UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
______________________________________________________
FORM 10-Q
____________________________________________________
(Mark One)
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☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 20212023
OR
| | | | | |
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number: 001-40887
Life Time Group Holdings, Inc.
(Exact name of registrantregistrant as specified in its charter)
| | | | | | | | |
Delaware | | 47-3481985 |
(State or other jurisdiction of incorporation or organization) | | (I.R.S. Employer Identification No.) |
2902 Corporate Place
Chanhassen, Minnesota 55317
(952) 947-0000
(Address of principal executive offices, including zip codecode; Registrant’s telephone number, including area code)
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
| | | | | | | | |
Title of Each Class | Trading Symbol | Name of Each Exchange on Which Registered |
Common stock, par value $0.01 per share | LTH | The New York Stock Exchange |
Indicate by check mark whether the registrantregistrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No No ☒
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| | | | | | | | | | | | | | | | | | | | | | | | | |
Large accelerated Filerfiler | ☐ | | Accelerated filer | ☐☒ | | Non-accelerated filer | ☒☐ | | |
Smaller reporting company | ☐ | | | | | Emerging growth company | ☐ | | |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of oNovember 15, 2021,f October 27, 2023, the Registrantregistrant had 193,059,950196,408,901 shares of common stock outstanding, par value $0.01 per share.
TABLE OF CONTENTS
PART I — FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
LIFE TIME GROUP HOLDINGS,, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)
(Unaudited)
| | | | | | | | | | | |
| September 30, 2021 | | December 31, 2020 |
ASSETS | | | |
Current assets: | | | |
Cash and cash equivalents | $ | 44,827 | | $ | 33,195 |
Accounts receivable | 8,326 | | 4,805 |
Center operating supplies and inventories | 40,113 | | 36,276 |
Prepaid expenses and other current assets | 35,214 | | 87,231 |
Income tax receivable | 3,466 | | 4,192 |
Total current assets | 131,946 | | 165,699 |
Property and equipment, net | 2,699,104 | | 2,692,712 |
Goodwill | 1,233,176 | | 1,233,176 |
Operating lease right-of-use assets | 1,864,246 | | 1,708,597 |
Intangible assets, net | 173,604 | | 164,419 |
Other assets | 55,425 | | 52,955 |
Total assets | $ | 6,157,501 | | $ | 6,017,558 |
LIABILITIES, MEZZANINE EQUITY AND STOCKHOLDERS’ EQUITY | | | |
Current liabilities | | | |
Accounts payable | $ | 71,962 | | $ | 54,104 |
Construction accounts payable | 51,946 | | 39,936 |
Deferred revenue | 28,190 | | 42,274 |
Accrued expenses and other current liabilities | 183,703 | | 117,675 |
Current maturities of debt | 31,841 | | 139,266 |
Current maturities of operating lease liabilities | 44,137 | | 49,877 |
Total current liabilities | 411,779 | | 443,132 |
Long-term debt, net of current portion | 2,331,500 | | 2,133,330 |
Operating lease liabilities, net of current portion | 1,902,784 | | 1,738,393 |
Deferred income taxes | 131,655 | | 195,122 |
Other liabilities | 25,027 | | 26,168 |
Total liabilities | 4,802,745 | | 4,536,145 |
Commitments and contingencies (Note 10) | 0 | | 0 |
Mezzanine equity: | | | |
Series A convertible participating preferred stock, $0.01 par value per share; 12,000 shares authorized; 5,930 and 0 shares issued and outstanding, respectively | 153,620 | | — |
Stockholders’ equity: | | | |
Common stock, $0.01 par value per share; 200,000 and 170,000 shares authorized, respectively; 145,196 shares issued and outstanding | 1,452 | | 1,452 |
Additional paid-in capital | 1,548,904 | | 1,569,905 |
Stockholder note receivable | — | | (15,000) |
Retained deficit | (346,313) | | (71,714) |
Accumulated other comprehensive loss | (2,907) | | (3,230) |
Total stockholders’ equity | 1,201,136 | | 1,481,413 |
Total liabilities, mezzanine equity and stockholders’ equity | $ | 6,157,501 | | $ | 6,017,558 |
See notes to unaudited condensed consolidated financial statements.
LIFE TIME GROUP HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2021 | | 2020 | | 2021 | | 2020 |
Revenue: | | | | | | | |
Center revenue | $ | 372,000 | | $ | 228,349 | | $ | 933,690 | | $ | 704,919 |
Other revenue | 13,040 | | 2,681 | | 23,835 | | 14,991 |
Total revenue | 385,040 | | 231,030 | | 957,525 | | 719,910 |
Operating expenses: | | | | | | | |
Center operations | 231,996 | | 165,572 | | 625,322 | | 515,350 |
Rent | 52,513 | | 47,539 | | 154,552 | | 138,470 |
General, administrative, and marketing | 45,304 | | 32,204 | | 126,896 | | 119,665 |
Depreciation and amortization | 57,977 | | 61,359 | | 177,005 | | 188,483 |
Other operating | 14,796 | | 15,152 | | 30,660 | | 37,412 |
Total operating expenses | 402,586 | | 321,826 | | 1,114,435 | | 999,380 |
Loss from operations | (17,546) | | (90,796) | | (156,910) | | (279,470) |
Other (expense) income: | | | | | | | |
Interest expense, net of interest income | (39,849) | | (30,967) | | (176,144) | | (95,724) |
Equity in earnings of affiliate | (28) | | 37 | | (412) | | (206) |
Total other expense | (39,877) | | (30,930) | | (176,556) | | (95,930) |
Loss before income taxes | (57,423) | | (121,726) | | (333,466) | | (375,400) |
Benefit from income taxes | (11,981) | | (28,079) | | (58,867) | | (99,096) |
Net loss | $ | (45,442) | | $ | (93,647) | | $ | (274,599) | | $ | (276,304) |
Loss per common share—basic and diluted | $ | (0.36) | | $ | (0.64) | | $ | (2.00) | | $ | (1.90) |
Weighted-average common shares outstanding—basic and diluted | 145,196 | | 145,196 | | 145,196 | | 145,118 |
See notes to unaudited condensed consolidated financial statements.
LIFE TIME GROUP HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(In thousands)
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2021 | | 2020 | | 2021 | | 2020 |
Net loss | $ | (45,442) | | $ | (93,647) | | $ | (274,599) | | $ | (276,304) |
Foreign currency translation adjustments, net of tax of $0 | (2,404) | | 2,436 | | 323 | | (3,413) |
Comprehensive loss | $ | (47,846) | | $ | (91,211) | | $ | (274,276) | | $ | (279,717) |
| | | | | | | | | | | |
| September 30, 2023 | | December 31, 2022 |
ASSETS | | | |
Current assets: | | | |
Cash and cash equivalents | $ | 25,441 | | | $ | 25,509 | |
Accounts receivable, net | 19,190 | | | 13,381 | |
Center operating supplies and inventories | 48,557 | | | 45,655 | |
Prepaid expenses and other current assets | 48,369 | | | 45,743 | |
Income tax receivable | 11,715 | | | 748 | |
Total current assets | 153,272 | | | 131,036 | |
Property and equipment, net | 3,074,634 | | | 2,901,242 | |
Goodwill | 1,235,359 | | | 1,233,176 | |
Operating lease right-of-use assets | 2,187,804 | | | 2,116,761 | |
Intangible assets, net | 172,422 | | | 173,404 | |
Other assets | 73,572 | | | 69,744 | |
Total assets | $ | 6,897,063 | | | $ | 6,625,363 | |
LIABILITIES AND STOCKHOLDERS’ EQUITY | | | |
Current liabilities: | | | |
Accounts payable | $ | 76,138 | | | $ | 73,973 | |
Construction accounts payable | 107,955 | | | 125,031 | |
Deferred revenue | 39,357 | | | 36,859 | |
Accrued expenses and other current liabilities | 179,382 | | | 154,427 | |
Current maturities of debt | 64,033 | | | 15,224 | |
Current maturities of operating lease liabilities | 56,320 | | | 51,892 | |
Total current liabilities | 523,185 | | | 457,406 | |
Long-term debt, net of current portion | 1,815,965 | | | 1,805,698 | |
Operating lease liabilities, net of current portion | 2,248,026 | | | 2,162,424 | |
Deferred income taxes, net | 57,377 | | | 41,393 | |
Other liabilities | 35,621 | | | 34,181 | |
Total liabilities | 4,680,174 | | | 4,501,102 | |
Commitments and contingencies (Note 10) | | | |
Stockholders’ equity: | | | |
Common stock, $0.01 par value per share; 500,000 shares authorized; 196,183 and 194,271 shares issued and outstanding, respectively. | 1,962 | | | 1,943 | |
Additional paid-in capital | 2,824,949 | | | 2,784,416 | |
Accumulated deficit | (600,497) | | | (652,876) | |
Accumulated other comprehensive loss | (9,525) | | | (9,222) | |
Total stockholders’ equity | 2,216,889 | | | 2,124,261 | |
Total liabilities and stockholders’ equity | $ | 6,897,063 | | | $ | 6,625,363 | |
See notes to unaudited condensed consolidated financial statements.
LIFE TIME GROUP HOLDINGS,, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITYOPERATIONS
(In thousands)thousands, except per share data)
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2023 | | 2022 | | 2023 | | 2022 |
Revenue: | | | | | | | |
Center revenue | $ | 568,402 | | | $ | 479,995 | | | $ | 1,608,279 | | $ | 1,307,498 |
Other revenue | 16,775 | | | 16,386 | | | 49,480 | | 42,404 |
Total revenue | 585,177 | | | 496,381 | | | 1,657,759 | | 1,349,902 |
Operating expenses: | | | | | | | |
Center operations | 319,401 | | | 295,253 | | | 896,113 | | 814,383 |
Rent | 69,225 | | | 63,213 | | | 203,196 | | 179,166 |
General, administrative and marketing | 51,668 | | | 57,139 | | | 147,005 | | 175,650 |
Depreciation and amortization | 63,618 | | | 56,400 | | | 180,067 | | 171,680 |
Other operating expense (income) | 34,516 | | | (31,358) | | | 64,837 | | (56,605) |
Total operating expenses | 538,428 | | | 440,647 | | | 1,491,218 | | 1,284,274 |
Income from operations | 46,749 | | | 55,734 | | | 166,541 | | 65,628 |
Other (expense) income: | | | | | | | |
Interest expense, net of interest income | (33,075) | | | (27,696) | | | (96,249) | | (84,732) |
Equity in earnings of affiliate | 56 | | | 95 | | | 287 | | 129 |
Total other expense | (33,019) | | | (27,601) | | | (95,962) | | (84,603) |
Income (loss) before income taxes | 13,730 | | | 28,133 | | | 70,579 | | (18,975) |
Provision for (benefit from) income taxes | 5,815 | | | 3,401 | | | 18,200 | | (3,456) |
Net income (loss) | $ | 7,915 | | | $ | 24,732 | | | $ | 52,379 | | $ | (15,519) |
| | | | | | | |
Income (loss) per common share: | | | | | | | |
Basic | $ | 0.04 | | | $ | 0.13 | | | $ | 0.27 | | $ | (0.08) |
Diluted | $ | 0.04 | | | $ | 0.12 | | | $ | 0.26 | | $ | (0.08) |
Weighted-average common shares outstanding: | | | | | | | |
Basic | 196,146 | | | 193,918 | | | 195,404 | | 193,364 |
Diluted | 204,298 | | | 198,381 | | | 203,954 | | 193,364 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Common Stock | | Additional Paid-In Capital | | Stockholder Note Receivable | | Retained Deficit | | Accumulated Other Comprehensive Loss | | Total Equity |
| | | | |
Shares | | Amount |
Balance at July 1, 2021 | 145,196 | | | $ | 1,452 | | | $ | 1,564,591 | | | $ | (15,000) | | | $ | (300,871) | | | $ | (503) | | | $ | 1,249,669 | |
Net loss | — | | | — | | | — | | | — | | | (45,442) | | | — | | | (45,442) | |
Other comprehensive loss | — | | | — | | | — | | | — | | | — | | | (2,404) | | | (2,404) | |
Share-based compensation | — | | | — | | | 1,794 | | | — | | | — | | | — | | | 1,794 | |
Cancellation of stockholder note receivable | — | | | — | | | (11,355) | | | 15,000 | | | — | | | — | | | 3,645 | |
Dividends on preferred stock | — | | | — | | | (6,126) | | | — | | | — | | | — | | | (6,126) | |
Balance at September 30, 2021 | 145,196 | | | $ | 1,452 | | | $ | 1,548,904 | | | $ | — | | | $ | (346,313) | | | $ | (2,907) | | | $ | 1,201,136 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Common Stock | | Additional Paid-In Capital | | Stockholder Note Receivable | | Retained Deficit | | Accumulated Other Comprehensive Loss | | Total Equity |
| | | | |
Shares | | Amount |
Balance at January 1, 2021 | 145,196 | | | $ | 1,452 | | | $ | 1,569,905 | | | $ | (15,000) | | | $ | (71,714) | | | $ | (3,230) | | | $ | 1,481,413 | |
Net loss | — | | | — | | | — | | | — | | | (274,599) | | | — | | | (274,599) | |
Other comprehensive income | — | | | — | | | — | | | — | | | — | | | 323 | | | 323 | |
Share-based compensation | — | | | — | | | 2,924 | | | — | | | — | | | — | | | 2,924 | |
Settlement of accrued compensation liabilities through the issuance of share-based compensation awards | — | | | — | | | 3,844 | | | — | | | — | | | — | | | 3,844 | |
Cancellation of stockholder note receivable | — | | | — | | | (11,355) | | | 15,000 | | | — | | | — | | | 3,645 | |
Dividends on preferred stock | — | | | — | | | (16,414) | | | — | | | — | | | — | | | (16,414) | |
Balance at September 30, 2021 | 145,196 | | | $ | 1,452 | | | $ | 1,548,904 | | | $ | — | | | $ | (346,313) | | | $ | (2,907) | | | $ | 1,201,136 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Common Stock | | Additional Paid-In Capital | | Stockholder Note Receivable | | Retained Earnings | | Accumulated Other Comprehensive Loss | | Total Equity |
| | | | |
Shares | | Amount |
Balance at July 1, 2020 | 145,196 | | | $ | 1,452 | | | $ | 1,569,905 | | | $ | (15,000) | | | $ | 105,821 | | | $ | (10,501) | | | $ | 1,651,677 | |
Net loss | — | | | — | | | — | | | — | | | (93,647) | | | — | | | (93,647) | |
Other comprehensive income | — | | | — | | | — | | | — | | | — | | | 2,436 | | | 2,436 | |
Balance at September 30, 2020 | 145,196 | | | $ | 1,452 | | | $ | 1,569,905 | | | $ | (15,000) | | | $ | 12,174 | | | $ | (8,065) | | | $ | 1,560,466 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Common Stock | | Additional Paid-In Capital | | Stockholder Note Receivable | | Retained Earnings | | Accumulated Other Comprehensive Loss | | Total Equity |
| | | | |
Shares | | Amount |
Balance at January 1, 2020 | 141,596 | | | $ | 1,416 | | | $ | 1,479,941 | | | $ | (15,000) | | | $ | 288,478 | | | $ | (4,652) | | | $ | 1,750,183 | |
Net loss | — | | | — | | | — | | | — | | | (276,304) | | | — | | | (276,304) | |
Other comprehensive income | — | | | — | | | — | | | — | | | — | | | (3,413) | | | (3,413) | |
Common stock issuance | 3,600 | | | 36 | | | 89,964 | | | — | | | — | | | — | | | 90,000 | |
Balance at September 30, 2020 | 145,196 | | | $ | 1,452 | | | $ | 1,569,905 | | | $ | (15,000) | | | $ | 12,174 | | | $ | (8,065) | | | $ | 1,560,466 | |
See notes to unaudited condensed consolidated financial statements.
LIFE TIME GROUP HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
| | | | | | | | | | | |
| Nine Months Ended September 30, |
| 2021 | | 2020 |
Cash flows from operating activities: | | | |
Net loss | $ | (274,599) | | $ | (276,304) |
Adjustments to reconcile net loss to net cash used in operating activities: | | | |
Depreciation and amortization | 177,005 | | 188,483 |
Deferred income taxes | (63,467) | | (69,229) |
Non-cash rent expense | 11,546 | | 34,489 |
Impairment charges associated with long-lived assets | 2,455 | | 16,903 |
Loss (gain) on disposal of property and equipment, net | 3,515 | | (2,894) |
Loss on debt extinguishment | 40,993 | | — |
Write-off of discounts and debt issuance costs | 18,325 | | — |
Amortization of discounts and debt issuance costs | 7,761 | | 8,959 |
Share-based compensation | 6,959 | | — |
Changes in operating assets and liabilities | 57,614 | | 45,096 |
Other | (3,429) | | (1,668) |
Net cash used in operating activities | (15,322) | | (56,165) |
Cash flows from investing activities: | | | |
Capital expenditures | (201,741) | | (213,876) |
Acquisitions, net of cash acquired | (9,139) | | — |
Proceeds from sale-leaseback transactions | 73,981 | | 122,883 |
Proceeds from the sale of land held for sale | — | | 22,971 |
Other | (1,291) | | 5,360 |
Net cash used in investing activities | (138,190) | | (62,662) |
Cash flows from financing activities: | | | |
Proceeds from borrowings | 1,907,577 | | 116,583 |
Repayments of debt | (1,602,164) | | (27,104) |
Proceeds from senior secured credit facility | 134,000 | | 506,000 |
Repayments of senior secured credit facility | (228,000) | | (587,902) |
Deposit associated with a pending sale-leaseback transaction | — | | 15,000 |
Repayments of finance lease liabilities | (1,133) | | (1,034) |
Increase in debt discounts and issuance costs | (45,151) | | (425) |
Proceeds from the issuance of common stock | — | | 90,000 |
Net cash provided by financing activities | 165,129 | | 111,118 |
Effect of exchange rates on cash and cash equivalents | 15 | | | (185) | |
Increase (decrease) in cash and cash equivalents | 11,632 | | (7,894) |
Cash and cash equivalents—beginning of period | 33,195 | | 47,951 |
Cash and cash equivalents—end of period | $ | 44,827 | | $ | 40,057 |
See notes to unaudited condensed consolidated financial statements.
LIFE TIME GROUP HOLDINGS,, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(In thousands)
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2023 | | 2022 | | 2023 | | 2022 |
Net income (loss) | $ | 7,915 | | | $ | 24,732 | | | $ | 52,379 | | $ | (15,519) |
Foreign currency translation adjustments, net of tax of $0 | (2,265) | | | (6,015) | | | (303) | | (7,339) |
Comprehensive income (loss) | $ | 5,650 | | | $ | 18,717 | | | $ | 52,076 | | $ | (22,858) |
See notes to unaudited condensed consolidated financial statements.
LIFE TIME GROUP HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(In thousands)
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Common Stock | | Additional Paid-In Capital | | Accumulated Deficit | | Accumulated Other Comprehensive Loss | | Total Equity |
| | | |
Shares | | Amount |
Balance at June 30, 2023 | 196,031 | | | $ | 1,960 | | | $ | 2,814,424 | | | $ | (608,412) | | | $ | (7,260) | | | $ | 2,200,712 | |
Net income | — | | | — | | | — | | | 7,915 | | | — | | | 7,915 | |
Other comprehensive loss | — | | | — | | | — | | | — | | | (2,265) | | | (2,265) | |
Share-based compensation | — | | | — | | | 8,906 | | | — | | | — | | | 8,906 | |
Stock option exercises | 152 | | | 2 | | | 1,619 | | | — | | | — | | | 1,621 | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
Balance at September 30, 2023 | 196,183 | | | $ | 1,962 | | | $ | 2,824,949 | | | $ | (600,497) | | | $ | (9,525) | | | $ | 2,216,889 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Common Stock | | Additional Paid-In Capital | | Accumulated Deficit | | Accumulated Other Comprehensive Loss | | Total Equity |
| | | |
Shares | | Amount |
Balance at December 31, 2022 | 194,271 | | | $ | 1,943 | | | $ | 2,784,416 | | | $ | (652,876) | | | $ | (9,222) | | | $ | 2,124,261 | |
Net income | — | | | — | | | — | | | 52,379 | | | — | | | 52,379 | |
Other comprehensive loss | — | | | — | | | — | | | — | | | (303) | | | (303) | |
Share-based compensation | — | | | — | | | 22,842 | | | — | | | — | | | 22,842 | |
Stock option exercises | 1,362 | | | 14 | | | 14,884 | | | — | | | — | | | 14,898 | |
| | | | | | | | | | | |
Issuances of common stock in connection with the vesting of restricted stock units | 337 | | | 3 | | | (113) | | | — | | | — | | | (110) | |
Issuances of common stock in connection with the employee stock purchase plan | 123 | | | 1 | | | 1,449 | | | — | | | — | | | 1,450 | |
Issuances of common stock in connection with business acquisitions | 90 | | | 1 | | | 1,471 | | | — | | | — | | | 1,472 | |
Balance at September 30, 2023 | 196,183 | | | $ | 1,962 | | | $ | 2,824,949 | | | $ | (600,497) | | | $ | (9,525) | | | $ | 2,216,889 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Common Stock | | Additional Paid-In Capital | | Accumulated Deficit | | Accumulated Other Comprehensive Loss | | Total Equity |
| | | |
Shares | | Amount |
Balance at June 30, 2022 | 193,796 | | | $ | 1,938 | | | $ | 2,772,393 | | | $ | (691,334) | | | $ | (4,340) | | | $ | 2,078,657 | |
Net income | — | | | — | | | — | | | 24,732 | | | — | | | 24,732 | |
Other comprehensive loss | — | | | — | | | — | | | — | | | (6,015) | | | (6,015) | |
Share-based compensation | — | | | — | | | 5,803 | | | — | | | — | | | 5,803 | |
Stock option exercises | 195 | | | 2 | | | 1,994 | | | — | | | — | | | 1,996 | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
Balance at September 30, 2022 | 193,991 | | | $ | 1,940 | | | $ | 2,780,190 | | | $ | (666,602) | | | $ | (10,355) | | | $ | 2,105,173 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Common Stock | | Additional Paid-In Capital | | Accumulated Deficit | | Accumulated Other Comprehensive Loss | | Total Equity |
| | | |
Shares | | Amount |
Balance at December 31, 2021 | 193,060 | | | $ | 1,931 | | | $ | 2,743,560 | | | $ | (651,083) | | | $ | (3,016) | | | $ | 2,091,392 | |
Net loss | — | | | — | | | — | | | (15,519) | | | — | | | (15,519) | |
Other comprehensive loss | — | | | — | | | — | | | — | | | (7,339) | | | (7,339) | |
Share-based compensation | — | | | — | | | 33,214 | | | — | | | — | | | 33,214 | |
Stock option exercises | 309 | | | 3 | | | 3,187 | | | — | | | — | | | 3,190 | |
Equity issuance costs | — | | | — | | | (270) | | | — | | | — | | | (270) | |
Issuances of common stock in connection with the vesting of restricted stock units | 622 | | | 6 | | | (6) | | | — | | | — | | | — | |
Settlement of accrued compensation liabilities through the issuance of share-based compensation awards | — | | | — | | | 505 | | | — | | | — | | | 505 | |
Balance at September 30, 2022 | 193,991 | | | $ | 1,940 | | | $ | 2,780,190 | | | $ | (666,602) | | | $ | (10,355) | | | $ | 2,105,173 | |
See notes to unaudited condensed consolidated financial statements.
