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Town Sports International Holdings, Inc. Announces First Quarter 2009 Financial Results

NEW YORK, Apr 29, 2009 (BUSINESS WIRE) -- 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 first quarter ended March 31, 2009.

1^st Quarter Overview:

• Revenue during Q1 2009 increased 0.3% to $126.7 million.
• Comparable club revenue decreased 2.1%.
• Total member count was 518,000, increasing 6,000 or 1.2% compared to Q1 2008.
• Membership attrition averaged 3.6% per month in Q1 2009 compared to 3.0% in Q1 2008.
• Earnings per diluted share were $0.03 for Q1 2009.
• Results included fixed asset impairment charges of $1.1 million, severance charges of $496,000, and $400,000 of early lease termination costs recorded in connection with the closure of two clubs in Q1 2009. In total, these costs reduced earnings per diluted share by $0.06, calculated using the 2009 effective tax rate of 30%.

Alex Alimanestianu, Chief Executive Officer of TSI, commented: "As anticipated, our operating performance has been impacted by the recession. However, we are well-prepared to weather the storm and we continue to move forward on our key initiatives. While we are feeling pressure on total membership and personal training revenue, our club usage is increasing, positive feedback from our members continues to grow, and we generated operating cash flow of $22.6 million during the quarter. Our goals for the year remain the same - to preserve liquidity, deliver an increasingly positive experience to our members, and to position the Company to deliver superior financial results over the long-term."

Quarter Ended March 31, 2009 Financial Highlights:

Revenue (in $'000s) was comprised of the following:

Total revenue for Q1 2009 increased 0.3% compared to Q1 2008. For Q1 2009, revenues increased $7.9 million at the 25 clubs opened or acquired subsequent to March 31, 2007. This increase in revenue was offset by decreases in revenue of $5.9 million at our clubs opened or acquired prior to March 31, 2007 and $1.5 million related to the seven clubs that were closed subsequent to March 31, 2007. Revenue at clubs operated for over 12 months ("comparable club revenue") decreased 2.1% during Q1 2009 compared to Q1 2008. Of this 2.1% decrease, 0.5% was due to a decrease in prices, 0.1% was due to a decrease in membership and 1.5% was due to a decrease in ancillary club revenue and fees and other revenue.

Operating expenses (in $'000s) were comprised of the following:

Total operating expenses increased 7.9% for Q1 2009 compared to Q1 2008. Operating margin was 4.4% for Q1 2009 and 11.2% in Q1 2008.

• The increases in payroll and related expenses were attributable to a 4.6% increase in the total months of club operation from 477 in Q1 2008 to 499 in Q1 2009. In addition, our new member initiation fees have been discounted in an effort to drive membership sales. Deferred payroll costs are limited to the amount of these initiation fees, thus causing an increase in payroll of $2.0 million when compared to Q1 2008, or approximately 1.5% of revenue. During Q1 2009, severance charges were $496,000. The effect of these severance charges was offset by a $565,000 reduction in personal training payroll.
• The $3.7 million increase in club operating expenses was principally due to increases in rent and occupancy expenses, repairs and maintenance and cleaning and laundry expenses. In Q1 2009, club usage increased 13.6% and club months of operation increased 4.6% compared to the same period in 2008.
• The increase in depreciation and amortization expenses was principally due to the 13 clubs added after January 1, 2008.
• In Q1 2009, we recorded fixed asset impairment charges totaling $1.1 million, which represented the write-offs of fixed assets at four underperforming clubs.

Net Income for Q1 2009 was $639,000 compared to a net income of $4.8 million for Q1 2008.

Cash flow from operating activities for Q1 2009 totaled $22.6 million, a decrease of $15.2 million, from the same period last year. The decrease is primarily related to the decrease in cash flows generated from changes in operating assets and liabilities as well as a decrease in overall earnings. The net changes in prepaid expenses and other current assets decreased $4.6 million primarily due to 2008 decreases in pre-payments made to landlords and the timing of other vendor payments. In Q1 2009, deferred revenue increased $497,000, while in Q1 2008 the increase was $4.9 million. This decrease in cash generated by deferred revenue was driven by the movement in deferred personal training and deferred initiation fees. Cash paid for interest decreased $1.6 million and cash paid for taxes decreased $1.0 million.

