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 fourth
quarter and full-year ended December 31, 2010.
Fourth Quarter and Full-Year
Overview:
- Revenue decreased 0.2% in Q4 2010
compared to Q4 2009 and 4.7% in full-year 2010 compared with
full-year 2009. Q4 2010 total revenue includes $2.7 million of
personal training revenue recognized for expired and unused
sessions in three of our jurisdictions.
- Comparable club revenue decreased 1.7%
in Q4 2010 compared to Q4 2009 and 4.3% in full-year 2010 compared
to full-year 2009.
- Total member count increased 1.4% to
493,000 at December 31, 2010, compared to December 31, 2009.
- Membership attrition averaged 3.4% per
month in Q4 2010 and 3.5% per month in full-year 2010 compared to
3.6% per month in Q4 2009 and 3.8% per month in full-year
2009.
- Earnings (loss) per share was $0.06 in
Q4 2010 and $(0.01) in full-year 2010 compared to $(0.33) in Q4
2009 and $(0.25) in full-year 2009.
- Q4 2010 results included $2.7 million
of personal training revenue, or $1.5 million net of taxes,
recognized for expired and unused personal training revenue, or
approximately $0.07 per share. Q4 2009 results reflected internal
use software and fixed asset impairment charges and the effect of
an accounting error, which collectively resulted in charges, net of
taxes, of $7.4 million, or $(0.33) per share.
Robert Giardina, Chief Executive Officer of TSI,
commented: “We are very pleased with the progress we made in
2010, and how Town Sports is positioned as we enter 2011. We ended
the year with some positive momentum in the business for the first
time in more than two years, including improvements in our
comparable club revenue comparison, as well as our personal
training and membership trends. Our balance sheet has also improved
from a year ago, and we believe our approach to the business is on
track. We have a great team in place to execute our
strategies.”
Fourth Quarter and Full-Year Ended December 31, 2010
Financial Results:
Revenue (in thousands) was comprised of the
following: Quarter Ended December 31, 2010
2009 Revenue % Revenue Revenue %
Revenue % Variance Membership dues $ 89,558 78.5 % $
92,658 81.1 % (3.3 ) % Joining fees 1,272 1.1 % 2,426
2.1 % (47.6 ) % Membership revenue 90,830 79.6 %
95,084 83.2 % (4.5 ) % Personal training revenue 16,657 14.6 %
13,275 11.6 % 25.5 % Other ancillary club revenue 5,402 4.8
% 5,002 4.4 % 8.0 % Ancillary club revenue 22,059 19.4 %
18,277 16.0 % 20.7 % Fees and other revenue 1,176 1.0 %
961 0.8 % 22.4 % Total revenue $ 114,065 100.0 % $ 114,322
100.0 % (0.2 ) %
Total revenue for Q4 2010 decreased $257,000, or 0.2%
compared to Q4 2009. For Q4 2010, revenues increased $253,000 at
the four clubs opened or acquired subsequent to December 31, 2008
offset by decreases in revenue of 2.0% or $2.2 million at our clubs
opened or acquired prior to December 31, 2008 and $822,000 related
to the 10 clubs that were closed subsequent to December 31,
2008.
In Q4 2010, we recognized $2.7 million of personal training
revenue for unused and expired personal training sessions in three
of the jurisdictions we operate in.
Revenue at clubs operated for over 12 months (“comparable club
revenue”), excluding the $2.7 million of unused and expired
sessions recorded as personal training revenue, decreased 1.7% in
Q4 2010 compared to Q4 2009.
Operating expenses: Quarter Ended
December 31, 2010 2009 Expense % of
Revenue
Expense % Variance
Payroll and related 38.6 % 41.5 % (7.1 ) % Club operating 37.2 %
36.6 % 1.4 % General and administrative 5.7 % 6.3 % (9.8 ) %
Depreciation and amortization 10.5 % 11.8 % (11.4 ) % Impairment of
fixed assets - % 1.8 % (100.0 ) % Impairment of internal use
software - % 8.9 % (100.0 ) % Operating expenses 92.0 % 106.9 %
(14.1 ) %
Total operating expenses decreased 14.1% for Q4 2010
compared to Q4 2009. Operating expenses were impacted by a 2.5%
decrease in the total months of clubs in operation. Total operating
expense in Q4 2009 included $12.3 million of impairment charges.
