Business context and reporting period
Life Time Group Holdings, Inc. filed this Form 10-K for the fiscal year ended December 31, 2022; it reports full-year results, not standalone fourth-quarter results. The company operates premium health, fitness and wellness centers and digital, event, coworking and residential offerings. At year-end it had 161 centers across 29 U.S. states and one Canadian province, 776,676 total memberships and 725,206 center memberships.
Key financial metrics
| Metric | 2022 | 2021 |
|---|---|---|
| Revenue | $1,822.6 million | $1,318.1 million |
| Operating income (loss) | $110.6 million | $(495.2) million |
| Net income (loss) | $(1.8) million | $(579.4) million |
| Net loss margin | (0.1)% | (44.0)% |
| Adjusted EBITDA and margin | $281.7 million; 15.5% | $80.3 million; 6.1% |
| Net cash from (used in) operations | $201.0 million | $(20.0) million |
| Free cash flow before growth capital expenditures | $19.2 million | $(143.6) million |
Revenue rose 38.3%, reflecting membership recovery and pricing, greater use of in-center services, and 10 center openings. Membership dues and enrollment fees were $1,251.7 million; in-center revenue was $517.8 million. Average revenue per center membership increased to $2,528 from $2,098. Comparable center sales grew 33.0%, versus 35.3% in 2021.
Year-end cash and cash equivalents were $25.5 million. The $475 million revolving facility had $20.0 million drawn and $31.4 million in letters of credit, leaving $423.6 million available; cash plus revolver availability was $448.8 million. Total debt was $1.84 billion, including $1.806 billion of long-term debt net of current maturities and discounts. Net interest expense was $113.5 million. Operating lease liabilities were $2.214 billion; total lease-related liabilities, including finance leases and financing obligations, were $2.237 billion.
Capital expenditures were $591.2 million, including $409.4 million of growth capital expenditures net of construction reimbursements. Investing cash outflow was $243.5 million. Rent expense was $245.2 million.
Material changes versus the prior comparable period
- Revenue increased by $504.5 million, while net loss narrowed by $577.6 million to $1.8 million.
- Operating cash flow improved by $221.0 million to $201.0 million; free cash flow before growth capital expenditures improved by $162.9 million but remained positive at only $19.2 million.
- Center memberships rose 11.7% to 725,206; digital on-hold memberships fell 31.2% to 51,470.
- General, administrative and marketing expense fell to $214.0 million from $480.5 million, largely because share-based compensation declined to $37.3 million from $334.3 million following IPO-related vesting and recognition in 2021.
- Other operating income included a $97.5 million gain on nine sale-leaseback transactions. These transactions generated $373.2 million in net cash proceeds.
- Total capital expenditures increased to $591.2 million from $328.9 million, primarily due to new-center growth and technology investment.
Outlook, management commentary, risks and unusual items
Management planned to open 18 to 20 centers over the following two years and expected average revenue per center membership to continue increasing. It cited opportunities for further margin expansion in 2023 through higher dues revenue, operating efficiencies and continued implementation of member initiatives; these are expectations, not guaranteed results. At year-end, 12 centers were under construction, with $456 million invested in future center development.
Management identified elevated inflation and interest rates, labor and supply costs, and possible recession as pressures on margins, capital expenditures, financing costs and center development. Other key risks include membership retention and discretionary spending, competition, execution and returns on new centers, substantial debt and lease obligations, variable-rate borrowing costs, and operational, cybersecurity, privacy and legal exposures. The company expected to transition its LIBOR-linked credit facilities to SOFR by June 30, 2023.
The company was pursuing insurance recovery litigation against Zurich relating to COVID-19 business interruption and construction coverage; the case was in discovery and its outcome was not predictable. The 2022 near-breakeven GAAP result also reflects a $97.5 million sale-leaseback gain, while Adjusted EBITDA excludes sale-leaseback gains and other specified items. The company reported effective internal control over financial reporting, and the auditor issued unqualified opinions on the financial statements and internal controls.
Life Time disclosed substantial control by a stockholder voting group, which held approximately 84.3% of voting power at year-end. It did not expect to pay cash dividends in the foreseeable future.
Important facts for investors to verify
- Whether membership growth, pricing and center utilization persist, and how these affect retention and comparable sales.
- How much of 2022 profitability and cash generation is sustainable apart from the sale-leaseback gain and other adjustments used in Adjusted EBITDA.
- Whether planned openings meet cost, timing and return targets, given $456 million invested in future development and sharply higher growth capital expenditures.
- Debt maturities, variable interest exposure, lease commitments and the company’s ability to maintain liquidity while funding expansion.
- Developments and potential financial impact of the Zurich litigation, and the terms and cash effects of future sale-leaseback transactions.