Town Sports International Holdings, Inc. Announces Fourth Quarter and Full-Year 2012 Financial Results
NEW YORK--(BUSINESS WIRE)-- Town Sports International Holdings, Inc. ("TSI" or the "Company") (NAS: 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 fourth quarter and full-year ended December 31, 2012.
Fourth Quarter Overview:
The Company paid a special cash dividend of $3.00 per share on December 11, 2012. The aggregate amount of the dividends paid totaled $70.3 million with another $1.1 million payable as restricted shares vest.
Total member count decreased 12,000 to 510,000 in Q4 2012 and decreased by 13,000 for the full-year 2012.
Membership monthly attrition averaged 3.5% per month in Q4 2012 compared to 3.4% per month in Q4 2011.
Revenue of $114.2 million in Q4 2012 decreased 1.4% compared to Q4 2011.
Comparable club revenue decreased 1.1% in Q4 2012.
Diluted loss per share was $0.02 in Q4 2012 compared to diluted earnings per share of $0.14 in Q4 2011.
Q4 2012 results reflected the following items amounting to an aggregate net charge of approximately $7.8 million before taxes (approximately $4.3 million net of taxes) or approximately $0.18 per diluted share:
$3.2 million ($1.9 million net of taxes) of fixed asset write-offs related to four clubs that sustained damage as a result of Hurricane Sandy.
$1.6 million ($924,000 net of taxes) of incremental interest charges related to expenses incurred in connection with the Q4 2012 additional borrowing under the Company's credit facility.
$2.5 million ($1.5 million net of taxes) of an equivalent cash bonus paid to certain option holders in connection with the Company's special dividend payment.
$577,000 ($340,000 net of taxes) of consulting and administration expenses and incremental compensation expense incurred in connection with the Company's special dividend payment and related stock option modifications.
$340,000 of discrete tax benefits.
Adjusted EBITDA was $23.2 million in Q4 2012, an increase of $333,000, or 1.5%, when compared to Adjusted EBITDA of $22.9 million in Q4 2011 (Refer to the reconciliation below).
Robert Giardina, Chief Executive Officer of TSI, commented: "We are pleased to have delivered 2012 Adjusted EBITDA of $100 million, modestly exceeding the goal we set for ourselves at the beginning of the year despite the impact of Hurricane Sandy, which resulted in 131 temporary club closures and a decline in member traffic. We are firmly focused on driving personal training and other ancillary revenues and are very excited about the response to new programs like our signature classes, small group training classes and UXF. We also plan to expand our club base, and see opportunities for both acquisitions and new locations in 2013."
Mr. Giardina added, "We returned $70.3 million to our shareholders in 2012 in the form of a $3.00 per share special dividend. As we look to 2013, we expect that our cash flow generation will exceed the capital outlay to fund club growth. With respect to club growth, we are excited to have announced the acquisition of Fitcorp in Boston. In addition to the five clubs and four managed sites that will join our family, Fitcorp has been a leader in developing corporate programs and managing corporate centers for more than 30 years. We welcome the Fitcorp team and look forward to building upon their success as well as expanding on their unique expertise with corporate clients."
Fourth Quarter Ended December 31, 2012 Financial Results:
Revenue (in thousands):
Quarter Ended December 31,
Personal training revenue
Other ancillary club revenue
Ancillary club revenue
Fees and other revenue
Total revenue for Q4 2012 decreased $1.6 million, or 1.4%, compared to Q4 2011. The decrease in revenue for Q4 2012 is primarily comprised of a $1.4 million decrease at our clubs opened or acquired prior to December 31, 2010 and a decrease of $514,000 due to a reduction in fees and other revenue related to education and laundry services. These decreases were partially offset by an increase of $530,000 at the two clubs opened or acquired subsequent to December 31, 2010 (both opened in Q4 2011).
Q4 2012 revenues were negatively impacted as a result of lost operating days due to Hurricane Sandy. At the height of the storm, 131 of our 160 clubs were closed with 16 clubs that remained closed for over a week and two clubs which still remain closed.
Expense % of Revenue
Payroll and related
General and administrative
Depreciation and amortization
Impairment of fixed assets
Total operating expenses increased 3.4% for Q4 2012 compared to Q4 2011. Operating margin was 3.8% for Q4 2012 compared to 8.3% for Q4 2011.
Payroll and related. The increase in payroll and related expenses in Q4 2012 was primarily related to a $2.5 million bonus payment made in connection with the special dividend paid during Q4 2012, which was partially offset by reductions in club related payroll; including lower bonuses and lower revenue based pay.
General and administrative . The increase in general and administrative expenses in Q4 2012 was primarily related to legal fees and dividend administration expenses incurred in connection with the payment and administration of the special cash dividend payment paid during Q4 2012.
