Life Time Group Holdings, Inc. — Q3 2022 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2022. Life Time operated 156 premium fitness and wellness centers across 29 U.S. states and one Canadian province. All centers were open at quarter-end.
Financial performance
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Revenue | $496.4 million | $385.0 million | $1,349.9 million | $957.5 million |
| Operating income (loss) | $55.7 million | ($17.5 million) | $65.6 million | ($156.9 million) |
| Net income (loss) | $24.7 million | ($45.4 million) | ($15.5 million) | ($274.6 million) |
| Net income (loss) margin | 5.0% | (11.8%) | (1.1%) | (28.7%) |
| Adjusted EBITDA (non-GAAP) | $71.0 million | $47.0 million | $174.7 million | $32.3 million |
| Net cash from (used in) operating activities | Quarterly amount not clearly provided here | $125.3 million | ($15.3 million) | |
| Free cash flow before growth capital expenditures (non-GAAP) | $7.4 million | ($38.6 million) | $5.5 million | ($99.5 million) |
Q3 revenue increased 28.9% year over year; nine-month revenue increased 41.0%. Growth reflected recovering center activity, increased memberships, pricing initiatives, new centers, and greater event participation. Q3 center memberships were 728,729, up 9.0% year over year; total memberships were 776,002, up 3.0%. Average revenue per center membership was $660 for Q3 and $1,885 for the nine-month period.
For the nine months, capital expenditures were $409.9 million, including $290.1 million of growth capital expenditures net of construction reimbursements. Cash and cash equivalents were $107.1 million at September 30, compared with $31.6 million at December 31, 2021. Management separately reported $540.7 million of total cash and revolver availability, comprising $97.4 million of cash (excluding restricted cash) and $443.3 million of available revolving credit.
Debt, net of unamortized discounts and issuance costs, was $1.790 billion; long-term debt was $1.775 billion. The $475 million revolving facility had no borrowings at quarter-end and $31.7 million of letters of credit. Operating lease liabilities totaled about $2.258 billion. Management said the company was in material compliance with applicable debt covenants.
Material changes and unusual items
- Q3 2022 operating results included a $47.9 million gain from sale-leasebacks of five properties. For the first nine months, sale-leasebacks of nine properties generated a $98.0 million gain and $373.5 million in net cash proceeds. These gains materially supported reported operating income and Adjusted EBITDA; Adjusted EBITDA excludes the sale-leaseback gain.
- Despite a nine-month net loss, operating cash flow improved to $125.3 million from an outflow of $15.3 million a year earlier, primarily due to improved profitability. Investing cash outflow was $37.5 million, compared with $138.2 million; financing cash outflow was $11.7 million, versus inflow of $165.1 million.
- Interest expense fell year over year, partly because 2021 included $41.0 million of non-cash debt-extinguishment expense and $18.3 million of debt-cost write-offs. The company also had lower average borrowings.
- Center operations and rent costs rose in dollars, reflecting higher utilization, staffing, new centers, inflation, new property leases, and sale-leasebacks. Nine-month share-based compensation expense increased to $33.2 million from $7.0 million.
Outlook, commentary, and risks
The filing provides no specific numerical earnings or revenue guidance. Management expected elevated inflation and interest rates to continue through the remainder of 2022 and cited labor and supply-chain pressures and potential recession risk. Inflation was increasing wages, construction and operating costs, pressuring margins and raising capital expenditures; higher rates increased the cost of variable-rate debt and could affect future sale-leaseback economics. Management emphasized member experience, center efficiency and expense control, while noting that investments may precede their revenue and cash-flow returns.
Expansion plans disclosed in the filing included 17 centers under construction and plans for 12 openings in 2022 and 11 in 2023. These are stated plans, not assurances. The company also noted that recovery remained uneven by location and that future COVID-19 variants or restrictions could affect operations. Its COVID-19-related insurance coverage lawsuit against Zurich was in discovery; the outcome was uncertain and not predictable with assurance. Management reported no material changes to the risk factors in its 2021 Form 10-K.
Important facts for investors to verify
- How much recurring operating performance supports earnings apart from the $98.0 million year-to-date sale-leaseback gain, and how the related leases affect future rent and cash flows.
- Whether membership growth, pricing, utilization and average revenue per membership continue, and whether inflation-driven labor, utility and construction costs constrain margins.
- Whether expansion spending and planned openings can be funded while maintaining liquidity, given $409.9 million of nine-month capital expenditures and substantial lease obligations.
- Debt interest-rate exposure, refinancing and maturity terms, including the term loan’s December 2024 maturity and the large 2025–2026 debt maturities.
- Potential recovery, timing and financial impact of the Zurich insurance litigation; the filing states that the outcome is uncertain.