Without giving effect to these Q4 2009 charges, operating expenses
decreased by 4.5% in Q4 2010 compared to Q4 2009. Operating margin
was 8.0% for Q4 2010, which includes the benefit of $2.7 million of
revenue from unused and expired personal training sessions,
compared to (6.9)% for Q4 2009.
Payroll and related. The decreases in payroll and related
expenses in Q4 2010 compared to Q4 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 prior two years has
been declining with our decline in joining fees collected. We limit
the amount of payroll costs that we defer to the amount of joining
fees collected. This resulted in a decrease in membership
consultant commissions expensed in Q4 2010 relating to deferrals
established in prior years. Also contributing to this decrease was
the increase in the amount of payroll costs deferred in full-year
2010 compared to the full-year 2009 as joining fees collected
increased in 2010.
General and administrative. Decreases in Q4 2010 general
and administrative expenses compared to Q4 2009 were principally
attributable to our cost reduction efforts within various general
and administrative expense accounts, including reductions in
general liability insurance and information and communication
costs.
Depreciation and amortization. Depreciation and
amortization decreased in Q4 2010 due to the closing of one club
subsequent to December 31, 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 Q4 2009, we recorded fixed
asset impairment charges of $2.1 million, representing the
write-off of fixed assets at four underperforming clubs. There were
no fixed asset impairment charges in Q4 2010.
Impairment of internal-use software. In Q4 2009, we
recorded a $10.2 million impairment charge related to an internally
developed software project. Although the software project was not
yet completed and is the subject of litigation, we determined that
it is not probable that we would continue in the development of
this project. There were no such impairment charges in Q4 2010.
Corporate income taxes. In Q4 2010, we recorded a
provision for corporate income taxes of $3.0 million and in Q4 2009
we recorded a benefit for corporate income taxes of $5.2 million.
Q4 2010 includes the correction of an accounting error that
resulted in additional provision for corporate income taxes. In Q4
2010, we identified un-reconciled temporary deductible differences,
mainly related to fixed assets, which gave rise to deferred tax
assets of $357,000. These un-reconciled temporary differences
principally relate to periods prior to 2008. As we were unable to
identify a specific transaction that created this un-reconciled
difference, such as the disposal of a certain asset, a current
deduction could not be taken on our 2010 tax return. Accordingly,
we wrote-off the deferred tax asset. We do not believe that this
error correction is material to the current or prior reporting
periods.
Net income for Q4 2010 was $1.3 million compared to a net
loss of $7.3 million for Q4 2009.
For the full-year ended December 31, 2010, total revenue
decreased $23.0 million, or 4.7%, compared to full-year 2009.
Operating margin was 4.0% for 2010 compared to 1.6% for 2009. For
2010, we recorded fixed asset impairment charges of $3.3 million
compared to $6.7 million in 2009. For 2009, we recorded an
internal-use software impairment charge of $10.2 million. Net loss
was $290,000 compared to net loss of $5.7 million for
2009.
Cash flow from operating activities for full-year 2010
totaled $51.2 million, a decrease of $25.0 million from full-year
2009. The decrease was related to the decrease in earnings,
excluding depreciation and amortization and impairment of fixed
assets of $12.6 million, and increases in cash paid for interest of
$7.6 million. In addition, our landlord contributions decreased
$4.7 million in full-year 2010 when compared with that of 2009 and
prepaid rent increased approximately $5.0 million, which reduced
our 2010 cash flows from operations compared to 2009. Deferred
revenue and deferred membership costs increased $1.8 million
in the aggregate in 2010 and decreased $1.4 million in the
aggregate in 2009, offsetting the decrease in cash.
