Town Sports International Holdings, Inc. Announces First Quarter 2009 Financial Results

Business Wire, April 29, 2009

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 first quarter ended March 31, 2009.

1st Quarter Overview:

• Revenue during Q1 2009 increased 0.3% to $126.7 million.
• Comparable club revenue decreased 2.1%.
• Total member count was 518,000, increasing 6,000 or 1.2% compared to Q1 2008.
• Membership attrition averaged 3.6% per month in Q1 2009 compared to 3.0% in Q1 2008.
• Earnings per diluted share were $0.03 for Q1 2009.
• Results included fixed asset impairment charges of $1.1 million, severance charges of $496,000, and $400,000 of early lease termination costs recorded in connection with the closure of two clubs in Q1 2009. In total, these costs reduced earnings per diluted share by $0.06, calculated using the 2009 effective tax rate of 30%.

Alex Alimanestianu, Chief Executive Officer of TSI, commented: “As anticipated, our operating performance has been impacted by the recession. However, we are well-prepared to weather the storm and we continue to move forward on our key initiatives. While we are feeling pressure on total membership and personal training revenue, our club usage is increasing, positive feedback from our members continues to grow, and we generated operating cash flow of $22.6 million during the quarter. Our goals for the year remain the same – to preserve liquidity, deliver an increasingly positive experience to our members, and to position the Company to deliver superior financial results over the long-term.”

Quarter Ended March 31, 2009 Financial Highlights:

Revenue (in $’000s) was comprised of the following:

[Table Omitted]

Total revenue for Q1 2009 increased 0.3% compared to Q1 2008. For Q1 2009, revenues increased $7.9 million at the 25 clubs opened or acquired subsequent to March 31, 2007. This increase in revenue was offset by decreases in revenue of $5.9 million at our clubs opened or acquired prior to March 31, 2007 and $1.5 million related to the seven clubs that were closed subsequent to March 31, 2007. Revenue at clubs operated for over 12 months (“comparable club revenue”) decreased 2.1% during Q1 2009 compared to Q1 2008. Of this 2.1% decrease, 0.5% was due to a decrease in prices, 0.1% was due to a decrease in membership and 1.5% was due to a decrease in ancillary club revenue and fees and other revenue.

Operating expenses (in $’000s) were comprised of the following:

[Table Omitted]

Total operating expenses increased 7.9% for Q1 2009 compared to Q1 2008. Operating margin was 4.4% for Q1 2009 and 11.2% in Q1 2008.

• The increases in payroll and related expenses were attributable to a 4.6% increase in the total months of club operation from 477 in Q1 2008 to 499 in Q1 2009. In addition, our new member initiation fees have been discounted in an effort to drive membership sales. Deferred payroll costs are limited to the amount of these initiation fees, thus causing an increase in payroll of $2.0 million when compared to Q1 2008, or approximately 1.5% of revenue. During Q1 2009, severance charges were $496,000. The effect of these severance charges was offset by a $565,000 reduction in personal training payroll.
• The $3.7 million increase in club operating expenses was principally due to increases in rent and occupancy expenses, repairs and maintenance and cleaning and laundry expenses. In Q1 2009, club usage increased 13.6% and club months of operation increased 4.6% compared to the same period in 2008.
• The increase in depreciation and amortization expenses was principally due to the 13 clubs added after January 1, 2008.
• In Q1 2009, we recorded fixed asset impairment charges totaling $1.1 million, which represented the write-offs of fixed assets at four underperforming clubs.

Net Income for Q1 2009 was $639,000 compared to a net income of $4.8 million for Q1 2008.

Cash flow from operating activities for Q1 2009 totaled $22.6 million, a decrease of $15.2 million, from the same period last year. The decrease is primarily related to the decrease in cash flows generated from changes in operating assets and liabilities as well as a decrease in overall earnings. The net changes in prepaid expenses and other current assets decreased $4.6 million primarily due to 2008 decreases in pre-payments made to landlords and the timing of other vendor payments. In Q1 2009, deferred revenue increased $497,000, while in Q1 2008 the increase was $4.9 million. This decrease in cash generated by deferred revenue was driven by the movement in deferred personal training and deferred initiation fees. Cash paid for interest decreased $1.6 million and cash paid for taxes decreased $1.0 million.