LIFE TIME GROUP HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
| | | | | | | | | | | |
| Nine Months Ended September 30, |
| 2023 | | 2022 |
Cash flows from operating activities: | | | |
Net income (loss) | $ | 52,379 | | | $ | (15,519) | |
Adjustments to reconcile net income (loss) to net cash provided by operating activities: | | | |
Depreciation and amortization | 180,067 | | | 171,680 | |
Deferred income taxes | 15,994 | | | (10,957) | |
Share-based compensation | 37,029 | | | 33,214 | |
Non-cash rent expense | 26,900 | | | 27,304 | |
Impairment charges associated with long-lived assets | 6,620 | | | 153 | |
Loss (gain) on disposal of property and equipment, net | 13,742 | | | (98,498) | |
| | | |
| | | |
Amortization of debt discounts and issuance costs | 5,862 | | | 5,898 | |
Changes in operating assets and liabilities | (4,407) | | | 14,055 | |
Other | (3,240) | | | (2,010) | |
Net cash provided by operating activities | 330,946 | | | 125,320 | |
Cash flows from investing activities: | | | |
Capital expenditures | (525,796) | | | (409,946) | |
| | | |
Proceeds from sale-leaseback transactions | 121,831 | | | 373,451 | |
| | | |
Other | 416 | | | (985) | |
Net cash used in investing activities | (403,549) | | | (37,480) | |
Cash flows from financing activities: | | | |
Proceeds from borrowings | 44,291 | | | 8,657 | |
Repayments of debt | (11,202) | | | (21,993) | |
Proceeds from revolving credit facility | 986,000 | | | 710,000 | |
Repayments of revolving credit facility | (961,000) | | | (710,000) | |
Repayments of finance lease liabilities | (771) | | | (1,043) | |
Proceeds from financing obligations | 1,500 | | | — | |
Payments of debt discounts and issuance costs | (2,550) | | | (43) | |
| | | |
Proceeds from stock option exercises | 14,897 | | | 3,190 | |
Proceeds from issuances of common stock in connection with the employee stock purchase plan | 1,450 | | | — | |
Other | (110) | | | (476) | |
Net cash provided by (used in) financing activities | 72,505 | | | (11,708) | |
Effect of exchange rates on cash and cash equivalents | 30 | | | (700) | |
(Decrease) increase in cash and cash equivalents | (68) | | | 75,432 | |
Cash and cash equivalents – beginning of period | 25,509 | | | 31,637 | |
Cash and cash equivalents – end of period | $ | 25,441 | | | $ | 107,069 | |
See notes to unaudited condensed consolidated financial statements.
LIFE TIME GROUP HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Table amounts in thousands except per share data)
454
1. Nature of Business and Basis of Consolidation and Presentation
Nature of Business
Life Time Group Holdings, Inc. (collectively with its direct and indirect subsidiaries, “Life Time,” “we,” “our,” or the “Company”) is a holding company incorporated in the state of Delaware. As a holding company, Life Time Group Holdings, Inc. does not have its own independent assets or business operations, and all of our assets and business operations are through Life Time, Inc. and its direct and indirect subsidiaries. Life Time Group Holdings, Inc. changed its name from LTF Holdings, Inc. effective on June 21, 2021. We are primarily dedicated to providing premium health, fitness and wellness experiences at our athletic resortcountry club destinations and via our comprehensive digital platform and portfolio of iconic athletic events – all with the objective of inspiring healthier, happier lives. We design, build and operate our athletic resortcountry club destinations that are distinctive and large, multi-use sports and athletic, professional fitness, family recreation and spa centers in a resort-like environment. As of September 30, 2021,2023, we operated 155170 centers in 2931 states and 1one Canadian province.
COVID-19 Impact
On March 11, 2020, the World Health Organization declared the outbreak of a novel coronavirus (“COVID-19”) as a pandemic and recommended containment and mitigation measures worldwide. On March 13, 2020, the United States declared a National Public Health Emergency with respect to COVID-19. On March 16, 2020, we closed all of our centers based on orders and advisories from federal, state and local governmental authorities regarding COVID-19, during which time we did not draft or collect monthly access membership dues or recurring product charges from our members. We re-opened our first center on May 8, 2020 and continued to re-open our centers as state and local governmental authorities permitted.
All of our centers are currently open and we are collecting monthly access membership dues and recurring product charges from active members associated with all of our centers. Whether we will need to close any of our centers, and the duration of any such future center closures that may occur, remains uncertain and is dependent on future developments that cannot be accurately predicted at this time.
Initial Public Offering
On October 12, 2021, Life Time Group Holdings, Inc. consummated its initial public offering (“IPO”) of 39.0 million shares of its common stock at a public offering price of $18.00 per share, resulting in total gross proceeds of $702.0 million, which was reduced by underwriting discounts and other offering expenses of $22.9 million, for net proceeds of $679.1 million. The shares of the Company's common stock began trading on The New York Stock Exchange under the symbol “LTH” on October 7, 2021. A registration statement on Form S-1 relating to the offering of these securities was declared effective by the Securities and Exchange Commission (the “SEC”) on October 6, 2021.
Upon consummation of the IPO, the 5.4 million shares of Series A Preferred Stock (as defined in Note 2, Summary of Significant Accounting Policies) then outstanding automatically converted into approximately 6.7 million shares of common stock of Life Time Group Holdings, Inc. Also upon consummation of the IPO, the 0.5 million shares of restricted Series A Preferred Stock then outstanding converted into approximately 0.6 million restricted shares of common stock of Life Time Group Holdings, Inc. For more information regarding the Series A Preferred Stock, see Note 8, Mezzanine Equity.
Additionally, on October 12, 2021, in connection with the consummation of the IPO, we adopted an amended and restated Certificate of Incorporation under which the Company’s authorized share total was increased to 500.0 million shares of common stock, par value $0.01 per share, and 10.0 million shares of preferred stock, par value $0.01 per share, and the Series A Preferred Stock became no longer authorized.
On October 13, 2021, we used a portion of the $679.1 million of net proceeds we received in connection with the IPO to pay down $575.7 million (including a $5.7 million prepayment penalty) of our Term Loan Facility (as defined in Note 6, Debt). For more information regarding our Term Loan Facility, see Note 6, Debt.
On November 1, 2021, Life Time Group Holdings, Inc. consummated the sale of nearly 1.6 million additional shares of its common stock at the IPO price of $18.00 per share pursuant to the partial exercise by the underwriters of their over-allotment option, resulting in total gross proceeds of approximately $28.4 million, which was reduced by underwriting discounts and other offering expenses of $1.3 million, for net proceeds of $27.1 million. We intend to use these net proceeds, as well as the remaining portion of the net proceeds we received in connection with the IPO after the partial pay down of our Term Loan Facility, for general corporate purposes.
As of September 30, 2021, total unrecognized share-based compensation expense associated with stock options, restricted Series A Preferred Stock and restricted stock units was $362.5 million. As a result of the consummation of the IPO, a significant portion of this total unrecognized share-based compensation expense amount will be recognized during the fourth quarter of 2021. For more information regarding share-based compensation expense, see Note 8, Mezzanine Equity and Note 9, Stockholders' Equity.
LIFE TIME GROUP HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Table amounts in thousands except per share data)
With the exception of Note 11, Subsequent Events, the remaining notes to unaudited condensed consolidated financial statements contained herein provide applicable disclosures of events that have occurred and circumstances that existed up through and including September 30, 2021. Accordingly, these notes have not been updated to disclose the impact, if any, of any subsequent events, including the impact associated with the IPO.
2. Summary of Significant Accounting Policies
Basis of Presentation
The unaudited condensed consolidated financial statements include the accounts of Life Time Group Holdings, Inc. and its wholly owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (‘‘GAAP’’of America (“GAAP”), which require us for interim financial reporting and as required by rules and regulations of the Securities and Exchange Commission (the “SEC”). While these statements reflect normal recurring adjustments that are, in the opinion of management, necessary for a fair statement of the results of the interim period, they do not include all of the information and footnotes required by GAAP for complete financial statements. These unaudited condensed consolidated financial statements should be read in conjunction with our audited consolidated financial statements and the notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022 filed with the SEC.
The unaudited condensed consolidated financial statements have been prepared on the same basis as the audited consolidated financial statements. When preparing financial statements in conformity with GAAP, we are required to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. In recordingAll intercompany balances and transactions and balances resulting from business operations, we use estimates based on the best information available. We revise the recorded estimates when better information is available, facts change or we can determine actual amounts. These revisions can affect our consolidated operating results. All adjustments (consisting of normal recurring adjustments) considered necessary to fairly present our consolidated financial position, results of operations and cash flows for the periods have been included.eliminated in consolidation. We have one operating segment and one reportable segment.
Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted. A summary
2. Summary of our significant accounting policies is included in Note 2 to our annual consolidated financial statements.Significant Accounting Policies
Recently Adopted Accounting Pronouncements
In August 2020, the FinancialWe adopted Accounting Standards Board (“FASB”) issued Accounting StandardsStandard Update (“ASU”) 2020-06, Debt—Debt2020-04, “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting” during the second quarter of 2023. ASU 2020-04 provides optional expedients and exceptions for applying GAAP to contract modifications, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met, and provides companies with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40) (“ASU 2020-06”)optional guidance to simplifyease the potential accounting for certain financial instruments. ASU 2020-06 eliminates the current models that require separation of beneficial conversion and cash conversion featuresburden associated with transitioning away from convertible instruments and simplifies the derivative scope exception guidance pertaining to equity classification of contracts in an entity’s own equity. The new standard also introduces additional disclosures for convertible debt and freestanding instrumentsreference rates that are indexedexpected to and settledbe discontinued. In connection with the debt refinancing that we completed in an entity’s own equity. ASU 2020-06 also amends the diluted earnings per share guidance, including the requirementMay 2023, we transitioned from LIBOR to use the if-converted method for all convertible instruments. ASU 2020-06 is effective January 1, 2022 and should be applied on a full or modified retrospective basis, with early adoption permitted beginning on January 1, 2021. We adopted ASU 2020-06 effective January 1, 2021.Term Secured Overnight Financing Rate (“SOFR”). The adoption of this ASU 2020-06 did not have ana material impact on our condensed consolidated financial statements.
Segment Reporting
Operating segments are defined as components of an entity for which separate financial information is available and that is regularly reviewed by the Chief Operating Decision Maker (“CODM”) in deciding how to allocate resources to an individual segment and in assessing performance. The Company’s CODM is our Founder, Chairman and Chief Executive Officer (“CEO”). Our CODM assesses financial performance and allocates resources based on the consolidated financial results at the total entity level. Accordingly, we have determined that we have 1 operating segment and 1 reportable segment.
Fair Value Measurements
The accounting guidance establishes a framework for measuring fair value and expanded disclosures about fair value measurements. The guidance applies to all assets and liabilities that are measured and reported on a fair value basis. This enables the reader of the financial statements to assess the inputs used to develop those measurements by establishing a hierarchy for ranking the quality and reliability of the information used to determine fair values. The guidance requires that each asset and liability carried at fair value be classified into one of the following categories:
Level 1: Quoted market prices in active markets for identical assets or liabilities.
Level 2: Observable market-based inputs or unobservable inputs that are corroborated by market data.
Level 3: Unobservable inputs that are not corroborated by market data.
The carrying amounts related to cash and cash equivalents, accounts receivable, income tax receivable, accounts payable and accrued liabilities approximate fair value.
LIFE TIME GROUP HOLDINGS,, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Table amounts in thousands except per share data)
Fair Value Measurements on a Recurring Basis. We had no material remeasurements of such assets or liabilities to fair value during either of the three orand nine months ended September 30, 20212023 and 2020.2022.
Financial Assets and Liabilities. At both September 30, 20212023 and December 31, 2020,2022, the gross carrying amountvalue and fair value of our outstanding long-term debt approximates fair value. was as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| September 30, 2023 | | December 31, 2022 |
| Carrying Value | | Fair Value | | Carrying Value | | Fair Value |
Long-term debt (1) | $ | 1,896,529 | | | $ | 1,851,542 | | | $ | 1,840,171 | | | $ | 1,724,178 | |
(1) Excludes unamortized debt discounts and issuance costs.
The fair value of our debt is based on the amount of future cash flows discounted using rates we would currently be able to realize for similar instruments of comparable maturity. If our long-term debt were recorded at fair value, it would be classified as Level 2 in the fair value hierarchy. For more information regarding our debt, see Note 6, Debt.
Fair Value Measurements on a Nonrecurring Basis. Assets and liabilities that are measured at fair value on a nonrecurring basis primarily relate to our long-livedgoodwill, intangible assets goodwill, and intangibleother long-lived assets, which are remeasured when the derived fair value is below carrying value on our condensed consolidated balance sheets. For these assets, we do not periodically adjust carrying value to fair value except in the event of impairment. If we determine that impairment has occurred, the carrying value of the asset would be reduced to fair value and the difference would be recorded as a loss within operating income in our condensed consolidated statements of operations.
During bothExcept for an impairment charge of $5.3 million related to the three and nine months ended September 30, 2021 and 2020, we determinedsale of an outparcel of land that certain projects were no longer deemed viable for construction, and that the previously capitalized site development costs associated with these projects were impaired. Accordingly, as it relates to these long-lived assets, wewas recognized impairment charges of $0.7 million and $9.9 million forduring the three months ended September 30, 20212023, we had no material remeasurements of such assets or liabilities to fair value during the three and 2020, respectively, and we recognized impairment charges of $2.5 million and $16.9 million for the nine months ended September 30, 20212023 and 2020, respectively. Fair value remeasurements are based on significant unobservable inputs (Level 3). Fixed asset fair values are primarily derived using a discounted cash flow (“DCF”) model to estimate the present value of net cash flows that the asset or asset group was expected to generate. The key inputs to the DCF model generally include our forecasts of net cash generated from revenue, expenses2022.
3. Supplemental Balance Sheet and other significant cash outflows, such as capital expenditures, as well as an appropriate discount rate.Cash Flow Information
Prepaid Expenses and Other Current Assets
Prepaid expenses and other current assets consisted of the following:
| | | September 30, 2021 | | December 31, 2020 | | September 30, 2023 | | December 31, 2022 |
Property held for sale | Property held for sale | $ | — | | | $ | 49,686 | | Property held for sale | $ | 8,600 | | | $ | 4,987 | |
Construction contract receivables | Construction contract receivables | 5,645 | | | 12,398 | | Construction contract receivables | 11,886 | | | 8,867 | |
Deferred membership origination costs | 4,177 | | | 7,212 | | |
Prepaid expenses | 25,392 | | | 17,935 | | |
Prepaid insurance | | Prepaid insurance | 2,718 | | | 3,414 | |
Prepaid software licenses and maintenance | | Prepaid software licenses and maintenance | 9,743 | | | 10,009 | |
Other | | Other | 15,422 | | | 18,466 | |
Prepaid expenses and other current assets | Prepaid expenses and other current assets | $ | 35,214 | | | $ | 87,231 | | Prepaid expenses and other current assets | $ | 48,369 | | | $ | 45,743 | |
LIFE TIME GROUP HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Table amounts in October 2021, these deferred offering costs will be netted against the related IPO proceeds and recognized during the fourth quarter as a reduction in Additional paid-in capital on our consolidated balance sheet.thousands except per share data)
Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities consisted of the following:
| | | September 30, 2021 | | December 31, 2020 | | September 30, 2023 | | December 31, 2022 |
Real estate taxes | Real estate taxes | $ | 33,814 | | $ | 31,015 | Real estate taxes | $ | 37,420 | | | $ | 32,373 | |
Accrued interest | Accrued interest | 41,673 | | 15,010 | Accrued interest | 36,082 | | | 36,518 | |
Payroll liabilities | Payroll liabilities | 29,146 | | 17,136 | Payroll liabilities | 37,377 | | | 19,908 | |
Utilities | Utilities | 7,774 | | 5,379 | Utilities | 6,154 | | | 7,285 | |
Self-insurance accruals | Self-insurance accruals | 24,963 | | 22,444 | Self-insurance accruals | 26,070 | | | 21,369 | |
Corporate accruals | Corporate accruals | 24,711 | | 24,123 | Corporate accruals | 28,223 | | | 29,731 | |
Dividends payable | 16,414 | | — | |
Current maturities of finance lease liabilities | 1,383 | | 1,171 | |
| Other | Other | 3,825 | | 1,397 | Other | 8,056 | | | 7,243 | |
Accrued expenses and other current liabilities | Accrued expenses and other current liabilities | $ | 183,703 | | $ | 117,675 | Accrued expenses and other current liabilities | $ | 179,382 | | | $ | 154,427 | |
LIFE TIME GROUP HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Table amounts in thousands except per share data)
Loss per Share
Basic loss per share is computed by dividing loss available to common stockholders by the weighted average number of shares of common stock outstanding during the period. The numerator in the diluted loss per share calculation is derived by adding the effect of assumed common stock conversions to loss available to common stockholders. The denominator in the diluted loss per share calculation is derived by adding shares of common stock deemed to be potentially dilutive to the weighted average number of shares of common stock outstanding during the period. Potentially dilutive securities that are subject to performance or market conditions are considered contingently issuable shares for purposes of calculating diluted loss per share. Accordingly, these contingently issuable shares are excluded from the computation of diluted loss per share until the performance or market conditions have been met. Other potentially dilutive securities that do not involve contingently issuable shares are also excluded from the computation of diluted loss per share if their effect is antidilutive.
For both the three and nine months ended September 30, 2021 and 2020, our potentially dilutive securities include stock options, all of which are subject to performance conditions that were not met as of the end of each respective period. Accordingly, the contingently issuable shares associated with our stock options are excluded from the computation of diluted loss per share for both the three and nine months ended September 30, 2021 and 2020. For both the three and nine months ended September 30, 2021, our potentially dilutive securities also include unvested restricted stock units, outstanding shares of Series A convertible participating preferred stock (“Series A Preferred Stock”) and unvested restricted Series A Preferred Stock. Due to the net loss that we recognized during both the three and nine months ended September 30, 2021, the potentially dilutive shares of common stock associated with our unvested restricted stock units, outstanding shares of Series A Preferred Stock and unvested restricted Series A Preferred Stock were determined to be antidilutive and, therefore, are excluded from the computation of diluted loss per share for both the three and nine months ended September 30, 2021.
The following table sets forth the calculation of basic and diluted loss per share for both the three and nine months ended September 30, 2021 and 2020:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2021 | | 2020 | | 2021 | | 2020 |
Net loss | $ | (45,442) | | $ | (93,647) | | $ | (274,599) | | $ | (276,304) |
Dividends accrued on Series A Preferred Stock | (6,126) | | — | | (16,414) | | — |
Loss available to common stockholders | $ | (51,568) | | $ | (93,647) | | $ | (291,013) | | $ | (276,304) |
Weighted average common shares outstanding—basic and diluted | 145,196 | | 145,196 | | 145,196 | | 145,118 |
Loss per share—basic and diluted | $ | (0.36) | | $ | (0.64) | | $ | (2.00) | | $ | (1.90) |
The following is a summary of potential shares of common stock that were excluded from the computation of diluted loss per share for both the three and nine months ended September 30, 2021 and 2020:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2021 | | 2020 | | 2021 | | 2020 |
Stock options | 24,118 | | 21,252 | | 24,118 | | 21,252 |
Unvested restricted stock units | 610 | | — | | 610 | | — |
Outstanding shares of Series A Preferred Stock | 5,430 | | — | | 5,430 | | — |
Unvested restricted Series A Preferred Stock | 500 | | — | | 500 | | — |
Potential common shares excluded from diluted loss per share | 30,658 | | 21,252 | | 30,658 | | 21,252 |
For more information regarding our Series A Preferred Stock and unvested restricted Series A Preferred Stock, see Note 8, Mezzanine Equity and Note 9, Stockholders’ Equity. For more information regarding our stock options and unvested restricted stock units, see Note 9, Stockholders’ Equity.
LIFE TIME GROUP HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Table amounts in thousands except per share data)
3. Supplemental Cash Flow Information
Decreases (increases)(Increases) decreases in operating assets and increases (decreases) in operating liabilities are as follows:
| | | Nine Months Ended September 30, | | Nine Months Ended September 30, |
| | 2021 | | 2020 | | 2023 | | 2022 |
Accounts receivable | Accounts receivable | $ | (3,604) | | $ | 6,149 | Accounts receivable | $ | (8,044) | | | $ | (6,056) | |
Center operating supplies and inventories | Center operating supplies and inventories | (3,836) | | 6,063 | Center operating supplies and inventories | (2,903) | | | (3,140) | |
Prepaid expenses and other current assets | Prepaid expenses and other current assets | (3,243) | | 9,965 | Prepaid expenses and other current assets | 3,316 | | | 2,166 | |
Income tax receivable | Income tax receivable | 4,372 | | 2,348 | Income tax receivable | (10,967) | | | 3,533 | |
Other assets | Other assets | 1,950 | | 4,491 | Other assets | 5,203 | | | 638 | |
Accounts payable | Accounts payable | 17,709 | | 10,890 | Accounts payable | 2,191 | | | 2,069 | |
Accrued expenses and other current liabilities | Accrued expenses and other current liabilities | 60,270 | | (3,636) | Accrued expenses and other current liabilities | 10,596 | | | 19,954 | |
Deferred revenue | Deferred revenue | (16,777) | | (3,776) | Deferred revenue | 1,277 | | | (1,467) | |
Other liabilities | Other liabilities | 773 | | 12,602 | Other liabilities | (5,076) | | | (3,642) | |
Changes in operating assets and liabilities | Changes in operating assets and liabilities | $ | 57,614 | | $ | 45,096 | Changes in operating assets and liabilities | $ | (4,407) | | $ | 14,055 |
Additional supplemental cash flow information is as follows:
| | | | | | | | | | | |
| Nine Months Ended September 30, |
| 2021 | | 2020 |
Net cash paid for income taxes, net of refunds received (received from income tax refunds, net of taxes paid) | $ | 221 | | $ | (32,510) |
Cash payments for interest, net of capitalized interest | 82,228 | | 76,213 |
Capitalized interest | 2,476 | | 3,719 |
See Note 7, Leases for supplemental cash flow information associated with our lease arrangements for both the three and nine months ended September 30, 2021 and 2020.
