Introduction


In this Form 10-Q, unless otherwise stated or the context otherwise indicates,
references to "the Company," "we," "our," "TSI Holdings" and similar references
refer to Town Sports International Holdings, Inc. and its subsidiaries.
References to "TSI LLC" refer to Town Sports International, LLC, and "TSI Group"
refers to Town Sports Group, LLC, both of which are wholly-owned operating
subsidiaries of the Company. The Company is a diversified holding company owning
subsidiaries engaged in a number of business and investment activities. The
Company's largest operating subsidiary, TSI LLC, has been involved in the
fitness industry since 1973 and has grown to become one of the largest owners
and operators of fitness clubs in the Northeast region of the United States. TSI
Group was formed in 2017 to invest in public and private equities and real
estate. TSI Holdings' corporate structure provides flexibility to make
investments across a broad spectrum of industries in order to create long-term
value for stockholders.
COVID-19 Impact
On March 11, 2020, the World Health Organization declared a global pandemic
related to the COVID-19 outbreak. The pandemic has caused unprecedented economic
volatility and uncertainty which has negatively impacted our recent operating
results. In response to the COVID-19 pandemic, we proactively closed all of our
clubs system wide by March 22, 2020. We have not recognized first quarter
revenue related to monthly membership dues collected in March before clubs
closed. We plan to re-open clubs once local authorities issue guidelines
authorizing the reopening of fitness centers and we determine it is safe to do
so. However, the recent resurgence of COVID-19 in certain regions of the U.S.
has led some state and local governments to delay the implementation of plans to
re-open a variety of businesses, including fitness centers, and could lead to
new closures in states like Florida where we have been permitted to re-open.
Moreover re-opening protocols may include restrictions on capacity and activity
that make it difficult for us to attract customers and generate revenue. For
example, the Governor of New York announced on August 17, 2020 that fitness
centers in New York will be permitted to re-open at only 33% capacity and that
they must require customers to wear masks indoors at all times. In many cases,
state and local governments have not provided a clear timeline for the projected
further easing of restrictions, which creates uncertainty for our customers.
These developments may further hinder the Company's ability to generate
operating revenue going forward.
The March deferrals have had a significant impact on our first quarter financial
results. Due to the outbreak of COVID-19, we have taken measures to protect the
health and safety of our employees, including having employees work remotely,
where possible. The extent of the impact of the COVID-19 pandemic on our
operational and financial performance will depend on future developments,
including the duration and spread of the pandemic and related restrictions put
in place by the U.S. and international governments, all of which are uncertain
and cannot be predicted.
We anticipate that the COVID-19 pandemic will continue to negatively impact our
operating results and cash flow in future periods. To the extent the COVID-19
pandemic adversely affects our business and financial results, it may also have
the effect of heightening many of the other risks described in the "Risk
Factors" sections of our Annual Report on Form 10-K and our Quarterly Reports on
Form 10-Q, such as those risks relating to our high level of indebtedness, our
need to generate sufficient cash flows to service our indebtedness and other
liabilities, our ability to comply with the covenants contained in the
agreements that govern our indebtedness, our ability to attract and retain
members in a competitive marketplace during a time when consumer habits in
personal fitness are changing rapidly, and our ability to maintain our
relationships with our vendors and landlords. Moreover, the Company is facing
significant debt maturities in the near term. Our 2013 Revolving Loan Facility
expired on August 14, 2020 and our 2013 Term Loan Facility is due to mature on
November 15, 2020. The Company currently does not have adequate sources of cash
to repay the amounts outstanding thereunder.
As a result of the Company's strained cash position and current inability to
repay all amounts outstanding under the 2013 Term Loan Facility and 2013
Revolving Loan Facility, and the challenges of COVID-19, we currently anticipate
that TSI LLC, Holdings II and certain other subsidiaries of the Company that
constitute the Subsidiary Guarantors (as defined in the Credit Agreement) may be
forced to file a petition for relief under the Bankruptcy Code in the near
future. Such a filing would subject us to the risks and uncertainties associated
with bankruptcy proceedings and may place equity holders in the Company at
significant risk of losing some or all of their investment in TSI LLC, Holdings
II, and such subsidiaries that constitute Subsidiary Guarantors (as defined in
the Credit Agreement).

