Town Sports International Holdings, Inc. Reports First Quarter 2017 Results

NEW YORK–(BUSINESS WIRE)–Town Sports International Holdings, Inc. (“TSI” or the “Company”)
(NASDAQ: CLUB) today reported financial results for its first quarter
ended March 31, 2017.

First Quarter Results

  • Total member count increased 7,000 to 551,000 during Q1
    2017 compared to an increase of 12,000 in Q1 2016.
  • Membership monthly attrition averaged 3.9% per month in Q1 2017
    compared to 3.5% per month in Q1 2016.
  • Q1 2017 net loss was $2.9 million, or $0.11 loss per share, compared
    with Q1 2016 net loss of $6.9 million, or $0.28 loss per share.
  • Adjusted EBITDA was $10.7 million in Q1 2017, an increase of 35.3%
    compared to Adjusted EBITDA of $7.9 million in Q1 2016 (refer to the
    reconciliation at the end of this earnings release).

Patrick Walsh, Chairman and Chief Executive Officer of TSI, commented:
“We continue to experience Adjusted EBITDA growth compared to the prior
year and our comparable club revenue turned positive for the first time
since 2012 with a 0.7% increase. Additionally, we are excited to open
the Company’s new flagship location at Astor Place in New York City in
May and continue to look for other acquisition opportunities.”

Total revenue for Q1 2017 decreased to $99.1 million compared to
$101.3 million for Q1 2016, primarily related to the impact of club
closures as well as declines in initiation and processing fees, personal
training revenue and other ancillary club revenue. The revenue decrease
was partially offset by an increase in membership dues.

        Q1 2017 vs. Q1 2016  
  (in millions)
Membership dues $75.5 vs. $74.5 (up 1.3%)
Initiation and processing fees $1.0 vs. $2.0 (down 51.7%)
Personal training revenue $16.5 vs. $17.9 (down 7.7%)
Other ancillary club revenue $4.7 vs. $5.4 (down 12.6%)
 

Total operating expenses for Q1 2017 was $99.2 million compared
to $105.1 million for Q1 2016, primarily reflecting the impact of club
closures and results of our cost-savings initiatives, which included
payroll savings, decreased marketing spend, savings from lower utilities
usage, as well as savings in General and administrative expenses.

        Q1 2017 vs. Q1 2016  
  (in millions)
Payroll and related $37.4 vs. $39.4 (down 5.1%)
Club operating $45.2 vs. $47.6 (down 5.2%)
General and administrative $6.3 vs. $6.9 (down 7.8%)
 

Total cash and total debt as of March 31, 2017 was $59.9 million
and $201.5 million, respectively, and total cash and total debt as of
December 31, 2016 was $45.6 million and $202.0 million.

Forward-Looking Statements:

This release contains “forward-looking” statements within the meaning of
the Private Securities Litigation Reform Act of 1995, including, without
limitation, statements regarding future financial results and
performance, potential sales revenue, potential club closures, results
of cost-savings initiatives, and other statements that are predictive in
nature or depend upon or refer to events or conditions, or that include
words such as “outlook,” “believes,” “expects,” “potential,”
“continues,” “may,” “will,” “should,” “seeks,” “approximately,”
“predicts,” “intends,” “plans,” “estimates,” “anticipates,” “target,”
“could,” or the negative version of these words or other comparable
words. These 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 success of our pricing
strategy, the geographic concentration of the Company’s clubs,
competitive pressure, the ability to achieve reductions in operating
costs and to continue to integrate acquisitions, outsourcing of certain
aspects of our business, environmental matters, the application of
Federal and state tax laws and regulations, any security and privacy
breaches involving customer data, 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 when 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 one of the
leading owners and operators of fitness clubs in the Northeast and
mid-Atlantic regions of the United States and, through its subsidiaries,
operated 149 fitness clubs as of March 31, 2017, comprising 101 New York
Sports Clubs, 28 Boston Sports Clubs, 12 Washington Sports Clubs (one of
which is partly-owned), five Philadelphia Sports Clubs, and three clubs
located in Switzerland. These clubs collectively served approximately
551,000 members as of March 31, 2017. For more information on TSI,
including the Company’s Form 10-Q for the quarterly period ended
March 31, 2017, visit http://investor.mysportsclubs.com.

Until further notice, the Company will not be hosting conference calls
to discuss quarterly results. The Company intends to continue to issue
press releases reporting quarterly and annual earnings.

From time to time the Company may use its website 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://investor.mysportsclubs.com. In
addition, you may automatically receive email alerts and other
information about the Company by enrolling through the “Email Alerts”
section at http://investor.mysportsclubs.com.

