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| Town Sports International Holdings, Inc. Announces Fourth Quarter and Calendar Year 2006 Financial Results |
NEW YORK--(BUSINESS WIRE)--March 6, 2007--Town Sports International Holdings, Inc. ("TSI" or the "Company") (NASDAQ: CLUB), a leading owner 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 quarter and year ended December 31, 2006. Fourth quarter 2006 revenue grew 11.8% to $110.2 million from $98.5 million for the same period last year. For the year ended December 31, 2006, revenue grew 11.5% to $433.1 million from $388.6 million for the prior year. Comparable club revenue increased 7.9% during the fourth quarter compared to the same period in the prior year. Robert Giardina, Chief Executive Officer of TSI, commented: "We finished our first year as a publicly traded company with accelerated sales growth and with average annual club revenue surpassing the $3.0 million mark for the first time in the company's history. We also opened the 100th New York Sports Clubs facility in early 2007, further solidifying our number-one position in the region, and have a pipeline that is set to deliver 10% club growth in 2007." Mr. Giardina continued, "With all of these achievements, plus the strong comparable-club revenue growth, ancillary revenue growth, and performance of our multi-recreational facilities in the fourth quarter, we are confident that our overall fundamentals are as sound as they have ever been." Quarter ended December 31, 2006 Financial Highlights: Revenue (in $'000s) is comprised of the following:
Three Months Ended December 31,
2005 2006
--------------- ----------------
Membership dues $79,608 80.8% $ 89,041 80.8%
Initiation fees 2,898 2.9% 2,724 2.5%
-------- ------ --------- ------
Membership revenue 82,506 83.7% 91,765 83.3%
-------- ------ --------- ------
Personal training revenue 10,301 10.5% 12,596 11.4%
Other ancillary club revenue 4,215 4.3% 5,022 4.6%
-------- ------ --------- ------
Ancillary club revenue 14,516 14.8% 17,618 16.0%
-------- ------ --------- ------
Fees and Other revenue 1,492 1.5% 784 0.7%
-------- ------ --------- ------
Total revenue $98,514 100.0% $110,167 100.0%
======== ====== ========= ======
Total revenue for the fourth quarter grew 11.8% to $110.2 million from $98.5 million for the same period last year. The increase in revenue was driven by growth in membership revenue and ancillary club revenue.
Total operating expenses increased by 10.0% to $96.4 million in Q4 2006 compared to $87.6 million in Q4 2005.
Net income for Q4 2006 was $6.6 million compared to $1.2 million in Q4 2005. EBITDA for Q4 2006 increased 13.7% to $24.2 million from $21.3 million in Q4 2005. As a percentage of total revenue, EBITDA margin was 22.0% in Q4 2006, compared to 21.6% in Q4 2005. Year ended December 31, 2006 Financial Highlights: Revenue (in $'000s) is comprised of the following:
Year Ended December 31,
2005 2006
----------------- -----------------
Membership dues $ 309,811 79.7% $ 346,201 79.9%
Initiation fees 11,916 3.1% 9,563 2.2%
---------- ------ ---------- ------
Membership revenue 321,727 82.8% 355,764 82.1%
---------- ------ ---------- ------
Personal training revenue 42,277 10.9% 49,511 11.4%
Other ancillary club revenue 20,139 5.2% 22,863 5.3%
---------- ------ ---------- ------
Ancillary club revenue 62,416 16.1% 72,374 16.7%
---------- ------ ---------- ------
Fees and Other revenue 4,413 1.1% 4,942 1.2%
---------- ------ ---------- ------
Total revenue $ 388,556 100.0% $ 433,080 100.0%
========== ====== ========== ======
Total revenue for the year ended December 31, 2006 grew 11.5% to $433.1 million from $388.6 million during the same period last year. The increase in revenue was driven by growth in membership revenue and ancillary club revenue.
Total operating expenses increased 9.1% to $380.1 million for 2006, compared with $348.3 million in 2005.