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In addition, it is possible that the Company may be forced to file a petition for relief under the Bankruptcy Code, which may further exacerbate the risks described herein and further increase the likelihood that our equity holders would lose some or all their investment in the Company. A bankruptcy filing by such entities, or by the Company, could cause a material adverse effect on our business, financial condition, results of operations and liquidity. In the event of such bankruptcy filing, the Company expects that it will need to raise up to approximately $80 million in financing to fund the costs associated with the bankruptcy filing, professional fees in connection with the bankruptcy and to cover operating shortfalls. Based on the number of clubs, we are one of the leading owners and operators of fitness clubs in the United States, particularly in the Northeast and Mid-Atlantic regions. As of March 31, 2020, we owned and operated 185 fitness clubs ("clubs") and collectively served approximately 580,000 members under various brand names, primarily located in the United States.


               Brand                Count
New York Sports Clubs                99
Boston Sports Clubs                  31
Washington Sports Clubs               9
Philadelphia Sports Clubs             5
Lucille Roberts                      16
Total Woman Gym and Spa              10
Palm Beach Sports Clubs               3
Christi's Fitness                     1
Around the Clock Fitness              6
LIV Fitness                           2

New York Sports Clubs - Switzerland 3


                                     185


We develop clusters of clubs to serve densely populated metropolitan regions and
we service such populations by clustering clubs near the highest concentrations
of our target customers' areas of both employment and residence. Our clubs are
located for maximum convenience to our members in urban or suburban areas, close
to transportation hubs or office or retail centers. Our members include a wide
age demographic covering the student market to the active mature market. In each
of our main regions, we have developed clusters by initially opening or
acquiring clubs located in the more central urban markets of the region and then
branching out from these urban centers to suburbs and neighboring communities.
The above reflect clubs operating prior to temporary club closures related to
the COVID-19 pandemic. All clubs were closed in March 2020 in response to
COVID-19 and remained closed as of March 31, 2020.
Revenue and operating expenses
We have two principal sources of revenue:
•         Membership revenue: Our largest sources of revenue are dues inclusive
          of monthly membership fees, annual maintenance fees, and initiation and
          processing fees paid by our members. In addition, we collect usage fees
          on a per visit basis for non-passport members using non-home clubs.
          These dues and fees comprised 76.1% of our total revenue for the three
          months ended March 31, 2020. We recognize revenue from membership dues
          in the month when the services are rendered. We recognize revenue from
          initiation and processing fees over the estimated average membership
          life and annual fees over a twelve month period.


•         Ancillary club revenue: For the three months ended March 31, 2020, we
          generated 16.7% of our revenue from personal training and 5.8% of our
          revenue from other ancillary programs and services consisting of Sports
          Clubs for Kids, racquet sports and Small Group Training programs. We
          continue to grow ancillary club revenue by building on ancillary
          programs such as our personal training membership product and our
          fee-based Small Group Training programs.

We also receive revenue (approximately 1.3% of our total revenue for the three months ended March 31, 2020) from the rental of space in our facilities to operators who offer wellness-related offerings, such as physical therapy and juice bars. In addition, we sell in-club advertising and sponsorships, provide laundry services to third parties, and generate management fees from certain club facilities that we do not wholly own. We refer to these revenues as Fees and other revenue.



