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Town Sports International Holdings, Inc. Announces First Quarter 2015 Financial ResultsTown Sports International Holdings, Inc. ("TSI" or the "Company") (NASDAQ:CLUB), one of the leading owners and operators 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", "Philadelphia Sports Clubs" and "BFX Studio" announced its results for the first quarter ended March 31, 2015. First Quarter Overview:
Dan Gallagher, Chief Executive Officer of TSI, commented: "We added 21,000 members in the first quarter of 2015, a direct result of our HVLP conversion strategy. While this was our largest membership increase in at least five years, we continue to learn and make tactical adjustments to maximize the membership potential of this strategy. Our HVLP conversion process is now complete with 124 clubs operating under the HVLP umbrella and the remaining clubs are not planned to be converted and will principally comprise of our passport-only model. This has been a major initiative made possible by the significant efforts of the entire team and with the conversions now behind us, our focus is on improving our member experience while we increase memberships and drive efficiencies." Mr. Gallagher continued: "In March we welcomed new members to our Board, who had been designated by our largest shareholders. Our new Board members have been reviewing our business and current strategies as part of our on-going strategic review process, which is currently focused on strategies for improving our clubs, leveraging the HVLP model and seeking efficiencies to maximize profitability."
Total revenue for Q1 2015 decreased $4.5 million, or 3.9%, compared to Q1 2014, primarily due to the member loss in 2014 and the lower average dues associated with the implementation of our HVLP strategy. The HVLP clubs are expected to experience revenue pressure in the near-term. The effect of existing members opting for lower dues and new members enrolling at lower rates have not been offset by an increase in membership sales volume. However, we expect to attract additional new members at each of our clubs through this strategy in the long-term. As a result of the HVLP implementation, our total member count increased 21,000 to 505,000 in Q1 2015 compared to a decrease of 1,000 members in the same quarter last year. We believe this strategy will increase market share for our brands in the long-term from the increased membership sales volume.
Total operating expenses for Q1 2015 increased $1.4 million, or 1.2%, compared to Q1 2014. Operating expenses increased in 2015 including increased costs of $2.2 million related to our newly opened clubs and BFX Studio locations, and a $1.3 million separation accrual related to our former Executive Chairman. These increases were offset by a decrease in fixed asset and goodwill impairment charges of $2.6 million and a decrease in expenses of $2.5 million related to our closed clubs. Separate from these items, operating expenses increased $3.0 million primarily reflecting increased marketing expenses of $2.9 million due to the conversion to the HVLP pricing strategy and $809,000 of increased occupancy expenses at our mature clubs, offset by a decline in utilities expense of $1.0 million. Payroll and related. Payroll and related expenses increased $2.3 million, or 5.1%, in Q1 2015 compared to the same prior-year period. The payroll expenses increase included a $1.3 million separation accrual related to our former Executive Chairman in 2015. Separate from this item, payroll and related expenses increased $1.0 million, primarily driven by increased payroll expenses of $506,000 from personal training which was directly related to higher personal training revenue. In addition, we had $1.4 million of payroll expenses related to higher wages and hours for membership consultants and front desk staffing associated with the conversion of HVLP clubs and minimum wage increases, offset by lower commissions of $900,000. Club Operating. Club operating expenses increased $1.7 million, or 3.4%, in Q1 2015 compared to the same prior-year period, primarily reflecting increased advertising spend related to the introduction of our new HVLP pricing strategy at many of our locations and increased rent and occupancy expenses, partially offset by decreased utilities expenses. General and administrative. General and administrative expenses increased $128,000, or 1.5%, in Q1 2015 compared to the same period last year. Included in this increase is $200,000 associated with stock awards granted to the new members of the Board of Directors and $385,000 related to legal and other costs in connection with a proxy contest and related settlement. Separate from these non-comparable items, general and administrative expenses decreased $457,000, or 5.5%, primarily reflecting decreases in general liability insurance expense of $245,000 and other cost savings. Investing Activities Outlook: For the year ending December 31, 2015, we currently plan to invest $30.0 million to $34.0 million in capital expenditures. This amount includes approximately $7.0 million to $8.0 million related to planned 2015 openings, including one club and one BFX Studio location that both opened in mid-March, and two future BFX Studio locations. Total capital expenditures also includes approximately $16.0 million to $18.0 million to continue enhancing or upgrading existing clubs and approximately $4.0 million to $5.0 million principally related to major renovations at certain clubs. We also expect to invest approximately $3.0 million to continue to