Town Sports International Holdings, Inc. Announces Third Quarter 2012 Financial Results Business Wire NEW YORK -- October 25, 2012 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, 2012 2011 Revenue % Revenue Revenue % Revenue % Variance Membership dues $ 90,661 75.8 % $ 90,323 77.8 % 0.4 % Joining fees 3,014 2.5 % 1,602 1.3 % 88.1 % Membership 93,675 78.3 % 91,925 79.1 % 1.9 % revenue Personal 15,623 13.1 % 14,852 12.8 % 5.2 % training revenue Other ancillary 8,067 6.7 % 8,105 7.0 % (0.5) % club revenue Ancillary 23,690 19.8 % 22,957 19.8 % 3.2 % club revenue Fees and other 2,247 1.9 % 1,256 1.1 % 78.9 % revenue Total revenue $ 119,612 100.0 % $ 116,138 100.0 % 3.0 % 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, 2012 2011 Expense % of Revenue Expense % Variance Payroll and related 36.5 % 37.3 % 0.9 % Club operating 38.7 % 39.1 % 1.7 % General and administrative 4.7 % 5.3 % (8.1 ) % Depreciation and 10.2 % 10.9 % (3.9 ) % amortization Impairment of fixed assets 0.2 % ― % 100.0 % Operating expenses 90.3 % 92.6 % 0.4 % Total operating expenses increased $389,000, or 0.4%, in Q3 2012 compared to Q3 2011. Operating margin was 9.7% for Q3 2012 compared to 7.4% in Q3 2011. Payroll and related. Payroll and related expenses increased $368,000, or 0.9%, to $43.7 million in Q3 2012 compared to $43.3 million in Q3 2011, driven by payroll related to ancillary revenue growth. Club operating. Club operating expenses increased $774,000, or 1.7%, to $46.3 million in Q3 2012 compared to $45.5 million in Q3 2011, primarily due to increases in occupancy related expenses. Depreciation and amortization. Depreciation and amortization expense for Q3 2012 decreased primarily due to a decline in our depreciable fixed asset base. Impairment of fixed assets. In Q3 2012, we recorded fixed asset impairment charges of $239,000, representing the write-off of fixed assets of one underperforming club. There were no fixed asset impairment charges in Q3 2011. Loss on extinguishment of debt in Q3 2012 totaled $1.0 million resulting from our debt repricing in August 2012 and a $15.0 million voluntary prepayment on our term loan facility. There was no loss on extinguishment of debt in Q3 2011. Net income for Q3 2012 was $3.2 million compared to net income of $1.9 million for Q3 2011. Cash flow from operating activities for the nine months ended September 30, 2012 totaled $43.9 million, a decrease of $9.3 million from the corresponding period in 2011. This decrease was primarily 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. Fourth 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 fourth quarter of 2012 includes the following: *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. 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 $19.0 million to $20.0 million to continue upgrading existing clubs, and approximately $1.0 million to $2.0 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. Shareholder Return Consideration: Our Board of Directors is currently evaluating our cash and cash equivalents and our expected use of cash and borrowings over the near and long term. Since we have been a publicly traded company, we have not paid dividends, and our stock repurchase activity has been limited. Our Board of Directors is actively considering a one-time special dividend as a means to return value to our shareholders, although we cannot make any assurances that it will decide to do so or as to the amount and timing of any such dividend. Forward-Looking Statements: Statements in this release that do not constitute historical facts, including, without limitation, statements under the captions “Fourth Quarter 2012 Financial Outlook” and “Investing Activities Outlook”, other statements regarding future financial results and performance and potential sales revenue and other statements that are predictive in nature or depend upon or refer to events or conditions, or that include words such as “expects,” “anticipated,” “intends,” “plans,” “believes,” “estimates” or “could”, are “forward-looking” statements made pursuant to the safe harbor provision of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are subject to various risks and uncertainties, many of which are outside the Company’s control, including, among others, the level of market demand for the Company’s services, economic conditions affecting the Company’s business, the geographic concentration of the Company’s clubs, competitive pressures, the ability to achieve reductions in operating costs and to continue to integrate acquisitions, environmental initiatives, any security and privacy breaches involving customer data, the application of Federal and state tax laws and regulations, the levels and terms of the Company’s indebtedness, and other specific factors discussed herein and in other releases and public filings made by the Company (including the Company’s reports on Forms 10-K and 10-Q filed with