Town Sports Revenue Declines to $101.3 Million in Q1 2016 as Debt Management Continues

TSI39s total net debt as of March 31 was 1870 million marking a six percent drop from Dec 31 2015 Photo by Stuart Goldman
<p>TSI&#39;s total net debt as of March 31 was $187.0 million, marking a six percent drop from Dec. 31, 2015. (Photo by Stuart Goldman.)</p>

Town Sports International Holdings Inc. (TSI), New York, had a revenue decline of 9 percent to $101.3 million in the first quarter compared to first quarter 2015, according to financials released Tuesday.

The revenue drop in the first quarter was primarily due to a decline in membership dues from cancellations of members at higher dues as well as new members enrolling at lower monthly dues, according to a media release from TSI.

The company had an increase of 12,000 members in the first quarter, increasing total member count to 553,000, but that increase did not fully offset the cancellations and lower membership dues enrollments in the quarter, TSI said. In first quarter 2015, TSI had an increase of 21,000 members, which it attributed to rolling out the lower pricing model. TSI membership monthly attrition averaged 3.5 percent per month in the first quarter compared to 3.7 percent per month in the first quarter of 2015.

Membership revenue declined 10.8 percent to $76.5 million and personal training revenue declined 2.3 percent to $17.9 million in the first quarter. 

The company noted that it has focused on reducing its debt in the quarter. TSI's total net debt as of March 31 was $187.0 million, marking a six percent drop from Dec. 31, 2015. The company had $87.8 million in cash as of March 31.

"We continue to strengthen the company's balance sheet," Patrick Walsh, executive chairman, TSI, said in a statement. "Since current management took over, we have engaged in transactions to retire $100.9 million of debt for $40.7 million, or 40 percent of face value. Management remains focused on restoring Town Sports International to profitability by concentrating on our existing clubs and member base. Through calculated strategic actions we have made progress on this front and reported improved year over year results." 

Between March 30 and April 27, TSI Holdings entered into transactions to purchase $71.1 million principal amount of debt outstanding in two transactions for $29.8 million, or 42 percent of face value. The transaction for $8.7 million of the debt settled on April 21 and the remaining transaction for $62.4 million of the debt is expected to settle in May. All of the purchased debt has been or will be, upon settlement, transferred to Town Sports International, LLC and cancelled. The transactions will create taxable cancellation of debt income in the second quarter.

TSI cut operating expenses in the first quarter to $105.1 million, down from the $119.4 million in the first quarter of 2015. The decrease in operating expenses reflected cost savings initiatives, including overhead and club level savings, and general and administrative expenses. General and administrative expenses declined 18.3 percent to $6.9 million, payroll and related expenses declined 15.9 percent to $39.4 million, and club operating expenses declined 7.1 percent to $47.6 million in the first quarter.

Walsh said that the company will continue to refine its promotional activity and marketing spend in order to improve  sales productivity. In December, TSI launched a new marketing campaign, and its first social media campaign, called #IBUILTTHIS to celebrate the fitness accomplishments of real people. 

TSI had 151 fitness clubs as of March 31: 104 New York Sports Clubs, 27 Boston Sports Clubs; 12 Washington Sports Clubs (one of which is partly owned); five Philadelphia Sports Clubs, three clubs in Switzerland and three BFX Studio locations. One New York Sports Club location closed in the first quarter, but TSI did not report which location closed.

Many publicly traded companies on the New York Stock Exchange and NASDAQ hold conference calls with financial analysts when quarterly earnings are released. However, TSI will not hold conference calls to discuss its quarterly results until further notice, the release said.

TSI (NASDAQ:CLUB) stock closed Thursday up 4.4 percent at $3.60 per share. The stock is trading at a 52-week range of 92 cents and $6.48.

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