Net Income for the year ended December 31, 2006 was $4.6 million compared to $1.8 million in 2005. EBITDA for the year December 31, 2006 grew 17.3% to $95.7 million from $81.6 million during the same period last year. As a percentage of total revenue, EBITDA margin was 22.1% compared to 21.0% in 2005. Cash flow from operations for the year ended December 31, 2006 grew 18.9% to $75.2 million from $63.3 million from the prior year. Cash flow from operations has increased due to the growth in operating income excluding the effects of depreciation and amortization, net changes in operating assets and liabilities, including the increase in deferred revenue and the decrease in prepaid taxes. For the year ended December 31, 2006, cash flows from operations decreased by $13.0 million related to payment of interest on the Company's 11% Senior Discount Notes. Cash used in financing activities for the year ended December 31, 2006 totaled $52.6 million. On June 7, 2006, the Company completed the IPO of 8,950,000 shares of common stock at a price to the public of $13.00 per share, 7,650,000 of which were sold by the Company and the remainder of which were sold by certain selling stockholders to certain specified purchasers. Upon completing the IPO, the Company received approximately $91.8 million of proceeds net of underwriting discounts and expenses. The IPO proceeds were used for the redemption of 35% of its outstanding 11% Senior Discount Notes, having an aggregated accreted value of $56.6 million and the remainder of the proceeds together with cash on hand was used to consummate the tender offer for $85.0 million of the 9 5/8% Senior Notes, issued by TSI LLC. The tender offer for the 9 5/8% Senior Notes was consummated on June 8, 2006 and the redemption of the 11% Senior Discount Notes occurred July 7, 2006. In connection with the IPO the Board of Directors approved a 14 for 1 common stock split. The Company will hold a conference call on Tuesday, March 6, 2007 at 5:00 PM (Eastern) to discuss the fourth quarter results. Robert Giardina, chief executive officer, and Richard Pyle, 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 Website at www.mysportsclubs.com. A replay and transcript of the call will be available via the Company's Website beginning March 7, 2007. 2007 Business Outlook: Based upon the current business environment, 2006 performance and current trends in our marketplace, the Company currently expects the following results for calendar year 2007, subject to risks and uncertainties in any forward-looking statements: The Company expects to open approximately 15 new clubs in 2007. Based upon the current business environment and current trends in our marketplace, the Company currently expects revenues for the year to be in the range of $475.0 million to $480.0 million, representing 10% to 11% growth over 2006, driven by club membership and ancillary revenue growth, the maturation of recently opened clubs as well as new clubs to be opened during the year. The Company is updating its guidance for net income and earnings per share ("EPS"), based upon the successful refinancing of the 9 5/8% Senior Notes issued by TSI LLC. TSI LLC used the proceeds from its new $185.0 million term loan facility priced at LIBOR plus 1.75%, currently set at 7.1%, including the applicable margin, for the purchase and redemption of its 9 5/8% Senior Notes. Given the assumption that this interest rate remains unchanged for the duration of 2007, the Company will be able to save approximately $3.1 million on a pre-tax basis in reduced interest expense. This would translate into a $0.07 per share saving excluding the estimated after-tax loss of $7.3 million on early extinguishment of debt costs associated with the tender. Accordingly, the Company now expects net income to be between $13.8 million and $14.8 million for 2007, when compared with 2006's net income of $4.6 million. The net income for 2007 will be arrived at after a total charge of approximately $12.3 million for early extinguishment of debt before corporate income taxes, or $7.3 million after corporate income taxes. On an adjusted basis, the Company expects net income to be between $21.1 million and $22.1 million without the post tax effects of these debt extinguishment costs. The Company expects EPS of between $0.52 and $0.56 per share for the year, or between $0.79 and $0.83 per share when adjusted for the early debt extinguishment charges on a post-tax basis, an increase from previous guidance.
