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, 2014.
First Quarter Overview:
- Total member count decreased 1,000 members, to 496,000 members at the end of Q1 2014 versus an increase of 2,000 in Q1 2013.
- Membership attrition averaged 3.5% per month in both Q1 2014 and Q1 2013.
- Revenue decreased 2.7% in Q1 2014 compared to Q1 2013.
- Comparable club revenue decreased 4.7% in Q1 2014 compared to a decrease of 2.4% in Q1 2013.
- Ancillary club revenue decreased 4.0% in Q1 2014 compared to Q1 2013.
- Personal training revenue increased 2.9% in Q1 2014 compared to Q1 2013 and represented 14.6% of total revenue in Q1 2014 as compared to 13.8% in Q1 2013.
- Net loss was $3.5 million in Q1 2014 compared to net income of $4.2 million in Q1 2013. Loss per share was $0.15 in Q1 2014 compared to earnings per share of $0.18 in Q1 2013. Q1 2014 results included the following items:
- Q1 2014 results were impacted by a $2.1 million, or $0.09 net loss per share, related to fixed asset impairment charges in connection with three underperforming clubs and goodwill impairment charges related to one outlier club.
- Adjusted EBITDA was $14.1 million in Q1 2014, a decrease of $10.2 million, or 42.0%, when compared to Adjusted EBITDA of $24.2 million in Q1 2013 (Refer to the reconciliation below).
- Following the end of the quarter, the Company declared a cash dividend of $0.16 per share payable on June 5, 2014 to shareholders of record at the close of business on May 22, 2014. The aggregate amount to be paid will be approximately $3.9 million, based on shares outstanding as of April 24, 2014.
- In December 2013, the Company entered into an agreement to sell its property located at 151 East 86th Street, New York to an affiliate of Stillman Development International, LLC for a price of $82.0 million, subject to certain adjustments. Subject to various closing conditions, the Company expects the transaction to be completed on or before July 14, 2014.
Robert Giardina, Chief Executive Officer of TSI, commented: “Our first quarter results reflect some of the near-term challenges we are facing on the membership front combined with higher than planned operating expenses driven in large part by unusually cold winter weather in the Northeast. However, the longer-term combination of an increased consumer focus on fitness and health and our initiatives to capture share of this expanding market keeps us excited, motivated, and optimistic about our medium to long-term growth plans. We will continue to aggressively pursue our strategic initiates in order to be well-positioned for the opportunities we see ahead.”
First Quarter Ended March 31, 2014 Financial Results:
|Revenue (in thousands):|
|Quarter Ended March 31,|
|Revenue||% Revenue||Revenue||% Revenue||% Variance|
|Personal training revenue||16,910||14.6||%||16,430||13.8||%||2.9||%|
|Other ancillary club revenue||5,725||4.9||%||7,138||6.0||%||(19.8)||%|
|Ancillary club revenue||22,635||19.5||%||23,568||19.8||%||(4.0)||%|
|Fees and other revenue||1,423||1.2||%||1,029||0.9||%||38.3||%|
Total revenue for Q1 2014 decreased $3.3 million, or 2.7% compared to Q1 2013. Revenue at clubs operated for over 12 months (“comparable club revenue”) decreased 4.7% in Q1 2014, reflecting a 2.7% decrease in membership, a 1.7% decrease in the combined effect of ancillary club revenue, joining fees and other revenue as well as a 0.3% decrease in the price of our dues and other fees.
|Quarter Ended March 31,|
|Expense % of Revenue||Variance|
|Payroll and related||38.5||%||37.4||%||0.1||%|
|General and administrative||7.1||%||5.7||%||22.0||%|
|Depreciation and amortization||10.2||%||10.2||%||(2.9)||%|
|Impairment of fixed assets||3.1||%||-||%||N/A|
|Impairment of goodwill||0.1||%||-||%||N/A|
- Revenue for Q2 2014 is expected to be between $116.0 million and $117.0 million versus $120.1 million for Q2 2013. As percentages of revenue, we expect Q2 2014 payroll and related expenses to be approximately 38.3% and club operating expenses to approximate 41.3%. We expect general and administrative expenses to approximate $7.3 million, depreciation and amortization to approximate $12.1 million and net interest expense to approximate $4.8 million.
- We expect net results to be breakeven, and diluted earnings per share to be approximately $0.00 per share, assuming a 43% effective tax rate and approximately 24.7 million weighted average fully diluted shares outstanding.
- We estimate that Adjusted EBITDA will approximate $17.0 million in Q2 2014.