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Town Sports International Holdings, Inc. Announces Second Quarter 2012 Financial Results

Stocks in this article: CLUB

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 second quarter ended June 30, 2012.

Second Quarter Overview:

  • Membership attrition averaged 3.2% per month in both Q2 2012 and Q2 2011.
  • Total member count decreased 4,000 to 529,000 in Q2 2012.
  • Revenue increased 3.3% in Q2 2012 compared to Q2 2011.
  • Comparable club revenue increased 2.1% in Q2 2012 compared to an increase of 1.5% in Q2 2011.
  • Ancillary club revenue increased 6.0% in Q2 2012 compared to Q2 2011.
  • Diluted earnings per share were $0.23 in Q2 2012 compared to diluted loss per share of ($0.02) in Q2 2011, which included a ($0.16) per share charge, net of taxes, related to the Company’s refinancing of its debt and a ($0.02) per share discrete income tax charge.
  • EBITDA was $26.8 million in Q2 2012, an increase of $2.5 million, or 10.4%, when compared to Adjusted EBITDA of $24.3 million in Q2 2011 (Refer to the reconciliation that follows).

Robert Giardina, Chief Executive Officer of TSI, commented: “We are pleased to have once again driven improvements in our EBITDA and net income in the second quarter. The low attrition rate this quarter reflects the continued strength of our brands and operations. While our second quarter ancillary revenue growth was not as strong as we had anticipated, we continue to see this as a meaningful opportunity for the company and remain confident in our EBITDA and net debt reduction goals for 2012.”

Quarter Ended June 30, 2012 Financial Results:

Revenue (in thousands):
  Quarter Ended June 30,  
2012   2011
Revenue   % Revenue Revenue   % Revenue % Variance
Membership dues $ 92,944 76.0 % $ 91,902 77.7 % 1.1 %
Joining fees   2,686 2.2 %   1,534 1.3 % 75.1 %
Membership revenue   95,630 78.2 %   93,436 79.0 % 2.3 %
Personal training revenue 17,625 14.4 % 16,708 14.1 % 5.5 %
Other ancillary club revenue   7,549 6.2 %   7,041 6.0 % 7.2 %
Ancillary club revenue 25,174 20.6 % 23,749 20.1 % 6.0 %
Fees and other revenue   1,437 1.2 %   1,100 0.9 % 30.6 %
Total revenue $ 122,241 100.0 % $ 118,285 100.0 % 3.3 %

Total revenue for Q2 2012 increased $4.0 million, or 3.3%, compared to Q2 2011. Revenue at clubs operated for over 12 months (“comparable club revenue”) increased 2.1% in Q2 2012 compared to Q2 2011. Memberships in our comparable clubs increased 1.5% with ancillary club revenue, initiation fees and other revenue increasing 2.2%. These increases were partially offset by a 1.6% decrease in the price of our dues and fees.

Operating expenses:

Quarter Ended June 30,
2012   2011
Expense % of Revenue

Expense %


Payroll and related 37.0 % 38.1 % 0.4 %
Club operating 36.5 % 36.7 % 2.8 %
General and administrative 5.0 % 5.2 % 0.6 %
Depreciation and amortization 10.2 % 11.1 % (5.8) %
Operating expenses 88.7 % 91.1 % 0.6 %

Total operating expenses increased $678,000, or 0.6%, in Q2 2012 compared to Q2 2011. Operating margin was 11.3% for Q2 2012 compared to 8.9% in Q2 2011.

Payroll and related . Payroll and related expenses increased $179,000, or 0.4%, to $45.3 million in Q2 2012 compared to $45.1 million in Q2 2011, driven by payroll related to ancillary revenue growth.

Club operating . Club operating expenses increased $1.2 million, or 2.8%, to $44.6 million in Q2 2012 compared to $43.4 million in Q2 2011 primarily due to increases in occupancy related expenses.

Depreciation and amortization . Depreciation and amortization expense for Q2 2012 decreased primarily due to a modest decline in our depreciable fixed asset base.

Loss on extinguishment of debt in Q2 2011 totaled $4.9 million resulting from our debt refinancing on May 11, 2011. We incurred $2.5 million of call premium on the Senior Discount Notes together with the write-off of $2.4 million of net deferred financing costs related to the debt extinguishment. There was no loss on extinguishment of debt in Q2 2012.

Net income for Q2 2012 was $5.4 million compared to net loss of $410,000 for Q2 2011, which included loss on extinguishment of debt, net of taxes, of $2.8 million and incremental interest expense reflecting the 30 day call period on our 11% Senior Discount Notes of $855,000, net of taxes. Also in Q2 2011, we recorded $549,000 of discrete income tax charges.

Cash flow from operating activities for the six months ended June 30, 2012 totaled $35.0 million, a decrease of $54,000 from the corresponding period in 2011, driven by reductions in cash flows resulting from the timing of payments and collections made associated with prepaid expenses and deferred revenues, partially offset by the overall increase in earnings.

Third 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 third quarter of 2012 includes the following:

  • Revenue for Q3 2012 is expected to be between $119.0 million and $120.0 million versus $116.1 million for Q3 2011. As percentages of revenue, we expect Q3 2012 payroll and related expenses to be approximately 37.8% and club operating expenses to approximate 37.8%. 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 $5.6 million.
  • We expect net income for Q3 2012 to be between $2.5 million and $3.0 million, and diluted earnings per share to be in the range of $0.10 per share to $0.13 per share, assuming a 39% effective tax rate and 24.0 million weighted average fully diluted shares outstanding.
  • We estimate that EBITDA will approximate $23.0 million in Q3 2012.

Investing Activities Outlook:

For the year ending December 31, 2012, we currently plan to invest between $24.0 million to $26.0 million in capital expenditures compared to $30.9 million of capital expenditures in 2011. This amount includes approximately $500,000 to $1.0 million related to potential 2013 club openings, approximately $18.0 million to $19.0 million to continue upgrading existing clubs, and approximately $2.0 million to $3.0 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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