Share Repurchases: The Company repurchased 2.1 million shares at a total cost of $5.4 million in Q1 2009 resulting in a decrease of total common shares outstanding from approximately 24.6 million as of December 31, 2008 to approximately 22.6 million as of March 31, 2009.

2009 Business Outlook:

We are limiting our guidance to the second quarter of 2009. Based on the current business environment, our recent performance, and the current trends in our marketplace, and subject to the risks and uncertainties in our forward-looking statements, our outlook for the second quarter includes the following:

• Revenue in Q2 2009 is expected to be between $123.0 million and $125.0 million versus $129.4 million for Q2 2008. We expect general and administrative expenses to remain in line with Q1 2009 as a percentage of sales. On a year-over-year basis, payroll, club operating, and depreciation and amortization expenses are expected to increase as a percentage of sales. The expected $4.4 million to $6.4 million decrease in revenue coupled with the 2.5% expected increase in club months of operation from 483 in Q2 2008 to 495 in Q2 2009 are contributing to these increases.
• In Q2 2009, we expect to record between $400,000 and $500,000 of early lease termination costs, and $250,000 of severance and related costs related to the separation agreement with the Company's Chief Information Officer in April 2009.
• Including severance and early lease termination costs, we expect net income for Q2 2009 to be between $1.25 million to $1.75 million, and earnings per share to be in the range of $0.06 per share to $0.08 per share, assuming a 30% effective tax rate and 22.6 million weighted average fully diluted shares outstanding.

Investing Activities Outlook:

For the year ending December 31, 2009, we estimate we will invest between $50.0 million and $53.0 million in capital expenditures. This amount includes approximately $23.0 million to continue to upgrade existing clubs, $8.6 million to support and enhance our management information systems and $4.0 million for the completion of a new regional laundry facility and corporate office in our New York Sports Clubs market. The remainder of our capital expenditures principally relates to 2008 and 2009 new club openings. We opened four clubs and closed three clubs in Q1 2009. We plan to close two additional clubs in 2009.

Dan Gallagher, Chief Financial Officer of TSI, commented: "We remain focused on preserving our liquidity, having no plans to open any additional clubs in 2009 and have initiated and implemented a number of cost reductions throughout the Company. As of March 31, 2009, we had $7.6 million of cash and cash equivalents and $42.5 million available for borrowing against our line of credit. We continue to have adequate financial flexibility on the primary financial covenant within our senior credit facility which expires on February 27, 2012. Our gross leverage ratio, as defined, is 2.54 to 1.00 as of March 31, 2009, while our covenant requires 4.25 to 1.00 or below."

Forward-Looking Statements:

Statements in this release that do not constitute historical facts, including, without limitation, statements under the captions "2009 Business Outlook" and "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, among others, the level of market demand for the Company's services, economic conditions affecting the Company's business, the geographic concentration of the Company's clubs, competitive pressures, the ability to achieve reductions in operating costs and to continue to integrate acquisitions, any security and privacy breaches involving customer data, the levels and terms of the Company's indebtedness, and other specific factors discussed herein and in other releases and public filings made by the Company (including our reports on 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 167 fitness clubs as of March 31, 2009, comprising 112 New York Sports Clubs, 26 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 518,000 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 Wednesday, April 29, 2009 at 4:30 PM (Eastern) to discuss the first quarter 2009 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 April 30, 2009.

SOURCE: Town Sports International Holdings, Inc.

Town Sports International Holdings, Inc.
Investor:
212-246-6700 extension 1650
Investor.relations@town-sports.com
or
Integrated Corporate Relations
Joseph Teklits, 203-682-8258
joseph.teklits@icrinc.com

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