increase in revenue related to these programs.
-- The increase in depreciation and amortization expenses was
principally due to clubs opened after September 30, 2007.
-- In the quarter ended September 30, 2008, we recorded a fixed
asset impairment loss of $839,000 related to the decision to
close a club prior to the lease expiration. The charge was
determined based on the undiscounted cash flows expected over
the remaining occupancy period.
Net income for Q3 2008 was $3.8 million compared to a net income of $5.1 million for Q3 2007.
EBITDA for Q3 2008 increased 1.4% to $25.6 million from $25.3 million for Q3 2007. EBITDA as a percentage of total revenue ("EBITDA margin") was 20.0% for Q3 2008, compared to 21.3% for Q3 2007. Please refer to the reconciliation of net income to EBITDA at the end of this release.
Nine Months Ended September 30, 2008 Financial Highlights:
Revenue (in $'000s) was comprised of the following:
----------------------------------------------------------------------
Nine Months Ended September 30,
2008 2007
------------------ ------------------
Revenue % Revenue Revenue % Revenue % Growth
-------- --------- -------- --------- --------
Membership dues $301,696 78.6% $278,537 78.7% 8.3%
Initiation fees 10,393 2.7% 9,181 2.6% 13.2%
-------- --------- -------- ---------
Membership revenue 312,089 81.3% 287,718 81.3% 8.5%
-------- --------- -------- ---------
Personal training
revenue 47,712 12.4% 42,646 12.0% 11.9%
Other ancillary club
revenue 19,517 5.1% 19,529 5.5% 0.0%
-------- --------- -------- ---------
Ancillary club
revenue 67,229 17.5% 62,175 17.5% 8.1%
-------- --------- -------- ---------
Fees and other revenue 4,504 1.2% 4,148 1.2% 8.6%
-------- --------- -------- ---------
Total revenue $383,822 100.0% $354,041 100.0% 8.4%
======== ========= ======== =========
Total revenue for the nine months ended September 30, 2008 increased 8.4% compared to the nine months ended September 30, 2007 driven by growth in membership and personal training revenue. Comparable club revenue increased 3.3% during the nine months ended September 30, 2008. Of this 3.3% increase, 1.4% was due to an increase in membership, 1.1% was due to an increase in price and 0.8% was due to an increase in ancillary club revenue and fees and other revenue.
Operating expenses (in $'000s) were comprised of the following:
Nine Months Ended September 30,
2008 2007
------------------ ------------------
Expense % Revenue Expense % Revenue % Change
-------- --------- -------- --------- --------
Payroll and related $146,228 38.1% $132,645 37.5% 10.2%
Club operating 128,799 33.6% 119,662 33.8% 7.6%
General and
administrative 25,898 6.7% 25,248 7.1% 2.6%
Depreciation and
amortization 38,788 10.1% 33,772 9.5% 14.9%
Impairment of fixed
assets 1,981 0.5% -- 0.0% 100.0%
-------- --------- -------- ---------
Operating expenses $341,694 89.0% $311,327 87.9% 9.8%
======== ========= ======== =========
Total operating expenses increased 9.8% for the nine months ended September 30, 2008 compared to the nine months ended September 30, 2007. Operating margin was 11.0% for the nine months ended September 30, 2008 and 12.1% for the nine months ended September 30, 2007.
-- The increases in payroll and related and club operating
expenses were principally attributable to a 7.8% increase in
the total months of club operation to 1,446 for the nine
months ended September 30, 2008 from 1,341 for the same period
last year. There was a net increase of 10 clubs in the twelve
months ended September 30, 2008. In addition, we have been
discounting new member initiation fees in an effort to drive
membership sales. Our payroll costs that we defer are limited
to the amount of these initiation fees, thus causing a pre-tax
increase of approximately $4.6 million in payroll expense, a
$2.7 million effect net of tax. In addition, payroll costs
directly related to our personal training, group fitness
training, and programming for children increased $4.7 million,
or 15.2%, principally due to the increase in revenue related
to these programs.
-- The increase in depreciation and amortization expenses was
principally due to clubs opened after July 1, 2007. Offsetting
these increases are insurance proceeds of approximately
$600,000 received for fixed asset damage at two of our clubs.
-- During the nine months ended September 30, 2008, we recorded
an impairment loss of $755,000 on fixed assets of a remote
club that did not benefit from being part of a regional
cluster and therefore experienced a decline in asset fair
value, and an impairment loss of $1.2 million related to the
planned closures of two clubs prior to their lease expiration
dates.
