Life Time Group Holdings, Inc. — FY2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021; filed March 10, 2022. This is an annual report, not a standalone fourth-quarter report. Life Time operates premium health, fitness and wellness centers and digital, event, coworking and residential offerings. It had 151 centers in 29 U.S. states and one Canadian province at year-end.
Key financial metrics
| Metric | 2021 | 2020 | 2019 |
|---|---|---|---|
| Revenue | $1,318.1 million | $948.4 million | $1,900.4 million |
| Net income (loss) | $(579.4) million | $(360.2) million | $30.0 million |
| Net margin | (44.0)% | (38.0)% | 1.6% |
| Adjusted EBITDA | $80.3 million | $(63.0) million | $437.9 million |
| Adjusted EBITDA margin | 6.1% | (6.6)% | 23.0% |
| Cash from operating activities | $(20.0) million | $(96.0) million | $358.7 million |
| Free cash flow before growth capital expenditures | $(143.6) million | $(197.4) million | $177.5 million |
Revenue grew 39% from 2020 as centers reopened, membership dues recovered and pricing initiatives lifted average dues for new members. It remained 31% below 2019. Center revenue was $1,286.6 million; membership dues and enrollment fees were $907.1 million, and in-center revenue was $379.5 million. The filing does not provide a clear gross profit or gross margin measure.
Net loss widened despite the revenue recovery. The 2021 result included $334.3 million of share-based compensation, largely triggered by the IPO, and $224.5 million of net interest expense, including a $41.0 million non-cash debt-extinguishment loss and $28.6 million of debt discount and issuance-cost write-offs. Adjusted EBITDA is a non-GAAP measure and excludes specified items; it should be considered alongside GAAP results.
At year-end, cash and equivalents were $31.6 million. The revolving facility had $341.5 million available, with no borrowings and $33.5 million of letters of credit; the stated $100 million minimum-liquidity condition ended December 31, 2021. Gross debt was approximately $1.825 billion, excluding lease liabilities; operating lease liabilities were $1.956 billion. Total liabilities were $4.165 billion. The company reported $118.5 million of expected interest payments over the next 12 months.
Material changes and operating trends
- All 151 centers were open at year-end. Center memberships increased 29.6% to 649,373 from 500,948; digital-on-hold memberships fell to 74,767 from 248,641. Total memberships were 724,140, down 3.4% from 2020 and below the 944,047 reported for 2019.
- Average revenue per center membership recovered to $2,098 from $1,317 in 2020, but remained below $2,172 in 2019. Comparable center sales rose 35.3% in 2021 after falling 52.2% in 2020.
- Operating cash use improved by $76.0 million year over year but remained negative. Capital expenditures rose to $328.9 million from $265.6 million, including $205.3 million of growth capital expenditures.
- The October 2021 IPO and partial over-allotment generated $701.4 million of net proceeds. The company used $575.7 million to pay down its term loan and stated the remaining proceeds were for general corporate purposes. It refinanced debt during 2021 and extended the revolving facility commitment to $475 million.
Outlook, risks and unusual items
Management described recovery from COVID-19 as ongoing and uncertain, with membership, center activity and operating restrictions varying by location. It plans to open 22 or more centers in 2022 and 2023 and targets 10 or more new centers annually over the foreseeable future. Twelve centers were under construction at year-end, with $340 million of capital expenditures invested in future center development. These are plans and targets, not guaranteed results; the filing provides no formal revenue or earnings guidance.
Management expects to grow through premium-center expansion, pricing and service initiatives, digital offerings, and asset-light coworking and residential concepts. It cautioned that investment may precede returns. Inflation, labor availability and costs, construction costs, competition, member retention, COVID-19 developments, technology and data-security issues, substantial debt and lease obligations, and covenant restrictions could weigh on results or liquidity.
A Minnesota lawsuit seeks business-interruption and builders’-risk insurance coverage from Zurich related to COVID-19 closures and suspended construction; the parties were in discovery, and the outcome was not predictable. In March 2022, the company entered agreements to sell and lease back four properties for approximately $175 million in aggregate, with closings expected in stages through September 2022. The statements received an unqualified audit opinion; the auditor identified sale-leaseback accounting and valuation as a critical audit matter. No auditor opinion on internal control effectiveness was provided because of the new-public-company transition.
Important facts for investors to verify
- Whether center memberships, member visits and revenue per membership continue to recover, and how much growth depends on former digital-on-hold members returning.
- Whether Adjusted EBITDA improvement converts into positive operating cash flow and free cash flow after maintenance and growth investment.
- Debt repayment and refinancing capacity, interest-rate exposure, covenant compliance, and the scale and duration of lease commitments.
- Whether planned center openings and the four-property sale-leasebacks close on schedule and deliver expected economics without excessive rent or capital requirements.
- The ultimate effect of IPO-related share-based compensation, option exercises and potential dilution; 84.5% of voting power was held by the controlling stockholder group at year-end.
- The outcome of the Zurich coverage dispute and any material developments in other legal, regulatory, labor or cybersecurity matters.