Print page     Download PDF   
« Previous Release | Next Release »

Town Sports International Holdings, Inc. Announces Third Quarter 2011 Financial Results

NEW YORK--(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 third quarter ended September 30, 2011.

Third Quarter Overview:

• Total member count increased 5,000 to 522,000 in Q3 2011.
• Membership attrition averaged 3.7% per month in Q3 2011 compared to 3.8% per month in Q3 2010.
• Revenue increased 2.7% in Q3 2011 compared to Q3 2010.
• Comparable club revenue increased 3.0% in Q3 2011 compared to Q3 2010.
• Ancillary club revenue increased 8.3% in Q3 2011 compared to Q3 2010.
• Diluted earnings per share were $0.08 in Q3 2011 compared to loss per share of ($0.00) in Q3 2010.
• EBITDA was $21.8 million in Q3 2011, an increase of $4.1 million, or 23.0%, when compared to EBITDA of $17.7 million in Q3 2010.

Robert Giardina, Chief Executive Officer of TSI, commented: "We were very pleased to have continued to build on our momentum from the first half of the year in the third quarter. Comparable club revenue, new member signups, and attrition were all on or ahead of plan, and memberships at our two new clubs that open for workouts in the fourth quarter are running nicely ahead of plan. When combined with tight expense controls, these revenue drivers translated into EBITDA for the quarter that was up 23%; and overall, this was one of our best quarters in years. We are also on track to add more members in the fourth quarter and exceed our membership goals for the year. We also believe we are much better positioned than we were a couple years ago on a number of fronts, and even if the current weak economy persists we believe we can continue to make progress next year toward our target of a 20% EBITDA margin."

Total revenue for Q3 2011 increased $3.0 million, or 2.7%, compared to Q3 2010. Revenue at clubs operated for over 12 months ("comparable club revenue") increased 3.0% in Q3 2011 compared to Q3 2010.

Total operating expenses decreased $1.5 million, or 1.4%, in Q3 2011 compared to Q3 2010. Operating margin was 7.4% for Q3 2011 compared to 3.6% in Q3 2010.

Payroll and related. Payroll related to club staffing decreased as we continued to realize efficiencies from programs put in place in the second half of 2010.

Club operating. In Q3 2011, occupancy-related expenses and laundry and towels expenses increased, which was partially offset by a decrease in utilities expenses.

General and administrative. In Q3 2011, general liability insurance decreased due to a further reduction in claims activity and a related reduction in claims reserves. Consulting and legal expenses also decreased.

Depreciation and amortization. In Q3 2011 compared to Q3 2010, depreciation and amortization decreased primarily due to the closing of two clubs subsequent to September 30, 2010.

Net income for Q3 2011 was $1.9 million compared to net loss of $18,000 for Q3 2010.

Cash flow from operating activities for the nine months ended 2011 totaled $53.2 million, an increase of $15.2 million from the corresponding period in 2010, which was partially related to the increase in overall earnings. Also, in the nine months ended 2011, due to the timing of payments affecting working capital, prepaid rent decreased $4.1 million, while in the corresponding period in 2010 there was minimal cash effect from prepaid rent. In addition, income tax refunds, net of cash paid for income taxes, increased $9.4 million in the nine months ended 2011, compared to year to date 2010. Partially offsetting the operating cash increases was the increase in cash paid for interest of $4.4 million and $2.5 million of call premium paid on the redemption of our Senior Discount Notes in May 2011.

Fourth Quarter 2011 Business Outlook:

Based on the current business environment, recent performance and current trends in the marketplace and subject to the risks and uncertainties inherent in forward-looking statements, our outlook for the fourth quarter of 2011 includes the following:

• Revenue for Q4 2011 is expected to be between $114.5 million and $115.5 million versus $111.4 million for Q4 2010, after adjusting Q4 2010 revenue downward for $2.7 million of expired personal training sessions recognized in Q4 2010.
• In Q4 2011, as a percentage of revenue, we expect payroll and related expenses to be approximately 50 basis points higher than Q3 2011 and club operating expenses to approximate 38%. General and administrative expenses are expected to be approximately $7.0 million, while depreciation and amortization and interest expenses are expected to be similar to Q3 2011 amounts in total dollars.
• Adjusted EBITDA is expected to improve $2.5 million, or 13.2%, to $21.5 million in Q4 2011 compared to Q4 2010, after adjusting Q4 2010 Adjusted EBITDA downward for $2.7 million of expired personal training sessions recognized in Q4 2010.
• We estimate that net income for Q4 2011 will be between $1.6 million and $2.1 million, and earnings per share will be in the range of $0.07 per share to $0.09 per share, assuming a 34% effective tax rate and 23.5 million weighted average fully diluted shares outstanding.

Investing Activities Outlook:

For the year ending December 31, 2011, we currently plan to invest $29.0 million to $32.0 million in capital expenditures, which represents an increase from $22.0 million of capital expenditures in 2010. This amount includes approximately $7.5 million to $8.5 million related to two new club openings in Q4 2011, approximately $15.0 million to $16.0 million for the upgrade of existing clubs and approximately $3.5 million principally related to major renovations at clubs with recent lease renewals and upgrading our in-club entertainment system network. We also expect to invest $3.0 million to $3.5 million to enhance our management information and communication systems.

We expect our 2012 capital expenditures to be similar to or less than the 2011 levels, as we are currently targeting up to three openings of smaller "fitness-only" clubs in 2012.