4. Goodwill and Intangibles
The goodwill balance was $1,233.2 million at both September 30, 2021 and December 31, 2020.
Intangible assets consisted of the following:
| | | | | | | | | | | | | | | | | |
| September 30, 2021 |
| Gross | | Accumulated Amortization | | Net |
Intangible Assets: | | | | | |
Trade name | $ | 163,000 | | $ | — | | 163,000 |
Member relationships | 62,100 | | (62,100) | | — |
Other | 15,029 | | (4,425) | | 10,604 |
Total intangible assets | $ | 240,129 | | $ | (66,525) | | $ | 173,604 |
| | | | | | | | | | | | | | | | | |
| December 31, 2020 |
| Gross | | Accumulated Amortization | | Net |
Intangible Assets: | | | | | |
Trade name | $ | 163,000 | | | $ | — | | | $ | 163,000 | |
Member relationships | 62,100 | | | (62,100) | | | — | |
Other | 5,252 | | | (3,833) | | | 1,419 | |
Total intangible assets | $ | 230,352 | | | $ | (65,933) | | | $ | 164,419 | |
| | | | | | | | | | | |
| Nine Months Ended September 30, |
| 2023 | | 2022 |
Net cash paid for income taxes, net of refunds received | $ | 13,172 | | | $ | 3,628 | |
Cash payments for interest, net of capitalized interest | 91,896 | | | 82,607 | |
Capitalized interest | 14,498 | | | 11,228 | |
Non-cash activity: | | | |
Issuances of common stock in connection with a business acquisition | 1,472 | | | — | |
Right-of-use assets obtained in exchange for initial lease liabilities: | | | |
Operating leases | 106,285 | | 316,071 |
Finance leases | 963 | | 142 |
Right-of-use asset adjustments recognized as a result of the remeasurement of existing operating lease liabilities | 17,845 | | 7,366 |
Non-cash increase in operating lease right-of-use assets associated with below-market sale-leaseback transactions | 5,900 | | 10,090 |
Non-cash increase in financing obligations as a result of interest accretion | 83 | | — |
LIFE TIME GROUP HOLDINGS,, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Table amounts in thousands except per share data)
During the nine months ended September 30, 2021, we acquired the assets associated with an outdoor bicycling event for approximately $10.24. Goodwill
The goodwill balance was $1,235.4 million of which approximately $1.1and $1,233.2 million had yet to be paid as of September 30, 2021. The transaction was accounted for as an asset acquisition and the entire purchase price was allocated to an intangible asset associated with a license to use a recreation area for the staging of the event, which expires in April 2031. Other intangible assets at September 30, 2021 includes this facility license as well as trade names2023 and customer relationships associated with our race registration and timing businesses. Other intangible assets at December 31, 2020 consists solely of the trade names and customer relationships associated with our race registration and timing businesses.
Amortization expense associated with intangible assets for both the three months ended September 30, 2021 and 2020 was $0.22022, respectively. The $2.2 million and was $0.6 million and $3.6 millionchange in goodwill for the nine months ended September 30, 20212023 was related to business acquisitions during the nine months ended September 30, 2023.
There were no goodwill impairment charges recorded during the three and 2020, respectively. Amortization expense associated with intangible assets is included in Depreciationnine months ended September 30, 2023 and amortization in our condensed consolidated statements of operations.2022.
5. Revenue
Revenue associated with our membership dues, enrollment fees, and certain services from our in-center businesses is recognized over time as earned. Revenue associated with products and services offered in our cafes and spas, as well as through e-commerce, is recognized at a point in time. The following is a summary of revenue, by major revenue stream, that we recognized during the three and nine months ended September 30, 20212023 and 2020:2022:
| | | Three Months Ended September 30, | | Nine Months Ended September 30, | | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2021 | | 2020 | | 2021 | | 2020 | | 2023 | | 2022 | | 2023 | | 2022 |
Membership dues and enrollment fees | Membership dues and enrollment fees | $ | 261,033 | | $ | 169,612 | | $ | 653,584 | | $ | 490,151 | Membership dues and enrollment fees | $ | 407,903 | | | $ | 335,717 | | | $ | 1,152,506 | | $ | 916,895 |
In-center revenue | In-center revenue | 110,967 | | 58,737 | | 280,106 | | 214,768 | In-center revenue | 160,499 | | | 144,278 | | | 455,773 | | 390,603 |
Total center revenue | Total center revenue | 372,000 | | 228,349 | | 933,690 | | 704,919 | Total center revenue | 568,402 | | | 479,995 | | | 1,608,279 | | 1,307,498 |
Other revenue | Other revenue | 13,040 | | 2,681 | | 23,835 | | 14,991 | Other revenue | 16,775 | | | 16,386 | | | 49,480 | | 42,404 |
Total revenue | Total revenue | $ | 385,040 | | $ | 231,030 | | $ | 957,525 | | $ | 719,910 | Total revenue | $ | 585,177 | | | $ | 496,381 | | | $ | 1,657,759 | | $ | 1,349,902 |
The timing associated with the revenue we recognized during the three months ended September 30, 20212023 and 20202022 is as follows:
| | | Three Months Ended September 30, 2021 | | Three Months Ended September 30, 2020 | | Three Months Ended September 30, 2023 | | Three Months Ended September 30, 2022 |
| | Center Revenue | | Other Revenue | | Total Revenue | | Center Revenue | | Other Revenue | | Total Revenue | | Center Revenue | | Other Revenue | | Total Revenue | | Center Revenue | | Other Revenue | | Total Revenue |
Goods and services transferred over time | Goods and services transferred over time | $ | 324,350 | | $ | 13,040 | | $ | 337,390 | | $ | 201,174 | | $ | 2,681 | | $ | 203,855 | Goods and services transferred over time | $ | 502,003 | | $ | 16,775 | | $ | 518,778 | | $ | 419,758 | | $ | 16,386 | | $ | 436,144 |
Goods and services transferred at a point in time | Goods and services transferred at a point in time | 47,650 | | — | | 47,650 | | 27,175 | | — | | 27,175 | Goods and services transferred at a point in time | 66,399 | | — | | 66,399 | | 60,237 | | — | | 60,237 |
Total Revenue | $ | 372,000 | | $ | 13,040 | | $ | 385,040 | | $ | 228,349 | | $ | 2,681 | | $ | 231,030 | |
Total revenue | | Total revenue | $ | 568,402 | | $ | 16,775 | | $ | 585,177 | | $ | 479,995 | | $ | 16,386 | | $ | 496,381 |
The timing associated with the revenue we recognized during the nine months ended September 30, 20212023 and 20202022 is as follows:
| | | Nine Months Ended September 30, 2021 | | Nine Months Ended September 30, 2020 | | Nine Months Ended September 30, 2023 | | Nine Months Ended September 30, 2022 |
| | Center Revenue | | Other Revenue | | Total Revenue | | Center Revenue | | Other Revenue | | Total Revenue | | Center Revenue | | Other Revenue | | Total Revenue | | Center Revenue | | Other Revenue | | Total Revenue |
Goods and services transferred over time | Goods and services transferred over time | $ | 813,425 | | $ | 23,835 | | $ | 837,260 | | $ | 618,003 | | $ | 14,991 | | $ | 632,994 | Goods and services transferred over time | $ | 1,417,352 | | $ | 49,480 | | $ | 1,466,832 | | $ | 1,137,643 | | $ | 42,404 | | $ | 1,180,047 |
Goods and services transferred at a point in time | Goods and services transferred at a point in time | 120,265 | | — | | 120,265 | | 86,916 | | — | | 86,916 | Goods and services transferred at a point in time | 190,927 | | — | | 190,927 | | 169,855 | | — | | 169,855 |
Total Revenue | $ | 933,690 | | $ | 23,835 | | $ | 957,525 | | $ | 704,919 | | $ | 14,991 | | $ | 719,910 | |
Total revenue | | Total revenue | $ | 1,608,279 | | $ | 49,480 | | $ | 1,657,759 | | $ | 1,307,498 | | $ | 42,404 | | $ | 1,349,902 |
Contract liabilities represent payments or consideration received in advance for goods or services that the Company has not yet transferred to the customer. Contract liabilities consist primarily of deferred revenue as a result offor fees collected in advance for membership dues, enrollment fees, personal training,Dynamic Personal Training and other center services offerings, as well as our media and athletic events. Total contractContract liabilities at September 30, 20212023 and 2020December 31, 2022 were $30.8$40.1 million and $50.3$38.9 million, respectively.
LIFE TIME GROUP HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Table amounts in thousands except per share data)
Contract liabilities that will be recognized within one year are classified as current liabilities and are included in Deferreddeferred revenue in our condensed consolidated balance sheets, the balance of which was $28.2 million and $45.8 millionsheets. Deferred revenue at September 30, 20212023 and 2020, respectively. These balancesDecember 31, 2022 was $39.4 million and $36.9 million, respectively, and consists primarily consist of prepaid membership dues, personal trainingenrollment fees, Dynamic Personal Training and other in-center services, as well as media and enrollment fees. The $17.6 million athletic eventsdecrease in these contract liabilities was primarily driven by the usage of membership dues credits that we gave to.
LIFE TIME GROUP HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Table amounts in thousands except per share data)
members during 2020 as a result of center closures. Also, deferred revenue associated with enrollment fees and center services offerings decreased as a result of our center closures in 2020.
Contract liabilities that will be recognized in a future period greater than one year are classified as long-term liabilities and are included ina component of Other liabilities in our condensed consolidated balance sheets, the balance of which was $2.6 million and $4.5 millionsheets. Long-term contract liabilities at September 30, 20212023 and 2020, respectively. These balancesDecember 31, 2022 were $0.7 million and $2.0 million, respectively, and consist primarily consist of deferred enrollment fees.The $1.9 million decrease in these contract liabilities was primarily driven by our center closures during 2020.
6. Debt
Debt consisted of the following:
| | | September 30, 2021 | | December 31, 2020 | | September 30, 2023 | | December 31, 2022 |
Term Loan Facility, maturing December 2024 | $ | 843,625 | | $ | — | |
Prior Term Loan Facility, retired January 2021 | — | | 1,471,584 | |
Prior Revolving Credit Facility, retired January 2021 | — | | 94,000 | |
Term Loan Facility (1) | | Term Loan Facility (1) | $ | 310,000 | | $ | 273,625 |
Revolving Credit Facility, maturing December 2026 | | Revolving Credit Facility, maturing December 2026 | 45,000 | | 20,000 |
Secured Notes, maturing January 2026 | Secured Notes, maturing January 2026 | 925,000 | | — | Secured Notes, maturing January 2026 | 925,000 | | 925,000 |
Unsecured Notes, maturing April 2026 | Unsecured Notes, maturing April 2026 | 475,000 | | — | Unsecured Notes, maturing April 2026 | 475,000 | | 475,000 |
2023 Notes, retired February 2021 | — | | 450,000 | |
Secured loan—related parties, retired January 2021 | — | | 101,503 | |
Mortgage notes, various maturities (1) | 151,244 | | 167,872 | |
Construction Loan, maturing February 2026 | | Construction Loan, maturing February 2026 | 28,000 | | 21,330 |
Mortgage Notes, various maturities | | Mortgage Notes, various maturities | 108,725 | | 119,928 |
Other debt | Other debt | 4,289 | | 4,289 | Other debt | 4,122 | | 4,122 |
Fair value adjustment | Fair value adjustment | 1,981 | | 2,469 | Fair value adjustment | 682 | | 1,166 |
Total debt | Total debt | 2,401,139 | | 2,291,717 | Total debt | 1,896,529 | | 1,840,171 |
Less unamortized debt discounts and issuance costs | Less unamortized debt discounts and issuance costs | (37,798) | | (19,121) | Less unamortized debt discounts and issuance costs | (16,531) | | (19,249) |
Total debt less unamortized issuance costs | 2,363,341 | | 2,272,596 | |
Total debt less unamortized debt discount and issuance costs | | Total debt less unamortized debt discount and issuance costs | 1,879,998 | | 1,820,922 |
Less current maturities | Less current maturities | (31,841) | | (139,266) | Less current maturities | (64,033) | | (15,224) |
Long-term debt, less current maturities | Long-term debt, less current maturities | $ | 2,331,500 | | $ | 2,133,330 | Long-term debt, less current maturities | $ | 1,815,965 | | $ | 1,805,698 |
(1) Mortgage notes collateralized by certain related real estate and buildings, due through 2027 at a weighted average interest rate of 4.69% and 4.68% at September 30, 2021 and December 31, 2020, respectively.See “—Refinancing Transaction” below.
Refinancing Transactions
During the nine months ended September 30, 2021, Life Time, Inc., an indirect, wholly-owned subsidiary of Life Time Group Holdings, Inc., as the borrower and issuer, as applicable, together with certain other wholly-owned subsidiaries: (i) refinanced in full the then outstanding balances associated with our previous term loan facility (the “Prior Term Loan Facility”) and our prior revolving credit facility (the “Prior Revolving Credit Facility”) through net cash proceeds Life Time, Inc. received from a new term loan facility (the “Term Loan Facility”) that matures in December 2024 as well as the issuance of senior secured notes (the “Secured Notes”) that mature in January 2026; (ii) refinanced in full our previous senior unsecured notes (the “2023 Notes”) through proceeds Life Time, Inc. received from the issuance of new senior unsecured notes (the “Unsecured Notes”) that mature in April 2026; and (iii) converted our then existing related party secured loan into Series A Preferred Stock.
Senior Secured Credit FacilityTransaction
In June 2015,On May 9, 2023, Life Time, Inc. and certain of our other wholly-owned subsidiaries entered into a senior secured credit facility with a group of lenders led by Deutsche Bank AG as the administrative agent. On January 22, 2021, Life Time, Inc. and certain of our other wholly-owned subsidiaries entered into an eighthtenth amendment to the credit agreement governing our senior secured credit agreement (the “Amended Senior Secured Credit Facility”Agreement”). Pursuant to the Amended Senior Secured Credit Facility, Life Time, Inc. and such other subsidiaries: (i) entered into theAgreement, we refinanced our $273.6 million Term Loan Facility and incurred new term loansthat had a maturity date in an aggregate principal amount of $850.0 million; (ii) paid off the then outstanding balances associated with the PriorDecember 2024 to our $310.0 million Term Loan Facility and the Prior Revolving Credit Facility; and (iii) extended thethat has a maturity date of $325.2 millionJanuary 15, 2026. A portion of the $357.9 million Prior Revolving Credit Facility to September 2024 (the “Revolving Credit Facility”).
Upon the exercise of an accordion feature and subject to certain conditions, borrowingsnet incremental cash proceeds we received under the Amended Senior Secured Credit Facility may be increased upAgreement was used to an additional $400.0 million (plus additional amounts that may be added uponpay down the satisfaction of certain financial tests) subject, in certain cases, to meeting a first lien net leverage ratio. Our ability to increasethen existing balance on our borrowingsRevolving Credit Facility. We also converted the facilities under the Amended Senior Secured Credit Facility using this accordion feature is restricted during the Covenant Modification Period (as defined in “—Debt
LIFE TIME GROUP HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Table amounts in thousands except per share data)
Covenants” below). The Amended Senior Secured Credit Facility is secured by a first priority lien (on a pari-passu basis with the Secured Notes described below) on substantially all of our assets.
The net cash proceeds Life Time, Inc. receivedAgreement from LIBOR to SOFR. Loans under the Term Loan Facility as well asbear interest at a floating rate per annum of, at our option, SOFR plus an applicable credit adjustment spread ranging from 0.11448% to 0.42826% depending on the Secured Notes, were used to: (i) refinance in fullduration of borrowing plus the then outstanding balances associated with the Prior Term Loan Facilitycontinued applicable margin of 4.75% or a base rate plus 3.75%. The applicable margins will decrease to 4.50% and the Prior Revolving Credit Facility (details3.50%, respectively, upon our achievement of which are describedpublic corporate family ratings of B2 and B from Moody’s and S&P, respectively. Loans under “—Term Loan Facility” and “—Revolving Credit Facility,” respectively); (ii) pay debt issuance and original issue discount costs associated with each of these financing transactions (details of which are described in “—Debt Discounts and Issuance Costs” below); and (iii) strengthen our balance sheet by adding to our cash position.
Term Loan Facility
At both December 31, 2020 and January 22, 2021 (the effective date of the refinancing), the Prior Term Loan Facility balance was $1,471.6 million. Under the Term Loan Facility Life Time, Inc. incurred new term loans in an aggregate principal amountwere issued with original issue discount of $850.0 million, of which $507.6 million represents cash proceeds received and $342.4 million represents the cashless portion of the Prior Term Loan Facility that0.50%. This refinancing transaction was rolled over into the Term Loan Facility. On January 22, 2021, we used the net cash proceeds received from the Term Loan Facility, as wellaccounted for as a portion of the net proceeds received from the Secured Notes, to pay off the remaining $1,129.2 million Prior Term Loan Facility balance.debt modification.
The $850.0 million Term Loan Facility amortizes at 0.25% quarterly, resulting in mandatory quarterly principal repayments of approximately $2.1 million, and matures in December 2024. At September 30, 2021, the Term Loan Facility loan balance was $843.6 million, with interest due at intervals ranging from 30 to 180 days at interest rates ranging from the London Interbank Offered Rate (“LIBOR”) plus 4.75% or base rate plus 3.75%, in either case subject to a 1.00% rate floor.
Revolving Credit Facility
The Prior Revolving Credit Facility provided for a $357.9 million revolver. At December 31, 2020 and January 22, 2021 (the effective date of the refinancing), the Revolving Credit Facility balance was $94.0 million and $109.0 million, respectively. Under the Revolving Credit Facility, we extended the maturity of $325.2 million of the $357.9 million revolver to September 2024. The remaining $32.7 million non-extended portion of our Revolving Credit Facility matures in August 2022. On January 22, 2021, we used a portion of the net proceeds we received from the Secured Notes to pay off the then outstanding $109.0 million Prior Revolving Credit Facility balance.
At September 30, 2021,2023, there were no$45.0 million of outstanding borrowings onunder the Revolving Credit Facility and there were $40.1$32.6 million of outstanding letters of credit, resulting in total revolver availability subject to a $100.0of $397.4 million,minimum liquidity requirement (see “—Debt Covenants” below), of $217.8 million, of which $185.1 millionwas available at intervals ranging from 30 to 180 days at interest rates ranging from LIBORof SOFR plus 4.25%the applicable credit adjustment spread plus 3.50% or base rate plus 3.25%, while interest on the remaining $32.7 millionwas available at intervals ranging from 30 to 180 days at LIBOR plus 3.00% or base rate plus 2.00%2.50%.
The weighted average interest rate and debt outstanding under the Revolving Credit Facility for the nine months ended September 30, 2021 was 3.83%2023 was 8.54% and $12.1$59.5 million, respectively. The highest month-end balance during that same period was $40.0$120.0 million.
Secured Notes
On January 22, 2021, Life Time, Inc. issued Secured Notes in an aggregate principal amount of $925.0 million. These notes mature in January 2026 and interest only payments are due semi-annually in arrears at 5.75%. Life Time, Inc. has the option to call the Secured Notes, in whole or in part, on one or more occasions, beginning on January 15, 2023, subject to the payment of a redemption price that includes a call premium that varies depending on the year of redemption. In addition, at any time prior to January 15, 2023, Life Time, Inc. may redeem up to 40.00% of the aggregate principal amount of the Secured Notes outstanding with the net proceeds of certain equity offerings by us at a redemption price equal to 105.75% of the principal amount of the Secured Notes, plus accrued and unpaid interest, if any, to, but not including, the redemption date. The Secured Notes and the related guarantees are our senior secured obligations and are secured on a first-priority basis by security interests in substantially all of our assets. As of September 30, 2021, $925.0 millionremained outstanding on the Secured Notes.
Unsecured Notes
In June 2015, Life Time, Inc. issued the 2023 Notes in the original principal amount of $450.0 million, which were scheduled to mature in June 2023. At both December 31, 2020 and February 5, 2021, $450.0 millionremained outstanding on the notes. On February 5, 2021, Life Time, Inc. refinanced the 2023 Notes through the issuance by Life Time, Inc. of the Unsecured Notes in the original principal amount of $475.0 million. The Unsecured Notes mature in April 2026 and interest only payments are due semi-annually in arrears at 8.00%. The proceeds from the Unsecured Notes were used to: (i) redeem in full the then outstanding 2023 Notes balance of $450.0 millionand satisfy and discharge our obligations thereunder; (ii) pay debt issuance costs associated with the issuance of the Unsecured Notes (details of which are described in “—Debt Discounts and Issuance Costs” below); and (iii) strengthen our balance sheet by adding to our cash position.
LIFE TIME GROUP HOLDINGS,, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Table amounts in thousands except per share data)
Life Time, Inc. has the option to redeem the Unsecured Notes, in whole or in part, on one or more occasions, beginning on February 1, 2023, subject to the payment of a redemption price that includes a call premium that varies depending on the year of redemption. In addition, at any time prior to February 1, 2023, Life Time, Inc. may redeem up to 40.00% of the aggregate principal amount of the Unsecured Notes outstanding with the net proceeds of certain equity offerings by us at a redemption price equal to 108.00% of the principal amount of the Unsecured Notes, plus accrued and unpaid interest, if any, to, but not including, the redemption date. The Unsecured Notes and the related guarantees are our general senior unsecured obligations and will rank equally in right of payment with all of our existing and future senior indebtedness without giving effect to collateral arrangements. As of September 30, 2021, $475.0 millionremained outstanding on the Unsecured Notes.