the Securities and Exchange Commission). The Company believes that all forward-looking statements are based on reasonable assumptions when made; however, the Company cautions that it is impossible to predict actual results or outcomes or the effects of risks, uncertainties or other factors on anticipated results or outcomes and that, accordingly, one should not place undue reliance on these statements. Forward-looking statements speak only as of the date they were made, and the Company undertakes no obligation to update these statements in light of subsequent events or developments. Actual results may differ materially from anticipated results or outcomes discussed in any forward-looking statement. About Town Sports International Holdings, Inc.: New York-based Town Sports International Holdings, Inc. is a leading owner and operator of fitness clubs in the Northeast and mid-Atlantic regions of the United States and, through its subsidiaries, operated 160 fitness clubs as of September 30, 2012, comprising 108 New York Sports Clubs, 25 Boston Sports Clubs, 18 Washington Sports Clubs (two of which are partly-owned), six Philadelphia Sports Clubs, and three clubs located in Switzerland. These clubs collectively served approximately 522,000 members. For more information on TSI, visit http://www.mysportsclubs.com. The Company will hold a conference call on Thursday, October 25, 2012 at 4:30 PM (Eastern) to discuss the third quarter results. Robert Giardina, Chief Executive Officer, and Dan Gallagher, Chief Financial Officer, will host the conference call. The conference call will be Web cast and may be accessed via the Company's Investor Relations section of its Web site at www.mysportsclubs.com. A replay and transcript of the call will be available via the Company's Web site beginning October 26, 2012. From time to time we may use our Web site as a channel of distribution of material company information. Financial and other material information regarding the Company is routinely posted on and accessible at http://www.mysportsclubs.com. In addition, you may automatically receive email alerts and other information about us by enrolling your email by visiting the “Email Alerts” section at http://www.mysportsclubs.com. TOWN SPORTS INTERNATIONAL HOLDINGS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS September 30, 2012 and December 31, 2011 (All figures in thousands) (Unaudited) September 30, December 31, 2012 2011 ASSETS Current assets: Cash and cash equivalents $ 42,108 $ 47,880 Accounts receivable, net 7,161 5,857 Inventory 324 290 Deferred tax assets, net 24,140 20,218 Prepaid expenses and other current assets 11,379 10,672 Total current assets 85,112 84,917 Fixed assets, net 262,397 286,041 Goodwill 32,790 32,799 Deferred tax assets, net 8,827 19,782 Deferred membership costs 11,290 10,117 Other assets 14,553 15,886 Total assets $ 414,969 $ 449,542 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities: Current portion of long-term debt $ 2,000 $ 25,507 Accounts payable 5,250 9,180 Accrued expenses 24,800 26,575 Accrued interest 167 950 Deferred revenue 38,562 40,822 Total current liabilities 70,779 103,034 Long-term debt 249,072 263,487 Deferred lease liabilities 62,746 65,119 Deferred revenue 5,912 5,338 Other liabilities 10,655 12,210 Total liabilities 399,164 449,188 Stockholders’ equity: Common stock 23 23 Additional paid-in capital (16,909 ) (19,934 ) Accumulated other comprehensive income 1,258 1,251 Retained earnings 31,433 19,014 Total stockholders’ equity 15,805 354 Total liabilities and stockholders’ $ 414,969 $ 449,542 equity TOWN SPORTS INTERNATIONAL HOLDINGS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME For the Three and Nine Months Ended September 30, 2012 and 2011 (All figures in thousands except share and per share data) (Unaudited) Three Months Ended Nine Months Ended September 30, September 30, 2012 2011 2012 2011 Revenues: Club $ 117,365 $ 114,882 $ 359,903 $ 347,659 operations Fees and other 2,247 1,256 4,862 3,469 119,612 116,138 364,765 351,128 Operating Expenses: Payroll and 43,654 43,286 136,293 133,639 related Club operating 46,270 45,496 136,012 132,983 General and 5,641 6,139 17,709 19,655 administrative Depreciation and 12,148 12,642 37,427 38,829 amortization Impairment of 239 ― 239 ― fixed assets 107,952 107,563 327,680 325,106 Operating income 11,660 8,575 37,085 26,022 Loss on extinguishment 1,010 ― 1,010 4,865 of debt Interest expense 6,542 6,062 18,027 18,265 Interest income (25 ) (45 ) (43 ) (135 ) Equity in the earnings of investees and (632 ) (578 ) (1,852 ) (1,833 ) rental income Income before provision for 4,765 3,136 19,943 4,860 corporate income taxes Provision for corporate income 1,613 1,194 7,524 1,795 taxes Net income $ 3,152 $ 1,942 $ 12,419 $ 3,065 Earnings per share: Basic $ 0.13 $ 0.09 $ 0.53 $ 0.13 Diluted $ 0.13 $ 0.08 $ 0.52 $ 0.13 Weighted average number of shares used in calculating