All figures in thousands,
except share and per
share data 2006 2007 Guidance Increase
--------- --------------------
Between And Between And
--------- ---------- ------- -----
Revenue $433,080 $475,000 $ 480,000 9.7% 10.8%
--------- --------- ---------- ------- -----
Net income $ 4,647 $ 13,800 $ 14,800
Loss on extinguishment of
debt, net of effect of
taxes 9,507 7,300 7,300
Net non-recurring tax
benefit (1) (1,221) -- --
Net income before loss on
extinguishment of debt
and non-recurring tax
benefit $ 12,933 $ 21,100 $ 22,100 63.1% 70.9%
--------- --------- ---------- ------- -----
Fully diluted EPS $ 0.20 $ 0.52 $ 0.56
EPS related to loss on
extinguishment of debt $ 0.41 $ 0.27 $ 0.27
EPS related to net non-
recurring tax benefit $ (0.05) -- --
EPS prior to loss on
extinguishment of debt
and non-recurring tax
benefit $ 0.56 $ 0.79 $ 0.83 41.1% 48.2%
------- -----
Fully diluted share count used in 2007 guidance: 26,600,000 (1) This net non-recurring tax benefit represents the $2.0 million non-recurring deferred tax benefit recorded in the fourth quarter of 2006, net of the $0.8 million nonrecurring income tax charges in the first and second quarters of 2006. The Company estimates that its normalized effective tax rate for 2007 will be between 40.0% and 42.0%. 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. In addition to New York Sports Clubs, TSI operates under the brand names of Boston Sports Clubs, Washington Sports Clubs and Philadelphia Sports Clubs, with 147 clubs and more than 447,000 members in the U.S. In addition, the Company operates three facilities in Switzerland with approximately 6,000 members. For more information on TSI visit http://www.mysportsclubs.com.
TOWN SPORTS INTERNATIONAL HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
December 31, 2005 and 2006
(All figures in $'000s, except share data)
(Unaudited)
December 31, December 31,
2005 2006
------------ ------------
ASSETS
Current assets:
Cash and cash equivalents $ 51,304 $ 6,810
Accounts receivable, net 7,103 8,028
Inventory 421 435
Prepaid corporate income taxes 4,518 --
Prepaid expenses and other current assets 13,907 14,757
------------ ------------
Total current assets 77,253 30,030
Fixed assets, net 253,131 281,606
Goodwill 49,974 50,112
Intangible assets, net 741 922
Deferred tax asset, net 24,378 32,437
Deferred membership costs 11,522 15,703
Other assets 16,772 12,717
------------ ------------
Total assets $ 433,771 $ 423,527
============ ============
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Current portion of long-term debt $ 1,267 $ 181
Accounts payable 8,333 9,972
Accrued expenses 31,620 33,220
Accrued interest 5,267 3,466
Taxes payable -- 2,577
Deferred revenue 33,028 38,980
------------ ------------
Total current liabilities 79,515 88,396
Long-term debt 409,895 280,948
Deferred lease liabilities 48,898 54,929
Deferred revenue 2,905 5,807
Other liabilities 8,241 11,276
------------ ------------
Total liabilities 549,454 441,356
Stockholders' deficit:
Class A voting common stock, $.001 par value;
issued and outstanding 18,327,722 and
25,975,948 shares at December 31, 2005 and
2006, respectively 1 26
Paid-in capital (113,588) (21,068)
Unearned compensation (509) --
Accumulated other comprehensive income
(currency translation adjustment) 386 539
Retained earnings (accumulated deficit) (1,973) 2,674
------------ ------------
Total stockholders' deficit (115,683) (17,829)
------------ ------------
Total liabilities and stockholders' deficit $ 433,771 $ 423,527
============ ============
TOWN SPORTS INTERNATIONAL HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
For the three months and years ended December 31, 2005 and 2006
(All figures in $'000s except share and per share data)
(Unaudited)
Three Months Ended Years Ended
December 31, December 31,
2005 2006 2005 2006
------------ ------------ ------------ ------------
Revenues:
Club Operations $ 97,022 $ 109,383 $ 384,143 $ 428,138
Fees and Other 1,492 784 4,413 4,942
------------ ------------ ------------ ------------