Net income for the nine months ended September 30, 2008 was $15.4 million compared to $7.6 million for the nine months ended September 30, 2007. This $7.8 million increase in net income was primarily due to the loss on extinguishment of debt of $7.4 million, net of taxes recorded in the nine months ended September 30, 2007.
EBITDA for the nine months ended September 30, 2008 increased 26.5% to $82.6 million from $65.3 million for the nine months ended September 30, 2007. EBITDA margin, or EBITDA as a percentage of total revenue, was 21.5% for the nine months ended September 30, 2008 compared to 18.4% for the nine months ended September 30, 2007. The increase in EBITDA was primarily due to the loss on extinguishment of debt of $12.5 million recorded in the nine months ended September 30, 2007. Please refer to the reconciliation of net income to EBITDA at the end of this release.
Cash flow from operating activities for the nine months ended September 30, 2008 totaled $76.9 million, an increase of $14.3 million, or 22.8% from the same period last year.
2008 Business Outlook:
During this third quarter our growth in net members was weaker than anticipated. We are forecasting these membership trends to soften further in the fourth quarter and are lowering our previous guidance for the year as follows:
-- Total revenue of $504.0 million to $508.0 million, down from
$510.0 million to $520.0 million.
-- Net income of $16.5 million to $17.5 million, down from $21.3
million to $22.3 million.
-- Earnings per share on a fully diluted basis of $0.62 to $0.66
for 2008, down from $0.80 to $0.84.
Investing Activities Outlook:
For the year ending December 31, 2008, the Company estimates it will invest between $90.0 million and $95.0 million in capital expenditures. This amount includes approximately $22.0 million to continue to upgrade existing clubs, $9.0 million to support and enhance our management information systems and $5.0 million for the construction of a new regional laundry facility in our New York Sports Clubs market. The remainder of our 2008 capital expenditures will be committed to building or expanding clubs. The Company now expects to open 9 new clubs and close four clubs in 2008. Two clubs expected to open in 2008 are now expected to open in early Q1 2009. As of September 30, 2008 we opened six clubs and closed three clubs.
While we are still evaluating our capital investment plans for the year ending December 31, 2009, our total capital expenditures are expected to be between $60.0 million and $70.0 million and we expect to open between four and six clubs and close four clubs.
Forward-Looking Statements:
Statements in this release that do not constitute historical facts, including, without limitation, statements under the captions "2008 Business Outlook" and "2008 Investing Activities Outlook," other statements regarding future financial results and performance and potential sales revenue and other statements that are predictive in nature or depend upon or refer to events or conditions, or that include words such as "expects," "anticipated," "intends," "plans," "believes," "estimates" or "could," are "forward-looking" statements made pursuant to the safe harbor provision of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are subject to various risks and uncertainties, many of which are outside the Company's control, including the level of market demand for the Company's services, competitive pressures, the ability to achieve reductions in operating costs and to continue to integrate acquisitions, the application of federal and state tax laws and regulations, and other specific factors discussed herein and in other releases and public filings made by the Company (including Forms 10-K and 10-Q filed with the Securities and Exchange Commission); accordingly, actual results could differ materially from any such forward-looking statement. The forward-looking statements speak only as of the date hereof and the Company does not intend to update this information, except as required by law, to reflect developments or information obtained after the date hereof, and the Company disclaims any legal obligation to the contrary.
About Town Sports International Holdings, Inc.:
New York-based Town Sports International Holdings, Inc. is a leading owner and operator of fitness clubs in the Northeast and mid-Atlantic regions of the United States and, through its subsidiaries, operated 164 fitness clubs as of September 30, 2008, comprising 112 New York Sports Clubs, 23 Boston Sports Clubs, 19 Washington Sports Clubs (two of which are partly-owned), seven Philadelphia Sports Clubs, and three clubs located in Switzerland. These clubs collectively served approximately 519,000 members, excluding pre-sold, short-term and seasonal memberships. For more information on TSI visit http://www.mysportsclubs.com.
The Company will hold a conference call on Thursday, October 30, 2008 at 4:30 PM (Eastern) to discuss the second quarter 2008 results. Alex Alimanestianu, Chief Executive Officer, and Dan Gallagher, Chief Financial Officer, will host the conference call. The conference call will be Web cast and may be accessed via the Company's Investor Relations section of its Website at www.mysportsclubs.com. A replay and transcript of the call will be available via the Company's Website beginning October 31, 2008.
