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Town Sports International Holdings, Inc. Announces Fourth Quarter And Full-Year 2011 Financial Results

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 fourth quarter and full-year ended December 31, 2011.

Fourth Quarter Overview:

  • Total member count increased 1,000 to 523,000 in Q4 2011 and increased by 30,000, or 6.1%, in full-year 2011.
  • Membership monthly attrition averaged 3.4% per month in both Q4 2011 and Q4 2010.
  • Revenue of $115.8 million in Q4 2011 increased 1.5% as compared to Q4 2010 and 3.9% as compared to adjusted Q4 2010. Adjusted Q4 2010 revenue of $111.5 million excludes $2.6 million of personal training revenue recognized for expired and unused sessions.
  • Comparable club revenue increased 3.4% in Q4 2011 compared to adjusted Q4 2010.
  • Personal training revenue increased 7.7% in Q4 2011 compared to adjusted Q4 2010. Adjusted Q4 2010 revenue excludes $2.6 million of personal training revenue recognized for expired and unused sessions.
  • Diluted earnings per share were $0.14 in Q4 2011 compared to $0.06 in Q4 2010. Q4 2011 results include a favorable tax credit of approximately $343,000, or $0.01 per share related to state deferred tax adjustments. Q4 2010 results included $1.4 million, net of taxes, or approximately $0.06 per share, of personal training revenue recognized for expired and unused sessions.
  • Adjusted EBITDA increased 19.7% to $22.9 million in Q4 2011 as compared to Q4 2010 and increased 21.2% to $89.5 million in full-year 2011 compared to full-year 2010.

Robert Giardina, Chief Executive Officer of TSI, commented: “Our 19.7% EBITDA margin in Q4 2011 driven by comparable club revenue growth of 3.4% demonstrated the company’s ability to execute at every level of the organization. We are excited about our prospects for additional productivity and profitability gains in 2012, and are on the cusp of reaching our 20% EBITDA margin goal ahead of schedule. We are also once again setting our sights on club growth, and see significant opportunity over the next five years as health and wellness continues to gain momentum as a major trend in the U.S.”

Fourth Quarter Ended December 31, 2011 Financial Results:

                         
Revenue (in thousands):
 
Quarter Ended December 31,
2011 2010
Revenue % Revenue Revenue % Revenue % Variance
Membership dues $ 91,231 78.8 % $ 89,950 78.9 % 1.4 %
Joining fees   2,241 1.9 %   1,272 1.1 % 76.2 %
Membership revenue   93,472 80.7 %   91,222 80.0 % 2.5 %
Personal training revenue 15,142 13.1 % 16,657 14.6 % (9.1 ) %
Other ancillary club revenue   5,778 5.0 %   5,010 4.4 % 15.3 %
Ancillary club revenue 20,920 18.1 % 21,667 19.0 % (3.4 ) %
Fees and other revenue   1,421 1.2 %   1,176 1.0 % 20.8 %
Total revenue $ 115,813 100.0 % $ 114,065 100.0 % 1.5 %

Total revenue for Q4 2011 increased $1.7 million, or 1.5% compared to Q4 2010. In Q4 2010, we recognized $2.6 million of personal training revenue for unused and expired personal training sessions in three of the jurisdictions in which we operate. Excluding this revenue from Q4 2010, we experienced an increase in revenue of $4.3 million, or 3.9% compared to Q4 2010. For Q4 2011, revenues increased $678,000 at the two clubs opened or acquired subsequent to December 31, 2009 (both opened in Q4 2011), increased by $3.8 million at our clubs opened or acquired prior to December 31, 2009 and decreased $511,000 related to the three clubs that were closed subsequent to December 31, 2009.

Operating expenses:
     

Quarter Ended December 31,

 
2011   2010
Expense % of Revenue

Expense % Variance

Payroll and related 37.9 %   38.6 % (0.4) %
Club operating 37.5 % 37.2 % 2.5 %
General and administrative 5.3 % 5.7 % (5.4) %
Depreciation and amortization 11.0 % 10.5 % 6.0 %
Operating expenses 91.7 % 92.0 % 1.2 %

Total operating expenses increased 1.2% for Q4 2011 compared to Q4 2010. Operating margin was 8.3% for Q4 2011 compared to 8.0% for Q4 2010.

Club Operating . The increase in club operating expenses in Q4 2011 was primarily due to increases in occupancy-related expenses and, to a lesser degree, laundry- and towel-related expenses.

General and administrative . The decrease in general and administrative expenses in Q4 2011 was primarily related to decreases in legal expenses.

Depreciation and amortization. The increase in depreciation and amortization in Q4 2011 was partly related to the two club openings in Q4 2011.

Net income for Q4 2011 was $3.3 million compared to $1.3 million for Q4 2010.

Full-Year Ended December 31, 2011 Financial Results

For the full-year ended December 31, 2011, total revenue increased $4.6 million, or 1.0%, compared to full-year 2010. Operating margin was 7.6% for 2011 compared to 4.0% for 2010. In 2010, we recorded fixed asset impairment charges of $3.3 million. There were no such charges in 2011. Net income for 2011 was $6.3 million compared to net loss of $290,000 in 2010.

Cash flow from operating activities for full-year 2011 totaled $74.9 million, an increase of $23.6 million from full-year 2010. This increase was driven by an increase in earnings before the effects of depreciation and fixed asset impairments. The increase in deferred revenue in 2011 generated a $6.5 million increase in cash flow as compared to 2010, which was driven by an increase in joining fees collected. The decrease in prepaid expenses and other current assets generated a $6.0 million favorable cash flow variance to 2010 principally due to timing differences in rent payments at the end of 2011. The effect of income taxes increased cash flow by $6.6 million in 2011, as we had more income tax refunds, net of cash paid for taxes, in 2011 compared to 2010. These increases in cash flow were partially offset by an $8.8 million increase in cash paid for interest, and a $4.2 million increase in deferred membership costs compared to 2010.

First Quarter 2012 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 2012 includes the following:

  • Revenue for Q1 2012 is expected to be between $121.3 million and $122.3 million versus $116.7 million for Q1 2011. As percentages of revenue, we expect Q1 2012 payroll and related expenses to approximate 39.0% and club operating expenses to approximate 37.0%. We expect general and administrative expenses to approximate $6.8 million, depreciation and amortization to approximate $12.8 million and net interest expense to approximate $6.0 million.
  • We expect net income for Q1 2012 to be between $2.75 million and $3.25 million, and diluted earnings per share to be in the range of $0.12 per share to $0.14 per share, assuming a 41.0% effective tax rate and 23.75 million weighted average fully diluted shares outstanding.
  • We estimate that Adjusted EBITDA will approximate $23.75 million in Q1 2012.

Investing Activities Outlook:

For the year ending December 31, 2012, we currently plan to invest $25.0 million to $28.0 million in capital expenditures compared to $30.9 million of capital expenditures in 2011. This amount includes approximately $2.5 million to $3.0 million related to potential 2012 and 2013 club openings, approximately $16.0 million to $17.0 million to continue upgrading existing clubs and approximately $4.0 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 systems. These capital expenditures will be funded by cash flow provided by operations and available cash on hand.

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