Life Time Group Holdings, Inc. — Q1 2022 10-Q
Reporting period: Three months ended March 31, 2022. Life Time operates premium health, fitness and wellness centers and digital offerings. It had 153 centers open across 29 U.S. states and one Canadian province.
Key financial results
| Metric | Q1 2022 | Q1 2021 |
|---|---|---|
| Total revenue | $392.3 million | $249.3 million |
| Operating loss | $10.9 million | $82.2 million |
| Net loss | $38.0 million | $152.8 million |
| Loss per share, diluted | $0.20 | $1.08 |
| Adjusted EBITDA (non-GAAP) | $40.6 million; 10.4% margin | $(18.9) million; (7.6)% margin |
| Operating cash flow | $9.1 million | $(38.2) million |
| Free cash flow before growth capital expenditures (non-GAAP) | $(35.3) million | $(53.9) million |
| Capital expenditures | $110.8 million | $43.3 million |
Revenue increased 57% year over year. Center revenue was $381.6 million, including $271.9 million from membership dues and enrollment fees and $109.7 million from in-center businesses. Net loss margin improved to 9.7% from 61.3%. Adjusted EBITDA is a company-defined non-GAAP measure and excludes, among other items, share-based compensation and sale-leaseback gains.
Balance sheet and liquidity
- At March 31, cash and cash equivalents were $41.1 million; total debt, net of discounts and issuance costs, was $1.83 billion. Long-term operating lease liabilities were $1.97 billion.
- Revolver availability was $411.5 million, with $30.0 million drawn and $33.5 million in letters of credit. Cash plus revolver availability totaled $452.6 million.
- Investing activities used $26.3 million, including $110.8 million in capital expenditures and $79.7 million in sale-leaseback proceeds. Financing activities provided $26.6 million.
- Management reported material compliance with applicable debt covenants as of quarter-end.
Material changes and notable items
- Revenue recovery reflected higher center membership and utilization, pricing actions taken in 2021, and more athletic events than in the prior-year quarter. Center memberships rose 23.8% year over year to 674,000; total memberships were 744,272.
- Average revenue per center membership increased to $580 from $459. Comparable center sales grew 50.3%, versus a 39.4% decline in Q1 2021.
- Q1 2022 operating results included a $28.4 million gain on a sale-leaseback of two properties. The transaction generated $79.7 million in net cash proceeds. The company had agreements for two additional properties, expected to close around May 13, 2022.
- Q1 2022 general, administrative and marketing expense included $21.4 million of share-based compensation, most of which related to awards that vested or became exercisable on April 4, 2022.
- Capital expenditures rose substantially, mainly from new-center construction and corporate investments, including Life Time Work and technology.
Outlook, risks and contingencies
- No specific financial guidance was provided. Management said it planned 11 or more new centers in 2022, with 14 under construction at quarter-end, and anticipated continued growth in average revenue per center membership.
- Management was exploring sale-leasebacks with targeted gross proceeds of approximately $500 million by the end of Q3 2022. These transactions are not assured.
- Management cited ongoing uncertainty from COVID-19 and possible new variants, inflation, labor conditions, rising interest rates, and access to financing. It cautioned that investments in centers, services, team members and digital offerings may weigh on near-term results and cash flows.
- The company is pursuing insurance coverage and damages from Zurich American Insurance Company relating to COVID-19 business closures and suspended construction projects; the case was in discovery and its outcome was uncertain.
- Variable-rate debt creates interest-rate exposure: management estimated that a one-percentage-point rate change would affect annual interest expense by approximately $7.5 million if the revolver were fully drawn and stated assumptions applied.
Investor facts to verify
- Whether membership growth and utilization continue, and how pricing and service activity affect recurring revenue.
- Whether planned center openings and construction proceed on schedule and within budget, given elevated capital spending.
- Whether announced and targeted sale-leasebacks close as expected, and their effects on liquidity, rent expense and property ownership.
- Debt maturities, variable-rate exposure, covenant headroom and the company’s ability to fund operating needs and investment plans.
- The sustainability of profitability and cash generation excluding the sale-leaseback gain and other adjustments used in Adjusted EBITDA.
- Developments in the Zurich insurance litigation and any material changes in the risks described in the company’s annual report.