TOWN SPORTS INTERNATIONAL HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
September 30, 2008 and December 31, 2007
(All figures in $'000s)
(Unaudited)
September 30, December 31,
2008 2007
------------- ------------
ASSETS
Current assets:
Cash and cash equivalents $ 10,662 $ 5,463
Accounts receivable, net 13,107 8,815
Inventory 236 230
Prepaid income taxes 1,309 --
Prepaid expenses and other current assets 7,934 11,334
------------- ------------
Total current assets 33,248 25,842
Fixed assets, net 349,820 337,152
Goodwill 50,176 50,165
Intangible assets, net 470 477
Deferred tax assets, net 46,745 44,345
Deferred membership costs 16,034 17,974
Other assets 11,901 12,808
------------- ------------
Total assets $508,394 $488,763
============= ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 1,902 $ 10,898
Accounts payable 9,110 10,891
Accrued expenses 32,482 34,186
Accrued interest 414 738
Corporate income taxes payable -- 811
Deferred revenue 44,963 41,798
------------- ------------
Total current liabilities 88,871 99,322
Long-term debt 314,013 305,124
Deferred lease liabilities 67,567 61,221
Deferred revenue 5,295 7,300
Other liabilities 14,752 15,613
------------- ------------
Total liabilities 490,498 488,580
Stockholders' equity:
Common stock 27 26
Paid-in capital (14,733) (16,977)
Accumulated other comprehensive income
(currency translation adjustment) 830 814
Retained earnings 31,772 16,320
------------- ------------
Total stockholders' equity 17,896 183
------------- ------------
Total liabilities and stockholders'
equity $508,394 $488,763
============= ============
TOWN SPORTS INTERNATIONAL HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED INCOME STATEMENTS
For the Quarters and Nine Months Ended September 30, 2008 and 2007
(All figures in $'000s except share and per share data)
(Unaudited)
Quarter Ended September Nine Months Ended
30, September 30,
------------------------- -------------------------
2008 2007 2008 2007
------------ ------------ ------------ ------------
Revenues:
Club operations $ 126,682 $ 117,425 $ 379,318 $ 349,893
Fees and other 1,427 1,461 4,504 4,148
------------ ------------ ------------ ------------
128,109 118,886 383,822 354,041
------------ ------------ ------------ ------------
Operating
Expenses:
Payroll and
related 49,171 43,331 146,228 132,645
Club operating 44,398 42,360 128,799 119,662
General and
administrative 8,697 8,368 25,898 25,248
Depreciation
and
amortization 13,423 10,950 38,788 33,772
Impairment of
fixed assets 839 1,981
------------ ------------ ------------ ------------
116,528 105,009 341,694 311,327
------------ ------------ ------------ ------------
Operating income 11,581 13,877 42,128 42,714
Loss on
extinguishment of
debt -- -- -- 12,521
Interest expense 5,783 6,493 17,930 19,902
Interest income (76) (344) (291) (882)
Equity in the
earnings of
investees and
rental income (634) (447) (1,701) (1,351)
------------ ------------ ------------ ------------
Income before
provision for
corporate
income taxes 6,508 8,175 26,190 12,524
Provision for
corporate income
taxes 2,668 3,100 10,738 4,884
------------ ------------ ------------ ------------
Net income $ 3,840 $ 5,075 $ 15,452 $ 7,640
============ ============ ============ ============
Earnings per
share:
Basic $ 0.15 $ 0.19 $ 0.59 $ 0.29
Diluted $ 0.14 $ 0.19 $ 0.58 $ 0.29
Weighted average
number of shares
used in
calculating
earnings per
share:
Basic 26,445,288 26,225,449 26,389,804 26,122,531
Diluted 26,547,121 26,678,939 26,464,915 26,583,782
TOWN SPORTS INTERNATIONAL HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Nine Months Ended September 30, 2008 and 2007
(All figures in $'000s)
(Unaudited)
Nine Months
Ended September 30,
--------------------
2008 2007
--------- ----------
Cash flows from operating activities:
Net income $ 15,452 $ 7,640
--------- ----------
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 38,788 33,772
Impairment of fixed assets 1,981 --
Non-cash interest expense on Senior Discount
Notes 10,328 9,268
Loss on extinguishment of debt -- 12,521
Amortization of debt issuance costs 583 630
Noncash rental expense, net of noncash rental
income (242) 495
Compensation expense incurred in connection
with stock options and common stock grants 876 616
Net changes in certain operating assets and
liabilities 3,770 3,168
Increase in deferred tax asset (2,400) (9,778)
Landlord contributions to tenant improvements 4,282 3,958
Change in reserve for self-insured liability
claims 1,738 2,085
Decrease (increase) in deferred membership
costs 1,940 (1,834)
Other (190) 104
--------- ----------
Total adjustments 61,454 55,005
--------- ----------
Net cash provided by operating activities 76,906 62,645
--------- ----------
Cash flows from investing activities:
Capital expenditures (63,162) (64,580)
Insurance Proceeds 1,074 --
Acquisition of business -- (4,450)
