Life Time Reports Fourth Quarter and Full-Year Fiscal 2022 Financial Results

Financial Summary

Three Months Ended

Year Ended

($ in millions, except memberships and per membership data)

December 31,

December 31,

2022

2021

2022

2021

Percent
Change

Revenue

$472.7

$360.5

31.1 %

$1,822.6

$1,318.1

38.3 %

Center operations expenses ⁽¹⁾

$253.8

$218.8

16.0 %

$1068.2

$844.1

26.5 %

Rent

$66.1

$55.3

19.5 %

$245.2

$209.8

16.9 %

General, administrative, and marketing expenses ⁽²⁾

$38.3

$353.6

(89.2) %

$214.0

$480.5

(55.5) %

Net income (loss)

$13.7

$(304.8)

NM

$(1.8)

$(579.4)

NM

Adjusted EBITDA

$107.0

$48.0

122.9 %

$281.7

$80.3

250.8 %

Comparable center sales

26.0 %

52.0 %

33.0 %

35.3 %

Center memberships, end of period

725,206

649,373

11.7 %

725,206

649,373

11.7 %

Average center revenue per center membership

$640

$536

19.4 %

$2,528

$2,098

20.5 %

NM - Not meaningful

(1)

Includes non-cash share-based compensation expense of $0.4 million and $12.9 million for the three months ended December 31, 2022 and 2021, respectively, and $2.8 million and $12.9 million for the years ended December 31, 2022 and 2021, respectively.

(2)

The three months ended December 31, 2022 and 2021, include non-cash share-based compensation expense of $3.4 million and $309.9 million, respectively, and non-recurring one-time items of $0.2 million and $2.6 million, respectively. The years ended December 31, 2022 and 2021, include non-cash share-based compensation expense of $33.5 million and $316.8 million, respectively, and non-recurring one-time items of $2.6 million and $5.4 million, respectively.

First Quarter 2023 Guidance

Percent

Three Months Ended

Three Months Ended

Change

March 31, 2023

March 31, 2022

(Using

($ in millions)

(Guidance)

(Actual)

midpoints)

Revenue

$505   -   $510

$392

29 %

Net income (loss)

$10   -   $11

$(38)

NM

Adjusted EBITDA

$108  -  $110

$41

166 %

NM - Not meaningful

Full-Year 2023 Guidance

Year Ended

Percent

Year Ended

December 31, 2023

Year Ended

Change

December 31, 2023

(Guidance

December 31, 2022

(Using

(Guidance

($ in millions)

March 8, 2023)

(Actual)

midpoints)

January 9, 2023)

Revenue

$2,200  -  $2,300

$1,823

23 %

$2,200  -  $2,300

Adjusted EBITDA

$440  -  $460

$282

60 %

$430  -  $450

Rent

$270  -  $280

$245

12 %

$280  -  $290

LIFE TIME GROUP HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

(Unaudited)

Three Months Ended

December 31,

Year Ended

December 31,

2022

2021

2022

2021

Revenue:

Center revenue

$           462,022

$           352,944

$        1,769,520

$        1,286,634

Other revenue

10,633

7,584

53,037

31,419

Total revenue

472,655

360,528

1,822,557

1,318,053

Operating expenses:

Center operations

253,825

218,776

1,068,208

844,098

Rent

66,060

55,271

245,226

209,823

General, administrative and marketing

38,326

353,647

213,976

480,543

Depreciation and amortization

57,203

58,119

228,883

235,124

Other operating expenses (income)

12,250

12,993

(44,355)

43,653

Total operating expenses

427,664

698,806

1,711,938

1,813,241

Income (loss) from operations

44,991

(338,278)

110,619

(495,188)

Other (expense) income:

Interest expense, net of interest income

(28,805)

(48,372)

(113,537)

(224,516)

Equity in earnings (loss) of affiliate

171

403

300

(9)

Total other expense

(28,634)

(47,969)

(113,237)

(224,525)