Secured Loan—Related Parties
On June 24, 2020, we closed on an approximate $101.5 millionsecured loan (the “Related Party Secured Loan”) from an investor group that was comprised solely of our stockholders or their affiliates. The Related Party Secured Loan was scheduled to mature in June 2021. During the nine months ended September 30, 2021, interest expense of approximately $0.7 millionwas recognized on this secured loan.
On January 11, 2021, Life Time Group Holdings, Inc. and certain of its subsidiaries and the investor group associated with the Related Party Secured Loan (or their assignees) entered into a contribution agreement (the “Contribution Agreement”) pursuant to which we converted the total amount of outstanding principal and accrued interest (up though and including January 22, 2021) under the Related Party Secured Loan into Series A Preferred Stock. Effective January 22, 2021, the total outstanding principal and accrued interest balance of approximately $108.6 millionwas conveyed by the investor group to us and we issued, on a dollar-for-dollar basis, to the investor group approximately 5.4 millionshares of Series A Preferred Stock with an estimated fair value of $149.6 million. For accounting purposes, because the fair value of the Series A Preferred Stock that was issued exceeded the carrying value of the outstanding principal and accrued interest balance associated with the Related Party Secured Loan that was extinguished, we recognized a $41.0 million debt extinguishment loss, which is included in Interest expense, net of interest income in our condensed consolidated statement of operations for the nine months ended September 30, 2021. For more information regarding the Series A Preferred Stock that was issued in connection with this transaction, see Note 8, Mezzanine Equity.
Debt Discounts and Issuance Costs
In connection with the Term Loan Facility, Secured Notes and Unsecured Notes, we incurred debt discounts and issuance costs totaling approximately $44.4 million during the nine months ended September 30, 2021. In our condensed consolidated balance sheets, we recognize, and present unamortized debt discounts and issuance costs associated with non-revolving debt as a deduction from the face amount of related indebtedness. Accordingly, as it relates to these debt instruments, unamortized debt discounts and issuance costs of $37.8 million are included in Long-term debt, net of current portion on our September 30, 2021 condensed consolidated balance sheet.
In connection with the Prior Term Loan Facility, the 2023 Notes and the Related Party Secured Loan, we had incurred debt discounts and issuance costs totaling $78.6 million. At December 31, 2020, unamortized debt discounts and issuance costs of $19.1 million are included in Long-term debt, net of current portion on our December 31, 2020 condensed consolidated balance sheet. In connection with the extinguishment of these debt instruments during the nine months ended September 30, 2021, previously unamortized debt discounts and issuance costs were written off. Accordingly, as it relates to these extinguished debt instruments, we recognized $18.3 million of debt discount and issuance cost write-offs during the nine months ended September 30, 2021, which are included in Interest expense, net of interest income in our condensed consolidated statement of operations for the nine months ended September 30, 2021.
In connection with both the Revolving Credit Facility and the Prior Revolving Credit Facility, we have incurred total debt issuance costs of $7.4 million, of which $0.8 million were incurred during the nine months ended September 30, 2021. As of the January 22, 2021 effective date associated with the Amended Senior Secured Credit Facility, the borrowing capacity (i.e., the product of the remaining term and the maximum available credit) associated with the Revolving Credit Facility was greater than the borrowing capacity associated with the Prior Revolving Credit Facility. Accordingly, the debt issuance costs incurred in connection with the Revolving Credit Facility, as well as the unamortized portion of the debt issuance costs associated with the Prior Revolving Credit Facility, will be amortized over the term of the Revolving Credit Facility. We recognize and present unamortized issuance costs associated with revolving debt arrangements as an asset. Accordingly, unamortized revolver-related debt issuance costs of $1.7 million and $1.3 million, respectively, are included in Other assets on our condensed consolidated balance sheets at September 30, 2021 and December 31, 2020, respectively.
Debt Covenants
We are required to comply with certain affirmative and restrictive covenants under our Amended Senior Secured Credit Facility,Facilities, Secured Notes, Unsecured Notes and UnsecuredMortgage Notes. We are also required to comply with a first lien net leverage ratio covenant under the revolving portion of our Amended Senior Secured Credit Facility. However, our Amended Senior SecuredRevolving Credit Facility, includes a covenant modification period (the “Covenant Modification Period”) ending on the earlier of (i) January 1, 2022 or (ii) the date we provide notice of our intention to terminate the Covenant Modification Period. During the Covenant Modification Period, we are not obligated to comply with the first lien net leverage ratio covenant; however, we are required to maintain a minimum liquidity balance of $100.0 million, which is tested monthly.
Effective as of the end of the first fiscal quarter following the Covenant Modification Period and continuing throughout the remaining term of our Amended Senior Secured Credit Facility, we will be requiredrequires us to maintain a first lien net leverage ratio, if 30%30.00% or more of the
LIFE TIME GROUP HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Table amounts in thousands except per share data)
Revolving Credit Facility commitments are outstanding shortly after the end of any fiscal quarter (excluding all cash collateralized undrawn letters of credit and other undrawn letters of credit up to $20.0 million). During
As of September 30, 2023, we were either in compliance in all material respects with the first three quarterly test periods followingcovenants or the Covenant Modification Period, certain financial measures used in the calculation of the first lien net leverage ratio will be calculated on a pro forma basis by annualizing the respective financial measures recognized during those test periods.covenants were not applicable.
Future Maturities of Long-Term Debt
Aggregate annual future maturities of long-term debt, excluding unamortized discounts, issuance costs and fair value adjustments, at September 30, 20212023 were as follows:
| October 2021 through September 2022 | $ | 31,841 | |
October 2022 through September 2023 | 28,252 | |
October 2023 through September 2024 | October 2023 through September 2024 | 72,682 | October 2023 through September 2024 | $ | 64,033 |
October 2024 through September 2025 | October 2024 through September 2025 | 830,825 | October 2024 through September 2025 | 12,515 |
October 2025 through September 2026 | October 2025 through September 2026 | 1,413,281 | October 2025 through September 2026 | 1,751,209 |
October 2026 through September 2027 | | October 2026 through September 2027 | 64,877 |
October 2027 through September 2028 | | October 2027 through September 2028 | 165 |
Thereafter | Thereafter | 22,277 | Thereafter | 3,048 |
Total future maturities of long-term debt | Total future maturities of long-term debt | $ | 2,399,158 | Total future maturities of long-term debt | $ | 1,895,847 |
7. Leases
Lease CostSale-Leaseback Transactions
Lease cost included in our condensed consolidated statements of operations for the three months ended September 30, 2021 and 2020 consisted of the following:
| | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Classification in Condensed Consolidated Statements of Operations |
| 2021 | | 2020 | |
Lease cost: | | | | | |
Operating lease cost | 50,987 | | 46,644 | | Rent |
Short-term lease cost | 281 | | 338 | | Rent |
Variable lease cost | 1,245 | | 557 | | Rent |
Finance lease cost: | | | | | |
Amortization of right-of-use assets | 380 | | 652 | | Depreciation and amortization |
Interest on lease liabilities | 42 | | 43 | | Interest expense, net of interest income |
Total lease cost | $ | 52,935 | | $ | 48,234 | | |
| | | | | |
Lease cost included in our condensed consolidated statements of operations forDuring the nine months ended September 30, 2021 and 2020 consisted of the following:
| | | | | | | | | | | | | | | | | |
| Nine Months Ended September 30, | | Classification in Condensed Consolidated Statements of Operations |
| 2021 | | 2020 | |
Lease cost: | | | | | |
Operating lease cost | 150,475 | | 136,760 | | Rent |
Short-term lease cost | 747 | | 928 | | Rent |
Variable lease cost | 3,330 | | 782 | | Rent |
Finance lease cost: | | | | | |
Amortization of right-of-use assets | 1,119 | | 1,925 | | Depreciation and amortization |
Interest on lease liabilities | 140 | | 143 | | Interest expense, net of interest income |
Total lease cost | $ | 155,811 | | $ | 140,538 | | |
LIFE TIME GROUP HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Table amounts in thousands except per share data)
Operating and Finance Lease Right-of-Use Assets and Lease Liabilities
Operating and finance lease right-of-use assets and lease liabilities were as follows:
| | | | | | | | | | | | | | | | | |
| September 30, 2021 | | December 31, 2020 | | Classification on Condensed Consolidated Balance Sheet |
Lease right-of-use assets: | | | | | |
Operating leases | 1,864,246 | | 1,708,597 | | Operating lease right-of-use assets |
Finance leases (1) | 2,325 | | 2,295 | | Other assets |
Total lease right-of-use assets | $ | 1,866,571 | | $ | 1,710,892 | | |
Lease liabilities: | | | | | |
Current | | | | | |
Operating leases | 44,137 | | 49,877 | | Current maturities of operating lease liabilities |
Finance leases | 1,383 | | 1,171 | | Accrued expenses and other current liabilities |
Non-Current | | | | | |
Operating leases | 1,902,784 | | 1,738,393 | | Operating lease liabilities, net of current portion |
Finance leases | 1,007 | | 1,202 | | Other liabilities |
Total Lease liabilities | $ | 1,949,311 | | $ | 1,790,643 | | |
(1) Finance lease right-of-use assets were reported net of accumulated amortization of $2.1 million and $1.2 million at September 30, 2021 and December 31, 2020, respectively.
Operating Lease Right-of-Use Assets and Liabilities Associated with Unrelated Third Party Leases
In connection with leases with unrelated third parties that commenced during the nine months ended September 30, 2021, we recognized operating lease right-of-use assets and lease liabilities of $203.7 million and $194.0 million, respectively, on our condensed consolidated balance sheet. In connection with modified leases that were remeasured during the nine months ended September 30, 2021, we recognized a net decrease in operating lease right-of-use assets and lease liabilities, each of which totaled $5.4 million, on our condensed consolidated balance sheet.
Finance Lease Right-of-Use Assets and Liabilities Associated with Unrelated Third Party Leases
In connection with leases with unrelated third parties that commenced during the nine months ended September 30, 2021, we recognized finance lease right-of-use assets and lease liabilities, each of which totaled $1.2 million, on our condensed consolidated balance sheet.
Remaining Lease Terms and Discount Rates
The weighted-average remaining lease terms and discount rates associated with our operating and finance lease liabilities at September 30, 2021 were as follows:
| | | | | |
| September 30, 2021 |
Weighted-average remaining lease term (1)
| |
Operating leases | 18.0 years |
Finance leases | 2.2 years |
Weighted-average discount rate | |
Operating leases | 7.98% |
Finance leases | 6.42% |
(1) The weighted-average remaining lease term associated with our operating and finance lease liabilities does not include all of the optional renewal periods available to us under our current lease arrangements. Rather, the weighted-average remaining lease term only includes periods covered by an option to extend a lease if we are reasonably certain to exercise that option.
LIFE TIME GROUP HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Table amounts in thousands except per share data)
Sale-Leaseback Transactions
Sale-Leaseback Transactions with Unrelated Third Parties
During the nine months ended September 30, 2021,2023, we entered into twoand consummated sale-leaseback transactions involving two properties, with unrelated third parties. Under these transactions, we sold propertythree properties with a combined net book value of $86.1$141.1 million for $76.0$124.0 million, which was reduced by transaction costs of $2.0$0.7 million, for net cash proceeds of $74.0$123.3 million. The estimated fair value of the propertiesproperty sold was $85.5$128.4 million. Sale-leaseback transactions with unrelated third parties are accounted for at fair value. Accordingly, the aggregate sales price associated with these arrangements was increased for accounting purposes, by a total of $9.5$4.4 million, which resulted in the recognition of an aggregatea loss of $2.6$13.4 million on these transactions. This net loss is includedincluded in Other operating expense (income) in ourour condensed consolidated statement of operations foroperations. Of the nine months ended September 30, 2021. The leases, each$4.4 million aggregate net sales price increase recognized in connection with these transactions, $5.9 million was associated with a property sale in which the sales price was less than the fair value of the properties sold, which has been classifiedwas recognized as an operating lease, each has an initial term of 25 years and includes 6 renewal options of five years each. The $9.5 million increase in the aggregate sales price associated with these sale-leaseback transactionsthis property and an increase in the related operating lease right-of-use asset, and $1.5 million was accounted for as prepaid rent,associated with a property sale in which the sales price was greater than the fair value of the property sold, which was recognized as a non-cash increasereduction in the aggregate sales price associated with this property and as a financing obligation separate from the related operating lease right-of-use asset balanceliability. For cash flow purposes, the $1.5 million of proceeds we received from this financing obligation are reported within financing activities on our condensed consolidated statement of cash flows.
Right-of-use assets and lease liabilities recognized in connection with these sale-leaseback transactions were $74.0 million and $67.3 million, respectively.
8. Stockholders’ Equity
Share-Based Compensation Expense
For the three and nine months ended September 30, 2023, total share-based compensation expense was $14.9 million and $37.0 million, respectively. Of this amount, $8.9 million and $22.8 million, respectively, was associated with these properties.
Supplemental Cash Flow Information
Supplemental cash flow informationequity-classified awards and $6.0 million and $14.2 million, respectively, was associated with our operatingliability-classified awards. For the three and finance leases is as follows:
| | | | | | | | | | | |
| Nine Months Ended September 30, |
| 2021 | | 2020 |
Cash paid for amounts included in the measurement of lease liabilities: | | | |
Operating cash flows from operating leases | $ | 137,942 | | $ | 87,924 |
Operating cash flows from finance leases | 140 | | 143 |
Financing cash flows from finance leases | 1,133 | | 1,034 |
| | | |
Non-cash information: | | | |
Right-of-use assets obtained in exchange for initial lease liabilities: | | | |
Operating leases | 194,021 | | 145,384 |
Finance leases | 1,150 | | 2,021 |
Right-of-use asset adjustments recognized as a result of the remeasurement of existing lease liabilities: | | | |
Operating leases | (5,357) | | 36,865 |
Non-cash increase in operating lease right-of-use assets associated with below-market sale-leaseback transactions | 9,500 | | 19,310 |
Maturitiesnine months ended September 30, 2022, total share-based compensation expense was $5.8 million and $33.2 million, respectively, all of Operating and Finance Lease Liabilities
The maturitieswhich was associated with our operating and finance lease liabilities atequity-classified awards.
The liability-classified awards granted during the nine months ended September 30, 20212023 were performance-based and relate to our short-term incentive compensation program. In the event specified performance metrics are as follows:
| | | | | | | | | | | | | | | | | |
| Operating leases | | Finance leases | | Total |
October 2021 through September 2022 | $ | 184,947 | | 1,493 | | 186,440 |
October 2022 through September 2023 | 195,386 | | 874 | | 196,260 |
October 2023 through September 2024 | 203,040 | | 167 | | 203,207 |
October 2024 through September 2025 | 205,024 | | — | | 205,024 |
October 2025 through September 2026 | 208,241 | | — | | 208,241 |
Thereafter | 2,803,049 | | — | | 2,803,049 |
Total lease payments | 3,799,687 | | 2,534 | | 3,802,221 |
Less: Imputed interest | 1,852,766 | | 144 | | 1,852,910 |
Present value of lease liabilities | $ | 1,946,921 | | $ | 2,390 | | $ | 1,949,311 |
met, these awards will be settled through the issuance of fully-vested shares of the Company’s common stock at such time of determination in
LIFE TIME GROUP HOLDINGS,, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Table amounts in thousands except per share data)
2024. Because the incentive compensation associated with these awards represents a fixed dollar amount that, if payable, will be settled in a variable number of shares of the Company’s common stock, we are currently accounting for these awards as liability-classified awards. Accordingly, the offset to the $14.2 million of share-based compensation expense we have recognized in connection with these awards during the nine months ended September 30, 2023 is included in Accrued expenses and other current liabilities on our September 30, 2023 condensed consolidated balance sheet.
9. Income (Loss) Per Share
8. Mezzanine Equity
Mezzanine equity consistsFor the three and nine months ended September 30, 2023, our potentially dilutive securities included stock options, restricted stock units and shares to be issued under our ESPP. For the three and nine months ended September 30, 2022, our potentially dilutive securities included stock options and restricted stock units. Due to the net loss that we recognized during the nine months ended September 30, 2022, the potentially dilutive shares of Series A Preferred Stock. The following table summarizescommon stock associated with these equity-based securities were determined to be antidilutive and, therefore, are excluded from the changes in mezzanine equitycomputation of diluted loss per share for the nine months ended September 30, 2021:2022.
| | | | | | | | | | | |
| Preferred Stock |
| Shares | | Amount |
Balance at January 1, 2021 | — | | | $ | — | |
Issuance of Series A Preferred Stock | 5,430 | | | 149,585 | |
Issuance of restricted Series A Preferred Stock (1) | 500 | | | — | |
Share-based compensation associated with restricted Series A Preferred Stock (1) | — | | | 4,035 | |
Balance at September 30, 2021 | 5,930 | | | $ | 153,620 | |
(1)DuringThe following table sets forth the nine months ended September 30, 2021, the Company granted 0.5 million sharescalculation of restricted Series A Preferred Stock to our CEO. At September 30, 2021, the 0.5 million shares of restricted Series A Preferred Stock associated with this award were issuedbasic and outstanding however, all of the shares remained unvested. Duringdiluted income (loss) per share for the three and nine months ended September 30, 2021, we recognized share-based compensation expense associated with this restricted Series A Preferred Stock award2023 and 2022:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2023 | | 2022 | | 2023 | | 2022 |
Net income (loss) | $ | 7,915 | | $ | 24,732 | | $ | 52,379 | | $ | (15,519) |
| | | | | | | |
Weighted-average common shares outstanding – basic | 196,146 | | 193,918 | | 195,404 | | 193,364 |
Dilutive effect of stock-based compensation awards | 8,152 | | 4,463 | | 8,550 | | — |
Weighted-average common shares outstanding – diluted | 204,298 | | 198,381 | | 203,954 | | 193,364 |
| | | | | | | |
Income (loss) per common share – basic | $ | 0.04 | | $ | 0.13 | | $ | 0.27 | | $ | (0.08) |
Income (loss) per common share – diluted | $ | 0.04 | | $ | 0.12 | | $ | 0.26 | | $ | (0.08) |
The following is a summary of $2.3 million and $4.0 million, respectively, the offset for which was recognized as an increase in mezzanine equity. Share-based compensation expense associated with this restricted Series A Preferred Stock award is included in General, administrative and marketing in our condensed consolidated statements of operations. Share-based compensation expense associated with this award is recognized over the vesting period based on the grant date fair value per share. For more information regarding this restricted Series A Preferred Stock award, see “—Restricted Series A Preferred Stock” below.
Series A Preferred Stock
Authorization and Designation
On January 11, 2021, our board of directors adopted and approved an amendment to the Certificate of Incorporation for Life Time Group Holdings, Inc., which (i) increased the amount of authorizedpotential shares of common stock $0.01 par value perthat were antidilutive and excluded from the weighted average share from 170.0 million to 200.0 million;computations for the three and (ii) authorized 25.0 million shares of preferred stock, $0.01 par value per share. Also on January 11, 2021, our board of directors authorized 12.0 million shares of Series A Preferred Stock of Life Time Group Holdings, Inc., $0.01 par value per share. The rights, preferences, privileges, qualifications, restrictionsnine months ended September 30, 2023 and limitations relating to the Series A Preferred Stock were set forth in the Certificate of Designations (“COD”), which the Company filed with the Secretary of State of the State of Delaware on January 22, 2021.2022:
Voting Rights
Holders of Series A Preferred Stock were only entitled to vote on matters specifically related to the Series A Preferred Stock.
Dividend Rights
From and after the issue date, on each anniversary of the issue date, each share of Series A Preferred Stock was to accrue additional shares of Series A Preferred Stock as a paid-in-kind (“PIK”) dividend on the Liquidation Preference (defined in “—Liquidation Rights” below) in effect at the anniversary date at rate of 15.0% per annum. The PIK dividends were cumulative and compounded annually to the extent that they had not been paid by the Company. Accrued PIK dividends were payable, at the option of the Company, in either cash from any source of funds legally available or additional shares of Series A Preferred Stock. The holders of Series A Preferred Stock were entitled to participate in any dividends or distributions on our common stock or other junior stock of the Company on an as-if-converted basis (assuming full conversion of all outstanding shares of Series A Preferred Stock).
Liquidation Rights
The Series A Preferred Stock ranked senior to the Company’s common stock or other junior capital stock, with respect to dividend rights and rights on the distribution of assets, in the event of a change of control (“COC”) or any liquidation, winding up of dissolution of the business of the Company, whether voluntary or involuntary (a “Deemed Liquidation Event”). Upon the occurrence of a Deemed Liquidation Event, each holder of shares of Series A Preferred Stock was entitled to receive, for each share, out of assets of the Company legally available for distribution to stockholders or, in the case of a COC, out of the consideration payable to stockholders or the Company in such COC, a preferential amount equal to the greater of (i) the $20.00 per share issue price plus the amount of any accrued dividends (including accrued PIK shares) on such shares of Series A Preferred Stock (“Liquidation Preference”) and (ii) the per share amount of all cash, securities or other property to be distributed in respect of the common stock of the Company that such holder of Series A Preferred Stock would have been entitled to receive had the holder converted such Series A Preferred Stock into shares of common stock of the Company (“Deemed Conversion”), subject to certain adjustments set forth in the COD (details of which are described in “—Conversion Price Adjustments” below). All preferential amounts to be paid to the holders of Series A Preferred Stock in connection with a Deemed
20 | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2023 | | 2022 | | 2023 | | 2022 |
Stock options | 6,533 | | 6,060 | | 6,272 | | 25,139 |
Restricted stock units | 872 | | 2,658 | | 872 | | 2,786 |
Potential common shares excluded from the weighted average share calculations | 7,405 | | 8,718 | | 7,144 | | 27,925 |
LIFE TIME GROUP HOLDINGS,, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Table amounts in thousands except per share data)
Liquidation Event would be paid before the payment or setting apart for payment of any amount for, or the distribution of any assets of the Company to the holders of the Company’s common stock or any other junior stock.
Conversion Rights
Upon the (i) consummation of an initial public offering, (ii) consummation of a Qualifying Private Sale (“QPS”) or (iii) election of holders of at least 75% of the then outstanding shares of Series A Preferred Stock, each of the outstanding shares of Series A Preferred was to automatically convert (“Automatic Conversion”) into a number of shares of common stock of the Company equal to the Liquidation Preference, subject to certain adjustments set forth in the COD (details of which are described in “—Liquidation Preference Adjustments” below), divided by the $20.00 issue price, subject to certain adjustments set forth in the COD (“Conversion Price”) (details of which are described in “—Conversion Price Adjustments” below).
