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Town Sports International Holdings, Inc. Announces First Quarter 2013 Financial Results

  Town Sports International Holdings, Inc. Announces First Quarter 2013
  Financial Results

Business Wire

NEW YORK -- April 25, 2013

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, 2013.

First Quarter Overview:

  *Total member count increased 2,000 to 512,000 members in Q1 2013.
  *Membership attrition averaged 3.5% per month in Q1 2013 compared to 3.4%
    per month in Q1 2012.
  *Revenue decreased 3.0% in Q1 2013 compared to Q1 2012.
  *Comparable club revenue decreased 2.4% in Q1 2013 versus an increase of
    4.5% in Q1 2012.
  *Ancillary club revenue decreased 9.0% in Q1 2013 compared to Q1 2012.
  *Net income increased 9.9% in Q1 2013 to $4.2 million compared to $3.9
    million in Q1 2012. Diluted earnings per share were $0.18 in Q1 2013
    compared to diluted earnings per share of $0.16 in Q1 2012.
  *EBITDA was $24.2 million in Q1 2013, a decrease of $0.8 million, or 3.4%,
    when compared to EBITDA of $25.1 million in Q1 2012 (Refer to the
    reconciliation below).

Robert Giardina, Chief Executive Officer of TSI, commented:“After a slow
start in January, I am pleased that we were able to achieve our EBITDA and
earnings expectations by keeping our expenses well under control. I am
confident we have the right team and initiatives in place to improve on the
ancillary revenue shortfalls we experienced in the quarter. Our business
continues to generate strong cash flows with a $16.6 million increase in cash
in this first quarter alone. We will continue to increase our cash balance for
the remainder of 2013, but at a slower pace than this first quarter as we plan
to capitalize on the acquisition opportunities we continue to see in the
markets we do business.”

First Quarter Ended March 31, 2013 Financial Results:
                                                             
Revenue (in thousands):
                                                                    
                    Quarter Ended March 31,
                    2013                    2012
                    Revenue     % Revenue   Revenue     % Revenue   % Variance
Membership dues     $ 90,742    76.1   %    $ 93,263    75.9   %    (2.7   )%
Joining fees         3,825     3.2    %     2,566     2.1    %    49.1   %
    Membership       94,567    79.3   %     95,829    78.0   %    (1.3   )%
    revenue
Personal training     16,430    13.8   %      17,621    14.3   %    (6.8   )%
revenue
Other ancillary      7,138     6.0    %     8,284     6.7    %    (13.8  )%
club revenue
    Ancillary         23,568    19.8   %      25,905    21.0   %    (9.0   )%
    club revenue
Fees and other       1,029     0.9    %     1,178     1.0    %    (12.6  )%
revenue
Total revenue       $ 119,164   100.0  %    $ 122,912   100.0  %    (3.0   )%
                                                                           

Total revenue for Q1 2013 decreased $3.7 million, or 3.0%, compared to Q1
2012. Revenue at clubs operated for over 12 months (“comparable club revenue”)
decreased 2.4% in Q1 2013. Memberships in our comparable clubs decreased 2.5%
and ancillary club revenue, joining fees and other revenue decreased 0.8%.
These decreases were partially offset by a 0.9% increase in the price of our
dues and fees.

The increase in joining fees revenue of 49.1% was, in part, due to the impact
of a change in the estimated average membership life of unrestricted members
from 27 months to 25 months effective on January 1, 2013. This change
contributed approximately $604,000 of the increase in joining fees revenue as
these fees are now recognized into revenue over a shorter estimated average
membership life.

Operating expenses:

                             Quarter Ended March 31, 
                              2013          2012
                              Expense % of Revenue      Expense % Variance
Payroll and related           37.4   %       38.5  %    (5.9)       %
Club operating                37.1   %       36.7  %    (2.1)       %
General and administrative    5.7    %       4.8   %    14.4        %
Depreciation and amortization 10.2   %       10.5  %    (5.5)       %
       Operating expenses     90.4   %       90.5  %    (3.2)       %
                                                                    

Total operating expenses decreased $3.6 million, or 3.2%, in Q1 2013 compared
to Q1 2012. Operating margin was 9.6% for Q1 2013 compared to 9.5% in Q1 2012.
The decrease in operating expense was driven by a 1.5% decrease in the total
months of club operation from 474 in Q1 2012 to 467 in Q1 2013 as well as the
following factors:

Payroll and related. Payroll and related expenses decreased $2.8 million, or
5.9%, to $44.5 million in Q1 2013 compared to $47.4 million in Q1 2012. The
decrease was primarily due to decreases in personal training payroll directly
related to the decline in personal training revenue, decreases in club
commissions and bonuses related to the decrease in performance and decreases
in management incentive bonuses.