Income (loss) before income taxes

16,357

(386,247)

(2,618)

(719,713)

Provision for (benefit from) income taxes

2,631

(81,477)

(825)

(140,344)

Net income (loss)

$             13,726

$         (304,770)

$              (1,793)

$         (579,369)

Income (loss) per common share:

Basic

$                  0.07

$                (1.64)

$                (0.01)

$                (3.73)

Diluted

$                  0.07

$                (1.64)

$                (0.01)

$                (3.73)

Weighted-average common shares outstanding:

Basic

$           194,182

$           185,956

$           193,570

$           155,470

Diluted

196,378

185,956

193,570

155,470

LIFE TIME GROUP HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In thousands, except per share data)

(Unaudited)

December 31,

2022

December 31,

2021

ASSETS

Current assets:

Cash and cash equivalents

$             25,509

$             31,637

Accounts receivable, net

13,381

6,464

Center operating supplies and inventories

45,655

41,007

Prepaid expenses and other current assets

45,743

48,883

Income tax receivable

748

3,533

Total current assets

131,036

131,524

Property and equipment, net

2,901,242

2,791,464

Goodwill

1,233,176

1,233,176

Operating lease right-of-use assets

2,116,761

1,864,528

Intangible assets, net

173,404

174,241

Other assets

69,744

61,742

Total assets

$        6,625,363

$        6,256,675

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:

Accounts payable

$             73,973

$             71,308

Construction accounts payable

125,031

83,311

Deferred revenue

36,859

33,871

Accrued expenses and other current liabilities

154,427

147,920

Current maturities of debt

15,224

23,527

Current maturities of operating lease liabilities

51,892

46,315

Total current liabilities

457,406

406,252

Long-term debt, net of current portion

1,805,698

1,775,719

Operating lease liabilities, net of current portion

2,162,424

1,909,883

Deferred income taxes, net

41,393

55,213

Other liabilities

34,181

18,216

Total liabilities

4,501,102

4,165,283

Stockholders' equity:

Common stock, $0.01 par value per share; 500,000 shares authorized; 194,271 and
193,060 shares issued and outstanding, respectively.

1,943

1,931

Additional paid-in capital

2,784,416

2,743,560

Accumulated deficit

(652,876)

(651,083)

Accumulated other comprehensive loss

(9,222)

(3,016)

Total stockholders' equity

2,124,261

2,091,392

Total liabilities and stockholders' equity

$        6,625,363

$        6,256,675

LIFE TIME GROUP HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

Year Ended

December 31,

2022

2021

Cash flows from operating activities:

Net loss

$              (1,793)

$         (579,369)

Adjustments to reconcile net loss to net cash provided by (used in) operating activities:

Depreciation and amortization

228,883

235,124

Deferred income taxes

(13,560)

(139,941)

Share-based compensation

37,291

334,339

Non-cash rent expense

38,534

22,602

Impairment charges associated with long-lived assets

2,062

2,076

(Gain) loss on disposal of property and equipment, net

(99,974)

2,746

Loss on debt extinguishment

—

40,993

Write-off of debt discounts and issuance costs

—

28,568

Amortization of debt discounts and issuance costs

7,873

9,590

Changes in operating assets and liabilities

3,372

26,717

Other

(1,719)

(3,474)

Net cash provided by (used in) operating activities

200,969

(20,029)

Cash flows from investing activities:

Capital expenditures

(591,178)

(328,909)

Acquisitions, net of cash acquired

—

(9,529)

Proceeds from sale-leaseback transactions

351,850

73,981

Other

(4,214)

(5,462)

Net cash used in investing activities

(243,542)

(269,919)

Cash flows from financing activities:

Proceeds from borrowings

20,084

1,907,577

Repayments of debt

(25,644)

(2,178,004)

Proceeds from revolving credit facility

805,000

159,000

Repayments of revolving credit facility

(785,000)

(253,000)

Repayments of finance lease liabilities

(1,404)