Liquidation Preference Adjustments
In the event of an Automatic Conversion or a Deemed Conversion of shares of Series A Preferred Stock into common shares of the Company, the accrued dividends on such shares of Series A Preferred Stock were to be (a) reduced to zero, in the event that the fair value of each share of the Company’s common stock into which such share of Series A Preferred Stock is convertible would equal or exceed the sum of (i) the Liquidation Preference (assuming, for this purpose, that the accrued dividends included in this amount shall not have been reduced to zero) and (ii) any cash dividends paid in respect of such share of Series A Preferred Stock, or (b) reduced to such amount as would provide each holder of such shares of Series A Preferred Stock the 15.0% annual dividend rate from the issue date to the conversion date, in the event that the fair value of each share of the Company’s common stock into which such share of Series A Preferred Stock is convertible exceeds the $20.00 initial price per share but is less than the sum of (i) the Liquidation Preference (assuming, for this purpose, that the accrued dividends included in this amount shall not have been reduced) and (ii) any cash dividends paid in respect of such share of Series A Preferred Stock.
Conversion Price Adjustments
The Conversion Price, as defined in the COD, means the $20.00 issue price, subject to anti-dilution adjustments; provided, however, that (i) with respect to any shares of Series A Preferred Stock that are converted into the Company’s common stock upon the consummation of an initial public offering, the Conversion Price shall equal the lesser of (a) the $20.00 issue price and (b) the initial public offering price, as applicable, and (ii) with respect to any shares of Series A Preferred Stock that are converted into the Company’s common stock upon the consummation of a QPS, the Conversion Price share equal the lesser of (a) the $20.00 issue price and (b) the price per share paid by the third party purchased in such transaction, as applicable.
Mandatory Redemption
On July 22, 2026 (the “Redemption Date”), the Company would be required to redeem any and all outstanding shares of Series A Preferred stock, from any source of funds legally available for such purpose at a price per share equal to the Liquidation Preference in respect of the redeemed shares.
Series A Preferred Stock Issuance
The fair value of the 5.4 million shares of Series A Preferred Stock that the Company issued, as well as the 0.5 million shares associated with the restricted Series A Preferred Stock award that the Company granted to our CEO, during the nine months ended September 30, 2021 was estimated using an as-converted value plus risky put option model. The put option value was estimated using the Black-Scholes option pricing model. Primary assumptions used in determining the estimated issuance date fair value of the Series A Preferred Stock include: the estimated equity value associated with the then outstanding common stock of Life Time Group Holdings, Inc., a strike price of $20.00 per share, PIK dividend yield rate of 15.0%, expected term of 1.0 years, volatility rate of 65.00% and a risk-free rate of 0.08%. For more information regarding the Contribution Agreement and issuance of the Series A Preferred Stock, see Note 6, Debt. For more information regarding the restricted Series A Preferred Stock, see “—Restricted Series A Preferred Stock” below).
Restricted Series A Preferred Stock
During the second quarter of 2021, in lieu of the vast majority of cash compensation for our CEO for 2021, the Company granted an award of 0.5 million shares of restricted Series A Preferred Stock to our CEO, 50% of which vests on each anniversary of the grant date with 100% full vesting on the date that is 180 days after an initial underwritten public offering. Effective as of the grant date, our CEO has all of the rights of a stockholder with respect to these 0.5 million outstanding shares of restricted Series A Preferred Stock, including the right to receive PIK share or cash dividends. Immediately prior to the granting of this equity award, we had recognized an accrued compensation liability of approximately $1.6 million associated with our CEO’s 2021 compensation. For accounting purposes, the settlement of this $1.6 million accrued compensation liability through issuance of the restricted Series A Preferred Stock award was recognized as a decrease in Accrued expenses and other current liabilities and an increase in Additional paid-in capital on our condensed consolidated balance sheet. As of September 30, 2021, all of the restricted Series A Preferred Stock shares subject to this award were both unvested and outstanding.
LIFE TIME GROUP HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Table amounts in thousands except per share data)
Share-based compensation expense associated with this restricted Series A Preferred Stock award will be recognized over the vesting period based on the grant date fair value per share, reduced by the $1.6 million of compensation expense associated with the accrued compensation liability that had previously been recognized. During the three and nine months ended September 30, 2021, we recognized share-based compensation expense associated with this restricted Series A Preferred Stock award of $2.3 million and $4.0 million, respectively, the offset for which was recognized as an increase in Mezzanine equity on our condensed consolidated balance sheet (details of which are described in “—Mezzanine Equity Classification” below). Share-based compensation expense associated with this restricted Series A Preferred Stock award is included in General, administrative and marketing in our condensed consolidated statements of operations. As of September 30, 2021, unrecognized share-based compensation expense related to this restricted Series A Preferred Stock award was approximately $8.1 million. The estimated fair value associated with this restricted Series A Preferred Stock award will be recognized as share-based compensation expense if and when the related recognition conditions, for accounting purposes, are met. With the consummation of the IPO, previously unrecognized share-based compensation expense associated with this restricted Series A Preferred Stock award will be recognized effective with the date that is 180 days after the effective date associated with such initial public offering. For more information on share-based compensation, see Note 9, Stockholders’ Equity.
Mezzanine Equity Classification
We applied the guidance in ASC 480, “Distinguishing Liabilities from Equity” (“ASC 480”) and ASC 815, “Derivatives and Hedging” (“ASC 815”), in order to determine the appropriate accounting for both the Series A Preferred Stock that the Company issued, as well as the restricted Series A Preferred Stock award that the Company granted to our CEO, during the nine months ended September 30, 2021. Based on our analysis, we determined that these shares of Series A Preferred Stock (i) do not meet any of the conditions that would require liability accounting, (ii) are more akin to an equity-like host and (iii) do not contain any embedded features that require bifurcation. Also, because these shares of Series A Preferred Stock are (x) redeemable upon the occurrence of certain Deemed Liquidation Events that are not solely within the Company’s control; and (y) required to be redeemed at a determinable price on the Redemption Date, we determined that the carrying value of the Series A Preferred Stock that the Company issued, as well the offset to the recognized share-based compensation expense associated with the restricted Series A Preferred Stock award, is required to be classified as temporary mezzanine equity on our September 30, 2021 condensed consolidated balance sheet. Accordingly, the issuance date fair value of $149.6 million associated with the 5.4 million shares of Series A Preferred Stock that the Company issued during the nine months ended September 30, 2021 was recognized as an increase in Mezzanine equity on our September 30, 2021 condensed consolidated balance sheet. Also, the offset to the $4.0 million of share-based compensation expense associated with the restricted Series A Preferred Stock award that we recognized during the nine months ended September 30, 2021 was recognized as an increase in Mezzanine equity on our September 30, 2021 condensed consolidated balance sheet.
At September 30, 2021, the outstanding shares of Series A Preferred Stock were not redeemable, and we determined that it was not probable that these shares would become redeemable.
Accrued Dividends
At September 30, 2021, PIK dividend shares totaling approximately 0.6 million shares had accrued on the outstanding Series A Preferred Stock and the underlying shares associated with the restricted Series A Preferred Stock award. At September 30, 2021, the estimated fair value of these PIK dividend shares was approximately $16.4 million. Based on the applicable accounting guidance, because the PIK dividend feature is discretionary, each accrued PIK share is required to be measured on the basis of its fair value on the commitment date, which is generally the dividend accrual date. Accordingly, we recognized the $16.4 million estimated fair value of the accrued PIK dividends as a non-cash increase in Accrued expenses and other current liabilities and a decrease in Additional paid-in capital on our September 30, 2021 condensed consolidated balance sheet.
9. Stockholders’ Equity
Authorized Common Stock
For information on the increase in the amount of authorized shares of common stock of Life Time Group Holdings, Inc. during the nine months ended September 30, 2021, see “Series A Preferred Stock—Authorization and Designation” under Note 8, Mezzanine Equity.
Share-Based Compensation
Equity Incentive Plan
On October 6, 2015, our board of directors adopted the LTF Holdings, Inc. 2015 Equity Incentive Plan (as amended, the “2015 Equity Plan”). During the nine months ended September 30, 2021, our board of directors and stockholders approved an amendment to the 2015 Equity Plan. Pursuant to the amendment, the 2015 Equity Plan provided for the issuance of up to approximately 30.6 million shares of our common stock, plus an annual increase on the first day of each calendar year beginning on January 1, 2022 and ending on and including January 1, 2025, by a number equal to 1.5% of the fully diluted shares of our common stock outstanding on the last day of the immediately preceding fiscal year; provided, that no annual increase shall occur on or after the Company (or its successor) becomes a publicly listed company.
LIFE TIME GROUP HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Table amounts in thousands except per share data)
On June 6, 2019, we launched a voluntary stock option purchase offer (the “Offer”) whereby, subject to certain conditions and limitations, we offered eligible holders (not including our CEO) of qualifying stock options under the 2015 Equity Plan (“Covered Options”) the right to sell up to a certain number of vested Covered Options back to us. The Offer terminated on July 3, 2019. In connection with the Offer, we purchased approximately 1.6 million Covered Options. Effective with the purchase date, the 1.6 million Covered Options were cancelled, thereby removing these shares from the number of shares available for future grants under the 2015 Equity Plan.
As of September 30, 2021, approximately 1.0 million shares were available for future stock-based award grants to employees and other eligible participants under the 2015 Equity Plan.
Stock Options
Summary of Stock Option Activity
Stock option activity for the nine months ended September 30, 2021 is as follows:
| | | | | | | | | | | |
| Shares | | Weighted Average Exercise Price |
Outstanding as of December 31, 2020 | 21,119 | | $ | 11.00 |
Granted | 3,189 | | 19.32 |
Forfeited | (190) | | 17.41 |
Outstanding as of September 30, 2021 | $ | 24,118 | | 12.05 |
Exercisable as of September 30, 2021 | $ | — | | — |
During the nine months ended September 30, 2021, the Company granted approximately 3.2 million stock options under the 2015 Equity Plan, of which approximately 1.1 million were granted to executives and approximately 2.1 million were granted to non-executive service providers. These options have a ten-year contractual term from the date of grant. The exercise prices and terms of these awards were determined and approved by our board of directors or a committee thereof. The exercise price associated with each of these awards is not less than the fair market value per share of our common stock, as determined by our board of directors or a committee thereof, at the time of grant.
Of the 1.1 million options granted to executives during the nine months ended September 30, 2021, 50% are time vesting options and 50% are performance vesting options. The time vesting options vest in four equal installments on each of the first four anniversaries of the first calendar day of the month in which the grant date occurred, subject to continuous employment from the grant date through the applicable vesting date. All or a portion of the performance vesting options shall vest only upon the attainment of certain targets for the twelve month period commencing on January 1, 2021 and ending on December 31, 2021, as defined in the underlying option agreements, subject to continuous employment from the grant date through the membership dues revenue determination date. Both the time vesting and performance vesting options shall become exercisable on the occurrence of the first measurement date to occur following the grant date, which is generally defined to include the date of a change in control, the first date following the expiration of the lock-up period applicable to the optionee related to an initial public offering, or death or disability, all as defined and subject to the terms and conditions in the underlying option agreements.
The 2.1 million stock options that were granted to non-executive team members during the nine months ended September 30, 2021 are time vesting options, which vest in four equal installments on each of the first four anniversaries of the first calendar day of the month in which the grant date occurred, subject to continuous employment from the grant date through the applicable vesting date. These options shall become exercisable on the effective date associated with the first measurement date (as described immediately above) to occur following the grant date.
Unless otherwise determined by the administrator of the 2015 Equity Plan, with respect to the 3.2 million stock options that the Company granted during the nine months ended September 30, 2021: (i) upon an option holder’s termination of services for any reason, any portion of an option that has not become vested on or prior to the termination date shall be forfeited on such date and shall not thereafter become vested or exercisable, and (ii) upon an involuntary termination by the Company for cause (as defined in the underlying option agreement), any portion of an option that has become vested on or prior to the termination date shall be forfeited on such date and shall not thereafter become exercisable.
At September 30, 2021, options to purchase approximately 24.1 million shares of our common stock were outstanding. At September 30, 2021, there were no options exercisable because the option exercisability provisions of the underlying stock option agreements were not met.
LIFE TIME GROUP HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Table amounts in thousands except per share data)
Fair Value of Stock Option Awards
The fair value of the approximately 3.2 million stock options granted during the nine months ended September 30, 2021 was calculated using the Black-Scholes option pricing model. The following weighted average assumptions were used in determining the fair value of these options:
| | | | | |
| Nine Months Ended September 30, 2021 |
Dividend yield | 0.00% |
Risk-free interest rate (1) | 0.94% |
Expected volatility (2) | 60.00% |
Expected term of options (in years) (3) | 6.12 |
Fair Value | $ | 10.71 |
(1)The risk-free rate is based on the U.S. treasury yields, in effect at the time of grant or modification, corresponding with the expected term of the options.
(2)Expected volatility is based on historical volatilities for a time period similar to that of the expected term of the options.
(3)Expected term of the options is based on probability and expected timing of market events leading to option exercise.
Share-Based Compensation Expense Associated with Stock Options
No share-based compensation expense associated with stock options was recognized for the three and nine months ended September 30, 2021 and 2020. As of September 30, 2021, unrecognized share-based compensation expense related to stock options was approximately $347.8 million. The estimated fair value associated with each outstanding option will be recognized as share-based compensation expense if and when the related recognition conditions, for accounting purposes, are met. A significant portion of the $347.8 million unrecognized share-based compensation expense as of September 30, 2021 is associated with stock options that were granted prior to 2021. Each of these options shall become fully vested and exercisable immediately prior to the effective date associated with the first measurement date (as described in “—Summary of Stock Option Activity” above for all stock options other than those granted to our CEO, which stock options held by our CEO become fully vested and exercisable immediately prior to the effective date associated with a change of control or an initial public offering (notwithstanding any lock-up period)) to occur after the grant date. Accordingly, upon the consummation of the first measurement date to occur after the grant date associated with each of these options, previously unrecognized share-based compensation expense associated with the vested portion of the then-outstanding options will be recognized as of the effective date associated with such measurement date.
Restricted Stock Units
Beginning on March 15, 2020, our CEO decided to forego 100% of his base salary for the remainder of 2020. During the second quarter of 2021, our compensation committee, in consultation with our CEO and our board of directors, established a new compensation program for our CEO. Under the new program, in light of the foregone salary and bonuses in 2020, the compensation committee determined to grant our CEO an equity award of approximately 0.5 million restricted stock units, 50% of which vests on each anniversary of the grant date with 100% full vesting on the date that is 180 days after an initial underwritten public offering. At December 31, 2020, we had recognized an accrued compensation liability of approximately $2.2 million associated with our CEO’s 2020 compensation. For accounting purposes, the settlement of this $2.2 million accrued compensation liability through the issuance of the restricted stock units was recognized as a decrease in Accrued expenses and other current liabilities and an increase in Additional paid-in capital on our condensed consolidated balance sheet. As of September 30, 2021, all of the restricted stock units subject to this award were both unvested and outstanding.
Also during the second quarter of 2021, our compensation committee granted approximately 0.1 million restricted stock units to certain of our non-CEO executives and a new director, 50% of which vests on each anniversary of the grant date and, for the grants to our non-CEO executives, 100% full vesting occurs effective on the date that is 180 days after an initial underwritten public offering. As of September 30, 2021, all of the restricted stock units subject to these awards were both unvested and outstanding.
Share-Based Compensation Expense Associated with Restricted Stock Units
Share-based compensation expense associated with the restricted stock units that were granted to our CEO and non-CEO executives will be recognized over the vesting period based on the grant date fair value per share of $19.32. The expense measurement associated with the restricted stock units granted to our CEO will be reduced by the $2.2 million of compensation expense associated with the accrued compensation liability that had previously been recognized. Share-based compensation expense associated with restricted stock units that were granted to our new director will be recognized on a straight-line basis evenly over the vesting period.
LIFE TIME GROUP HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Table amounts in thousands except per share data)
Share-based compensation expense associated with restricted stock units for the three and nine months ended September 30, 2021 was $1.8 million and $2.9 million, respectively. Share-based compensation expense associated with restricted stock units is included in General, administrative and marketing in our condensed consolidated statements of operations. As of September 30, 2021, unrecognized share-based compensation expense related to restricted stock units was approximately $6.6 million. The estimated fair value associated with each outstanding restricted stock unit will be recognized as share-based compensation expense if and when the related recognition conditions, for accounting purposes, are met. With the consummation of the IPO, previously unrecognized share-based compensation expense associated with the then-outstanding restricted stock units granted to our CEO and non-CEO executives will be recognized effective with the date that is 180 days after the effective date associated with such initial public offering.
Restricted Series A Preferred Stock
For information regarding the restricted Series A Preferred Stock award that was granted to our CEO during the nine months ended September 30, 2021, see Note 8, Mezzanine Equity.
Stockholder Note Receivable
In August 2021, we entered into an agreement pursuant to which the outstanding balance owed under the stockholder note receivable was cancelled. The cancellation of the $15.0 million outstanding principal balance associated with the loan was accounted for as an equity transaction, and the Stockholder note receivable and Additional paid-in capital balances recognized on our condensed consolidated balance sheet were each reduced by $15.0 million. The income tax benefit of approximately $3.6 million associated with the stockholder note receivable cancellation was recognized as an increase in both Income tax receivable and Additional paid-in capital on our condensed consolidated balance sheet.
10. Commitments and Contingencies
Life Time, Inc. et al. v. Zurich American Insurance Company
On August 19, 2020, Life Time, Inc., several of its subsidiaries, and a joint venture entity, Bloomingdale Life Time Fitness LLC (collectively, the “Life Time Parties”) filed a Complaintcomplaint against Zurich American Insurance Company (“Zurich”) in the Fourth Judicial District of the State of Minnesota, County of Hennepin (Case No. 27-CV-20-10599) (the “Action”) seeking declaratory relief and damages with respect to Zurich’s failure under a property/business interruption insurance policy to provide certain coverage to the Life Time Parties related to the closure or suspension by governmental authorities of their business activities due to the spread or threat of the spread of COVID-19. On March 15, 2021, certain of the Life Time Parties filed a First Amended Complaint in the Action adding claims against Zurich under a Builders’ Risk policy related to the suspension of multiple construction projects. This projects. The parties are currently in discovery. The Action is subject to many uncertainties, and the outcome of the matter is not predictable with any assurance.
Other Litigation
We are also engaged in other proceedings incidental to the normal course of business. Due to their nature, such legal proceedings involve inherent uncertainties, including but not limited to court rulings, negotiations between affected parties and governmental intervention. We establish reserves for matters that are probable and estimable in amounts we believe are adequate to cover reasonable adverse judgments. Based upon the information available to us and discussions with legal counsel, it is our opinion that the outcome of the various legal actions and claims that are incidental to our business will not have a material adverse impact on our consolidated financial position, results of operations or cash flows. Such matters are subject to many uncertainties, and the outcomes of individual matters are not predictable with assurance.
11. Subsequent Events
In preparing the accompanying condensed consolidated financial statements, we have evaluated the period from September 30, 20212023 through the date the condensed consolidated financial statements were issued for material subsequent events. With the exception of the subsequent events disclosed in Note 1, Nature of Business and Basis of Consolidation and Presentation, thereThere have been no other such events or transactions during this time which would have a material effect on the condensed consolidated financial statements and therefore would require recognition or disclosure.
ITEM 2. MANAGEMENT'SMANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Forward-Looking Statements
Certain statements in this discussion and analysis are “forward-looking statements”forward-looking statements within the meaning of federal securities regulations. Forward-looking statements in this discussion and analysis include, but are not limited to, our plans, strategies and prospects, both business and financial, including our financial outlook, possible or assumed future actions, strategies, bothopportunities for growth and margin expansion, improvements to our balance sheet and leverage, capital expenditures, consumer demand, industry and economic trends, business and financial,strategies, events or results of operations and prospects.operations. Generally, forward-looking statements are not based on historical facts but instead represent only our current beliefs and assumptions regarding future events. All forward-looking statements are, by nature, subject to risks, uncertainties and other factors. This discussion and analysis does not purport to identify factors that could cause actual results to differ materially from those expressed or implied in forward-looking statements. You should understand that forward-looking statements are not guarantees of performance or results and are preliminary in nature. Statements preceded by, followed by or that otherwise include the words “believe,“believes,” “expects,“assumes,” “expects,” “anticipates,” “intends,” “projects,“continues,” “estimates,“projects,” “predicts,” “estimates,” “plans,” “may“potential,” “may increase,” “may result,” “will result,” “may fluctuate,” and similar expressions or future or conditional verbs such as “will,” “should,” “would,” “may,“foreseeable,” “may,” and “could”as well as the negative version of these words or similar terms and phrases are generally forward-looking in nature and not historical facts. In addition, any statements or information that refer to expectations, beliefs, plans, projections, objectives, performance or other characterizations of future events or circumstances, including any underlying assumptions, are forward-looking. Factors
The forward-looking statements contained in this discussion and analysis are based on management’s current beliefs and assumptions and are not guarantees of future performance. The forward-looking statements are subject to various risks, uncertainties, assumptions or changes in circumstances that could cause actualare difficult to predict or quantify. Actual results tomay differ materially from those forward-looking statements included in this discussionthese expectations due to numerous factors, many of which are beyond our control, including risks relating to our business operations and analysis include, but are not limitedcompetitive and economic environment, risks relating to our brand, risks relating to the impacts of COVID-19 or other future pandemics on our operations, members, employees, vendors, service providers, business and cash flows; our ability to attract and retain members; a deterioration in the quality or reputationgrowth of our brand or the healthbusiness, risks relating to our technological operations, risks relating to our capital structure and wellness industry; competition in the healthlease obligations, risks relating to our human capital, risks relating to legal compliance and wellness industry; our inabilityrisk management and risks relating to anticipate and satisfy consumer preferences and shifting views of health and wellness; events such as severe weather conditions, natural disasters, global pandemics or health crises, hostilities and social unrest, among others; disruptions in the operationsownership of our centers;common stock and the other important factors discussed under the caption “Risk Factors” in the Company’s Registration StatementAnnual Report on Form S-110-K for the year ended December 31, 2022 filed with the Securities and Exchange Commission (the “SEC”) and as such risk factors may be updated from time to time in our periodic filings with the SEC that are accessible on September 13, 2021 (File No. 333-259495)the SEC’s website at www.sec.gov. Since it is not possible to foresee all such factors, these factors should not be considered as complete or exhaustive. Consequently, we caution investors not to place undue reliance on any forward-looking statements, as no forward-looking statement can be guaranteed, and actual results may vary materially.Additionally, our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures, investments or other strategic transactions we may make.
