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, 2010.
Third Quarter Overview:
- Revenue decreased 6.1% in Q3 2010
compared to Q3 2009.
- Comparable club revenue decreased 5.0%
in Q3 2010 compared to Q3 2009.
- Total member count decreased 0.6%
compared to June 30, 2010 and 0.2% compared to September 30,
2009.
- Membership attrition averaged 3.8% per
month in Q3 2010 compared to 4.2% per month in Q3 2009.
- Loss per share was $(0.00) in Q3
2010.
Robert Giardina, Chief Executive Officer of TSI, commented: “We
continue to make solid progress on our new initiatives and are
beginning to see positive trends in membership. Overall, while our
third quarter sales results did not meet our expectations, we were
pleased with many aspects of our business, including the ability to
manage expenses tightly and exceed our bottom line targets. We are
also encouraged by the impact of our updated marketing campaign,
the efforts of our expanded base of sales consultants and the
positive response we are getting from other traffic generating
campaigns. These improvements, which drove new member sign-ups in
September, coupled with our lower attrition rate, are positioning
us in the fourth quarter to post our first year over year
membership increase since the first quarter of 2009.”
Quarter and Year
to Date September 30, 2010 Financial Results:
Revenue (in thousands)
was comprised of the following: Quarter Ended
September 30, 2010 2009
%
Revenue % Revenue Revenue % Revenue
Variance
Membership dues $ 89,075 78.8 % $ 95,400 79.2 % (6.6 ) % Initiation
fees 1,239 1.0 % 3,113 2.6 % (60.2 ) % Membership
revenue 90,314 79.8 % 98,513 81.8 % (8.3 ) % Personal
training revenue 13,837 12.2 % 13,526 11.2 % 2.3 % Other Ancillary
club revenue 7,819 7.0 % 7,243 6.0 % 8.0 % Ancillary
club revenue 21,656 19.2 % 20,769 17.2 % 4.3 % Fees and other
revenue 1,157 1.0 % 1,167 1.0 % (0.9 ) % Total
revenue $ 113,127 100.0 % $ 120,449 100.0 % (6.1 ) %
Total revenue for Q3 2010 decreased $7.3 million, or
6.1%, compared to Q3 2009. For Q3 2010, revenues increased $688,000
at the seven clubs opened or acquired subsequent to September 30,
2008 offset by decreases in revenue of 5.7% or $6.6 million at our
clubs opened or acquired prior to September 30, 2008 and
$1.2 million related to the 11 clubs that were closed
subsequent to September 30, 2008.
Revenue at clubs operated for over 12 months (“comparable club
revenue”) decreased 5.0% in Q3 2010 compared to Q3 2009.
Operating expenses:
Quarter Ended September 30, 2010
2009 Expense % Expense % of Revenue
Variance Payroll and related 39.3 % 39.4 % (6.5 ) % Club
operating 39.3 % 37.9 % (2.5 ) % General and administrative 6.2 %
6.7 % (13.0 ) % Depreciation and amortization 11.6 % 11.9 % (8.4 )
% Impairment of fixed assets - % 2.9 % NA % Operating expenses 96.4
% 98.8 % (8.4 ) %
Total operating expenses decreased 8.4% for Q3 2010
compared to Q3 2009. Operating expenses were impacted by a 3.3%
decrease in the total months of clubs in operation. Operating
margin was 3.6% for Q3 2010 compared to 1.2% for Q3 2009.
Payroll and related. The decreases in payroll and related
expenses in Q3 2010 compared to Q3 2009 were principally related to
the effects from the decrease in total club months of operation and
payroll expense related to membership consultants. The amount of
membership consultant payroll deferred over the past two years has
been declining with our decline in initiation fees collected. Our
payroll costs that we defer are limited to the amount of these
fees.
Club operating. In addition to the decrease in total
months of club operation in Q3 2010, operating expenses related to
marketing costs decreased due to our efforts in 2010 to spend more
productively in this area and adjusting our focus toward media
advertising.
General and administrative. Decreases in Q3 2010 general
and administrative expenses compared to Q3 2009 were principally
attributable to our cost reduction efforts within various general
and administrative expense accounts including reductions in
information and communication costs.
Depreciation and amortization. Depreciation and
amortization decreased in Q3 2010 due to the closing of five clubs
subsequent to September 30, 2009, the accelerated depreciation
related to clubs closed prior to lease expiration dates in Q3 2009
and the effect of the fixed asset impairment write-offs in the year
ended December 31, 2009 and the first half of 2010.