(1,514)

Proceeds from financing obligations

21,350

—

Proceeds from the issuance of common stock, net of issuance costs

—

701,926

Proceeds from stock option exercises

3,755

—

Increase in debt discounts and issuance costs

(43)

(47,586)

Other

(1,300)

—

Net cash provided by financing activities

36,798

288,399

Effect of exchange rates on cash and cash equivalents

(353)

(9)

Decrease in cash and cash equivalents

(6,128)

(1,558)

Cash and cash equivalents—beginning of period

31,637

33,195

Cash and cash equivalents—end of period

$             25,509

$             31,637

Key Performance Indicators

($ in thousands, except for Average Center revenue per center membership)

(Unaudited)

Three Months Ended

Year Ended

December 31,

December 31,

2022

2021

2022

2021

Membership Data

Center memberships

725,206

649,373

725,206

649,373

Digital On-hold memberships

51,470

74,767

51,470

74,767

Total memberships

776,676

724,140

776,676

724,140

Revenue Data

Membership dues and enrollment fees

72.5 %

71.8 %

70.7 %

70.5 %

In-center revenue

27.5 %

28.2 %

29.3 %

29.5 %

Total Center revenue

100.0 %

100.0 %

100.0 %

100.0 %

Membership dues and enrollment fees

$          334,798

$          253,527

$       1,251,693

$        907,111

In-center revenue

127,224

99,417

517,827

379,523

Total Center revenue

$          462,022

$          352,944

$       1,769,520

$    1,286,634

Average Center revenue per center membership ⁽¹⁾

$               640

$               536

$            2,528

$            2,098

Comparable center sales ⁽²⁾

26.0 %

52.0 %

33.0 %

35.3 %

Center Data

Net new center openings ⁽³⁾

5

(4)

10

2

Total centers (end of period) ⁽³⁾

161

151

161

151

Total center square footage (end of period) ⁽⁴⁾

16,000,000

15,000,000

16,000,000

15,000,000

GAAP and Non-GAAP Financial Measures

Net income (loss)

$          13,726

$      (304,770)

$          (1,793)

$      (579,369)

Net income (loss) margin ⁽⁵⁾

2.9 %

(84.5) %

(0.1) %

(44.0) %

Adjusted EBITDA ⁽⁶⁾

$        107,027

$          48,022

$        281,724

$          80,299

Adjusted EBITDA margin ⁽⁶⁾

22.6 %

13.3 %

15.5 %

6.1 %

Center operations expense

$        253,825

$        218,776

$    1,068,208

$        844,098

Pre-opening expenses ⁽⁷⁾

$            3,103

$            1,717

$          12,399

$            7,021

Rent

$          66,060

$          55,271

$        245,226

$        209,823

Non-cash rent expense (open properties) ⁽⁸⁾

$          12,887

$            6,136

$          27,737

$            9,959

Non-cash rent expense (properties under development) ⁽⁸⁾

$          (1,657)

$            4,920

$          10,797

$          12,643

Net cash provided by (used in) operating activities

$          75,649

$          (4,707)

$        200,969

$        (20,029)

Free cash flow before growth capital expenditures ⁽⁹⁾

$          13,720

$        (44,172)

$          19,226

$      (143,630)

(1)

We define Average Center revenue per center membership as Center revenue less Digital On-hold revenue, divided by the average number of Center memberships for the period, where the average number of Center memberships for the period is an average derived from dividing the sum of the total Center memberships outstanding at the beginning of the period and at the end of each month during the period by one plus the number of months in each period.

(2)

We measure the results of our centers based on how long each center has been open as of the most recent measurement period. We include a center, for comparable center sales purposes, beginning on the first day of the 13th full calendar month of the center's operation, in order to assess the center's growth rate after one year of operation.

(3)

Net new center openings is calculated as the number of centers that opened for the first time to members during the period, less any centers that closed during the period. Total centers (end of period) is the number of centers operational as of the last day of the period. As of December 31, 2022, all of our 161 centers were open.

