Life Time Group Holdings, Inc. — Q2 2022 Form 10-Q
Business context and period. Unaudited results for the quarter and six months ended June 30, 2022, compared with the corresponding 2021 periods. Life Time operates premium health, fitness and wellness clubs, digital services and athletic events. It had 153 centers across 29 U.S. states and one Canadian province; all centers were open at quarter-end.
Key financial results
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Revenue | $461.3 million | $323.2 million | $853.5 million | $572.5 million |
| Operating income (loss) | $20.8 million | $(57.1) million | $9.9 million | $(139.4) million |
| Net income (loss) | $(2.3) million | $(76.4) million | $(40.3) million | $(229.2) million |
| Net loss margin | (0.5)% | (23.6)% | (4.7)% | (40.0)% |
| Adjusted EBITDA (non-GAAP) | $63.1 million | $4.2 million | $103.7 million | $(14.8) million |
| Adjusted EBITDA margin (non-GAAP) | 13.7% | 1.3% | 12.2% | (2.6)% |
| Operating cash flow | $71.3 million | $25.1 million | $80.3 million | $(13.0) million |
| Free cash flow before growth capital expenditures (non-GAAP) | $32.4 million | $(6.9) million | $(1.9) million | $(60.8) million |
- Q2 revenue increased 42.7% year over year. Center revenue rose to $445.9 million, including $309.3 million in membership dues and enrollment fees and $136.6 million in in-center revenue.
- For the first half, total revenue increased 49.1%. Center memberships were 724,778 at June 30, up 10.2% year over year; total memberships, including Digital On-hold, were 775,763, up 2.1%. Average revenue per center membership was $639 in Q2 and $1,219 for the first half.
- Q2 operating margin was 4.5%, versus (17.7)% a year earlier. Higher membership and service use, post-pandemic recovery, pricing actions and lower interest expense contributed to improvement. GAAP net income remained negative.
- First-half capital expenditures were $252.6 million, including $170.5 million of growth capex, $35.5 million of center maintenance and $46.7 million of corporate capex. First-half free cash flow before growth capex remained slightly negative.
Balance sheet, debt and liquidity
- At June 30, 2022, cash and cash equivalents were $61.3 million. Revolver availability was $413.5 million, giving reported cash and revolver availability of $474.8 million. The company had $30.0 million drawn on its $475 million revolving facility and $31.5 million of letters of credit.
- Total debt was $1.85 billion before unamortized discounts and issuance costs; reported debt carrying value was $1.83 billion, including $21.7 million current maturities. Major debt includes $925 million of secured notes at 5.75% and $475 million of unsecured notes at 8.00%, both due in 2026, plus a $273.6 million variable-rate term loan due December 2024.
- Operating lease liabilities were $2.14 billion. Total liabilities were $4.42 billion and stockholders’ equity was $2.08 billion. The company reported covenant compliance, or that covenants were not applicable, as of quarter-end.
- First-half financing cash flow was $27.1 million, including $420 million of revolver borrowings and $390 million of repayments. Cash increased $29.7 million from year-end 2021.
Changes, outlook and notable items
- Management attributed recovery to increased center memberships and utilization, pricing initiatives, and the return of more athletic events. Center memberships remained below the 870,237 reported at June 30, 2019 before the pandemic.
- Operating results included a $49.6 million first-half gain on sale-leaseback transactions involving four properties, including $21.3 million in Q2. Adjusted EBITDA excludes this gain. The transactions generated $174.2 million of net cash proceeds.
- Management cited elevated inflation affecting wages, construction costs and other operating expenses, with pressure on margins and capital spending; labor and supply-chain conditions also remain concerns. Management expects elevated inflation to persist through the rest of 2022 but provided no specific financial guidance in the supplied filing text.
- Growth plans included 19 centers under construction, 12 planned openings in 2022 and 11 or more in 2023. On August 5, 2022, the company agreed to a further five-property sale-leaseback for approximately $200 million, expected to close in early October, and said it was exploring additional transactions targeting about $300 million in gross proceeds by year-end.
- Management said liquidity was supported by cash, revolver availability, operating recovery and planned sale-leasebacks, while warning that additional financing may not be available on acceptable terms or at all. A one-percentage-point interest-rate change could alter annual interest expense by approximately $7.5 million if the revolver were fully drawn and the stated assumptions held.
- The company is pursuing a COVID-19 business-interruption and construction-related insurance claim against Zurich; the matter was in discovery and its outcome was described as uncertain. Management said other routine legal matters were not expected to have a material adverse effect.
Important facts for investors to verify
- How much reported profitability and adjusted EBITDA depends on sale-leaseback gains and other excluded adjustments, and the continuing cost of leasing properties sold.
- Whether membership growth, utilization and pricing can sustain revenue and margins as inflation, wages and construction costs remain elevated.
- Growth-capex requirements and the expected returns and timing of the 19 projects under construction and planned new centers.
- Debt-service exposure, variable-rate borrowing costs, refinancing needs and revolver covenant triggers; consider operating lease obligations alongside reported debt.
- Completion, proceeds and accounting impact of announced and potential sale-leasebacks, and the uncertain outcome of the Zurich insurance litigation.