Town Sports International Holdings, Inc. Announces Second Quarter 2013 Financial Results

Town Sports International Holdings, Inc. Announces Second Quarter 2013 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 second quarter ended June 30, 2013.

Second Quarter Overview:

  • Total member count remained at the same level with approximately 512,000 members at the end of Q2 2013 and Q1 2013.

  • Membership attrition averaged 3.3% per month in Q2 2013 compared to 3.2% per month in Q2 2012.

  • Revenue decreased 1.7% in Q2 2013 compared to Q2 2012.

  • Comparable club revenue decreased 1.7% in Q2 2013 compared to an increase of 2.1% in Q2 2012.

  • Ancillary club revenue decreased 4.3% in Q2 2013 compared to Q2 2012.

  • Net income increased 14.4% in Q2 2013 to $6.2 million compared to $5.4 million in Q2 2012. Diluted earnings per share were $0.25 in Q2 2013 compared to diluted earnings per share of $0.23 in Q2 2012. Q2 2013 results were favorably impacted by a $0.06 per diluted share net gain comprised of a $2.5 million insurance recovery related to our property damage claims in connection with Hurricane Sandy partially offset by a fixed asset impairment charge of $128,000 related to one underperforming club.

  • Adjusted EBITDA was $25.7 million in Q2 2013, a decrease of $1.2 million, or 4.3%, when compared to Adjusted EBITDA of $26.8 million in Q2 2012 (Refer to the reconciliation below).


Robert Giardina, Chief Executive Officer of TSI, commented: "Our overall results were broadly in line with our expectations with a sequential improvement in personal training revenues as we continue to make nice strides with our personal training membership product. We are particularly pleased to have exceeded our EBITDA expectations for the quarter and generated $15 million in free cash flow to end the quarter with a cash balance of $69.5 million. After a soft start to the year, which we believe was impacted by macro factors, our overall business is back on plan as we head into the third quarter. We are excited about the direction of our business, including an outlook for improved comparable club revenue, driven by personal training and pricing, in the back half of the year."

Second Quarter Ended June 30, 2013 Financial Results:

Revenue (in thousands):

Quarter Ended June 30,

2013

2012

Revenue

% Revenue

Revenue

% Revenue

% Variance

Membership dues

$

90,882

75.7

%

$

92,944

76.0

%

(2.2

)

%

Joining fees

3,823

3.1

%

2,686

2.2

%

42.3

%

Membership revenue

94,705

78.8

%

95,630

78.2

%

(1.0

)

%

Personal training revenue

17,615

14.7

%

17,625

14.4

%

(0.1

)

%

Other ancillary club revenue

6,474

5.4

%

7,549

6.2

%

(14.2

)

%

Ancillary club revenue

24,089

20.1

%

25,174

20.6

%

(4.3

)

%

Fees and other revenue

1,318

1.1

%

1,437

1.2

%

(8.3

)

%

Total revenue

$

120,112

100.0

%

$

122,241

100.0

%

(1.7

)

%

Total revenue for Q2 2013 decreased $2.1 million, or 1.7%, compared to Q2 2012. Revenue at clubs operated for over 12 months ("comparable club revenue") decreased 1.7% in Q2 2013. Memberships at our comparable clubs were down 3.1% which was partially offset by a 1.4% increase in the price of our dues and fees.

The increase in joining fees revenue of 42.3% was, in part, due to the effect of the lower estimated average membership life of 24 months in effect for our unrestricted members during Q2 2013 compared to a higher estimated average membership life of 28 months in effect for Q2 2012. The lower amortizable life in the current period resulted in higher joining fees revenue recognition as joining fees were amortized over a shorter estimated average membership life.

Quarter Ended June 30,

2013

2012

Expense %

Expense % of Revenue

Variance

Payroll and related

36.7

%

37.0

%

(2.8

)

%

Club operating

36.7

%

36.5

%

(1.1

)

%

General and administrative

5.8

%

5.0

%

13.3

%

Depreciation and amortization

10.3

%

10.2

%

(0.1

)

%

Insurance recovery related to damaged property

(2.1

)

%

-

%

N/A

%

Impairment of fixed assets

0.1

%

-

%

N/A

%

Operating expenses

87.5

%

88.7

%

(3.1

)

%

Total operating expenses decreased $3.3 million, or 3.1%, in Q2 2013 compared to Q2 2012. Operating margin was 12.5% for Q2 2013 compared to 11.3% in Q2 2012. The total months of club operation increased 0.2% from 480 in Q2 2012 to 481 in Q2 2013. The decrease in operating expense was impacted, in part, by the receipt of $2.5 million of insurance proceeds received in connection with property damaged by Hurricane Sandy as well as the following factors:

Payroll and related . Payroll and related expenses decreased $1.3 million, or 2.8%, to $44.0 million in Q2 2013 compared to $45.3 million in Q2 2012. The decrease was due to decreases in bonuses and commissions as well as decreases in management incentive bonuses.

Club operating . Club operating expenses decreased $495,000, or 1.1%, to $44.1 million in Q2 2013 compared to $44.6 million in Q2 2012, primarily due to declines in rent and occupancy expenses and utilities, partially offset by increased repairs and maintenance expense.