(4)

Total center square footage (end of period) reflects the aggregate fitness square footage, which we use as a metric for evaluating the efficiencies of a center as of the end of the period. The square footage figures exclude areas used for tennis courts, outdoor swimming pools, outdoor play areas and stand-alone Work, Sport and Swim locations. These figures are approximations.

(5)

Net income (loss) margin is calculated as net income (loss) divided by total revenue.

(6)

We present Adjusted EBITDA as a supplemental measure of our performance. We define Adjusted EBITDA as net income (loss) before interest expense, net, provision for (benefit from) income taxes and depreciation and amortization, excluding the impact of share-based compensation expense, loss (gain) on sale-leaseback transactions, capital transaction costs, legal settlements, asset impairment, severance and other items that are not indicative of our ongoing operations, including incremental costs related to COVID-19.

Adjusted EBITDA margin is calculated as Adjusted EBITDA divided by total revenue.

The following table provides a reconciliation of net income (loss), the most directly comparable GAAP measure, to Adjusted EBITDA (in thousands):

Three Months Ended

Year Ended

December 31,

December 31,

2022

2021

2022

2021

Net income (loss)

$             13,726

$         (304,770)

$             (1,793)

$         (579,369)

Interest expense, net of interest income ^(a)

28,805

48,372

113,537

224,516

Provision for (benefit from) income taxes

2,631

(81,477)

(825)

(140,344)

Depreciation and amortization

57,203

58,119

228,883

235,124

Share-based compensation expense ^(b)

4,077

327,380

37,291

334,339

COVID-19 related expenses (credits) ^(c)

2,119

(1,179)

3,056

(1,589)

Loss (gain) on sale-leaseback transactions ^(d)

535

(677)

(97,632)

2,380

Capital transaction costs ^(e)

—

2,316

255

2,904

Legal settlements ^(f)

—

—

—

(44)

Other ^(g)

(2,069)

(62)

(1,048)

2,382

Adjusted EBITDA

$           107,027

$             48,022

$           281,724

$             80,299

(a)

During the year ended December 31, 2021, we incurred a non-cash expense of $41.0 million related to the extinguishment of our related party secured loan and $28.6 million related to the write-off of debt discounts and issuance costs of our prior term loan facility, our previous senior unsecured notes and our related party secured loan. In June 2020, we closed on an approximate $101.5 million secured loan from an investor group comprised solely of our stockholders or their affiliates. The secured loan carried an interest rate of 12.0% and was scheduled to mature in June 2021. In January 2021, we extinguished the related party secured loan plus accrued interest with a book value of $108.6 million by converting the loan into approximately 5.4 million shares of our Series A Preferred Stock, which had a fair value of $149.6 million, as determined by an independent third-party valuation, at the time of conversion. Accordingly, we booked a $41.0 million loss upon conversion.

(b)

Share-based compensation expense recognized during the year ended December 31, 2022, is associated with stock options, restricted stock, restricted stock units and our employee stock purchase plan ("ESPP") that launched on December 1, 2022. A significant portion of the share-based compensation expense that we recognized during the year ended December 31, 2021, is associated with stock options that were granted prior to 2021. As of the effective date of our initial public offering ("IPO") in October 2021, these stock options became fully vested, and they became exercisable either immediately or on April 4, 2022, subject to continued service through such date. Accordingly, during the period from the effective date of IPO through April 4, 2022, we recognized share-based compensation expense associated with these stock options in an amount equal to the proportion of the total service period that passed from the respective grant dates associated with each of these stock option awards through April 4, 2022. Because the exercisability of these stock options was contingent upon the occurrence of a change of control or an initial public offering, no share-based compensation expense associated with these stock options was recognized prior to the IPO.