All forward lookingforward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by the foregoing cautionary statements. Forward lookingForward-looking statements speak only as of the date of this report. We do not undertake any obligation to update or revise, or to publicly announce any update or revision to, any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.
Overview
Initial Public Offering
On October 12, 2021, Life Time Group Holdings, Inc. consummated its initial public offering (“IPO”) of 39.0 million shares of its common stock at a public offering price of $18.00 per share, resulting infor total gross proceeds of $702.0 million before deducting the underwriting discounts and other offering expenses. The shares of its common stock began trading on The New York Stock Exchange under the symbol “LTH” on October 7, 2021. A registration statement on Form S-1 relating to the offering of these securities was declared effective by the SEC on October 6, 2021. Additionally, on November 1, 2021, Life Time Group Holdings, Inc. consummated the sale of nearly 1.6 million additional shares of its common stock at the IPO price of $18.00 per share pursuant to the partial exercise by the underwriters of their over-allotment option, resulting in total gross proceeds of approximately $28.4 million before deducting the underwriting discounts and commissions.
Business and Strategy
Life Time, the “Healthy Way of Life Company,Company,” is a leading lifestyle brand offering premium health, fitness and wellness experiences to a communitycommunity of over 1.3approximately 1.5 million individualindividual members, who together comprisecomprise more than 750,000830,000 memberships, as of September 30, 2021.2023. Since our founding nearlyover 30 years ago, we have sought to continuously innovate ways for our members to lead healthy and happy lives by offering them the best places, programs and performers. We deliver high-quality experiences through our omni-channel physical and digital ecosystem that includes more than 150 170centers—distinctive, resort-like athletic country club destinations—across 2931 states in the United States and one province in Canada. Our track record of providing differentiated experiences to our members has fueled our strong, long-term financial performance. In 2019, prior to the COVID-19 pandemic, we generated $1.9 billion of revenue. In 2020, which was impacted by the COVID-19 pandemic, we generated $0.9 billion of revenue, and in the nine months ended September 30, 2021, we generated nearly $1.0 billion of revenue.
Our luxurious athletic centers,country clubs, which are located in both affluent suburban and urban locations, total more than 15approximately 17 million square feet in the aggregate. As of September 30, 2021 we had 12 new centers under construction and we believe we have significant opportunities to continue expanding our portfolio of premium centers with 10 or more planned new centers annually for the foreseeable future in increasingly affluent markets. We offer expansiveexpansive fitness floors with top-of-the-line equipment, spacious locker rooms, group fitness studios, indoor and outdoor pools and bistros, indoor and outdoor tennis courts, pickleball courts, basketball courts, LifeSpa, LifeCafe and our childcare and Kids Academy learning spaces. Our premium service offering isofferings are delivered by approximately 29,000over 37,000 Life Time team members, including over 7,5009,700 certified fitness professionals, ranging from personal trainers to studio performers.
Our members are highly engaged and draw inspiration from the experiences and community we have created. The value our members place on our community is reflected in the continued strength and growth of our average revenue per center membership and the visits to our athletic country clubs. Our average revenue per center membership and the visits to our clubs for the nine months ended
were $2,095 and 78 million, respectively, as compared to $1,885 and 65 million, respectively, for the nine months ended September 30, 2022. We believe that no other company in the United States delivers the same quality and breadth of health, fitness and wellness experiences asthat we deliver, which has enabled us to consistently grow total revenue for 20 consecutive years, prior to the impact of the COVID-19 pandemic. As of December 31, 2019, December 31, 2020 and September 30, 2021, our recurringannual membership dues represented 63%, 69% and 68%, respectively, of ourin-center revenue.
Our total revenue, while our in-center revenue, consisting of Life Time Training, LifeCafe, LifeSpa, Life Time Swim and Life Time Kids, among other services, represented 34%, 29% and 29%, respectively, of our total revenue. Between 2015 and 2019, we grew our average Center revenue per membership from $1,883increased to $2,172, a testament to the significant value that our members place on engaging with Life Time. While average Center revenue per membership fell to $1,317 in 2020, we have seen a strong rebound in 2021, with $1,554 in average Center revenue per membership during$1,608.3 million for the nine months ended September 30, 2021. As we have delivered these premium experiences, we have strategically increased2023 as compared to $1,307.5 million for the nine months ended September 30, 2022. We believe it will continue to grow as our new join membership prices across most of our centers in early 2021. We believeramp to expected performance, we can continually refine our pricing as we deliver exceptional experiences and find the optimal balance among the number of memberships per center, the member experience and maximizing our return for each center. We expect average revenue per membership and average monthly dues per membership to continue to increase as we acquire more new members, increase legacy member pricing and open new centers in desirable locations across the country and we continue to execute on our strategic initiatives discussed below. Our new centers on average have taken three to four years to ramp to expected performance. As of September 30, 2023, we had 27 centers open for less than three years. We are also expanding the number of our centers using an asset-light model that targets increasingly affluent markets.markets with higher income members, higher average annual revenue per center membership and higher returns on invested capital. As we open these new centers in more affluent markets, we believe our average revenue per center membership will naturally increase. We believe we have significant opportunities to continue expanding our portfolio of premium centers in an asset-light manner with plans for 22 to 24 new centers over 2023 and 2024. While we have shifted our new center growth strategy to pursue more asset-light opportunities that include leases with tenant improvement allowances and existing center takeovers with lower capital required, as of September 30, 2023, we had eight new centers under construction, with $285 million of growth capital expenditures already invested into these new centers that have yet to open. We believe the combined dynamic of our ramping new centers and the future growth that we have not yet realized from the quicker turnaround center takeovers plus the capital expenditures already invested in our centers under construction creates a strong tailwind for the continued growth of our total Center revenue.
Coming out of the COVID-19 pandemic, we believe that we have built a healthier and stronger business model. Our initial focus on center recovery has produced strong results in member engagement and increasing memberships, visits and Center revenue. We have also been able to expand margins by significantly improving the efficiency of our club operations and corporate office. We also expect to benefit from the greater flow through of our increased revenue and from new members joining at higher membership dues rates.
We offer a variety of convenient month-to-monthhave also implemented several strategic initiatives that are driving revenue, engagement and memberships with no long-term contracts. We define memberships in two ways: Center memberships and Digital On-hold memberships. A Center membership is defined as one or more adults 14 years of age or older, plus any juniors under the age of 14. Our base memberships provide individuals general access (with some amenities excluded) to a selected home center and all centers with the same or a lower base monthly dues rate. Our optimized pricing for a Center membership is determined center-by-center based on a variety of factors, including geography, competition, demographic nature, population density, initial investment in the center and available services and amenities. Digital On-hold memberships do not provide access to our centers and are for those members who want to maintain certain member benefits including our Life Time Digital membership and the right to convert to a Center membership without paying enrollment fees.
Wewe continue to evolveelevate and broaden our premium lifestyle brand in ways thatmember experiences and allow our members to more easily and regularly integrate health, fitness and wellness into their lives. We continue to enhancelives with greater ease and frequency. These strategic initiatives include pickleball, Dynamic Personal Training, Dynamic Stretch, small group training such as Alpha, GTX and Ultra Fit, and our ARORA community focused on members aged 55 years and older, where we have experienced a significant increase in our unique participants or total sessions. Additionally, our enhanced digital platform to deliveris delivering a true omni-channel experience for our members. Our Life Time Digital offering deliversmembers, including live streaming fitness classes, remote goal-based personal training, nutrition and weight loss support and curated award-winning health, fitness and wellness content. Through an agreement with Apple®, we also provide Apple Fitness+ to our members, which gives our members expanded content and wellness data monitoring on the go. In addition, our members are able to purchase a wide variety of equipment, wearables, apparel, beauty products and nutritional supplements via our digital health store. We are continuing to invest in our digital capabilities, including our integrated digital app, in order to strengthen our relationships with our members and more comprehensively address their health, fitness and wellness needs so that they can remain engaged and connected with Life Time at any time or place.
We are also expandingcontinue to expand our “Healthy Way of Life” ecosystem in response to the desire of our members’ desiremembers to more holistically integrate health and wellness into every aspect of their daily lives. In 2018, we launched Life Time Work, an asset-light branded co-working model that offers premium work spaces in close proximity to our centers and integrates ergonomic furnishings and promotes a healthy working environment. Life Time Work members also have the ability to receive access to all of our resort-like athletic country club destinations across the United States and Canada. Additionally, we opened our first Life Time Living locationlocations offer luxury wellness-oriented residences, also in 2021, another asset-light extensionclose proximity to one of our “Healthy Wayathletic country clubs. As of Life” ecosystem, which offers luxury wellness-oriented residences.September 30, 2023, we had 13 Life Time Work and three Life Time Living locations open and operating. Our Life Time Living offering is generating interest from new property developers and presenting opportunities for new center development that were not previously available to us. As we expand our footprint with new centers and nearby work and living spaces, as well as strengthen our digital capabilities, we expect to continue to grow our omni-channel platform to support the “Healthy Way of Life” journey of our members.
Macroeconomy
We continue to monitor the macroeconomic environment and its impact on our business, including with respect to inflation, interest rates, labor and supply chain issues, as well as a potential economic recession. More than two years of elevated inflation has impacted our expenses and capital expenditures in several areas, including wages, construction costs and other operating expenses, and thus pressured our margin performance. Despite this headwind that has shown signs of easing, we have experienced growth in our revenue and margins as discussed above. The rising interest rate environment has also increased the cost of our Term Loan Facility and Revolving Credit Facility and may result in increased cap rates and delays on future sale-leaseback transactions. We continue to explore sale-leaseback transactions but are being selective on whether to execute any additional sale-leasebacks in the current macroeconomic environment given our ability to add new centers through asset-light opportunities and our improved cash flow. We will continue to monitor the macroeconomic environment, but we believe that our business is resilient and has performed well historically during different economic cycles including during a recession.
Non-GAAP Financial Measures
This discussion and analysis includes certain financial measures that are not presented in accordance with the generally accepted accounting principles in the United States (“GAAP”), including Adjusted net income (loss), Adjusted net income (loss) per common share, Adjusted EBITDA and free cash flow before growth capital expenditures and ratios related thereto. These non-GAAP financial measures are not based on any comprehensive set of accounting rules or principles and should not be construed as an inference that our future results will be unaffected by unusual or non-recurring items. In addition, these non-GAAP financial measures should be read in conjunction with our financial statements prepared in accordance with GAAP. The reconciliations of the Company’s non-GAAP financial measures to the corresponding GAAP measures should be carefully evaluated. We use Adjusted net income (loss) and Adjusted EBITDA as an important performance metricmetrics for the Company. In addition, free cash flow before growth
Adjusted Net Income (Loss)
We define Adjusted net income (loss) as net income (loss) excluding the impact of share-based compensation expense, (gain) loss on sale-leaseback transactions, capital expenditures is an important liquidity metric we usetransaction costs, legal settlements, asset impairment, severance and other items that are not indicative of our ongoing operations, including incremental costs related to evaluate our ability to make principal payments on our indebtedness and to fund our capital expenditures and working capital requirements.COVID-19, less the tax effect of these adjustments.
Adjusted EBITDA
We define Adjusted EBITDA as net income (loss) before interest expense, net, provision for (benefit from) income taxes and depreciation and amortization, excluding the impact of share-based compensation expense, gain (loss)(gain) loss on sale-leaseback transactions, capital transaction costs, legal settlements, asset impairment, severance and other items that are not indicative of our ongoing operations, including incremental costs related to COVID-19.
Management uses Adjusted net income (loss) and Adjusted EBITDA to evaluate the Company’s performance. We believe that Adjusted net income (loss) and Adjusted EBITDA is anare important metricmetrics for management, investors and analysts as it removesthey remove the impact of items that we do not believe are indicative of our core operating performance and allows for consistent comparison of our operating results over time and relative to our peers. We use Adjusted net income (loss) and Adjusted EBITDA to supplement GAAP measures of performance in evaluating the effectiveness of our business strategies and to establish annual budgets and forecasts. We also use Adjusted EBITDA or variations thereof to establish short-term incentive compensation for management.
Free Cash Flow Before Growth Capital Expenditures
We define free cash flow before growth capital expenditures asAdjusted net cash provided by (used in) operating activities less center maintenance capital expendituresincome (loss) and corporate capital expenditures. We believe free cash flow before growth capital expenditures assists investors and analysts in evaluating our liquidity and cash flows, including our ability to make principal payments on our indebtedness and to fund our capital expenditures and working capital requirements. Our management considers free cash flow before growth capital expenditures to be a key indicator of our liquidity and we present this metric to our board of directors. Additionally, we believe free cash flow before growth capital expenditures is frequently used by analysts, investors and other interested parties in the evaluation of companies in our industry. We also believe that investors, analysts, and rating agencies consider free cash flow before growth capital expenditures as a useful means of measuring our ability to make principal payments on our indebtedness and evaluating our liquidity, and management uses this measurement for one or more of these purposes.
Adjusted EBITDA and free cash flow before growth capital expenditures should be considered in addition to, and not as a substitute for or superior to, financial measures calculated in accordance with GAAP. These are not measurements of our financial performance under GAAP and should not be considered as alternatives to net income (loss) or any other performance measures derived in accordance with GAAP or as an alternative to net cash provided by operating activities as a measure of our liquidity and may not be comparable to other similarly titled measures of other businesses. Adjusted EBITDAnet income (loss) and free cash flow before growth capital expendituresAdjusted EBITDA have limitations as analytical tools, and you should not consider these measures in isolation or as a substitute for analysis of our operating results or cash flows as reported under GAAP. Some of these limitations include that:
•these measures do not reflect our cash expenditures, or future requirements, for capital expenditures or contractual commitments;
•not all of these measures reflect changes in, or cash requirements for, our working capital needs;
•these measures do not reflect the cash requirements necessary to make principal payments on our indebtedness;
•although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and not all of these measures reflect cash requirements for such replacements;
•non-cash compensation is and will remain a key element of our overall long-term incentive compensation package, although we exclude it as an expense when evaluating our ongoing operating performance for a particular period; and
•these measures do not reflect the impact of certain cash charges resulting from matters we consider not to be indicative of our ongoing operations.
Furthermore, we compensate for the limitations described above by relying primarily on our GAAP results and using Adjusted EBITDAnet income (loss) and free cash flow before growth capital expendituresAdjusted EBITDA only for supplemental purposes. See our condensed consolidated financial statements included elsewhere in this report for our GAAP results.
Non-GAAP Measurements and Key Performance Indicators
We prepare and analyze various non-GAAP performance metrics and key performance indicators to assess the performance of our business and allocate resources. We analyze these key performance indicators to assess the performance of our business and allocated resources. For more information regarding our non-GAAP performance metrics, see “—Non-GAAP Financial Measures” above. These are not measurements of our financial performance under GAAP and should not be considered as alternatives to any other performance measures derived in accordance with GAAP.
Set forth below are certain GAAP and non-GAAP measurements and key performance indicators for the three and nine months ended September 30, 20212023 and 2020.2022. The following information has been presented consistently for all periods presented.
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| September 30, | | September 30, |
| 2021 | | 2020 | | 2021 | | 2020 |
| ($ in thousands, except for Average Center revenue per center membership data) |
Membership Data | | | | | | | |
Center memberships | 668,310 | | 572,811 | | 668,310 | | 572,811 |
Digital On-hold memberships | 85,045 | | 234,381 | | 85,045 | | 234,381 |
Total memberships | 753,355 | | 807,192 | | 753,355 | | 807,192 |
| | | | | | | |
Revenue Data | | | | | | | |
Membership dues and enrollment fees | 70.2% | | 74.3% | | 70.0% | | 69.5% |
In-center revenue | 29.8% | | 25.7% | | 30.0% | | 30.5% |
Total Center revenue | 100.0% | | 100.0% | | 100.0% | | 100.0% |
| | | | | | | |
Membership dues and enrollment fees | $ | 261,033 | | | $ | 169,612 | | | $ | 653,584 | | | $ | 490,151 | |
In-center revenue | 110,967 | | | 58,737 | | | 280,106 | | | 214,768 | |
Total Center revenue | $ | 372,000 | | | $ | 228,349 | | | $ | 933,690 | | | $ | 704,919 | |
| | | | | | | |
Average Center revenue per center membership (1) | $ | 555 | | $ | 349 | | $ | 1,554 | | $ | 929 | |
Comparable center sales (2) | 58.7% | | (55.0)% | | 29.9% | | (52.2)% |
| | | | | | | |
Center Data | | | | | | | |
Net new center openings (3) | 2 | | — | | 6 | | | 2 | |
Total centers (end of period) (3) | 155 | | 148 | | 155 | | | 148 | |
Total center square footage (end of period) (4) | 15,300,000 | | 14,700,000 | | 15,300,000 | | 14,700,000 |
| | | | | | | |
GAAP and Non-GAAP Financial Measures | | | | | | | |
Net loss | $ | (45,442) | | $ | (93,647) | | $ | (274,599) | | $ | (276,304) | |
Net loss margin (5) | (11.8) | % | | (40.5) | % | | (28.7) | % | | (38.4) | % |
Adjusted EBITDA (6) | $ | 47,031 | | $ | (12,437) | | $ | 32,277 | | $ | (44,934) | |
Adjusted EBITDA margin (6) | 12.2 | % | | (5.4) | % | | 3.4 | % | | (6.2) | % |
Center operations expense | $ | 231,996 | | $ | 165,572 | | $ | 625,322 | | $ | 515,350 | |
Pre-opening expenses (7) | 633 | | 721 | | 5,304 | | 5,208 |
Rent | 52,513 | | 47,539 | | 154,552 | | 138,470 |
Non-cash rent expense (8) | 5,327 | | 8,181 | | 11,546 | | 34,489 |
Net cash used in operating activities | (2,283) | | (11,789) | | (15,322) | | (56,165) | |
Free cash flow before growth capital expenditures (9) | (38,633) | | (31,567) | | (99,458) | | (145,266) | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| September 30, | | September 30, |
| 2023 | | 2022 | | 2023 | | 2022 |
| ($ in thousands, except for Average Center revenue per center membership data) |
Membership Data | | | | | | | |
Center memberships | 784,331 | | 728,729 | | 784,331 | | 728,729 |
Digital On-hold memberships | 45,708 | | 47,273 | | 45,708 | | 47,273 |
Total memberships | 830,039 | | 776,002 | | 830,039 | | 776,002 |
| | | | | | | |
Revenue Data | | | | | | | |
Membership dues and enrollment fees | 71.8% | | 69.9% | | 71.7% | | 70.1% |
In-center revenue | 28.2% | | 30.1% | | 28.3% | | 29.9% |
Total Center revenue | 100.0% | | 100.0% | | 100.0% | | 100.0% |
| | | | | | | |
Membership dues and enrollment fees | $ | 407,903 | | | $ | 335,717 | | | $ | 1,152,506 | | | $ | 916,895 | |
In-center revenue | 160,499 | | | 144,278 | | | 455,773 | | | 390,603 | |
Total Center revenue | $ | 568,402 | | | $ | 479,995 | | | $ | 1,608,279 | | | $ | 1,307,498 | |
| | | | | | | |
Average Center revenue per center membership (1) | $ | 722 | | $ | 660 | | $ | 2,095 | | $ | 1,885 |
Comparable center revenue (2) | 11.4% | | 25.6% | | 16.6% | | 35.7% |
| | | | | | | |
Center Data | | | | | | | |
Net new center openings (3) | 6 | | 3 | | 9 | | 5 |
Total centers (end of period) (3) | 170 | | 156 | | 170 | | 156 |
Total center square footage (end of period) (4) | 16,700,000 | | 15,600,000 | | 16,700,000 | | 15,600,000 |
| | | | | | | |
GAAP and Non-GAAP Financial Measures | | | | | | | |
Net income (loss) | $ | 7,915 | | $ | 24,732 | | $ | 52,379 | | $ | (15,519) |
Net income (loss) margin (5) | 1.4 | % | | 5.0 | % | | 3.2 | % | | (1.1) | % |
Adjusted net income (loss) (6) | $ | 26,684 | | $ | (11,535) | | $ | 91,139 | | $ | (66,832) |
Adjusted net income (loss) margin (6) | 4.6 | % | | (2.3) | % | | 5.5 | % | | (5.0) | % |
Adjusted EBITDA (7) | $ | 142,981 | | $ | 70,975 | | $ | 399,123 | | $ | 174,697 |
Adjusted EBITDA margin (7) | 24.4 | % | | 14.3 | % | | 24.1 | % | | 12.9 | % |
Center operations expense | $ | 319,401 | | $ | 295,253 | | $ | 896,113 | | $ | 814,383 |
Pre-opening expenses (8) | $ | 1,477 | | $ | 5,350 | | $ | 6,146 | | $ | 9,296 |
Rent | $ | 69,225 | | $ | 63,213 | | $ | 203,196 | | $ | 179,166 |
Non-cash rent expense (open properties) (9) | $ | 8,409 | | $ | 6,762 | | $ | 25,662 | | $ | 14,850 |
Non-cash rent expense (properties under development) (9) | $ | 861 | | $ | 4,907 | | $ | 1,238 | | $ | 12,454 |
(1)We define Average Center revenue per center membership as Center revenue less Digital On-hold revenue, divided by the average number of Center memberships for the period, where the average number of Center memberships for the period is an average derived from dividing the sum of the total Center memberships outstanding at the beginning of the period and at the end of each month during the period by one plus the number of months in each period.
(2) We measure the results of our centers based on how long each center has been open as of the most recent measurement period. We include a center, for comparable center salesrevenue purposes, beginning on the first day of the 13th full calendar month of the center’s operation, in order to assess the center’s growth rate after one year of operation.
(3) Net new center openings areis calculated as the number of centers that opened for the first time to members during the period, less any centers that closed during the period. Total centers (end of period) is the number of centers operational as of the last day of the period. AsDuring the third quarter of 2023, we opened six centers. During the nine months ended September 30, 2021, all of our 1552023, we opened 10 centers were open.and closed one center.