98,514 110,167 388,556 433,080
------------ ------------ ------------ ------------
Operating Expenses:
Payroll and related 37,968 41,498 151,920 162,709
Club operating 32,905 37,315 130,219 146,243
General and
administrative 6,786 7,613 26,582 30,248
Depreciation and
amortization 9,909 9,939 39,582 40,850
------------ ------------ ------------ ------------
87,568 96,365 348,303 380,050
------------ ------------ ------------ ------------
Operating Income 10,946 13,802 40,253 53,030
Loss on
extinguishment of
debt -- -- -- 16,113
Interest expense 10,437 7,025 41,550 35,496
Interest income (890) (262) (2,342) (2,124)
Equity in the
earnings of
investees and
rental income (423) (446) (1,744) (1,817)
------------ ------------ ------------ ------------
Income before
provision for
corporate income
taxes 1,822 7,485 2,789 5,362
Provision for
corporate income
taxes 600 836 1,020 715
------------ ------------ ------------ ------------
Net income $ 1,222 $ 6,649 $ 1,769 $ 4,647
============ ============ ============ ============
Earnings per share:
Basic $ 0.07 $ 0.26 $ 0.10 $ 0.20
Diluted $ 0.07 $ 0.25 $ 0.10 $ 0.20
Weighted average
number of shares
used in
calculating
earnings per
share:
Basic 18,327,722 25,955,381 18,334,624 22,749,470
Diluted 18,393,163 26,456,701 18,374,622 23,154,812
Statements of
Comprehensive
Income
Net income $ 1,222 $ 6,649 $ 1,769 $ 4,647
Foreign currency
translation
adjustments (1,024) 38 (530) 153
------------ ------------ ------------ ------------
Comprehensive
income $ 198 $ 6,687 $ 1,239 $ 4,800
============ ============ ============ ============
TOWN SPORTS INTERNATIONAL HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended December 31, 2005 and 2006
(All figures in $'000s)
(Unaudited)
Years
Ended December 31,
--------------------
2005 2006
--------- ----------
Cash flows from operating activities:
Net income $ 1,769 $ 4,647
--------- ----------
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 39,582 40,850
Interest expense on Senior Discount Notes 15,505 14,417
Loss on extinguishment of debt -- 16,113
Payment of interest on Payment-in-Kind Notes -- (12,961)
Amortization of debt issuance costs 1,644 1,438
Noncash rental expense, net of noncash rental
income 1,461 1,768
Compensation expense incurred in connection with
stock options 279 1,135
Net changes in certain operating assets and
liabilities 4,221 11,169
Increase in deferred tax asset (11,623) (8,059)
Landlord contributions to tenant improvements 8,590 6,413
Increase in reserve for self-insured liability
claims 1,837 2,564
Decrease (increase) in deferred membership costs 495 (4,181)
Other (504) (98)
--------- ----------
Total adjustments 61,487 70,568
--------- ----------
Net cash provided by operating activities 63,256 75,215
--------- ----------
Cash flows from investing activities:
Capital expenditures, net of effect of acquired
businesses (62,393) (66,253)
Acquisition of businesses (3,945) (858)
--------- ----------
Net cash used in investing activities (66,338) (67,111)
--------- ----------
Cash flows from financing activities:
Proceeds from initial public equity offering, net
of underwriting discounts and offering costs -- 91,750
Repayment of Senior Notes -- (128,684)
Premium paid on extinguishment of debt and related
costs -- (13,273)
Repayment of long term borrowings (1,144) (2,805)
Change in book overdraft (1,792) 244
Repurchase of common stock (184) (433)
Tax benefits from option exercises -- 164
Proceeds from exercise of stock options -- 439
--------- ----------
Net cash used in financing activities (3,120) (52,598)
--------- ----------
Net decrease in cash and cash equivalents (6,202) (44,494)
Cash and cash equivalents at beginning of period 57,506 51,304
--------- ----------
Cash and cash equivalents at end of period $ 51,304 $ 6,810
========= ==========
Summary of change in certain operating assets and
liabilities; net of effects of acquired
businesses:
Increase in accounts receivable $ (2,334) $ (3,168)
Decrease (increase) in inventory 230 (13)
(Increase) decrease in prepaid expenses, prepaid