earnings per share: Basic 23,581,631 22,834,206 23,331,877 22,782,124 Diluted 24,186,498 23,457,058 24,015,747 23,318,879 TOWN SPORTS INTERNATIONAL HOLDINGS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS For the Nine Months Ended September 30, 2012 and 2011 (All figures in thousands) (Unaudited) Nine Months Ended September 30, 2012 2011 Cash flows from operating activities: Net income $ 12,419 $ 3,065 Adjustments to reconcile net income to net cash provided by operating activities Depreciation and amortization 37,427 38,829 Impairment of fixed assets 239 ― Loss on extinguishment of debt 1,010 4,865 Call premium on redemption of Senior ― (2,538 ) Discount Notes Amortization of debt discount 311 149 Amortization of debt issuance costs 866 840 Non-cash rental expense, net of (2,950 ) (3,017 ) non-cash rental income Share-based compensation expense 787 925 Decrease in deferred tax asset 7,036 3,261 Net change in certain operating assets (11,033 ) 11,542 and liabilities Increase in deferred membership costs (1,173 ) (3,558 ) Landlord contributions to tenant 1,320 711 improvements Decrease in insurance reserves (2,124 ) (1,511 ) Other (187 ) (323 ) Total adjustments 31,529 50,175 Net cash provided by 43,948 53,240 operating activities Cash flows from investing activities: Capital expenditures (13,278 ) (21,641 ) Net cash used in investing activities (13,278 ) (21,641 ) Cash flows from financing activities: Principal payments on 2011 Term Loan (36,007 ) (4,500 ) Facility Proceeds from replacement 2011 Term Loan 13,796 ― Facility lenders Principal payments to non-consenting 2011 (13,796 ) ― Term Loan Facility lenders Term loan repricing related financing costs (2,707 ) ― Proceeds from exercise of stock options 2,279 291 Tax benefit from stock option exercises ― 100 Proceeds from 2011 Senior Credit Facility, ― 297,000 net of original issue discount Debt issuance costs ― (8,065 ) Repayment of 2007 Term Loan Facility ― (178,063 ) Repayment of Senior Discount Notes ― (138,450 ) Net cash used in financing activities (36,435 ) (31,687 ) Effect of exchange rate changes on cash (7 ) 314 Net (decrease) increase in cash and (5,772 ) 226 cash equivalents Cash and cash equivalents beginning of $ 47,880 $ 38,803 period Cash and cash equivalents end of period $ 42,108 $ 39,029 Summary of the change in certain operating assets and liabilities: Increase in accounts receivable $ (1,306 ) $ (3,206 ) Increase in inventory (34 ) (6 ) (Increase) decrease in prepaid expenses and (1,705 ) 4,156 other current assets Decrease in accounts payable, accrued (7,152 ) (5,207 ) expenses and accrued interest Change in prepaid corporate income taxes and 166 4,738 corporate income taxes payable (Decrease) increase in deferred revenue (1,002 ) 11,067 Net change in certain operating assets $ (11,033 ) $ 11,542 and liabilities TOWN SPORTS INTERNATIONAL HOLDINGS, INC. AND SUBSIDIARIES Reconciliation of Net Cash Provided by Operating Activities to EBITDA and Adjusted EBITDA For the Three Months Ended September 30, 2012 and 2011 (All figures in thousands) (Unaudited) Three Months Ended September 30 2012 2011 Net cash provided by operating activities $ 8,920 $ 18,158 Interest expense, net of interest income 6,517 6,017 Provision for corporate income taxes 1,613 1,194 Changes in operating assets and liabilities 8,738 (3,410 ) Impairment of fixed assets (239 ) ― Loss on extinguishment of debt (1,010 ) ― Amortization of debt discount (119 ) (97 ) Amortization of debt issuance costs (291 ) (287 ) Share-based compensation expense (217 ) (267 ) Landlord contributions to tenant improvements (325 ) (562 ) Non-cash rental expense, net of non-cash 573 935 rental income Decrease in insurance reserves 792 527 Decrease in deferred tax asset (2,121 ) (2,241 ) Increase in deferred membership costs 146 1,321 Other 453 507 EBITDA 23,430 21,795 Impairment of fixed assets 239 ― Loss on extinguishment of debt 1,010 ― Adjusted EBITDA $ 24,679 $ 21,795 We define Adjusted EBITDA as EBITDA excluding loss on extinguishment of debt and any fixed asset or goodwill impairments. For the quarter ended September 30, 2012, we incurred $1.0 million of loss on extinguishment of debt resulting from the debt repricing in August Note: 2012 and a $15.0 million voluntary prepayment on our term loan facility and $239,000 of fixed asset impairments related to the impairment of one underperforming club. For the quarter ended September 30, 2011 we did not incur any loss on extinguishment of debt or any fixed asset or goodwill impairments, and as a result, EBITDA and Adjusted EBITDA were identical in that period. TOWN SPORTS INTERNATIONAL HOLDINGS, INC. AND SUBSIDIARIES Reconciliation of Estimated and Actual Net Cash Provided by Operating Activities to EBITDA For the Three Months Ending December 31, 2012 and the Three Months Ended December 31, 2011 (All figures in thousands) (Unaudited) Estimated Q4 2012 Q4 2011 Net cash