(c)

Represents the incremental net expenses (credits) we recognized related to the COVID-19 pandemic. We adjust for these costs as they do not represent costs associated with our normal ongoing operations. We believe that adjusting for these costs provides a more accurate and consistent representation of our actual operating performance from period to period. For the year ended December 31, 2022, COVID-19 related expenses primarily consisted of site development cost write-offs and legal-related costs in pursuit of our claim against Zurich. For the year ended December 31, 2021, COVID-19 related credits primarily consisted of the recovery of certain qualifying expenses under the CARES Act, partially offset by COVID-19 legal-related costs in pursuit of our claim against Zurich.

(d)

We adjust for the impact of gains or losses on the sale-leaseback of our properties as they do not reflect costs associated with our ongoing operations.

(e)

Represents one-time costs related to capital transactions, including debt and equity offerings that are non-recurring in nature but excluding direct costs related to the IPO that were netted against the proceeds of the IPO.

(f)

We adjust for the impact of large class action and unusual legal settlements paid or recoveries received. These are non-recurring in nature and do not reflect costs associated with our normal ongoing operations.

(g)

Includes costs associated with severance and other transactions that are unusual and non-recurring in nature.

(7)

Represents non-capital expenditures associated with opening new centers which are incurred prior to the commencement of a new center opening. The number of centers under construction or development, the types of centers and our costs associated with any particular center opening can vary significantly from period to period.

(8)

Reflects the non-cash portion of our annual GAAP operating lease expense that is greater or less than the cash operating lease payments. Non-cash rent expense for our open properties represents non-cash expense associated with properties that were operating at the end of each period presented. Non-cash rent expense for our properties under development represents non-cash expense associated with properties that are still under development at the end of each period presented.

(9)

Free cash flow before growth capital expenditures, a non-GAAP financial measure, is calculated as net cash provided by (used in) operating activities less center maintenance capital expenditures and corporate capital expenditures.

The following table provides a reconciliation from net cash provided by (used in) operating activities to free cash flow before growth capital expenditures (in thousands):

Three Months Ended

Year Ended

December 31,

December 31,

2022

2021

2022

2021

Net cash provided by (used in) operating activities

$          75,649

$           (4,707)

$        200,969

$         (20,029)

Center maintenance capital expenditures

(40,196)

(18,887)

(98,111)

(61,932)

Corporate capital expenditures

(21,733)

(20,578)

(83,632)

(61,669)

Free cash flow before growth capital expenditures

$          13,720

$         (44,172)

$          19,226

$      (143,630)

Capital Expenditures Summary

($ in thousands)

(Unaudited)

Three Months Ended

Year Ended

December 31,

December 31,

2022

2021

2022

2021

Growth capital expenditures, net of construction reimbursements ⁽¹⁾

$           119,303

$             87,703

$           409,435

$           205,308

Center maintenance capital expenditures

40,196

18,887

98,111

61,932

Corporate capital expenditures

21,733

20,578

83,632

61,669

Total capital expenditures

$           181,232

$           127,168

$           591,178

$           328,909

(1)

Growth capital expenditures include new center land and construction, growth initiatives, major remodels of acquired centers and the purchase of previously leased centers.

Proceeds from Sale-Leaseback Transactions

($ in thousands)

(Unaudited)

Three Months Ended

Year Ended

December 31,

December 31,

2022

2021

2022

2021

Proceeds from sale-leaseback transactions ⁽¹⁾

$                     —

$                     —

$           373,200

$             73,981

(1)

Sale-leaseback proceeds for the year ended December 31, 2022, includes $21.4 million that was recognized as financing obligations and reported within financing activities on our consolidated statement of cash flows.

Reconciliation of Net Loss to Adjusted EBITDA Guidance for First Quarter 2023

($ in millions)

(Unaudited)

Three Months Ended

March 31, 2023

Net income

$10    -    $11

Interest expense, net of interest income

31    -    30

Provision for (benefit from) income taxes

4     -    5

Depreciation and amortization

58    -    59

Share-based compensation expense

5     -    5

Adjusted EBITDA

$108    -    $110