income taxes, and other current assets (2,647) 3,010
Increase in accounts payable, accrued expenses and
accrued interest 4,920 2,662
Increase in deferred revenue 4,052 8,678
--------- ----------
Net changes in certain operating assets and
liabilities $ 4,221 $ 11,169
========= ==========
TOWN SPORTS INTERNATIONAL HOLDINGS, INC. AND SUBSIDIARIES
Reconciliation of Net Income to EBITDA
For the three months and years ended December 31, 2005 and 2006
(All figures in $'000s)
(Unaudited)
Three Months Ended Year Ended
December 31, December 31,
------------------------ -------------------------
2005 2006 % Chg. 2005 2006 % Chg.
-------- ------- -------- --------
Net income $ 1,222 $ 6,649 $ 1,769 $ 4,647
Provision for
corporate income
taxes 600 836 1,020 715
Loss on
extinguishment of
debt - - - 16,113
Interest expense,
net of interest
income 9,547 6,763 39,207 33,372
Depreciation and
amortization 9,909 9,939 39,582 40,850
-------- -------- -------- --------
EBITDA $21,278 $24,187 13.7% $81,578 $95,697 17.3%
======== ======== ======== ========
EBITDA Margin 21.6% 22.0% 21.0% 22.1%
Non GAAP Financial Measures: EBITDA is defined as earnings before interest, taxes, depreciation and amortization and loss on extinguishment of debt. EBITDA provides useful information regarding the Company's operating performance and financial condition, subject to the limitations described below. EBITDA should not be considered in isolation or as a substitute for net income, cash flows or other consolidated income (loss) or cash flow data prepared in accordance with generally accepted accounting principles in the United States of America ("GAAP") or as a measure of the Company's profitability or liquidity. Additionally, investors should be aware that EBITDA may not be comparable to similarly titled measures presented by other companies. EBITDA margin is defined as EBITDA as a percentage of consolidated revenue. Forward-Looking Statements: Statements in this release that do not constitute historical facts, including, without limitation, statements under the caption "2007 Business Outlook" and other statements regarding future financial results and performance and potential sales revenue are "forward-looking" statements made pursuant to the safe harbor provision of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements include, without limitation, statements under the caption "2007 Business Outlook", other statements regarding future financial results and performance and potential sales revenue, 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". These forward-looking statements are subject to various risks and uncertainties, many of which are outside the Company's control, including the level of market demand for the Company's services, competitive pressures, the ability to achieve reductions in operating costs and to continue to integrate acquisitions, the application of federal and state tax laws and regulations, and other specific factors discussed herein and in other releases and public filings made by the Company (including Forms 10-K and 10-Q filed with the Securities and Exchange Commission); accordingly, actual results could differ materially from any such forward-looking statement. The forward-looking statements speak only as of the date and hereof and the Company does not intend to update this information to reflect developments or information obtained after the date hereof and the Company disclaims any legal obligation to the contrary.
CONTACT: Investor: |
| "Safe Harbor" Statement under the Private Securities Litigation Reform Act of 1995: Statements in this press release regarding Town Sports International Holdings, Inc.'s business which are not historical facts are "forward-looking statements" that involve risks and uncertainties. For a discussion of such risks and uncertainties, which could cause actual results to differ from those contained in the forward-looking statements, see "Risk Factors" in the Company's Annual Report or Form 10-K for the most recently ended fiscal year. |