Town Sports International Holdings, Inc. Announces Third Quarter 2008 Financial Results

Business Wire, Oct 30, 2008

Lowers Fiscal 2008 Guidance

NEW YORK -- 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, 2008.

3(rd) Quarter Highlights:

* Revenues increased 7.8% to $128.1 million.

* Comparable club revenue increased 2.2%.

* Personal training revenues grew 12.3%, to $14.9 million.

* EBITDA increased 1.4% to $25.6 million.

* Diluted earnings per share decreased 26.3% to $0.14, including a $0.02 fixed asset impairment charge.

* Membership attrition averaged 3.6% per month.

Alex Alimanestianu, Chief Executive Officer of TSI, commented: "After a solid first half of the year, we were able to post increases in membership and same club revenue in the third quarter, but fell below our overall financial targets for the period. As the quarter progressed, we felt the increasing effects of the recessionary economy, and the outlook we are giving for the fourth quarter reflects the worsening consumer spending environment. We are convinced that health and fitness will continue to be a high priority for our target customers and we remain extremely confident in our strategy, the operational initiatives we have undertaken, and the long-term growth potential of our company. Until conditions improve, we will manage costs and capital expenditures to match the environment, while continuing to focus on delivering a high quality experience to our members."

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Total revenue for Q3 2008 increased 7.8% compared to Q3 2007 driven by growth in membership and personal training revenue. Revenue at clubs operated by us for over 12 months ("comparable club revenue") increased 2.2% during the three months ended September 30, 2008. Of this 2.2% increase, 0.9% was due to an increase in membership, 0.9% was due to an increase in price and 0.4% was due to an increase in ancillary club revenue and fees and other revenue.

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Total operating expenses increased 11.0% for Q3 2008 compared to Q3 2007. Operating margin was 9.0% for Q3 2008 and 11.7% in Q3 2007.

* The increases in payroll and related and club operating expenses were principally attributable to a 7.8% increase in the total months of club operation from 451 in Q3 2007 to 486 in Q3 2008. There was a net increase of 10 clubs in the twelve months ended September 30, 2008. In addition, we have been discounting our new member initiation fees in an effort to drive membership sales. Our payroll costs that we defer are limited to the amount of these initiation fees, thus causing a pre-tax increase in payroll of approximately $2.1 million when compared to Q3 2007; a $1.3 million effect, net of tax. In addition, payroll costs directly related to our personal training, group fitness training, and programming for children increased $1.8 million or 17.9%, principally due to the increase in revenue related to these programs.

* The increase in depreciation and amortization expenses was principally due to clubs opened after September 30, 2007.

* In the quarter ended September 30, 2008, we recorded a fixed asset impairment loss of $839,000 related to the decision to close a club prior to the lease expiration. The charge was determined based on the undiscounted cash flows expected over the remaining occupancy period.

Net income for Q3 2008 was $3.8 million compared to a net income of $5.1 million for Q3 2007.

EBITDA for Q3 2008 increased 1.4% to $25.6 million from $25.3 million for Q3 2007. EBITDA as a percentage of total revenue ("EBITDA margin") was 20.0% for Q3 2008, compared to 21.3% for Q3 2007. Please refer to the reconciliation of net income to EBITDA at the end of this release.

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Total revenue for the nine months ended September 30, 2008 increased 8.4% compared to the nine months ended September 30, 2007 driven by growth in membership and personal training revenue. Comparable club revenue increased 3.3% during the nine months ended September 30, 2008. Of this 3.3% increase, 1.4% was due to an increase in membership, 1.1% was due to an increase in price and 0.8% was due to an increase in ancillary club revenue and fees and other revenue.

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Total operating expenses increased 9.8% for the nine months ended September 30, 2008 compared to the nine months ended September 30, 2007. Operating margin was 11.0% for the nine months ended September 30, 2008 and 12.1% for the nine months ended September 30, 2007.

* The increases in payroll and related and club operating expenses were principally attributable to a 7.8% increase in the total months of club operation to 1,446 for the nine months ended September 30, 2008 from 1,341 for the same period last year. There was a net increase of 10 clubs in the twelve months ended September 30, 2008. In addition, we have been discounting new member initiation fees in an effort to drive membership sales. Our payroll costs that we defer are limited to the amount of these initiation fees, thus causing a pre-tax increase of approximately $4.6 million in payroll expense, a $2.7 million effect net of tax. In addition, payroll costs directly related to our personal training, group fitness training, and programming for children increased $4.7 million, or 15.2%, principally due to the increase in revenue related to these programs.