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Our performance is dependent in part on our ability to continually attract and
retain members at our clubs. In the three months ended March 31, 2020 and 2019,
our monthly average attrition rate was 4.4% and 3.8%, respectively.
Our operating expenses are comprised of both fixed and variable costs. Fixed
costs include club and supervisory and other salary and related expenses,
occupancy costs, including elements of rent, utilities, housekeeping and
contracted maintenance expenses, as well as depreciation. Variable costs are
primarily related to payroll associated with ancillary club revenue, membership
sales compensation, advertising, certain facility repairs and club supplies.
General and administrative expenses include costs relating to our centralized
support functions, such as accounting, insurance, information and communication
systems, acquisition related costs, purchasing, member relations, legal and
consulting fees and real estate development expenses. Payroll and related
expenses are included in a separate line item on the condensed consolidated
statements of operations and are not included in general and administrative
expenses. Approximately $3.7 million and $2.3 million, or 41% and 34%, of
general and administrative expenses relate directly to club operations for the
three months ended March 31, 2020 and 2019, respectively, including general
liability insurance, phone and data lines, computer maintenance, business
licenses, office and sales supplies, recruiting and training.
As clubs mature and increase their membership base, fixed costs are typically
spread over an increasing revenue base and operating margins tend to improve.
Conversely, when our membership base declines, our operating margins are
negatively impacted.
At acquired clubs, operating margins may initially decline due to costs related
to the acquisition and time to implement and integrate into our process. Our
primary capital expenditures relate to routine improvements at our clubs, the
construction or acquisition of new club facilities and the upgrade and
renovation of our existing clubs. The construction and equipment costs vary
based on the costs of construction labor, as well as the planned service
offerings and size and configuration of the facility. We perform routine
improvements at our clubs and partial replacement of the fitness equipment each
year for which we are currently budgeting approximately 2.5% of projected annual
revenue. In this regard, facility remodeling is also considered where
appropriate.
As of March 31, 2020, our consolidated operating results included three majority
owned clubs for which we had control. In addition, we owned 45% of one club for
which we applied the equity method of accounting. We also owned one licensed
club and provided management services at one location in which we did not have
an equity interest.
Historical Club Count
The following table set forth the changes in our club count during each of the
quarters in 2019, the full-year 2019, and the first quarter of 2020.
                                                                 2019                          2020
                                              Q1       Q2       Q3       Q4      Full Year      Q1
Clubs included in consolidated operating
results:
Clubs operated at beginning of period        183      187      188      185         183        184
Acquired clubs                                 6        -        -        -           6          -
New clubs opened                               -        1        -        -           1          -
Club converted to licensed club(3)             -        -        -        -           -          -
Clubs closed                                  (2 )      -       (3 )     (1 )        (6 )       (1 )
Clubs operated at end of period              187      188      185      184         184        183
Club included in equity investment at end
of period(1)                                   1        1        1        1           1          1
Licensed club operated at end of period(3)     1        1        1        1           1          1

Total clubs operated at end of period(1)(2) 189 190 187 186 186 185

(1) Excludes one 20% owned club that operated under a different brand name in our

Washington, D.C. region.

(2) Excludes locations that were managed by us in which we did not have an equity

interest. As of March 31, 2020, we had one remaining managed location.

(3) Includes one club that transitioned to a licensed location in the first


    quarter of 2018 and bears the "Washington Sports Clubs" brand name.






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Comparable Club Revenue
We define comparable club revenue as revenue at those clubs that were operated
by us for over 12 months ("comparable clubs") and comparable club revenue
increase (decrease) as revenue for the 13th month and thereafter as applicable
as compared to the same period of the prior year.
Key determinants of comparable club revenue increases shown in the table below
are new memberships, member retention rates, pricing and ancillary revenue
increases.
                                        2019                       2020
                          Q1        Q2        Q3        Q4         Q1

Comparable club revenue (1.8 )% (3.4 )% (2.9 )% (1.2 )% (16.8 )%

The comparable club revenue decreases in the 2019 quarterly periods were primarily due to a decrease in member count and personal training revenue, partially offset by higher average dues per membership. The comparable club revenue was on a positive trend but due to the COVID-19 pandemic, decreased substantially. The club closure losses were offset due to higher average dues per membership, increased annual fees and personal training revenue. Consolidated Results of Operations The following table sets forth certain operating data as a percentage of revenue for the periods indicated:

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