General and administrative. The increase in general and administrative expenses in Q2 2013 was impacted by increases in insurance expense and increases in computer maintenance expense related to the implementation of a new club operating system.

Depreciation and amortization . Depreciation and amortization expense for Q2 2013 was relatively flat to the same period in the prior year. Modest decreases in depreciation were offset by an acceleration of depreciation of $331,000 at a single club where we have a planned near-term reduction of rental space at the location.

Net income for Q2 2013 was $6.2 million compared to net income of $5.4 million for Q2 2012.

Cash flow from operating activities for the six months ended June 30, 2013 totaled $44.5 million, an increase of $9.5 million from the corresponding period in 2012. This increase was primarily driven by increases in overall earnings, a decrease in cash paid for interest of $1.2 million and cash flows resulting from the timing of certain payments and collections made associated with our accounts receivable.

Third 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 third quarter of 2013 includes the following:

  • Revenue for Q3 2013 is expected to be between $118.5 million and $119.5 million versus $119.6 million for Q3 2012. As percentages of revenue, we expect Q3 2013 payroll and related expenses to be approximately 37.4% and club operating expenses to approximate 39.2%. We expect general and administrative expenses to approximate $6.8 million, depreciation and amortization to approximate $12.5 million and net interest expense to approximate $5.5 million.

  • We expect net income for Q3 2013 to be between $2.0 million and $2.5 million, and diluted earnings per share to be in the range of $0.08 per share to $0.10 per share, assuming a 39% effective tax rate and approximately 24.5 million weighted average fully diluted shares outstanding.

  • We estimate that EBITDA will approximate $21.75 million in Q3 2013.

Investing Activities Outlook:

For the year ending December 31, 2013, we are lowering our capital expenditures guidance and now plan to invest $34.0 million to $37.0 million in capital expenditures. This is a reduction from our previous expectation of $37.0 million to $42.0 million. The amount includes approximately $10.0 million to $12.0 million related to potential 2013 and 2014 club openings, inclusive of amounts for our recently acquired Fitcorp chain in Boston and planned renovations at these clubs as well as the separate single club acquired 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.

Forward-Looking Statements:

Statements in this release that do not constitute historical facts, including, without limitation, statements under the captions "Third 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 164 fitness clubs as of June 30, 2013, comprising 108 New York Sports Clubs, 30 Boston Sports Clubs, 17 Washington Sports Clubs (two of which are partly-owned), six Philadelphia Sports Clubs, and three clubs located in Switzerland. These clubs collectively served approximately 512,000 members. For more information on TSI, visit http://www.mysportsclubs.com.

The Company will hold a conference call on Wednesday, July 24, 2013 at 4:30 PM (Eastern) to discuss the second 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 July 25, 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 Alerts" section at http://www.mysportsclubs.com.

TOWN SPORTS INTERNATIONAL HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

June 30, 2013 and December 31, 2012

(All figures in thousands)

(Unaudited)

June 30,

December 31,

2013

2012

ASSETS

Current assets:

Cash and cash equivalents

$

69,521

$

37,758

Accounts receivable, net

3,415

6,508

Inventory

423

438

Prepaid corporate income taxes

157

550

Deferred tax assets, net

22,249

24,897

Prepaid expenses and other current assets

9,751

9,866

Total current assets

105,516

80,017

Fixed assets, net

248,074

256,871

Goodwill

32,792

32,824

Intangible assets, net

1,162

-

Deferred tax assets, net

5,803

9,296

Deferred membership costs

9,686

10,811

Other assets

11,498

14,091

Total assets

$

414,531

$

403,910

LIABILITIES AND STOCKHOLDERS' DEFICIT

Current liabilities:

Current portion of long-term debt

$

43,900

$

15,787

Accounts payable

7,297

7,467

Accrued expenses

28,312

27,053

Accrued interest

190

89

Dividends payable

304

305

Deferred revenue

39,807

37,138

Total current liabilities

119,810

87,839

Long-term debt

266,918

294,552

Dividends payable

695

799

Deferred lease liabilities

59,510

61,732

Deferred revenue

3,232

3,889

Other liabilities

8,059

10,595

Total liabilities

458,224

459,406

Stockholders' deficit:

Common stock

24

24

Additional paid-in capital

(15,112

)

(16,326

)

Accumulated other comprehensive income

1,383

1,226

Accumulated deficit

(29,988

)

(40,420

)

Total stockholders' deficit

(43,693

)

(55,496

)

Total liabilities and stockholders' deficit

$

414,531

$

403,910

TOWN SPORTS INTERNATIONAL HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

For the Three and Six Months Ended June 30, 2013 and 2012

(All figures in thousands except share and per share data)

(Unaudited)

Three Months Ended

Six Months Ended

June 30,

June 30,

2013

2012

2013

2012

Revenues:

Club operations

$

118,794

$

120,804

$

236,929

$

242,538

Fees and other

1,318

1,437

2,347

2,615

120,112

122,241

239,276

245,153

Operating Expenses:

Payroll and related

44,005

45,280

88,553

92,639

Club operating

44,116