enhance our management information and communication systems. We expect these capital expenditures to be funded by cash flow from operations and available cash on hand. Forward-Looking Statements: This release contains "forward-looking" statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, including, without limitation, statements under the caption "Investing Activities Outlook", statements regarding future financial results and performance, potential sales revenue, potential club closures, HVLP conversions, our strategic review process, and other statements that are predictive in nature or depend upon or refer to events or conditions, or that include words such as "outlook", "believes", "expects", "potential", "continues", "may", "will", "should", "seeks", "approximately", "predicts", "intends", "plans", "estimates", "anticipates", "target", "could" or the negative version of these words or other comparable words. These 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 success of our HVLP strategy, the geographic concentration of the Company's clubs, competitive pressure, the ability to achieve reductions in operating costs and to continue to integrate acquisitions, outsourcing of certain aspects of our business, environmental matters, the application of Federal and state tax laws and regulations, any security and privacy breaches involving customer data, 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 when 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 one of the leading owners and operators of fitness clubs in the Northeast and mid-Atlantic regions of the United States and, through its subsidiaries, operated 158 fitness clubs as of March 31, 2015, comprising 108 New York Sports Clubs, 29 Boston Sports Clubs, 13 Washington Sports Clubs (two of which are partly-owned), five Philadelphia Sports Clubs, and three clubs located in Switzerland, and two BFX Studio. These clubs collectively served approximately 505,000 members as of March 31, 2015. For more information on TSI, visit The Company will hold a conference call on Tuesday, May 5, 2015 at 4:30 PM (Eastern) to discuss the first quarter results. 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 on May 6, 2015. 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 Alerts" section at http://www.mysportsclubs.com.
Non-GAAP Financial Measures - EBITDA and Adjusted EBITDA EBITDA consists of net income (loss) plus interest expense (net of interest income), provision (benefit) for corporate income taxes, and depreciation and amortization. Adjusted EBITDA is the Company's EBITDA excluding certain items, such as any fixed asset or goodwill impairments, rental income from former tenant, rent related to building financing arrangement and loss on extinguishment of debt. In the case of Q1 2015, Adjusted EBITDA also excludes stock awards granted to the new members of the Board of Directors, legal and other costs in connection with a proxy contest and related settlement, club closure expenses, and separation accrual related to our former Executive Chairman. EBITDA is not a measure of liquidity or financial performance presented in accordance with GAAP. EBITDA, as we define it, may not be identical to similarly titled measures used by some other companies. EBITDA has material limitations as an analytical tool and should not be considered in isolation or as a substitute for net income (loss), operating income (loss), cash flows from operating activities or other cash flow data prepared in accordance with GAAP. The items excluded from EBITDA, but included in the calculation of reported net income and operating income, are significant and must be considered in performing a comprehensive assessment of our performance. EBITDA excludes, among other items, the effect of depreciation and amortization, which is a significant component of our reported GAAP data. Depreciation and amortization, which is a non-cash item, totaled $11.7 million in the quarter ended March 31, 2015. Although a premise underlying depreciation and amortization is that it will be reinvested in our business to restore, replenish or purchase property, equipment and other related assets, the funds represented by depreciation and amortization could, in the Company's discretion, be utilized for other purposes (e.g., debt service). Accordingly, EBITDA may be useful as a supplemental measure to GAAP financial data for assessing our performance. Investors or prospective investors in the Company regularly request EBITDA as a supplemental analytical measure to, and in conjunction with, our GAAP financial data. We understand that these investors use EBITDA, among other things, to assess our ability to service our existing debt and to incur debt in the future, to evaluate our executive compensation programs, to assess our ability to fund our capital expenditure program, and to gain insight into the manner in which the Company's management and board of directors analyze our performance. We believe that investors find the inclusion of EBITDA in our press releases to be useful and helpful to them. Our management and board of directors also use EBITDA as a supplemental measure to our GAAP financial data for purposes broadly similar to those used by investors. The purposes to which EBITDA may be used by investors, and is used by our management and board of directors, include the following:
Adjusted EBITDA has similar uses and limitations as EBITDA. We do not, and investors should not, place undue reliance on EBITDA or Adjusted EBITDA as a measure of our performance.
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