Impairment of fixed assets. In Q3 2009, we recorded fixed
asset impairment charges of $3.5 million, representing the
write-off of fixed assets at two underperforming clubs. There were
no fixed asset impairment charges in Q3 2010.
Net Loss for Q3 2010 was $18,000 compared to net loss of
$1.5 million for Q3 2009.
For the nine months ended September 30, 2010, total
revenue decreased $22.7 million or 6.1% compared to the same period
in 2009 and operating margin was 2.7% compared to 4.2% for the nine
months ended September 30, 2009. For the nine months ended
September 30, 2010, we recorded fixed asset impairment charges of
$3.3 million compared to $4.6 million in the same period in 2009.
Net loss was $1.6 million compared to net income of
$1.7 million for the nine months ended September 30, 2009.
Cash flow from operating activities for the nine months
ended September 30, 2010 totaled $38.0 million, a decrease of $20.7
million from the nine months ended September 30, 2009, which was
primarily related to the decrease in earnings, a $4.6 million
decrease in landlord contributions to tenant improvements and
increases in cash paid for interest and cash paid for taxes, net of
refunds of $6.5 million and $11.0 million, respectively.
Fourth Quarter 2010 Business Outlook:
We are limiting our guidance to the fourth quarter of 2010.
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 2010 includes the following:
- Revenue for Q4 2010 is expected to be
between $110.0 million and $111.0 million versus $114.3 million for
Q4 2009. As percentages of revenue, we expect Q4 2010 payroll and
related expenses to approximate 39.5%, club operating expenses to
approximate 38.0% and general and administrative expenses to
approximate 7.0%.
- We expect a net loss for Q4 2010 of
between $0 and $500,000, and loss per share to be in the range of
($0.00) per share to ($0.02) per share, assuming a 67% effective
tax rate and 22.6 million weighted average fully diluted shares
outstanding.
Investing Activities Outlook:
For the year ending December 31, 2010, we currently plan to
invest $23.0 million to $25.0 million in capital expenditures,
of which $10.0 million had been invested during the nine months
ended September 30, 2010. This is down from $49.3 million of
capital expenditures in 2009. We expect that the 2010 amount will
include approximately $17.0 million to continue to upgrade
existing clubs and $4.4 million principally related to major
renovations at clubs with recent lease renewals and upgrading our
in-club entertainment system network. We also expect to invest
$650,000 to enhance our management information systems. The
remainder of our 2010 capital expenditures will be committed to
building or expanding clubs.
For the year ending December 31, 2011, we currently plan to
invest between $32.0 million and $35.0 million in capital
expenditures. This amount includes $7.0 million to $8.0 million
related to the two planned club openings in the second half of
2011.
Forward-Looking Statements:
Statements in this release that do not constitute historical
facts, including, without limitation, statements under the captions
“Fourth Quarter 2010 Business 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, 2010,
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 493,000 members. For
more information on TSI, visit http://www.mysportsclubs.com.
The Company will hold a conference call on Wednesday, October
27, 2010 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 28,
2010.
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 Alert” section at
http://www.mysportsclubs.com.
TOWN SPORTS INTERNATIONAL HOLDINGS, INC. AND
SUBSIDIARIES CONDENSED
CONSOLIDATED BALANCE SHEETS September 30, 2010 and December
31, 2009 (All figures in thousands) (Unaudited)
September 30, December 31, 2010
2009 ASSETS Current assets: Cash and cash equivalents
$ 37,845 $ 10,758 Accounts receivable, net 7,415 4,295 Inventory
345 224 Prepaid corporate income taxes 12,553 1,274 Prepaid
expenses and other current assets 8,638 10,264
Total current assets 66,796 26,815 Fixed assets, net 307,581
340,277 Goodwill 32,737 32,636 Intangible assets, net 61 149
Deferred tax assets, net 45,048 50,581 Deferred membership costs
5,359 6,079 Other assets 9,812 10,929
Total assets $ 467,394 $ 467,466
LIABILITIES AND STOCKHOLDERS’ DEFICIT Current liabilities:
Current portion of long-term debt $ 1,850 1,850 Accounts payable
6,464 6,011 Accrued expenses 27,323 23,656 Accrued interest 2,762
6,573 Deferred revenue 40,099 35,346
