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 third quarter ended September 30, 2012.
Third Quarter Overview:
- Membership attrition averaged 3.7% per month in both Q3 2012 and Q3 2011.
- Total member count decreased 1.3%, or 7,000 members, to 522,000 in Q3 2012.
- Revenue increased 3.0% in Q3 2012 compared to Q3 2011.
Comparable club revenue increased 1.0%.
- Ancillary club revenue increased 3.2% in Q3 2012 compared to Q3 2011.
- Diluted earnings per share were $0.13 in Q3 2012 compared to diluted earnings per share of $0.08 in Q3 2011.
- Q3 2012 results reflected the following items amounting to a net charge of $1.2 million ($530,000 net of taxes) or approximately $(0.02) per diluted share:
- Charges incurred related to the Q3 2012 re-pricing of our term loan and the voluntary principal prepayment of $15.0 million that collectively totaled $2.4 million ($1.4 million net of taxes), or approximately $(0.06) per diluted share. $1.4 million of these charges are included within interest expense and $1.0 million have been charged to loss on extinguishment of debt.
- Additional fees and other revenue of $1.2 million ($711,000 net of taxes), or approximately $0.03 per diluted share, were realized in connection with the termination of a long-term marketing arrangement with a third party in-club advertiser.
- Also in Q3 2012, we recorded $182,000, or approximately $0.01 per share, of discrete tax benefits.
- Adjusted EBITDA was $24.7 million in Q3 2012, an increase of $2.9 million, or 13.2%, when compared to Adjusted EBITDA of $21.8 million in Q3 2011 (Refer to the reconciliation below).
Robert Giardina, Chief Executive Officer of TSI, commented: “We were disappointed with our net member results, but were pleased to deliver on our earnings and cash flow for the quarter. We are excited about the changes taking place in the fitness industry, with consumers searching for more fitness offerings and often willing to pay additional fees to enhance their fitness experience. With the recent launch of our UXF products and the expansion of our personal training membership plans, we have positioned ourselves nicely to grow our ancillary revenue streams.”
Third Quarter Ended September 30, 2012 Financial Results:
|Revenue (in thousands):|
|Quarter Ended September 30,|
|Revenue||% Revenue||Revenue||% Revenue||% Variance|
|Personal training revenue||15,623||13.1||%||14,852||12.8||%||5.2||%|
|Other ancillary club revenue||8,067||6.7||%||8,105||7.0||%||(0.5)||%|
|Ancillary club revenue||23,690||19.8||%||22,957||19.8||%||3.2||%|
|Fees and other revenue||2,247||1.9||%||1,256||1.1||%||78.9||%|
Total revenue for Q3 2012 increased $3.5 million, or 3.0%, compared to Q3 2011, including a benefit from an acceleration of in-club advertising revenue which added approximately $1.2 million to Q3 2012 revenue. Revenue at clubs operated for over 12 months (“comparable club revenue”) increased 1.0% in Q3 2012, excluding the $1.2 million of accelerated in-club advertising revenue. Memberships in our comparable clubs increased 0.2% and ancillary club revenue, initiation fees and other revenue increased 1.3%. These increases were partially offset by a 0.5% decrease in the price of our dues and fees.Operating expenses:
|Quarter Ended September 30,|
|Expense % of Revenue||Expense % Variance|
|Payroll and related||36.5||%||37.3||%||0.9||%|
|General and administrative||4.7||%||5.3||%||(8.1||) %|
|Depreciation and amortization||10.2||%||10.9||%||(3.9||) %|
|Impairment of fixed assets||0.2||%||―||%||100.0||%|
- Revenue for Q4 2012 is expected to be between $116.5 million and $117.5 million versus $115.8 million for Q4 2011. As percentages of revenue, we expect Q4 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 $6.6 million, depreciation and amortization to approximate $12.3 million and net interest expense to approximate $4.6 million.
- We expect net income for Q4 2012 to be between $3.0 million and $3.5 million, and diluted earnings per share to be in the range of $0.13 per share to $0.15 per share, assuming a 39% effective tax rate and 24.0 million weighted average fully diluted shares outstanding.
- We estimate that EBITDA will approximate $22.5 million in Q4 2012.