Club operating. Club operating expenses decreased $931,000, or 2.1%, to $44.2
million in Q1 2013 compared to $45.1 million in Q1 2012, primarily due to
declines in rent and occupancy expenses, utilities and laundry and towel
related expenses.

General and administrative. The increase in general and administrative
expenses in Q1 2013 was driven by increases in legal fees as well as club
acquisition related fees incurred during Q1 2013.

Depreciation and amortization. Depreciation and amortization expense for Q1
2013 decreased primarily due to a decline in our depreciable fixed asset base.
Contributing to this was our limited number of club openings over the past
three years.

Net income for Q1 2013 was $4.2 million compared to net income of $3.9 million
for Q1 2012.

Cash flow from operating activities for the three months ended March 31, 2013
totaled $21.8 million, an increase of $5.4 million from the corresponding
period in 2012. This increase was primarily driven by increases in cash flows
resulting from the timing of certain payments and collections made associated
with deferred revenue and our accounts receivable as well as a decrease in
cash paid for interest of $1.1 million.

Second Quarter 2013 Financial Outlook:

Based on the current business environment, recent performance and current
trends in the marketplace and the assumption that the pending FitCorp
acquisition will close in the latter half of the second quarter, and subject
to the risks and uncertainties inherent in forward-looking statements, our
outlook for the second quarter of 2013 includes the following:

  *Revenue for Q2 2013 is expected to be between $120.5 million and $121.5
    million versus $122.2 million for Q2 2012. As percentages of revenue, we
    expect Q2 2013 payroll and related expenses to be approximately 37.0% and
    club operating expenses to approximate 37.5%. We expect general and
    administrative expenses to approximate $6.6 million, depreciation and
    amortization to approximate $12.0 million and net interest expense to
    approximate $5.4 million.
  *We expect net income for Q2 2013 to be between $4.25 million and $4.75
    million, and diluted earnings per share to be in the range of $0.18 per
    share to $0.20 per share, assuming a 39% effective tax rate and
    approximately 24.0 million weighted average fully diluted shares
    outstanding.
  *We estimate that EBITDA will approximate $25.0 million in Q2 2013.

Investing Activities Outlook:

For the year ending December 31, 2013, we currently plan to invest $37.0
million to $42.0 million in capital expenditures compared to $22.5 million of
capital expenditures in 2012. This amount includes approximately $11.5 million
to $17.0 million related to potential 2013 and 2014 club openings, inclusive
of amounts for our acquisition of the Fitcorp chain in Boston and planned
renovations at these clubs as well as the separate single club acquired in
Manhattan. The total capital expenditures also includes approximately $17.0
million to $18.0 million to continue enhancing or upgrading existing clubs and
approximately $4.5 million to $5.0 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 and
communication systems. We expect these capital expenditures to be funded by
cash flow provided by operations and available cash on hand.

Forward-Looking Statements:

Statements in this release that do not constitute historical facts, including,
without limitation, statements under the captions “Second Quarter 2013
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 159 fitness clubs as of
March 31, 2013, comprising 108 New York Sports Clubs, 25 Boston Sports Clubs,
17 Washington Sports Clubs (two of which are partly-owned), six Philadelphia
Sports Clubs, and three clubs located in Switzerland. These clubs collectively
served approximately 512,000 members. For more information on TSI, visit
http://www.mysportsclubs.com.

The Company will hold a conference call on Thursday, April 25, 2013 at 4:30 PM
(Eastern) to discuss the first 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 April 26, 2013.

