Business context and reporting period
Life Time Group Holdings, Inc. operates premium health, fitness and wellness clubs, with digital offerings and related businesses. This Form 10-Q covers the three and nine months ended September 30, 2023. The company operated 170 centers in 31 U.S. states and one Canadian province at quarter-end, serving about 830,000 memberships.
Financial performance
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Total revenue | $585.2 million | $496.4 million | $1,657.8 million | $1,349.9 million |
| Operating income | $46.7 million | $55.7 million | $166.5 million | $65.6 million |
| Net income (loss) | $7.9 million | $24.7 million | $52.4 million | $(15.5) million |
| GAAP net margin | 1.4% | 5.0% | 3.2% | (1.1)% |
| Adjusted EBITDA (non-GAAP) | $143.0 million | $71.0 million | $399.1 million | $174.7 million |
| Adjusted EBITDA margin (non-GAAP) | 24.4% | 14.3% | 24.1% | 12.9% |
| Diluted EPS | $0.04 | $0.12 | $0.26 | $(0.08) |
Revenue increased approximately 18% in Q3 and 23% year to date. Membership dues and enrollment fees, higher membership counts and pricing, and increased use of in-club services were the primary growth drivers. Center memberships rose to 784,331 from 728,729 year over year; average center revenue per center membership was $722 for Q3 and $2,095 year to date.
For the first nine months, cash from operations was $330.9 million, compared with $125.3 million in 2022. Capital expenditures were $525.8 million, and net cash used in investing activities was $403.5 million. Sale-leaseback proceeds were $121.8 million. Cash and cash equivalents were $25.4 million on the balance sheet at September 30.
Total debt was $1.90 billion before unamortized discounts and issuance costs; $64.0 million was classified as current. Long-term operating lease liabilities were $2.25 billion, in addition to $56.3 million current. The company reported $397.4 million of revolver availability after outstanding borrowings and letters of credit, and stated total cash and revolver availability of $406.6 million. Its liquidity discussion separately cites $9.2 million of cash excluding restricted cash; the filing text does not clearly reconcile this with the balance-sheet cash figure.
Material changes versus the prior comparable period
- Q3 revenue grew, but GAAP net income declined as operating income fell and interest expense increased. The year-over-year comparison was also affected by a $47.9 million sale-leaseback gain in Q3 2022 versus a $13.2 million loss in Q3 2023, plus a $5.6 million loss on an outparcel sale in 2023.
- For the nine-month period, the company returned to GAAP profitability from a year-earlier loss. Operating income increased substantially, while the comparison was affected by $98.0 million of sale-leaseback gains in 2022 versus $13.4 million of losses in 2023.
- Q3 center operating costs, rent and depreciation increased with membership growth and new or ramping centers. General, administrative and marketing expense declined. Interest expense rose by $5.4 million in Q3 and $11.5 million year to date, reflecting higher borrowing levels and interest rates.
- Operating cash flow improved, but investment spending increased materially with construction activity. Capital expenditures exceeded operating cash flow by $194.9 million before sale-leaseback proceeds.
Outlook, commentary, risks and unusual items
- Management plans 22–24 new centers over 2023 and 2024, with eight under construction at quarter-end and $285 million of growth capital expenditures already invested in centers not yet open. Management noted new centers typically take three to four years to reach expected performance.
- The filing provides no specific numerical financial guidance. Management said it expects growth from new-center openings and ramp-ups, member engagement and strategic offerings, while prioritizing balance-sheet improvement, lower leverage and positive cash flow after capital expenditures.
- Management cited inflation in wages, construction and operating costs; elevated interest rates; labor and supply-chain conditions; and potential recession risk. Higher rates increase costs on variable-rate debt and may increase sale-leaseback capitalization rates or delay transactions.
- In May 2023, the company refinanced its $273.6 million term loan due December 2024 with a $310.0 million facility due January 2026 and transitioned from LIBOR to SOFR. The term loan and revolver have variable rates. The company estimated that a one-percentage-point rate change could change annual interest expense by approximately $7.9 million under the stated full-draw assumptions.
- The company reported compliance in all material respects with applicable debt covenants at quarter-end. Its first-lien leverage covenant applies only under specified revolver-draw conditions.
- The company is pursuing an insurance coverage and damages action against Zurich related to COVID-19 business interruptions and construction suspensions; the matter is in discovery and its outcome is uncertain. Management stated other ordinary-course legal matters are not expected to have a material adverse effect.
- Q3 included a $5.3 million long-lived asset impairment tied to an outparcel sale. Nine-month sale-leaseback transactions involving three properties generated $123.3 million of net cash proceeds and a $13.4 million loss.
Important facts for investors to verify
- Reconcile the $25.4 million balance-sheet cash balance with management’s $9.2 million cash figure excluding restricted cash and the stated $406.6 million of total cash and revolver availability.
- Assess recurring operating performance separately from sale-leaseback gains and losses, impairment charges and other adjustments included in non-GAAP measures.
- Track capital spending, center-opening timing and ramp-up performance against management’s plans, and whether operating cash flow can cover investment needs over time.
- Monitor variable-rate debt costs, refinancing needs, covenant headroom and the concentration of scheduled debt maturities in October 2025 through September 2026.
- Review membership and revenue trends, margin progression, and the assumptions and exclusions used in Adjusted EBITDA and Adjusted net income.