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.email@example.com or ICR, Inc. Joseph Teklits / Farah Soi 203-682-8390 firstname.lastname@example.org
Town Sports International Holdings, Inc. Announces First Quarter 2013 Financial Results
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