Total current liabilities 78,498 73,436 Long-term debt 315,125
316,513 Deferred lease liabilities 68,325 71,438 Deferred revenue
3,091 1,488 Other liabilities 11,076 12,824
Total liabilities 476,115 475,699 Stockholders’ deficit:
Common stock 23 23 Paid-in capital (21,877 ) (22,572 ) Accumulated
other comprehensive income (currency translation adjustment) 1,709
1,327 Retained earnings 11,424 12,989
Total stockholders’ deficit (8,721 ) (8,233 ) Total
liabilities and stockholders’ deficit $ 467,394 $ 467,466
TOWN SPORTS INTERNATIONAL HOLDINGS, INC. AND
SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS For the
quarters and nine months ended September 30, 2010 and 2009
(All figures in thousands except share and per share data)
(Unaudited) Quarter Ended September 30,
Nine Months Ended September 30, 2010 2009
2010 2009 Revenues: Club operations $
111,970 $ 119,282 $ 344,737 $ 367,370 Fees and other 1,157
1,167 3,585 3,700
113,127 120,449 348,322
371,070
Operating Expenses: Payroll and
related 44,409 47,487 141,525 146,480 Club operating 44,451 45,589
131,723 137,499 General and administrative 7,049 8,103 22,280
23,938 Depreciation and amortization 13,151 14,353 40,212 42,995
Impairment of fixed assets ― 3,473
3,254 4,604 109,060
119,005 338,994 355,516
Operating income 4,067 1,444 9,328 15,554 Interest expense 5,305
5,378 15,668 15,944 Interest income (41 ) (1 ) (76 ) (2 ) Equity in
the earnings of investees and
rental income
(499 ) (444 ) (1,553 ) (1,452 ) (Loss)
income before benefit for
corporate income taxes
(698 ) (3,489 ) (4,711 ) 1,064 Benefit for corporate income taxes
(680 ) (2,004 ) (3,146 ) (614 ) Net
(loss) income $ (18 ) $ (1,485 ) $ (1,565 ) $ 1,678
(Loss) earnings per share: Basic $ (0.00 ) $ (0.07 ) $ (0.07 ) $
0.07 Diluted $ (0.00 ) $ (0.07 ) $ (0.07 ) $ 0.07 Weighted average
number of shares used
in calculating (loss) earnings per
share:
Basic 22,646,470 22,565,564 22,625,765 22,770,792 Diluted
22,646,470 22,565,564 22,625,765 22,790,102
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the nine months ended September 30, 2010 and 2009
(All figures in thousands) (Unaudited) Nine
Months Ended September 30, 2010 2009 Cash
flows from operating activities: Net (loss) income $ (1,565 ) $
1,678 Adjustments to reconcile net income to net cash provided by
operating activities: Depreciation and amortization 40,212 42,995
Impairment of fixed assets 3,254 4,604 Write-off of deferred
financing costs - 100 Non-cash interest expense on Senior Discount
Notes - 1,203 Amortization of debt issuance costs 759 643 Non-cash
rental expense, net of non-cash rental income (3,518 ) (1,686 )
Compensation expense incurred in connection with stock options and
common stock grants 1,139 1,257 Decrease (increase) in deferred tax
asset 5,533 (3,474 ) Net change in certain operating assets and
liabilities (7,174 ) 2,156 Decrease in deferred membership costs
720 4,345 Landlord contributions to tenant improvements 100 4,664
(Decrease) increase in insurance reserves (1,053 ) 430 Other
(368 ) (133 ) Total adjustments 39,604
57,104 Net cash provided by operating activities
38,039 58,782
Cash flows from
investing activities: Capital expenditures (9,976 )
(39,805 ) Net cash used in investing activities
(9,976 ) (39,805 )
Cash flows from financing
activities: Proceeds from borrowings on Revolving Loan Facility
- 82,800 Repayment of borrowings on Revolving Loan Facility -
(93,000 ) Repayment of long term borrowings (1,388 ) (1,388 ) Costs
related to deferred financing - (615 ) Repurchase of common stock -
(5,355 ) Proceeds from exercise of stock options 81 36 Tax benefit
from stock option exercises - 21 Net
cash used in financing activities (1,307 ) (17,501 )
Effect of exchange rate changes on cash 331
146 Net increase in cash and cash equivalents 27,087 1,622
Cash and cash equivalents beginning of period 10,758
10,399 Cash and cash equivalents end of period
37,845 12,021
Summary of the change
in certain operating assets and liabilities: Increase in
accounts receivable (3,120 ) (1,618 ) (Increase) decrease in
inventory (119 ) 6 Decrease in prepaid expenses and other current
assets 1,386 1,018 Increase in accounts payable, accrued expenses
and accrued interest 3,181 651 (Decrease) increase in accrued
interest on Senior Discount Notes (3,807 ) 2,538 Change in prepaid
corporate income taxes and corporate income taxes payable (11,279 )
4,545 Increase (decrease) in deferred revenue 6,584
(4,984 ) Net change in certain working capital components $
(7,174 ) $ 2,156
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