 
 

TOWN SPORTS INTERNATIONAL HOLDINGS, INC. AND SUBSIDIARIES


CONDENSED CONSOLIDATED BALANCE SHEETS

As of March 31, 2017 and December 31, 2016

(All figures in thousands)

(Unaudited)

     
March 31, 2017 December 31, 2016
ASSETS
Current assets:
Cash and cash equivalents $ 59,872 $ 45,596
Accounts receivable, net 949 1,221
Inventory 324 238
Prepaid corporate income taxes 1,738 1,505
Prepaid expenses and other current assets 8,007   10,274  
Total current assets 70,890 58,834
Fixed assets, net 162,720 170,580
Goodwill 1,027 1,008
Intangible assets, net 130 135
Deferred membership costs 1,134 1,092
Other assets 3,384   4,229  
Total assets $ 239,285   $ 235,878  
 
LIABILITIES AND STOCKHOLDERS’ DEFICIT
Current liabilities:
Current portion of long-term debt $ 2,082 $ 2,082
Accounts payable 2,576 2,477
Accrued expenses 27,907 25,907
Accrued interest 93 119
Deferred revenue 38,851   34,572  
Total current liabilities 71,509 65,157
Long-term debt 194,541 194,743
Deferred lease liabilities 49,401 49,660
Deferred tax liabilities 61 61
Deferred revenue 566 440
Other liabilities 10,619   11,487  
Total liabilities 326,697 321,548
Stockholders’ deficit:
Common stock 25 24
Additional paid-in capital (5,540 ) (6,261 )
Accumulated other comprehensive income (loss) 302 (168 )
Accumulated deficit (82,199 ) (79,265 )
Total stockholders’ deficit (87,412 ) (85,670 )
Total liabilities and stockholders’ deficit $ 239,285   $ 235,878  
 
 

TOWN SPORTS INTERNATIONAL HOLDINGS, INC. AND SUBSIDIARIES


CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

For the Three Months Ended March 31, 2017 and 2016

(All figures in thousands except share and per share data)

(Unaudited)

   
Three Months Ended March 31,
2017   2016
Revenues:
Club operations $ 97,671 $ 99,806
Fees and other 1,409   1,539  
99,080   101,345  
Operating Expenses:
Payroll and related 37,385 39,386
Club operating 45,174 47,630
General and administrative 6,330 6,866
Depreciation and amortization 10,309   11,185  
99,198   105,067  
Operating loss (118 ) (3,722 )
Interest expense 3,108 4,077
Equity in the earnings of investees and rental income (92 ) (57 )
Loss before benefit for corporate income taxes (3,134 ) (7,742 )
Benefit for corporate income taxes (199 ) (817 )
Net loss $ (2,935 ) $ (6,925 )
 
Basic and diluted loss per share $ (0.11 ) $ (0.28 )
 
Weighted average number of shares used in calculating loss per share 26,610,215 25,072,716
 
 

TOWN SPORTS INTERNATIONAL HOLDINGS, INC. AND SUBSIDIARIES


Reconciliation of Net Loss to EBITDA and Adjusted EBITDA

For the Three Months Ended March 31, 2017 and 2016

(All figures in thousands)

(Unaudited)

     
Quarter Ended March 31,
2017   2016
Net loss $ (2,935 ) $ (6,925 )
Interest expense, net of interest income 3,108 4,077
Benefit for corporate income taxes (199 ) (817 )
Depreciation and amortization 10,309   11,185  
EBITDA 10,283 7,520
Separation expense related to headcount reductions and former
Executive Officers
151 278
Net costs related to closing clubs and other cost-savings initiatives 315   145  
Adjusted EBITDA $ 10,749   $ 7,943  
 

Non-GAAP Financial Measures – EBITDA and Adjusted EBITDA

EBITDA consists of net income (loss) plus interest expense (net of
interest income), provision (benefit) for corporate income taxes, and
depreciation and amortization. Adjusted EBITDA is the Company’s EBITDA
excluding certain items, such as any fixed asset or goodwill
impairments, gain (loss) on extinguishment of debt, net occupancy gain
(loss) related to closing clubs and other cost-savings initiatives and
separation expense related to headcount reductions and former Executive
Officers. 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 net income (loss),
operating income (loss), cash flows from operating activities or other
cash flow data prepared in accordance with GAAP. The items excluded from
EBITDA, but included in the calculation of reported net income and
operating income, are significant and must be considered in performing a
comprehensive assessment of our performance.

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 performance. 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 2013 Senior Credit Facility, as amended.
  • Our discussions with prospective lenders and investors in recent
    years, including in relation to our 2013 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 provides a performance measure to
    assess results without regard to capital structure and taxes.
  • 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. We have
excluded additional items in the calculation of Adjusted EBITDA because
management believes that this metric is useful in making period to
period comparisons of our performance. We do not, and investors should
not, place undue reliance on EBITDA or Adjusted EBITDA as a measure of
our performance.

Contacts

Town Sports International Holdings, Inc., New York
Investor:
917-765-9974
Investor.relations@town-sports.com