Forward-Looking Statements:

Statements in this release that do not constitute historical facts, including, without limitation, statements under the captions "Fourth Quarter 2011 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, environmental initiatives, any security and privacy breaches involving customer data, the application of Federal and state tax laws and regulations, 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 the Company's reports on Forms 10-K and 10-Q filed with the Securities and Exchange Commission). The Company believes that all forward-looking statements are based on reasonable assumptions when made; however, the Company cautions that it is impossible to predict actual results or outcomes or the effects of risks, uncertainties or other factors on anticipated results or outcomes and that, accordingly, one should not place undue reliance on these statements. Forward-looking statements speak only as of the date they were made, and the Company undertakes no obligation to update these statements in light of subsequent events or developments. Actual results may differ materially from anticipated results or outcomes discussed in any forward-looking statement.

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 158 fitness clubs as of September 30, 2011, comprising 106 New York Sports Clubs, 25 Boston Sports Clubs, 18 Washington Sports Clubs (two of which are partly-owned), six Philadelphia Sports Clubs, and three clubs located in Switzerland. These clubs collectively served approximately 522,000 members. For more information on TSI, visit http://www.mysportsclubs.com.

The Company will hold a conference call on Wednesday October 26, 2011 at 4:30 PM (Eastern) to discuss the third quarter results. Robert Giardina, 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 Web site at www.mysportsclubs.com. A replay and transcript of the call will be available via the Company's Web site beginning October 27, 2011.

From time to time we may use our Web site as a channel of distribution of material company information. Financial and other material information regarding the Company is routinely posted on and accessible at http://www.mysportsclubs.com. In addition, you may automatically receive email alerts and other information about us by enrolling your email by visiting the "Email Alert" section at http://www.mysportsclubs.com.

Note: We define Adjusted EBITDA as EBITDA excluding loss on extinguishment of debt, any fixed asset or goodwill impairments and revenue recognized in Q4 2010 for unused and expired personal training sessions. For the quarters ended September 30, 2011 and 2010, we did not incur any loss on extinguishment of debt or any fixed asset or goodwill impairments. Accordingly, EBITDA and Adjusted EBITDA are identical for these quarters.

(1) In Q4 2010, we recognized $2,697 of revenue related to unused and expired personal training sessions in three of the jurisdictions we operate in.

Non-GAAP Financial Measures — EBITDA and Adjusted EBITDA

EBITDA consists of net income (loss) plus interest expense (net of interest income), provision for corporate income taxes, and depreciation and amortization. Adjusted EBITDA is the Company's EBITDA excluding loss on extinguishment of debt, any fixed asset or goodwill impairments and revenue recognized in Q4 2010 for unused and expired personal training sessions. EBITDA is not a measure of liquidity or financial performance presented in accordance with GAAP. EBITDA, as we define it, may not be identical to similarly titled measures used by some other companies.

EBITDA has material limitations as an analytical tool and should not be considered in isolation or as a substitute for cash flows from operating activities, operating income or other cash flow or income data prepared in accordance with GAAP. The items excluded from EBITDA, but included in the calculation of reported net income, are significant components of the consolidated statements of cash flows and income, and must be considered in performing a comprehensive assessment of our liquidity.

EBITDA excludes, among other items, the effect of depreciation and amortization, which is a significant component of our reported GAAP data. Depreciation and amortization, which is a non-cash item, totaled $12.6 million in the quarter ended September 30, 2011. Although a premise underlying depreciation and amortization is that it will be reinvested in our business to restore, replenish or purchase property, equipment and other related assets, the funds represented by depreciation and amortization could, in the Company's discretion, be utilized for other purposes (e.g., debt service). Accordingly, EBITDA may be useful as a supplemental measure to GAAP financial data for demonstrating our ability to satisfy our liquidity and capital resource requirements.

Investors or prospective investors in the Company regularly request EBITDA as a supplemental analytical measure to, and in conjunction with, our GAAP financial data. We understand that these investors use EBITDA, among other things, to assess our ability to service our existing debt and to incur debt in the future, to evaluate our executive compensation programs, to assess our ability to fund our capital expenditure program, and to gain insight into the manner in which the Company's management and board of directors analyze our liquidity. We believe that investors find the inclusion of EBITDA in our press releases to be useful and helpful to them.

Our management and board of directors also use EBITDA as a supplemental measure to our GAAP financial data for purposes broadly similar to those used by investors.

The purposes to which EBITDA may be used by investors, and is used by our management and board of directors, include the following:

• The Company is required to comply with financial covenants and borrowing limitations that are based on variations of EBITDA as defined in our 2011 Senior Credit Facility.
• Our discussions with prospective lenders and investors in recent years, including in relation to our 2011 Senior Credit Facility, have confirmed the importance of EBITDA in their decision-making processes relating to the making of loans to us or investing in our debt securities.
• The Company uses EBITDA as a key factor in determining annual incentive bonuses for executive officers (as discussed in our proxy statement).
• The Company considers EBITDA to be a useful supplemental measure to GAAP financial data because it indicates our ability to generate funds sufficient to make capital expenditures (including for the opening of new clubs and the upgrading of existing clubs) as well as to undertake initiatives to enhance our business by offering new products and services in accordance with our strategy.
• Quarterly, our equity analysts often report on our EBITDA with respect to valuation commentary.

We do not, and investors should not, place undue reliance on EBITDA or Adjusted EBITDA as a measure of our liquidity.

Town Sports International Holdings, Inc., New York
Investor Contact:
212-246-6700 extension 1650
Investor.relations@town-sports.com
or
ICR, Inc.
Joseph Teklits / Farah Soi
203-682-8390
farah.soi@icrinc.com

Source: Town Sports International Holdings, Inc.

News Provided by Acquire Media

Close window | Back to top