Life Time Group Holdings, Inc. — FY2023 Form 10-K
Reporting period: Fiscal year ended December 31, 2023. This is an annual filing; it does not provide a clear standalone Q4 financial summary.
Business context
Life Time operates premium health, fitness and wellness clubs, digital services and related businesses. At year-end it operated 171 centers across 31 U.S. states and Ontario, serving approximately 1.5 million individual members across 814,936 memberships. Membership dues and enrollment fees are its largest revenue source.
Financial results and liquidity
| Metric | FY2023 | FY2022 | Change / context |
|---|---|---|---|
| Total revenue | $2,216.6 million | $1,822.6 million | Up 21.6% |
| Center revenue | $2,154.3 million | $1,769.5 million | Up 21.7%; driven by pricing, membership growth and utilization |
| Operating income | $225.2 million | $110.6 million | Operating margin 10.2%, versus 6.1% |
| Net income (loss) | $76.1 million | $(1.8) million | GAAP net margin 3.4%, versus (0.1)% |
| Adjusted EBITDA | $536.8 million | $281.7 million | Adjusted EBITDA margin 24.2%, versus 15.5%; non-GAAP measure |
| Operating cash flow | $463.0 million | $201.0 million | Increase primarily reflected higher profitability |
| Capital expenditures | $693.9 million | $591.2 million | Operating cash flow less capex was negative $230.9 million |
Center memberships rose to 763,216 from 725,206; total memberships rose to 814,936 from 776,676. Average annual Center revenue per Center membership increased to $2,810 from $2,528, and average visits per membership increased to 135 from 124.
At December 31, 2023, total debt was approximately $1.948 billion, compared with $1.840 billion a year earlier. Cash and cash equivalents were $30.0 million, including $18.8 million restricted cash; unrestricted cash was $11.2 million. Revolver availability was $352.1 million, giving $363.3 million of unrestricted cash and availability. Operating lease liabilities were $2.328 billion; 2023 rent expense was $275.1 million. Current assets were $174.5 million and current liabilities $557.2 million.
Material changes and unusual items
- Revenue growth reflected pricing actions, new and ramping centers, ongoing center recovery and higher member use. Membership dues and enrollment fees increased $305.6 million; in-center revenue increased $79.2 million.
- Net income improved from a small loss to $76.1 million. Operating expenses as a share of revenue declined, while center operations and rent expense increased in dollars as the business expanded.
- Other operating results swung from $44.4 million of income in 2022 to $86.4 million of expense in 2023, largely reflecting a $13.6 million sale-leaseback loss in 2023 versus a $97.5 million gain in 2022. The filing also reports development cost write-offs and a $5.3 million impairment related to an outparcel land sale.
- Interest expense increased to $130.8 million from $113.5 million, reflecting higher average borrowings and rates. A 2023 refinancing extended the term loan maturity to January 2026; a December amendment reduced its rate by 0.50%.
- Capital expenditures rose to $693.9 million. Sale-leaseback proceeds fell to $123.3 million from $373.2 million in 2022, contributing to higher cash used in investing activities.
- The company opened 11 centers and closed one in 2023. Seven centers were under construction at year-end, with $241 million of growth capital expenditures already invested.
Outlook, risks and contingencies
- Management planned to open nine to 10 new centers in 2024 and stated an objective of being cash-flow positive after all capital expenditures starting in Q2 2024. These are forward-looking targets, not reported outcomes.
- Management expects new centers typically to take three to four years to reach expected performance. The company is emphasizing asset-light development, leases and existing-facility opportunities; approximately 66% of centers were leased.
- Management cited persistent inflation, higher interest rates, labor and construction costs, potential recession, and possible delays or higher capitalization rates for sale-leasebacks. These could affect margins, development timing and returns.
- Debt and lease obligations are substantial. Approximately $1.840 billion of debt maturities are scheduled for 2026; 2024 debt service was expected to include about $146.4 million of interest and $73.8 million primarily of mortgage principal. Variable-rate exposure means a one-percentage-point rate change would change annual interest expense by approximately $7.9 million under the stated assumptions.
- The company is pursuing insurance litigation against Zurich related to COVID-19 business interruption and construction delays. The outcome is uncertain, and no recovery should be assumed from the filing.
- Other key risks include member attrition and discretionary spending, competition, center-development execution, cyber and privacy incidents, safety and legal claims, and reliance on a premium brand. The Voting Group held approximately 74.7% of voting power as of February 26, 2024, and the company qualifies as a controlled company.
- Deloitte issued unqualified opinions on the financial statements and internal control over financial reporting. Management also concluded internal control was effective as of year-end.
Important facts for investors to verify
- Whether the 2024 center-opening plan and stated Q2 cash-flow-positive-after-capex objective were achieved, and how the company defines that cash-flow measure.
- Whether operating cash flow can cover the elevated capital-expenditure program without continued reliance on sale-leasebacks, borrowing or other financing.
- Debt refinancing and repayment plans for 2026 maturities, interest-rate exposure, covenant headroom and the effect of lease commitments on liquidity.
- The sustainability of revenue-per-membership gains, membership growth and utilization, particularly as centers mature and consumer spending or attrition changes.
- The amount and timing, if any, of proceeds from the Zurich litigation, and the assumptions behind sale-leaseback accounting and fair-value estimates.