Depreciation and amortization. Depreciation and amortization expense for Q4 2012 decreased primarily due to a decline in our depreciable fixed asset base. Contributing to this was our limited number of club openings over the past five years.
Impairment of fixed assets. In Q4 2012, we recorded fixed asset impairment charges of $3.2 million related to the write-off of fixed assets at four of our clubs that sustained damages from Hurricane Sandy.
Net loss for Q4 2012 was $453,000 compared to net income of $3.3 million for Q4 2011.
Full-Year Ended December 31, 2012 Financial Results
For the full-year ended December 31, 2012, total revenue increased $12.0 million, or 2.6%, compared to full-year 2011. Operating margin was 8.7% for 2012 compared to 7.6% for 2011. In 2012, we recorded fixed asset impairment charges and loss on extinguishment of debt of $3.4 million and $1.0 million, respectively. In 2011, we recorded loss on extinguishment of debt of $4.9 million and no fixed asset impairments. Net income for 2012 was $12.0 million compared to $6.3 million in 2011.
Cash flow from operating activities for full-year 2012 totaled $60.1 million, a decrease of $14.8 million from full-year 2011. Cash flow related to income taxes impacted the change in cash flows as 2011 cash flows benefitted from a net tax refund of $6.6 million while in 2012 net taxes of $836,000 were paid. This decrease was also driven by reductions in cash flows resulting from the timing of payments and collections made associated with prepaid expenses, accounts payable and accrued expenses and deferred revenues.
First Quarter 2013 Financial 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 first quarter of 2013 includes the following:
Revenue for Q1 2013 is expected to be between $119.0 million and $120.0 million versus $122.9 million for Q1 2012. As percentages of revenue, we expect Q1 2013 payroll and related expenses to approximate 37.5% and club operating expenses to approximate 37.0%. We expect general and administrative expenses to approximate $7.5 million, depreciation and amortization to approximate $12.1 million and net interest expense to approximate $5.4 million.
We expect net income for Q1 2013 to be between $3.5 million and $4.0 million, and diluted earnings per share to be in the range of $0.15 per share to $0.17 per share, assuming a 39% effective tax rate and 24 million weighted average fully diluted shares outstanding.
We estimate that EBITDA will approximate $23.5 million in Q1 2013.
Investing Activities Outlook:
For the year ending December 31, 2013, we currently plan to invest $37.0 million to $42.0 million in capital expenditures compared to $22.5 million of capital expenditures in 2012. This amount includes approximately $11.5 million to $17.0 million related to potential 2013 and 2014 club openings, inclusive of amounts for our planned acquisition of the Fitcorp chain in Boston and planned renovations at these clubs as well as a separate single club acquisition in Manhattan. The total capital expenditures also includes approximately $17.0 million to $18.0 million to continue enhancing or upgrading existing clubs and approximately $4.5 million to $5.0 million principally related to major renovations at clubs with recent lease renewals and to upgrade our in-club entertainment system network. We also expect to invest approximately $2.5 million to $3.0 million to enhance our management information and communication systems. We expect these capital expenditures to be funded by cash flow provided by operations and available cash on hand.
Statements in this release that do not constitute historical facts, including, without limitation, statements under the captions "First Quarter 2013 Financial 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 160 fitness clubs as of December 31, 2012, comprising 108 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 510,000 members. For more information on TSI, visit http://www.mysportsclubs.com.
The Company will hold a conference call on Tuesday, February 19, 2013 at 4:30 PM (Eastern) to discuss the fourth quarter and full-year results. Robert Giardina, Chief Executive Officer, and Dan Gallagher, Chief Financial Officer, will host the conference call. The conference call will be Webcast 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 February 20, 2013.
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.
TOWN SPORTS INTERNATIONAL HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
As of December 31, 2012 and 2011
(All figures in thousands)
Cash and cash equivalents
Accounts receivable, net
Deferred tax assets, net
Prepaid corporate income taxes
Prepaid expenses and other current assets
Total current assets
Fixed assets, net
Deferred tax assets, net
Deferred membership costs
LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY
Current portion of long-term debt
Total current liabilities
Deferred lease liabilities
Stockholders' (deficit) equity :
Additional paid-in capital
Accumulated other comprehensive income
Retained (deficit) earnings
Total stockholders' (deficit) equity
Total liabilities and stockholders' (deficit) equity
TOWN SPORTS INTERNATIONAL HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
For the quarters and years ended December 31, 2012 and 2011
(All figures in thousands except share and per share data)
Quarter Ended December 31,
Year Ended December 31,
Fees and other
Payroll and related