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
March 31, 2013 and December 31, 2012
(All figures in thousands)
    (Unaudited)
                                                                             
                                                  March 31,     December 31,
                                                  2013         2012         
                                                                             
ASSETS
Current assets:
  Cash and cash equivalents                     $ 54,347      $ 37,758
  Accounts receivable, net                        3,890         6,508
  Inventory                                       457           438
  Deferred tax assets, net                        19,288        24,897
  Prepaid corporate income taxes                  518           550
  Prepaid expenses and other current assets      8,313       9,866        
    Total current assets                          86,813        80,017
Fixed assets, net                                 251,948       256,871
Goodwill                                          32,778        32,824
Intangible assets, net                            102           ―
Deferred tax assets, net                          12,396        9,296
Deferred membership costs                         10,529        10,811
Other assets                                     11,663      14,091       
    Total assets                                $ 406,229    $ 403,910      
                                                                             
LIABILITIES AND STOCKHOLDERS’ DEFICIT
Current liabilities:
  Current portion of long-term debt             $ 26,000      $ 15,787
  Accounts payable                                6,507         7,467
  Accrued expenses                                24,183        27,053
  Accrued interest                                244           89
  Dividends payable                               304           305
  Deferred revenue                               42,730      37,138       
    Total current liabilities                     99,968        87,839
Long-term debt                                    284,578       294,552
Dividends payable                                 757           799
Deferred lease liabilities                        60,216        61,732
Deferred revenue                                  3,271         3,889
Other liabilities                                8,098       10,595       
    Total liabilities                             456,888       459,406
Stockholders’ deficit:
Common stock                                      24            24
Additional paid-in capital                        (15,663 )     (16,326      )
Accumulated other comprehensive income            1,165         1,226
Accumulated deficit                              (36,185 )    (40,420      )
    Total stockholders’ deficit                  (50,659 )    (55,496      )
    Total liabilities and stockholders’ deficit $ 406,229    $ 403,910      
                                                                             


TOWN SPORTS INTERNATIONAL HOLDINGS, INC. AND SUBSIDIARIES
                                                          
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
For the Three Months Ended March 31, 2013 and 2012
(All figures in thousands except share and per share data)
(Unaudited)
                                                                  
                                               Three Months Ended
                                               March 31,
                                               2013            2012         
                                                                  
Revenues:
      Club operations                          $ 118,135        $ 121,734
      Fees and other                            1,029          1,178      
                                                119,164        122,912    
Operating Expenses:
      Payroll and related                        44,548           47,359
      Club operating                             44,200           45,131
      General and administrative                 6,789            5,933
      Depreciation and amortization             12,148         12,860     
                                                107,685        111,283    
Operating income                                 11,479           11,629
Interest expense                                 5,350            5,931
Interest income                                  (1         )     (10        )
Equity in the earnings of investees and         (609       )    (588       )
rental income
Income before provision for corporate            6,739            6,296
income taxes
Provision for corporate income taxes            2,508          2,446      
      Net income                               $ 4,231         $ 3,850      
                                                                  
Earnings per share:
      Basic                                    $ 0.18           $ 0.17
      Diluted                                  $ 0.18           $ 0.16
Weighted average number of shares used in
calculating earnings per share:
      Basic                                      23,875,260       23,118,028
      Diluted                                    24,172,625       23,840,907
                                                                             

                                                                             
TOWN SPORTS INTERNATIONAL HOLDINGS, INC. AND SUBSIDIARIES
                                                           
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Three Months Ended March 31, 2013 and 2012
(All figures in thousands)
(Unaudited)
                                                                             
                                                Three Months Ended March 31, 
                                                2013            2012        
Cash flows from operating activities:
Net income                                      $  4,231         $  3,850
Adjustments to reconcile net income to net
cash provided by operating activities:
     Depreciation and amortization                 12,148           12,860
     Amortization of debt discount                 239              97
     Amortization of debt issuance costs           273              288
     Non-cash rental expense, net of non-cash      (1,496  )        (859     )
     rental income
     Share-based compensation expense              656              329
     Decrease in deferred tax asset                2,434            2,413
     Net change in certain operating assets        3,507            (1,451   )
     and liabilities
     Decrease (increase) in deferred               282              (750     )
     membership costs
     Landlord contributions to tenant              ―                663
     improvements
     Decrease in insurance reserves                (491    )        (589     )
     Other                                        (16     )       (447     )
                Total adjustments                 17,536         12,554   
                Net cash provided by              21,767         16,404   
                operating activities
                                                                             
Cash flows from investing activities:
Capital expenditures                               (4,581  )        (2,348   )
Acquisition of business                           (504    )       ―        
     Net cash used in investing activities        (5,085  )       (2,348   )
                                                                             