First Quarter 2011 Business Outlook:
We are limiting our guidance to the first quarter of 2011. 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 first quarter of 2011 includes the following:
- Revenue for Q1 2011 is expected to be
between $115.5 million and $116.5 million versus $117.8 million for
Q1 2010. As percentages of revenue, we expect Q1 2011 payroll and
related expenses to approximate 39.7%, club operating expenses to
approximate 38.0%, general and administrative expenses to
approximate 7.0% and depreciation and amortization to approximate
11%.
- We expect net income for Q1 2011 of
between breakeven and $500,000, and earnings per share to be in the
range of $0.00 per share to $0.02 per share, assuming a 34%
effective tax rate and 22.8 million weighted average fully diluted
shares outstanding.
Investing Activities Outlook:
For the year ending December 31, 2011, we currently plan to
invest $29.0 million to $32.0 million in capital expenditure,
which represents an increase from $22.0 million of capital
expenditures in 2010. This amount includes approximately $7.5
million to $8.5 million related to the two planned club openings in
the second half of 2011, approximately $15.5 million to
continue to upgrade existing clubs and $4.3 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 $2.0 million to $3.0 million to enhance our
management information and communication systems.
Forward-Looking Statements:
Statements in this release that do not constitute historical
facts, including, without limitation, statements under the captions
“First Quarter 2011 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 December 31, 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 Tuesday February 22,
2011 at 4:30 PM (Eastern) to discuss the fourth quarter and
full-year 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 February 23,
2011.
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
As of December 31, 2010 and 2009 (All figures in
thousands) (Unaudited) December 31,
December 31, 2010 2009
ASSETS Current assets: Cash and cash equivalents $ 38,803 $
10,758 Accounts receivable, net 5,258 4,295 Inventory 217 224
Prepaid corporate income taxes 7,342 1,274 Prepaid expenses and
other current assets 13,213 10,264
Total current assets 64,833 26,815 Fixed assets, net 309,371
340,277 Goodwill 32,794 32,636 Intangible assets, net 44 149
Deferred tax assets, net 41,883 50,581 Deferred membership costs
5,934 6,079 Other assets 9,307 10,929
Total assets $ 464,166 $ 467,466
LIABILITIES AND
STOCKHOLDERS’ DEFICIT Current liabilities: Current portion of
long-term debt $ 14,550 $ 1,850 Accounts payable 4,008 6,011
Accrued expenses 27,477 23,656 Accrued interest 6,579 6,573
Deferred revenue 35,106 35,346 Total
current liabilities 87,720 73,436 Long-term debt 301,963 316,513
Deferred lease liabilities 67,180 71,438 Deferred revenue 3,166
1,488 Other liabilities 11,082 12,824
Total liabilities 471,111 475,699 Stockholders’ deficit : Common
stock 23 23 Paid-in capital (21,788 ) (22,572 ) Accumulated other
comprehensive income (currency translation adjustment) 2,121 1,327
Retained earnings 12,699 12,989 Total
stockholders’ deficit (6,945 ) (8,233 ) Total
liabilities and stockholders’ deficit $ 464,166 $ 467,466
TOWN SPORTS INTERNATIONAL HOLDINGS, INC. AND
SUBSIDIARIES CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS For the quarters and
years ended December 31, 2010 and 2009 (All figures in
thousands except share and per share data) (Unaudited)
Quarter Ended December 31, Year Ended December
31, 2010 2009
2010 2009 Revenues: Club
operations $ 112,889 $ 113,361 $ 457,626 $ 480,731 Fees and other
1,176 961 4,761
4,661 114,065 114,322
462,387 485,392
Operating Expenses
Payroll and related 44,058 47,411 185,583 193,891 Club operating