(4) Total center square footage (end of period) reflects the aggregate fitness square footage, which we use as a metric for evaluating the efficiencies of a center as of the end of the period. The square footage figures exclude areas used for tennis courts, outdoor swimming pools, outdoor play areas and stand-alone Work, Sport and Swim locations. These figures are approximations.
(5) Net lossincome (loss) margin is calculated as net lossincome (loss) divided by total revenue.
(6) We present Adjusted net income (loss) as a supplemental measure of our performance. We define Adjusted net income (loss) as net income (loss) excluding the impact of share-based compensation expense, (gain) loss on sale-leaseback transactions, capital transaction costs, legal settlements, asset impairment, severance and other items that are not indicative of our ongoing operations, including incremental costs related to COVID-19, less the tax effect of these adjustments.
Adjusted net income (loss) margin is calculated as Adjusted net income (loss) divided by total revenue.
The following table provides a reconciliation of net income (loss) and income (loss) per common share, the most directly comparable GAAP measures, to Adjusted net income (loss) and Adjusted net income (loss) per common share:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| September 30, | | September 30, |
($ in thousands) | 2023 | | 2022 | | 2023 | | 2022 |
Net income (loss) | $ | 7,915 | | | $ | 24,732 | | | $ | 52,379 | | | $ | (15,519) | |
Share-based compensation expense (a) | 14,858 | | | 5,803 | | | 37,029 | | | 33,214 | |
COVID-19 related expenses (b) | 93 | | | 354 | | | 339 | | | 937 | |
Loss (gain) on sale-leaseback transactions (c) | 12,672 | | | (48,583) | | | 13,431 | | | (98,167) | |
Capital transaction costs (d) | — | | | — | | | — | | | 255 | |
| | | | | | | |
Asset impairments (e) | 5,340 | | | — | | | 6,620 | | | — | |
Other (f) | (405) | | | 1,172 | | | (5,191) | | | 1,021 | |
Taxes (g) | (13,789) | | | 4,987 | | | (13,468) | | | 11,427 | |
Adjusted net income (loss) | $ | 26,684 | | | $ | (11,535) | | | $ | 91,139 | | | $ | (66,832) | |
| | | | | | | |
Income (loss) per common share: | | | | | | | |
Basic | $ | 0.04 | | | $ | 0.13 | | | $ | 0.27 | | | $ | (0.08) | |
Diluted | $ | 0.04 | | | $ | 0.12 | | | $ | 0.26 | | | $ | (0.08) | |
Adjusted income (loss) per common share: | | | | | | | |
Basic | $ | 0.14 | | | $ | (0.06) | | | $ | 0.47 | | | $ | (0.35) | |
Diluted | $ | 0.13 | | | $ | (0.06) | | | $ | 0.45 | | | $ | (0.35) | |
Weighted-average common shares outstanding: | | | | | | | |
Basic | 196,146 | | | 193,918 | | | 195,404 | | | 193,364 | |
Diluted | 204,298 | | | 198,381 | | | 203,954 | | | 193,364 | |
(a) Share-based compensation expense recognized during the three and nine months ended September 30, 2023 was associated with stock options, restricted stock units, our employee stock purchase plan (“ESPP”) that launched on December 1, 2022, and liability classified awards related to our short-term incentive plan in 2023. Share-based compensation expense recognized during the three and nine months ended September 30, 2022 was associated with stock options, restricted stock and restricted stock units. The majority of this expense in 2022 was associated with awards that were fully vested and became exercisable on April 4, 2022 in connection with the expiration of the lock-up period following our IPO.
(b) Represents the incremental expenses we recognized related to the COVID-19 pandemic. We adjust for these expenses as they do not represent expenses associated with our normal ongoing operations. We believe that adjusting for these expenses provides a more accurate and consistent representation of our actual operating performance from period to period. For the three months ended September 30, 2023 and the three and nine months ended September 30, 2022, COVID-19 related expenses primarily consisted of legal-related costs in pursuit of our claim against Zurich. For the nine months ended September 30, 2023, COVID-19 related expenses primarily consisted of legal-related costs in pursuit of our claim against Zurich, partially offset by a subsidy for our Canadian operations. For more information regarding this claim, see Note 10, Commitments and Contingencies, to our condensed consolidated financial statements in this report.
(c) We adjust for the impact of losses and gains on the sale-leaseback of our properties as they do not reflect costs associated with our ongoing operations. For details on the loss on sale-leaseback transactions that we recognized during the nine months ended September 30, 2023, see “Sale-Leaseback Transactions” within Note 7, Leases, to our condensed consolidated financial statements in this report.
(d) Represents costs related to capital transactions, including debt and equity offerings that are non-recurring in nature, but excluding direct costs related to the IPO, which were netted against the proceeds of the IPO.
(e) Represents non-cash asset impairments of our long-lived assets.
(f) Includes benefits and costs associated with transactions that are unusual and non-recurring in nature.
(g) Represents the estimated tax effect of the total adjustments made to arrive at Adjusted net income (loss) using the effective income tax rates for the respective periods.
(7) We present Adjusted EBITDA as a supplemental measure of our performance. We define Adjusted EBITDA as net income (loss) before interest expense, net, provision for (benefit from) income taxes and depreciation and amortization, excluding the impact of share-based compensation expense, gain (loss)loss (gain) on sale-leaseback transactions, capital transaction costs, legal settlements, asset impairment, severance and other items that are not indicative of our ongoing operations, including incremental costs related to COVID-19.
Adjusted EBITDA margin is calculated as Adjusted EBITDA divided by total revenue.
The following table provides a reconciliation of net loss,income (loss), the most directly comparable GAAP measure, to Adjusted EBITDA:
| | | Three Months Ended | | Nine Months Ended | | Three Months Ended | | Nine Months Ended |
| | September 30, | | September 30, | | September 30, | | September 30, |
($ in thousands) | ($ in thousands) | 2021 | | 2020 | | 2021 | | 2020 | ($ in thousands) | 2023 | | 2022 | | 2023 | | 2022 |
Net loss | $ | (45,442) | | | $ | (93,647) | | | $ | (274,599) | | | $ | (276,304) | | |
Net income (loss) | | Net income (loss) | $ | 7,915 | | | $ | 24,732 | | | $ | 52,379 | | | $ | (15,519) | |
Interest expense, net of interest income (a) | Interest expense, net of interest income (a) | 39,849 | | | 30,967 | | | 176,144 | | | 95,724 | | Interest expense, net of interest income (a) | 33,075 | | | 27,696 | | | 96,249 | | | 84,732 | |
Benefit from income taxes | (11,981) | | | (28,079) | | | (58,867) | | | (99,096) | | |
Provision for (benefit from) income taxes | | Provision for (benefit from) income taxes | 5,815 | | | 3,401 | | | 18,200 | | | (3,456) | |
Depreciation and amortization | Depreciation and amortization | 57,977 | | | 61,359 | | | 177,005 | | | 188,483 | | Depreciation and amortization | 63,618 | | | 56,400 | | | 180,067 | | | 171,680 | |
Share-based compensation expense(a) | Share-based compensation expense(a) | 4,078 | | | — | | | 6,959 | | | — | | Share-based compensation expense(a) | 14,858 | | | 5,803 | | | 37,029 | | | 33,214 | |
COVID-19 related expenses (b)(a) | COVID-19 related expenses (b)(a) | (221) | | | 17,029 | | | (410) | | | 49,312 | | COVID-19 related expenses (b)(a) | 93 | | | 354 | | | 339 | | | 937 | |
Loss (gain) on sale-leaseback transactions (c)(a) | Loss (gain) on sale-leaseback transactions (c)(a) | 2,227 | | | — | | | 3,057 | | | (3,078) | | Loss (gain) on sale-leaseback transactions (c)(a) | 12,672 | | | (48,583) | | | 13,431 | | | (98,167) | |
Capital transaction costs (d)(a) | Capital transaction costs (d)(a) | 588 | | | 39 | | | 588 | | | 96 | | Capital transaction costs (d)(a) | — | | | — | | | — | | | 255 | |
Legal settlements (e) | (44) | | | 313 | | | (44) | | | 345 | | |
Other (f) | — | | | (418) | | | 2,444 | | | (416) | | |
Asset impairments (a) | | Asset impairments (a) | 5,340 | | | — | | | 6,620 | | | — | |
| Other (a) | | Other (a) | (405) | | | 1,172 | | | (5,191) | | | 1,021 | |
Adjusted EBITDA | Adjusted EBITDA | $ | 47,031 | | | $ | (12,437) | | | $ | 32,277 | | | $ | (44,934) | | Adjusted EBITDA | $ | 142,981 | | | $ | 70,975 | | | $ | 399,123 | | | $ | 174,697 | |
(a) ForSee the nine months ended September 30, 2021, we incurred a non-cash expense of $41.0 million relatedcorresponding footnotes to the extinguishment of our related party secured loan. In June 2020, we closed on an approximate $101.5 million secured loan from an investor group comprised solely of our stockholders or their affiliates. The secured loan carried an interest rate of 12.0% and was scheduled to maturetable in June 2021. In January 2021, we extinguished the secured loan plus accrued interest with a book value of $108.6 million by converting the loan into approximately 5.4 million shares of our Series A Preferred Stock, which had a fair value of $149.6 million, as determined by an independent third party valuation, at the time of conversion. Accordingly, we booked a $41.0 million loss upon conversion.note 6 immediately above.
(b) Represents the incremental net (credits) expenses we recognized related to the COVID-19 pandemic. We adjust for these costs as they do not represent costs associated with our normal ongoing operations. We believe that adjusting for these costs provides a more accurate and consistent representation of our actual operating performance from period to period. The net credits we recognized during the three and nine months ended September 30, 2021 consist primarily of the recovery of certain qualifying expenses recovered under the CARES Act, partially offset by COVID-19 legal-related costs. For the three months ended September 30, 2020, COVID-19 related expenses consisted of $9.5 million for project cost write-offs for sites no longer deemed viable as a result of the economic downturn caused by COVID-19, $5.5 million for the employee portion of health care coverage which is normally paid by employees but was paid by us during this period on behalf of our employees, and $2.0 million of emergency leave and non-working payroll, which includes subsequent recovery of certain expenses under the CARES Act, severance and charitable contributions made to support our employees who were directly impacted by COVID-19. For the nine months ended September 30, 2020, COVID-19 related expenses consisted of $14.6 million for project cost write-offs for sites no longer deemed viable as a result of the economic downturn caused by COVID-19, $12.0 million for the employee portion of health care coverage which is normally paid by employees but was paid by us during this period on behalf of our employees, and $22.7 million of emergency leave and non-working payroll, which includes subsequent recovery of certain expenses under the CARES Act, severance and charitable contributions made to support our employees who were directly impacted by COVID-19.
(c) We adjust for the impact of gains or losses on the sale-leaseback of our properties as they do not reflect costs associated with our ongoing operations.
(d) Represents one-time costs related to capital transactions, including debt and equity offerings that are non-recurring in nature.
(e) We adjust for the impact of large class action and unusual legal settlements paid or recoveries received. These are non-recurring in nature and do not reflect costs associated with our normal ongoing operations.
(f) Includes costs associated with large corporate restructuring charges, executive level involuntary terminations and other transactions which are unusual and non-recurring in nature. For the nine months ended September 30, 2021, other expenses consisted of $1.6 million of incremental expenses related to a winter storm resulting in historical freezing temperatures affecting our Texas region, and $0.8 million of executive level severance.
(7)(8) Represents non-capital expenditures associated with opening new centers whichthat are incurred prior to the commencement of a new center opening. The number of centers under construction or development, the types of centers and our costs associated with any particular center opening can vary significantly from period to period.
(8)(9) Reflects the non-cash portion of our annual GAAP operating lease expense that is greater or less than the cash operating lease payments.
(9) Free cash flow before growth capital expenditures, a non-GAAP financial measure, is calculated as net cash provided by (used in)Non-cash rent expense for our open properties represents non-cash expense associated with properties that were operating activities less center maintenance capital expenditures and corporate capital expenditures.
The following table provides a reconciliation from net cash provided by (used in) operating activities to free cash flow before growth capital expenditures:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| September 30, | | September 30, |
($ in thousands) | 2021 | | 2020 | | 2021 | | 2020 |
Net cash used in operating activities | $ | (2,283) | | | $ | (11,789) | | | $ | (15,322) | | | $ | (56,165) | |
Center maintenance capital expenditures | (18,078) | | | (4,823) | | | (43,045) | | | (29,075) | |
Corporate capital expenditures | (18,272) | | | (14,955) | | | (41,091) | | | (60,026) | |
Free cash flow before growth capital expenditures | $ | (38,633) | | | $ | (31,567) | | | $ | (99,458) | | | $ | (145,266) | |
at the end of each period presented. Non-cash rent expense for our properties under development represents non-cash expense associated with properties that are still under development at the end of each period presented.Factors Affecting the Comparability of our Results of Operations
Impact of COVID-19 on our Business
OnOverview
In March 11, 2020, the World Health Organization declared the outbreak of a novel coronavirus that causes COVID-19 as a pandemic, and recommended containment and mitigation measures worldwide. On March 13, 2020, the United States declared a National Public Health Emergency with respect to COVID-19. On March 16, 2020, in compliance withand we closed all of our centers based on orders and advisories from federal, state and local governmental authorities regarding COVID-19, we closed all of our centers.COVID-19. Throughout this report, including this “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” when we refer to “COVID-19,“COVID-19” or “the pandemic,” such as when we describe the “impact of COVID-19” on our operations, we mean the coronavirus-related orders issued by governmental authorities affecting our operations and/or the presence of coronavirus in our centers, including COVID-19 positive members or team members.
We re-opened our first center on May 8, 2020, and continued to re-open our centers were closed, as state and local governmental authorities permitted, subject to operating processes and protocols that we developed in consultation with an epidemiologist (MD/PhD) with a wide range of experience in clinical, occupational and environmental medicine, we developed processes and protocols for the operation of our centers in the COVID-19 environment. These protocols, which have varied at our centers across the United States and Canada, have included physical distancing, restricting certain equipment and amenities, occupancy limits, required appointments, touchless interactions, facial coverings, cleaning, sanitation, hygiene, air circulation and filtering, screening, contact tracing and educational awareness. We may take further actions as government authorities require or recommend or as we determine to be in the interests of our members, team members, vendors and service providers, including in response to emerging variants of the COVID-19 virus, such as the Delta variant. We continue to refine these processes and protocols as we operate in the evolving COVID-19 environment.
On May 8, 2020, we re-opened our first center in Oklahoma City, Oklahoma. With a focus on providingprovide a healthy and clean environment for our members and team members we continued and to re-open ourmeet various governmental requirements and restrictions. Our centers as governmental authorities permitted. As of June 30, 2020, September 30, 2020, December 31, 2020, March 31,were also impacted in 2021 June 30, 2021, and September 30, 2021 we had 105, 148, 141, 151, 150 and 155 of our centers opened, respectively. However, many of our centers remained closed or were required to be closed again after re-opening for some period of time during each of these quarters as a result of the COVID-19 pandemicDelta variant and related restrictions. For instance, duringthen again later in 2021 and into 2022 with the three months ended June 30, 2020, September 30, 2020 and December 31, 2020, 149, 43 and 31 of our centers, respectively, were closed for some period of time. Omicron variant. The performance of our centers after we were able to re-open them has varied depending on various factors, including how early we were able to re-open them in 2020, whether we were required to close them again, their geographic location and applicable governmental restrictions. improved significantly as our centers have ramped back from the adverse impacts of COVID-19.
We have experienced a slightly faster recovery in our membership dues revenue compared to our in-center revenue as our centers have re-opened.revenue. We expect membership dues revenue to remain a higher percentage of our total revenue for at least the near term.
Leverage
We are focused on improving the ratio of our net debt to Adjusted EBITDA, or our leverage ratio. We define net debt as the current and long-term portion of our debt, excluding unamortized debt discounts and issuance costs and fair value adjustments, less cash and cash equivalents. Our leverage ratio was elevated due in part to the adverse impacts of COVID-19, which required us to incur additional debt and significantly reduced our Adjusted EBITDA. We have significantly improved our leverage ratio in the near termfirst nine months of 2023 and returnbelieve that we can continue to more historical levels over time. Whileimprove our leverage ratio as our profitability improves and we are encouraged by the trendscontinue to strengthen our balance sheet.
Investment in Business
We have continued to invest in our business to elevate and broaden our member experiences and drive additional revenue per center membership, including improving our in-center services and products, such as pickleball, Dynamic Personal Training, Dynamic Stretch, small group training and our ARORA community, introducing new types of increased vaccination rates, reduced COVID-19 infectionsmemberships, providing concierge-type member services and hospitalizationsexpanding our omni-channel offerings. Elevating our member experiences requires investment in our team members, programs, products, services and reduced operating restrictions in many of the regions wherecenters. These investments may impact our centers operate, the full extent of the impact of COVID-19, including the Delta variant, remains uncertain and is dependent on future developments that cannot be accurately predicted at this time. Considering this uncertainty, the extent of the impact of COVID-19 on our financial position,short-term results of operations liquidity and cash flows is uncertain at this time.
Operations
Asas our investments in our business may be made more quickly than we achieve additional revenue per center membership. While we remain focused on providing exceptional experiences to our members and growing our revenue, we are also focused on center and overhead support efficiencies given our recovery of September 30, 2021, allmembership dues and a significant portion of our 155 centers were open. Ascenter memberships.
Impact of September 30, 2021, total memberships were 753,355, a decrease of 20.7% comparedOur Asset-light, Flexible Real Estate Strategy on Rent Expense
Our asset-light, flexible real estate strategy has allowed us to 950,183 at March 31, 2020. Center memberships were 668,310, a decrease of 21.1% compared to 847,161 at March 31, 2020. Digital On-hold memberships were 85,045, a decrease of 17.4% compared to 103,022 at March 31, 2020.
We continue to monitor governmental orders regarding the operationsexpand our business by leveraging operating leases and sale-leaseback transactions, among other asset-light opportunities. Approximately 66% of our centers are now leased, including approximately 89% of our new centers opened since 2015, versus a predominantly owned real estate strategy prior to 2015. Rent expense, which includes both cash and non-cash rent expense, will continue to increase as we lease more centers and will therefore impact the comparability of our results of operations. The impact of these increases is dependent upon the timing of our centers under development and the center openings, the timing of sale-leaseback transactions and terms of the leases for the new centers or sale-leaseback transactions.
Macroeconomic Trends
We have been monitoring the macroeconomic environment and its impact on our business, including with respect to inflation, interest rates, labor and supply chain issues, as well as our center operating processes and protocols. We expect we may need to continue to adjust such processes and protocols as facts and circumstances change, including as a result of variants of the COVID-19 virus, including the Delta variant.potential economic recession. See “—Overview—Macroeconomy” for additional information.
We also expect our centers and in-center businesses will continue to be impacted differently based upon considerations such as their geographic location, vaccination rates, impacts of variants, applicable government restrictions and guidance, and team member and member sentiment with respect to our center operating processes and protocols and working in and/or using our centers. For example, we are seeing an increase in Center memberships and center utilization in various regions where government restrictions have been lifted.Share-Based Compensation
Given increasing demand for online engagement with consumers, we have increased our focus on delivering a digitized in-center experience through our omni-channel ecosystem. In December 2020, we expanded our Digital membership offering, bringing our “Healthy Way of Life” programs, services and content to consumers virtually. This omni-channel experience is designed to deliver health, fitness and wellness where, when and how members want it by offering online reservations registrations, virtual training, live streaming and on-demand classes, virtual events and more.
Cash Flows and Liquidity
In response to the impact of COVID-19 on our business, we took swift cash management actions to reduce our operating costs and preserve liquidity. These actions included: initially furloughing over 95% of our employees; undertaking two corporate restructuring events to right size overhead relative to the current business; initially suspending virtually all construction capital spending; negotiating rent reductions and deferrals with many of our landlords; evaluating the CARES Act and receiving the employee retention credit, the deferment of the employer’s portion of social security tax payments and the various income tax-related benefits; and completing sale-leaseback transactions associated with six properties.
During the nine months ended September 30, 2021,2023, we refinanced a significant portion of our outstanding debt. Specifically, we: (i) refinanced in full the outstanding balances associated with our then existing senior secured credit facility as well as our then existing senior unsecured notes; and (ii) converted our related party secured loan into Series A Preferred Stock. Additionally, we completed sale-leaseback transactions associated with two properties. For information regarding the refinancing actions we took during the nine months ended September 30, 2021, see Note 6, Debt, to our unaudited condensed consolidated financial statements included elsewhere in this report. For more information regarding the sale-leaseback transactions that were consummated during the nine months ended September 30, 2021, see Note 7, Leases, to our unaudited condensed consolidated financial statements included elsewhere in this report.
On October 13, 2021, we paid down $575.7 million (including a $5.7 million pre-payment penalty) of our Term Loan Facility with a portion of the net proceeds we received from the IPO. We intend to use the remaining net proceeds from the IPO, along with the additional net proceeds of approximately $27.1 million from the sale of the additional 1.6 million shares of common stock pursuant to the partial exercise by the underwriters of their over-allotment option, for general corporate purposes.
Although there is uncertainty related to the impact of COVID-19 on our financial position, results of operations, liquidity and cash flows, much of which is dependent on the length and severity of the pandemic and the related measures taken, we believe that the combination of our current cash position, our availability under the Revolving Credit Facility, the recent actions we have taken to refinance our debt, complete the IPO and strengthen our balance sheet, as well as the actions we have taken to reduce our cash outflows, leave us well-positioned to manage our business through this pandemic. If our available liquidity were not sufficient to meet our operating and debt service obligations as they come due, we would need to pursue alternative arrangements through additional debt, additional sale-leaseback transactions or equity financing to meet our cash requirements. There can be no assurance that any such financing would be available on commercially acceptable terms, or at all.
There may be developments outside of our control requiring us to adjust our operating plan, including additional required center closures. As such, given the dynamic nature of our current operating environment, we cannot reasonably estimate the impacts of COVID-19 on our financial position, results of operations or cash flows in the future.