Cash flows from financing activities:
Principal payments on 2011 Term Loan Facility      ―                (20,257  )
Cash dividends paid                                (39     )        ―
Proceeds from stock option exercises               13               349
Tax benefit from stock option exercises           ―              326      
     Net cash used in financing activities         (26     )        (19,582  )
     Effect of exchange rate changes on cash      (67     )       37       
     Net increase (decrease) in cash and cash      16,589           (5,489   )
     equivalents
Cash and cash equivalents beginning of period   $  37,758       $  47,880   
Cash and cash equivalents end of period         $  54,347       $  42,391   
                                                                             
Summary of the change in certain operating
assets and liabilities:
Decrease (increase) in accounts receivable      $  2,604         $  (2,421   )
(Increase) decrease in inventory                   (20     )        128
Decrease in prepaid expenses and other             1,035            1,215
current assets
Decrease in accounts payable, accrued              (5,062  )        (7,082   )
expenses and accrued interest
Change in prepaid corporate income taxes and       32               (308     )
corporate income taxes payable
Increase in deferred revenue                      4,918          7,017    
     Net change in certain working capital      $  3,507        $  (1,451   )
     components
                                                                             


TOWN SPORTS INTERNATIONAL HOLDINGS, INC. AND SUBSIDIARIES
                                                              
Reconciliation of Net Cash Provided by Operating Activities to EBITDA
For the Three Months Ended March 31, 2013 and 2012
(All figures in thousands)
(Unaudited)
                                                       Three Months Ended
                                                       March 31,
                                                       2013         2012
Net cash provided by operating activities              $ 21,767     $ 16,404
  Interest expense, net of interest income               5,349        5,921
  Provision for corporate income taxes                   2,508        2,446
  Changes in operating assets and liabilities            (3,507 )     1,451
  Amortization of debt discount                          (239   )     (97    )
  Amortization of debt issuance costs                    (273   )     (288   )
  Share-based compensation expense                       (656   )     (329   )
  Landlord contributions to tenant improvements          ―            (663   )
  Non-cash rental expense, net of non-cash rental        1,496        859
  income
  Decrease in insurance reserves                         491          589
  Decrease in deferred tax asset                         (2,434 )     (2,413 )
  (Decrease) increase in deferred membership costs       (282   )     750
  Other                                                 16         447    
                                  EBITDA               $ 24,236    $ 25,077 

Note: EBITDA consists of net income plus interest expense (net of interest
income), provision for corporate income taxes, and depreciation and
amortization.


TOWN SPORTS INTERNATIONAL HOLDINGS, INC. AND SUBSIDIARIES
                                                             
Reconciliation of Estimated and Actual Net Cash Provided by Operating
Activities to EBITDA
For the Quarter Ending June 30, 2013 and the Quarter Ended June 30, 2012
(All figures in thousands)
(Unaudited)

                                                  Estimated
                                                  Q2 2013         Q2 2012
Net cash provided by operating activities         $  14,600        $  18,624
   Interest expense, net of interest income          5,400            5,546
   Provision for corporate income taxes              2,875            3,465
   Changes in operating assets and liabilities       6,000            844
   Amortization of debt discount                     (240    )        (95    )
   Amortization of debt issuance costs               (273    )        (287   )
   Share-based compensation expense                  (400    )        (241   )
   Landlord contribution to tenant improvements      (750    )        (332   )
   Non-cash rental expense, net of non-cash          1,000            1,518
   rental income
   Decrease in deferred tax asset                    (2,500  )        (2,502 )
   Decrease in insurance reserves                    ―                743
   Increase in deferred member costs                 (100    )        277
   Other                                            (612    )       (713   )
                               EBITDA             $  25,000       $  26,847 
                                                                             

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, any fixed asset or goodwill impairments and, in the case of Q4 2012 and
full year-2012, charges in connection with the Company’s special dividend
payment and incremental share-based compensation expense resulting from option
modifications. 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 March 31, 2013. 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 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.

Adjusted EBITDA has similar uses and limitations as EBITDA and, in all periods
presented, Adjusted EBITDA is the same as EBITDA. 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.relations@town-sports.com
or
ICR, Inc.
Joseph Teklits / Farah Soi
203-682-8390
farah.soi@icrinc.com