42,412 41,808 174,135 178,854 General and administrative 6,493
7,196 28,773 31,587 Depreciation and amortization 11,990 13,538
52,202 56,533 Impairment of fixed assets
--
2,104 3,254 6,708 Impairment of internal-use software
--
10,194
--
10,194 104,953 122,251
443,947 477,767 Operating income
(loss) 9,112 (7,929 ) 18,440 7,625 Interest expense 5,490 5,028
21,158 20,972 Interest income (69 ) (1 ) (145 ) (3 ) Equity in the
earnings of investees and rental income (586 ) (424 )
(2,139 ) (1,876 ) Income (loss) before
provision (benefit) for corporate
income taxes
4,277 (12,532 ) (434 ) (11,468 ) Provision (benefit) for corporate
income taxes 3,002 (5,186 ) (144 )
(5,800 ) Net income (loss) $ 1,275 $ (7,346 ) $ (290
) $ (5,668 ) Earnings (loss) per share: Basic $ 0.06 $ (0.33 ) $
(0.01 ) $ (0.25 ) Diluted $ 0.06 $ (0.33 ) $ (0.01 ) $ (0.25 )
Weighted average number of shares used in
calculating (loss) earnings per share:
Basic 22,659,361 22,572,990 22,634,233 22,720,935 Diluted
22,858,573 22,572,990 22,634,233 22,720,935
TOWN SPORTS
INTERNATIONAL HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH
FLOWS For the years ended December 31, 2010 and 2009
(All figures in thousands) (Unaudited) Year
Ended December 31, 2010 2009
Cash flows from operating activities: Net loss $ (290 ) $
(5,668 ) Adjustments to reconcile net loss to net cash provided by
operating activities: Depreciation and amortization 52,202 56,533
Impairment of fixed assets 3,254 6,708 Impairment of internal-use
software — 10,194 Impairment of goodwill — — Non cash interest
expense on Senior Discount Notes — 1,203 Write-off of deferred
financing costs — 100 Amortization of debt issuance costs 1,011 896
Non-cash rental expense, net of non-cash rental income (5,552 )
(2,494 ) Compensation expense incurred in connection with stock
options and common stock grants
1,336 1,704 Decrease (increase) in deferred tax asset 8,643 (8,315
) Net change in certain operating assets and liabilities (8,243 )
3,262 Decrease in deferred membership costs 145 8,383 Landlord
contributions to tenant improvements 100 4,817 (Decrease) increase
in insurance reserves (1,119 ) 601 Other (249 )
(1,683 ) Total adjustments 51,528 81,909
Net cash provided by operating activities 51,238
76,241
Cash flows from investing
activities: Capital expenditures (22,035 ) (49,277 ) Insurance
proceeds received — — Net cash used in
investing activities (22,035 ) (49,277 )
Cash flows from financing activities: Proceeds from
borrowings on Revolving Loan Facility — 86,000 Repayment of
borrowings on Revolving Loan Facility — (105,000 ) Repayment of
long term borrowings (1,850 ) (1,850 ) Costs relating to deferred
financing — (615 ) Change in book overdraft — — Repurchase of
common stock — (5,355 ) Proceeds from stock option exercises 85 36
Tax benefit from stock option exercises — 21
Net cash used in financing activities (1,765 )
(26,763 ) Effect of exchange rate changes on cash 607
158 Net increase in cash and cash equivalents 28,045
359 Cash and cash equivalents beginning of period 10,758
10,399 Cash and cash equivalents end of period
$ 38,803 $ 10,758
Summary of the change in
certain operating assets and liabilities: (Increase) decrease
in accounts receivable $ (951 ) $ 222 Decrease (increase) in
inventory 9 (80 ) (Increase) decrease in prepaid expenses and other
current assets (2,532 ) 2,260 Increase in accrued interest on
Senior Discount Notes — 6,346 Increase (decrease) in accounts
payable, accrued expenses and accrued interest (419 ) (4,211 )
Change in prepaid corporate income taxes and corporate income taxes
payable (6,016 ) 6,895 Increase (decrease) in deferred revenue
1,666 (8,170 ) Net change in certain working
capital components $ (8,243 ) $ 3,262
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