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, 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,|
|Revenue||% Revenue||Revenue||% Revenue||% Variance|
|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 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,|
|Expense % of Revenue||Variance|
|Payroll and related||36.7||%||37.0||%||(2.8||)||%|
|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||%|
- 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.