provided by operating activities $ 21,000 $ 21,645 Interest expense, net of interest income 4,600 5,997 Provision for corporate income taxes 2,200 904 Changes in operating assets and liabilities (4,150 ) (7,587 ) Amortization of debt discount (176 ) (95 ) Amortization of debt issuance costs (328 ) (287 ) Share-based compensation expense (220 ) (487 ) Non-cash rental expense, net of non-cash 1,400 646 rental income (Decrease) increase in deferred tax asset (2,500 ) 1,375 Decrease in insurance reserves 200 168 Increase in deferred member costs 150 625 Other 324 (46 ) EBITDA $ 22,500 $ 22,858 Non-GAAP Financial Measures – EBITDA and Adjusted EBITDA EBITDA consists of net income plus interest expense (net of interest income), provision for corporate income taxes, and depreciation and amortization. Adjusted EBITDA is the Company’s EBITDA excluding loss on extinguishment of debt and any fixed asset or goodwill impairments. EBITDA is not a measure of liquidity or financial performance presented in accordance with GAAP. EBITDA, as we define it, may not be identical to similarly titled measures used by some other companies. EBITDA has material limitations as an analytical tool and should not be considered in isolation or as a substitute for cash flows from operating activities, operating income or other cash flow or income data prepared in accordance with GAAP. The items excluded from EBITDA, but included in the calculation of reported net income, are significant components of the consolidated statements of cash flows and income, and must be considered in performing a comprehensive assessment of our liquidity. EBITDA excludes, among other items, the effect of depreciation and amortization, which is a significant component of our reported GAAP data. Depreciation and amortization, which is a non-cash item, totaled $12.1million in the quarter ended September 30, 2012. Although a premise underlying depreciation and amortization is that it will be reinvested in our business to restore, replenish or purchase property, equipment and other related assets, the funds represented by depreciation and amortization could, in the Company’s discretion, be utilized for other purposes (e.g., debt service). Accordingly, EBITDA may be useful as a supplemental measure to GAAP financial data for demonstrating our ability to satisfy our liquidity and capital resource requirements. Investors or prospective investors in the Company regularly request EBITDA as a supplemental analytical measure to, and in conjunction with, our GAAP financial data. We understand that these investors use EBITDA, among other things, to assess our ability to service our existing debt and to incur debt in the future, to evaluate our executive compensation programs, to assess our ability to fund our capital expenditure program, and to gain insight into the manner in which the Company’s management and board of directors analyze our liquidity. We believe that investors find the inclusion of EBITDA in our press releases to be useful and helpful to them. Our management and board of directors also use EBITDA as a supplemental measure to our GAAP financial data for purposes broadly similar to those used by investors. The purposes to which EBITDA may be used by investors, and is used by our management and board of directors, include the following: The Company is required to comply with financial covenants and borrowing • limitations that are based on variations of EBITDA as defined in our 2011 Senior Credit Facility, as amended. Our discussions with prospective lenders and investors in recent years, including in relation to our 2011 Senior Credit Facility, as amended, • have confirmed the importance of EBITDA in their decision-making processes relating to the making of loans to us or investing in our debt securities. • The Company uses EBITDA as a key factor in determining annual incentive bonuses for executive officers (as discussed in our proxy statement). The Company considers EBITDA to be a useful supplemental measure to GAAP financial data because it indicates our ability to generate funds • sufficient to make capital expenditures (including for the opening of new clubs and the upgrading of existing clubs) as well as to undertake initiatives to enhance our business by offering new products and services in accordance with our strategy. • Quarterly, equity analysts who follow our company often report on our EBITDA with respect to valuation commentary. We do not, and investors should not, place undue reliance on EBITDA or Adjusted EBITDA as a measure of our liquidity. Contact: Town Sports International Holdings, Inc., New York Investor: 212-246-6700 extension 1650 Investor.email@example.com or ICR, Inc. Joseph Teklits / Farah Soi 203-682-8390 firstname.lastname@example.org
Town Sports International Holdings, Inc. Announces Third Quarter 2012 Financial Results
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