--------- ----------
Net cash used in investing activities (62,088) (69,030)
--------- ----------
Cash flows from financing activities:
Proceeds from New Credit Facility -- 185,000
Costs related to issuance of New Credit
Facility -- (2,634)
Repayment of Senior Notes -- (169,999)
Premium paid on extinguishment of debt and
related costs -- (9,309)
Repayment of long term borrowings (1,435) (1,105)
Repayment of borrowings on Revolving Loan
Facility (9,000) --
Change in book overdraft (583) 2,122
Proceeds from exercise of stock options 1,194 1,997
Excess tax benefit from stock option exercises 174 1,061
--------- ----------
Net cash (used in) provided by financing
activities (9,650) 7,133
--------- ----------
Effect of exchange rate changes on cash 31 111
--------- ----------
Net increase in cash and cash equivalents 5,199 859
Cash and cash equivalents at beginning of period 5,463 6,810
--------- ----------
Cash and cash equivalents at end of period $ 10,662 $ 7,669
========= ==========
Summary of change in certain operating assets and
liabilities:
(Increase) in accounts receivable $ (3,611) $ (4,479)
(Increase) decrease in inventory (4) 210
Decrease (increase) in prepaid expenses and
other current assets 3,478 (1,219)
Increase in accounts payable, accrued expenses
and accrued interest 4,884 2,509
Change in corporate income taxes (2,120) (456)
Increase in deferred revenue 1,143 6,603
--------- ----------
Net changes in certain operating assets and
liabilities $ 3,770 $ 3,168
========= ==========
Quarter Ended Nine Months Ended
September 30, September 30,
------------------------ ------------------------
2008 2007 % Chg. 2008 2007 % Chg.
-------- -------- -------- --------
Net income $ 3,840 $ 5,075 $15,452 $ 7,640
Provision for
corporate income
taxes 2,668 3,100 10,738 4,884
Interest expense,
net of interest
income 5,707 6,149 17,639 19,020
Depreciation and
amortization 13,423 10,950 38,788 33,772
-------- -------- -------- --------
EBITDA* $25,638 $25,274 1.4% $82,617 $65,316 26.5%
======== ======== ======== ========
EBITDA margin 20.0% 21.3% 21.5% 18.4%
* Loss on extinguishment of debt is no longer excluded from EBITDA as
it was in prior periods.
Non-GAAP Financial Measures
EBITDA consists of net income (loss) plus interest expense, net of interest income, provision for corporate income taxes, depreciation and amortization. This term, as we define it, may not be comparable to a similarly titled measure used by other companies and is not a measure of performance presented in accordance with GAAP. EBITDA has its limitations as an analytical tool and should not be considered as a substitute for net income, operating income, cash flows provided by operating activities or other income or cash flow data prepared in accordance with GAAP. The funds depicted by EBITDA are not necessarily available for discretionary use if they are reserved for particular capital purposes, to maintain compliance with debt covenants, to service debt or to pay taxes. EBITDA margin is defined as EBITDA as a percentage of sales.
EBITDA is used by both management, investors and industry analysts in conjunction with traditional GAAP operating performance measures as an important overall assessment of our performance and we do not place undue reliance on this measure as our only measure of operating performance.
-- The elimination of items related to our capital and tax
structures, including depreciation and amortization, enables a
more accurate comparison of operating performance to other
companies in our industry, as these structures may vary from
company to company.
-- The elimination of certain non-cash or non-operating items
such as interest income, interest expense and income taxes,
provides a meaningful measure of corporate performance as well
as a comparison of our operating performance to companies in
our industry. The Company believes it is beneficial to share
with the investment community the same measurements against
which it measures its own performance (and therefore the
performance of its management team).
-- EBITDA is the baseline measurement used to determine executive
officer annual performance bonuses, as noted in the
Compensation Discussion and Analysis in the Company's proxy
statement. Management also uses EBITDA in its presentations to
its board of directors.
-- We are required to comply with certain financial covenants and
borrowing limitations that are based on variations of EBITDA
measurements in certain of our financing documents. The
Company believes it is important investors have visibility
into the Company's performance in this regard.
CONTACT: Town Sports International Holdings, Inc., New York
Investor Contact, 212-246-6700 extension 1650
Investor.relations@town-sports.com
or
Integrated Corporate Relations
Joseph Teklits, 203-682-8258
joseph.teklits@icrinc.com
SOURCE: Town Sports International Holdings, Inc.