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Town Sports International Holdings, Inc. Announces First Quarter 2012 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 first quarter ended March 31, 2012.

First Quarter Overview:

  • Total member count increased 10,000 to 533,000 in Q1 2012.
  • Membership attrition averaged 3.4% per month in Q1 2012 compared to 3.2% per month in Q1 2011.
  • Revenue increased 5.3% in Q1 2012 compared to Q1 2011.
  • Comparable club revenue increased 4.5% in Q1 2012 versus a decrease of 0.5% in Q1 2011.

  • Ancillary club revenue increased 12.3% in Q1 2012 compared to Q1 2011.
  • Diluted earnings per share were $0.16 in Q1 2012 compared to diluted earnings per share of $0.07 in Q1 2011.
  • EBITDA was $25.1 million in Q1 2012, an increase of $4.5 million, or 21.9%, when compared to EBITDA of $20.6 million in Q1 2011.

Robert Giardina, Chief Executive Officer of TSI, commented: “The many improvements we have made to drive profitability in 2011 have carried into the first quarter of 2012, producing double digit percentage growth of ancillary revenue and our highest same club sales growth in 4 years. With strong membership gains over the past year, we can now be even more focused on increasing revenue per member, as well as putting leases in place to resume club growth. Finally, the hiring of our new Chief Operating Officer in March adds a very experienced industry executive to this effort and gives us all even more confidence that we will continue to move ahead successfully.”

Quarter Ended March 31, 2012 Financial Results:

           
Revenue (in thousands):
 
Quarter Ended March 31,
2012 2011
Revenue % Revenue Revenue % Revenue % Variance
Membership dues $ 93,263 75.9 % $ 91,080 78.0 % 2.4 %
Joining fees   2,566 2.1 %   1,447 1.3 % 77.3 %
Membership revenue   95,829 78.0 %   92,527 79.3 % 3.6 %
Personal training revenue 17,621 14.3 % 15,692 13.4 % 12.3 %
Other ancillary club revenue   8,284 6.7 %   7,373 6.3 % 12.4 %
Ancillary club revenue 25,905 21.0 % 23,065 19.7 % 12.3 %
Fees and other revenue   1,178 1.0 %   1,113 1.0 % 5.9 %
Total revenue $ 122,912 100.0 % $ 116,705 100.0 % 5.3 %

Total revenue for Q1 2012 increased $6.2 million, or 5.3%, compared to Q1 2011. Revenue at clubs operated for over 12 months (“comparable club revenue”) increased 4.5% in Q1 2012 compared to Q1 2011. Memberships in our comparable clubs increased 3.2% with ancillary club revenue, initiation fees and other revenue increasing 3.1%. These increases were partially offset by a 1.8% decrease in the price of our dues and fees.

Operating expenses:

  Quarter Ended March 31,  
2012   2011
Expense % of Revenue

Expense % Variance

Payroll and related 38.5 % 38.8 % 4.7 %
Club operating 36.7 % 37.8 % 2.3 %
General and administrative 4.8 % 6.4 % (20.0 ) %
Depreciation and amortization 10.5 % 11.1 % (1.1 ) %
Operating expenses 90.5 % 94.1 % 1.4 %

Total operating expenses increased $1.5 million, or 1.4%, in Q1 2012 compared to Q1 2011. Operating margin was 9.5% for Q1 2012 compared to 5.9% in Q1 2011.

Payroll and related . Payroll and related expenses increased 4.7% or $2.1 million to $47.4 million in Q1 2012 compared to $45.3 million in Q1 2011, driven by payroll related to ancillary revenue growth.

Club operating . Club operating expenses increased $1.0 million or 2.3% to $45.1 million in Q1 2012 compared to $44.1 million in Q1 2011 primarily due to increases in occupancy related expenses.

General and administrative. In Q1 2012 general and administrative expenses decreased compared to Q1 2011, primarily attributable to decreases in consulting and legal expenses and continued decreases in general liability insurance expense.

Depreciation and amortization . Depreciation and amortization expense for Q1 2012 was relatively flat versus the prior year.

Net income for Q1 2012 was $3.9 million compared to net income of $1.5 million for Q1 2011.

Cash flow from operating activities for the three months ended March 31, 2012 totaled $16.4 million, a decrease of $9.0 million from the corresponding period in 2011, driven primarily by the timing of payments made associated with our accounts payable, accrued expenses and prepaid rent, partially offset by the overall increase in earnings.

Second 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 second quarter of 2012 includes the following:

  • Revenue for Q2 2012 is expected to be between $123.0 million and $124.0 million versus $118.3 million for Q2 2011. As percentages of revenue, we expect Q2 2012 payroll and related expenses to be approximately 37.8% and club operating expenses to approximate 36.0%. We expect general and administrative expenses to approximate $6.9 million, depreciation and amortization to approximate $12.8 million and net interest expense to approximate $5.6 million.
  • We expect net income for Q2 2012 to be between $4.25 million and $4.75 million, and diluted earnings per share to be in the range of $0.18 per share to $0.20 per share, assuming a 39% effective tax rate and 23.9 million weighted average fully diluted shares outstanding.
  • We estimate that EBITDA will approximate $26.0 million in Q2 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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