Share-Based Compensation
As of September 30, 2021, total unrecognizedrecognized share-based compensation expense associated with stock options, restricted Series A Preferred Stockstock units, our ESPP that launched on December 1, 2022 and liability classified awards related to our short-term incentive plan in 2023, totaling approximately $37.0 million. During the nine months ended September 30, 2022, we recognized share-based compensation expense associated with stock options, restricted stock and restricted stock units was $362.5totaling approximately $33.2 million. The estimated fair valuemajority of this expense in 2022 was associated with eachawards that were fully vested and became exercisable on April 4, 2022 in connection with the expiration of the applicable share-based compensation awards outstanding at September 30, 2021 will be recognized as share-based compensation expense if and when the related recognition conditions, for accounting purposes, are met. As a result of the consummation of the IPO, a significant portion of this total unrecognized share-based compensation expense amount will be recognized during the fourth quarter of 2021.lock-up period following our IPO.
Critical Accounting Policies and Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States (“GAAP”)GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Ultimate results could differ from those estimates. In recording transactions and balances resulting from business operations, we use estimates based on
the best information available. We revise the recorded estimates when better information is available, facts change or we can determine actual amounts. These revisions can affect operating results.
Management has evaluated the development and selection orof our critical accounting policies and estimates used in the preparation of the Company’s unaudited condensed consolidated financial statements and related notes and believes these policies to be reasonable and appropriate. Certain of these policies involve a higher degree of judgment or complexity and are most significant to reporting our results of operations and financial position, and are, therefore, discussed as critical. Our most significant estimates and assumptions that materially affect the Company'sCompany’s unaudited condensed consolidated financial statements involve difficult, subjective or complex judgments, which management used while performing goodwill, indefinite-lived intangible and long-lived asset impairment analyses.analyses and sale-leaseback arrangements. Given the additional effects from the COVID-19 pandemic, these estimates can be more challenging, and actual results could differ materially from our estimates. As it relates to the long-lived asset impairment analyses that we have performed during both the three and nine months ended September 30, 2021 and 2020, we determined that certain projects were no longer deemed viable for construction, and that the previously-capitalized site development costs associated with these projects were impaired. Accordingly, as it relates to these long-lived assets, we recognized impairment charges of $0.7 million and $9.9 million for the three months ended September 30, 2021 and 2020, respectively, and we recognized impairment charges of $2.5 million and $16.9 million for the nine months ended September 30, 2021 and 2020, respectively.
More information on all of our significant accounting policies can be found in Note 2, “Summary of Significant Accounting Policies” to our audited consolidated financial statements included in the Company’s Registration StatementAnnual Report on Form S-110-K for the year ended December 31, 2022 filed with the SEC on September 13, 2021 (File No. 333-259495)SEC. and the section of such Registration Statement on Form S-1 entitled “Management's Discussion and Analysis of Financial Condition and Results of Operations.” There have been no material changes to our critical accounting policies as compared to the critical accounting policies described in such Registration StatementAnnual Report on Form S-1.10-K.
Results of Operations
Three Months Ended September 30, 20212023 Compared to Three Months Ended September 30, 20202022
The following table sets forth our condensed consolidated statements of operations data (amounts in thousands) and data as a percentage of total revenue for the three months ended September 30, 20212023 and 2020:2022:
| | | Three Months Ended September 30, | | Three Months Ended September 30, |
| | | As a Percentage of Total Revenue | | | As a Percentage of Total Revenue |
| | 2021 | | 2020 | | 2021 | | 2020 | | 2023 | | 2022 | | 2023 | | 2022 |
Revenue: | Revenue: | | | | | | | | Revenue: | | | | | | | |
Center revenue | Center revenue | $ | 372,000 | | | $ | 228,349 | | | 96.6 | % | | 98.8 | % | Center revenue | $ | 568,402 | | | $ | 479,995 | | | 97.1 | % | | 96.7 | % |
Other revenue | Other revenue | 13,040 | | | 2,681 | | | 3.4 | % | | 1.2 | % | Other revenue | 16,775 | | | 16,386 | | | 2.9 | % | | 3.3 | % |
Total revenue | Total revenue | 385,040 | | | 231,030 | | | 100.0 | % | | 100.0 | % | Total revenue | 585,177 | | | 496,381 | | | 100.0 | % | | 100.0 | % |
Operating expenses: | Operating expenses: | | Operating expenses: | |
Center operations | Center operations | 231,996 | | | 165,572 | | | 60.3 | % | | 71.7 | % | Center operations | 319,401 | | | 295,253 | | | 54.6 | % | | 59.5 | % |
Rent | Rent | 52,513 | | | 47,539 | | | 13.6 | % | | 20.6 | % | Rent | 69,225 | | | 63,213 | | | 11.8 | % | | 12.7 | % |
General, administrative and marketing | General, administrative and marketing | 45,304 | | | 32,204 | | | 11.8 | % | | 13.9 | % | General, administrative and marketing | 51,668 | | | 57,139 | | | 8.8 | % | | 11.5 | % |
Depreciation and amortization | Depreciation and amortization | 57,977 | | | 61,359 | | | 15.1 | % | | 26.6 | % | Depreciation and amortization | 63,618 | | | 56,400 | | | 10.9 | % | | 11.4 | % |
Other operating | 14,796 | | | 15,152 | | | 3.8 | % | | 6.5 | % | |
Other operating expense (income) | | Other operating expense (income) | 34,516 | | | (31,358) | | | 5.9 | % | | (6.3) | % |
Total operating expenses | Total operating expenses | 402,586 | | | 321,826 | | | 104.6 | % | | 139.3 | % | Total operating expenses | 538,428 | | | 440,647 | | | 92.0 | % | | 88.8 | % |
Loss from operations | (17,546) | | | (90,796) | | | (4.6) | % | | (39.3) | % | |
Income from operations | | Income from operations | 46,749 | | | 55,734 | | | 8.0 | % | | 11.2 | % |
Other (expense) income: | Other (expense) income: | | Other (expense) income: | |
Interest expense, net of interest income | Interest expense, net of interest income | (39,849) | | | (30,967) | | | (10.3) | % | | (13.4) | % | Interest expense, net of interest income | (33,075) | | | (27,696) | | | (5.7) | % | | (5.5) | % |
Equity in earnings of affiliate | Equity in earnings of affiliate | (28) | | | 37 | | | — | % | | — | % | Equity in earnings of affiliate | 56 | | | 95 | | | — | % | | — | % |
Total other expense | Total other expense | (39,877) | | | (30,930) | | | (10.3) | % | | (13.4) | % | Total other expense | (33,019) | | | (27,601) | | | (5.7) | % | | (5.5) | % |
Loss before income taxes | (57,423) | | | (121,726) | | | (14.9) | % | | (52.7) | % | |
Benefit from income taxes | (11,981) | | | (28,079) | | | (3.1) | % | | (12.2) | % | |
Net loss | $ | (45,442) | | | $ | (93,647) | | | (11.8) | % | | (40.5) | % | |
Income before income taxes | | Income before income taxes | 13,730 | | | 28,133 | | | 2.3 | % | | 5.7 | % |
Provision for income taxes | | Provision for income taxes | 5,815 | | | 3,401 | | | 1.0 | % | | 0.7 | % |
Net income | | Net income | $ | 7,915 | | | $ | 24,732 | | | 1.3 | % | | 5.0 | % |
Total revenue. The $154.0$88.8 million increase in Total revenue for the three months ended September 30, 2021 compared to the three months ended September 30, 2020 reflects the adverse economic impact that our center closures had on our business during the three months ended September 30, 2020 and the timing of the subsequent reopening of our centers, as well as pricing initiatives we implemented at the majority of our centers during the three months ended September 30, 2021, which have resulted in higher average Center membership dues being charged to new members during the three months ended September 30, 20212023 as compared to the three months ended September 30, 2020.2022 was due to continued strong growth in membership dues and in-center revenue, including continuing to realize the benefits of pricing actions already completed, membership growth in our new and ramping centers and higher member utilization of our in-center offerings.
With respect to the $143.6$88.4 million increase in Center revenue for the three months ended September 30, 20212023 as compared to the three months ended September 30, 2020:2022:
•63.6%81.7% was from membership dues and enrollment fees, which increased $91.4$72.2 million for the three months ended September 30, 20212023 as compared to the three months ended September 30, 2020.2022. This increase reflects the adverse economic impact thatimprovement in our center closures,Center memberships, which resultedincreased to 784,331 as of September 30, 2023 from COVID-19, had on our business728,729 as of September 30, 2022, as well as higher average monthly dues per Center membership during the three months ended September 30, 2020 and the timing of the subsequent reopening of our centers,2023 as well as pricing initiatives we implemented at the majority of our centers duringcompared to the three months ended September 30, 2021, which have resulted in higher average Center membership dues being charged to new members during the three months ended September 30, 2021 as compared to the three months ended September 30, 20202022; and
•36.4%18.3% was from in-center revenue, which increased $52.2$16.2 million for the three months ended September 30, 20212023 as compared to the three months ended September 30, 20202022. This increase was recognized across all of our primary in-center businesses and reflects the adverse economic impact thathigher utilization of our center closures, which resulted from COVID-19, had onofferings by our business members during the three months ended September 30, 20202023 as compared to the three months ended September 30, 2022 as well as the timing of the subsequent reopening of our centers..
The T$10.4he $0.4 million increase in Other revenue for the three months ended September 30, 20212023 as compared to the three months ended September 30, 20202022 was primarily driven by our athletic events business, as we were able to produce severalthe improved performance of our iconic events during the third quarter of 2021 compared to the third quarter of 2020 when COVID-19 restrictions forced the cancellation of most of our eventsLife Time Work and Life Time Living locations..
Center operations expenses. The Th$66.4e $24.1 million increase in Center operations expenses for the three months ended September 30, 20212023 as compared to the three months ended September 30, 20202022 was driven byprimarily due to increased staffing requirements resulting from the subsequent reopening ofoperating costs related to our new and ramping centers as well as growth in memberships and the addition of seven new centers.in-center business revenue.
Rent expense. The T$5.0he $6.0 million increase increase in Rent expense for the three months ended September 30, 20212023 as compared to the three months ended September 30, 20202022 was primarily driven by the sale leasebacktiming of five centers occurring since September 30, 2020,sale-leaseback transactions during both the current and prior year as well as our taking possession of five sites since September 30, 2020 two properties during the current year foforr future centers where we started incurring GAAP rent expense, most of which is non-cash.non-cash.
General, administrative and marketing expenses. The $13.1 million increase in General, administrative and marketing expenses for the three months ended September 30, 2021 as compared to the three months ended September 30, 2020 was primarily driven by a $4.1decreased $5.5 million increase in share-based compensation, a $3.5 million increase in marketing expenses and a $3.4 million increase in general and administrative costs due to the return of Corporate team members who remained furloughed during the third quarter of 2020, partially offset by $2.6 million of corporate COVID-19-related expenses incurred during the three months ended September 30, 2020.
Depreciation and amortization. The $3.4 million decrease in Depreciation and amortization for the three months ended September 30, 2021 as compared to the three months ended September 30, 2020 consists of $3.1 million and $0.3 million lower depreciation and amortization, respectively.
Other operating expenses. The $0.4 million decrease in Other operating expenses for the three months ended September 30, 2021 as compared to the three months ended September 30, 2020 was primarily attributable to project cost write-offs recognized during the three months ended September 30, 2020 for sites that were no longer deemed viable for construction as a result of COVID-19, partially offset by higher costs associated with our athletic events business during the three months ended September 30, 20212023 as compared to the three months ended September 30, 20202022, primarily due to reduced center support overhead, advertising and marketing and cash incentive compensation expenses, partially offset by higher share-based compensation expense.
Depreciation and amortization, as we were able to produce several of our iconic events during. Depreciation and amortization increased $7.2 million for the third quarter of 2021three months ended September 30, 2023 as compared to the third quarterthree months ended September 30, 2022, primarily due to new center openings.
Other operating expense (income). Other operating expense for the three months ended September 30, 2023 was $34.5 million as compared to Other operating income of 2020 when COVID-19 restrictions forced$31.4 million for the cancellationthree months ended September 30, 2022. The $65.9 million change was primarily attributable to the recognition of mosta $13.2 million loss on a sale-leaseback transaction during the three months ended September 30, 2023 as compared to the recognition of our events.a $47.9 million gain on sale-leaseback transactions during the three months ended September 30, 2022, and a $5.6 million loss associated with the sale of an outparcel of land during the three months ended September 30, 2023, of which $5.3 million was recognized as an impairment charge.
Interest expense, net of interest income. The $8.8$5.4 million increase in Interest expense, net of interest income for the three months ended September 30, 20212023 as compared to the three months ended September 30, 2020 reflects2022 was driven by a relatively higher effective weighted average interest rate on an increased average level of outstanding borrowings and higher interest rates during the three months ended September 30, 20212023 as compared to the three months ended September 30, 2020.2022.
Benefit fromProvision for income taxes. The benefit fromprovision for income taxes was $12.0$5.8 million for the three months ended September 30, 20212023 as compared to $28.1$3.4 million for the three months ended September 30, 2020.2022. The effective tax rate was 20.9%42.4% and 23.1%12.1% for those same periods, respectively. The changeincrease in benefit from income taxes was primarily attributable to a decrease in our loss beforeprovision for income taxes for the three months ended September 30, 20212023 as compared to the three months ended September 30, 2020, as well as2022 was primarily driven by a change in the recognition duringvaluation allowance associated with certain of our deferred tax assets and the tax deficiencies associated with share-based payment awards, partially offset by a decrease in earnings before income taxes and research tax credits. The effective tax rate applied to our pre-tax income for the three months ended September 30, 20212023 is higher than our statutory rate of an increase21.0% and reflects the tax deficiencies associated with share-based payment awards and state income tax provisions, partially offset by a decrease in the valuation allowance to reduce theassociated with certain of our deferred tax asset associated with our state net operating loss carryforwards.assets and research tax credits.
Net lossincome. As a result of the factors described above, net loss decreased by $48.2income was $7.9 million for the three months ended September 30, 20212023 as compared to $24.7 million for the three months ended September 30, 2020.2022.
Nine Months Ended September 30, 20212023 Compared to Nine Months Ended September 30, 20202022
The following table sets forth our condensed consolidated statements of operations data (amounts in thousands) and data as a percentage of total revenue for the nine months ended September 30, 20212023 and 2020:2022:
| | | Nine Months Ended September 30, | | Nine Months Ended September 30, |
| | | As a Percentage of Total Revenue | | | As a Percentage of Total Revenue |
| | 2021 | | 2020 | | 2021 | | 2020 | | 2023 | | 2022 | | 2023 | | 2022 |
Revenue: | Revenue: | | | | | | | | Revenue: | | | | | | | |
Center revenue | Center revenue | $ | 933,690 | | | $ | 704,919 | | | 97.5 | % | | 97.9 | % | Center revenue | $ | 1,608,279 | | | $ | 1,307,498 | | | 97.0 | % | | 96.9 | % |
Other revenue | Other revenue | 23,835 | | | 14,991 | | | 2.5 | % | | 2.1 | % | Other revenue | 49,480 | | | 42,404 | | | 3.0 | % | | 3.1 | % |
Total revenue | Total revenue | 957,525 | | | 719,910 | | | 100.0 | % | | 100.0 | % | Total revenue | 1,657,759 | | | 1,349,902 | | | 100.0 | % | | 100.0 | % |
Operating expenses: | Operating expenses: | | Operating expenses: | |
Center operations | Center operations | 625,322 | | | 515,350 | | | 65.3 | % | | 71.6 | % | Center operations | 896,113 | | | 814,383 | | | 54.1 | % | | 60.3 | % |
Rent | Rent | 154,552 | | | 138,470 | | | 16.1 | % | | 19.2 | % | Rent | 203,196 | | | 179,166 | | | 12.3 | % | | 13.3 | % |
General, administrative and marketing | General, administrative and marketing | 126,896 | | | 119,665 | | | 13.3 | % | | 16.6 | % | General, administrative and marketing | 147,005 | | | 175,650 | | | 8.9 | % | | 13.0 | % |
Depreciation and amortization | Depreciation and amortization | 177,005 | | | 188,483 | | | 18.5 | % | | 26.2 | % | Depreciation and amortization | 180,067 | | | 171,680 | | | 10.8 | % | | 12.7 | % |
Other operating | 30,660 | | | 37,412 | | | 3.2 | % | | 5.2 | % | |
Other operating expense (income) | | Other operating expense (income) | 64,837 | | | (56,605) | | | 3.9 | % | | (4.2) | % |
Total operating expenses | Total operating expenses | 1,114,435 | | | 999,380 | | | 116.4 | % | | 138.8 | % | Total operating expenses | 1,491,218 | | | 1,284,274 | | | 90.0 | % | | 95.1 | % |
Loss from operations | (156,910) | | | (279,470) | | | (16.4) | % | | (38.8) | % | |
Income from operations | | Income from operations | 166,541 | | | 65,628 | | | 10.0 | % | | 4.9 | % |
Other (expense) income: | Other (expense) income: | | Other (expense) income: | |
Interest expense, net of interest income | Interest expense, net of interest income | (176,144) | | | (95,724) | | | (18.4) | % | | (13.3) | % | Interest expense, net of interest income | (96,249) | | | (84,732) | | | (5.8) | % | | (6.3) | % |
Equity in earnings of affiliate | Equity in earnings of affiliate | (412) | | | (206) | | | — | % | | — | % | Equity in earnings of affiliate | 287 | | | 129 | | | — | % | | — | % |
Total other expense | Total other expense | (176,556) | | | (95,930) | | | (18.4) | % | | (13.3) | % | Total other expense | (95,962) | | | (84,603) | | | (5.8) | % | | (6.3) | % |
Loss before income taxes | (333,466) | | | (375,400) | | | (34.8) | % | | (52.1) | % | |
Benefit from income taxes | (58,867) | | | (99,096) | | | (6.1) | % | | (13.7) | % | |
Net loss | $ | (274,599) | | | $ | (276,304) | | | (28.7) | % | | (38.4) | % | |
Income (loss) before income taxes | | Income (loss) before income taxes | 70,579 | | | (18,975) | | | 4.2 | % | | (1.4) | % |
Provision for (benefit from) income taxes | | Provision for (benefit from) income taxes | 18,200 | | | (3,456) | | | 1.1 | % | | (0.3) | % |
Net income (loss) | | Net income (loss) | $ | 52,379 | | | $ | (15,519) | | | 3.1 | % | | (1.1) | % |
Total revenue. The $237.6$307.9 million increase in Total revenue for the nine months ended September 30, 2023 as compared to the nine months ended September 30, 20212022 was due to continued strong growth in membership dues and in-center revenue, including continuing to realize the benefits of pricing actions already completed, membership growth in our new and ramping centers, the continued re-ramp of our centers and higher member utilization of our in-center offerings.
With respect to the $300.8 million increase in Center revenue for the nine months ended September 30, 2023 as compared to the nine months ended September 30, 2022:
•78.3% was from membership dues and enrollment fees, which increased $235.6 million for the nine months ended September 30, 2020 primarily reflects the adverse economic impact that our center closures had on our business during the nine months ended September 30, 2020 and the timing of the subsequent reopening of our centers, as well as pricing initiatives we implemented at the majority of our centers during the nine months ended September 30, 2021, which have resulted in higher average Center membership dues being charged to new members during the nine months ended September 30, 20212023 as compared to the nine months ended September 30, 2020.
With respect to the $228.8 million increase in Center revenue for the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020:
•71.4% was from membership dues and enrollment fees, which increased $163.5 million for the nine months ended September 30, 2021 as compared to the nine months ended September 30, 2020.2022. This increase reflects the adverse economic impact thatimprovement in our center closures,Center memberships, which resultedincreased to 784,331 as of September 30, 2023 from COVID-19, had on our business728,729 as of September 30, 2022, as well as higher average monthly dues per Center membership during the nine months ended September 30, 2020 and the timing of the subsequent reopening of our centers, as well as pricing initiatives we implemented at the majority of our centers during the nine months ended September 30, 2021, which have resulted in higher average Center membership dues being charged to new members during the nine months ended September 30, 2021 as compared to the nine months ended September 30, 2020; and
•28.6% was from in-center revenue, which increased $65.3 million for the nine months ended September 30, 20212023 as compared to the nine months ended September 30, 20202022; and
•.21.7% was from in-center revenue, which increased $65.2 million for the nine months ended September 30, 2023 as compared to the nine months ended September 30, 2022. This increase was recognized across all of our primary in-center businesses and reflects the adverse economic impact thathigher utilization of our center closures, which resulted from COVID-19, had onofferings by our businessmembers during the nine months ended September 30, 20202023 as well ascompared to the timing of the subsequent reopening of our centers.nine months ended September 30, 2022.
The Th$8.8e $7.1 million increase increase in Other revenue for the nine months ended September 30, 20212023 as compared to the nine months ended September 30, 20202022 was primarily driven by our athletic events business, as we were able to produce severalthe improved performance of our iconic events during the nine months ended Life Time Work and Life Time Living locations.September 30, 2021 as compared to the nine months ended September 30, 2020 when COVID-19 restrictions forced the cancellation of most of our events.
Center operations expenses. The $109.9$81.7 million increase in Center operations expenses for the nine months ended September 30, 20212023 as compared to the nine months ended September 30, 20202022 was primarily driven bydue to increased staffing requirements resulting from the subsequent reopening ofoperating costs related to our new and ramping centers as well as growth in memberships and the addition of seven new centers.in-center business revenue.
Rent expense. The$16.1 $24.0 million increase in Rent expense for the nine months ended September 30, 20212023 as compared to the nine months ended September 30, 20202022 was primarily driven by the sale leasebacktiming of five centers occurring since sale-leaseback transactions during both
,the current and prior year as well as our taking possession of five sitesthree properties since May 31, 2022 fSeptember 30, 2020 foror future centers where we started incurring GAAP rent expense, most of which is non-cash.
General, administrative and marketing expenses. The $7.2 million increase in General, administrative and marketing expenses decreased $28.6 million for the nine months ended September 30, 2021 as compared to the nine months ended September 30, 2020 was primarily driven by an $7.4 million increase in general and administrative costs due to the return of Corporate team members who remained furloughed during the nine months ended September 30, 2020, a $7.0 million increase in share-based compensation, and a $4.9 million increase in marketing expenses, partially offset by $12.4 million of corporate COVID-19-related expenses that were recognized during the nine months ended September 30, 2020.
Depreciation and amortization. The $11.5 million decrease in Depreciation and amortization for the nine months ended September 30, 2021 as compared to the nine months ended September 30, 2020 consists of $7.7 million and $3.8 million lower depreciation and amortization, respectively.
Other operating expenses. The $6.7 million decrease in Other operating expenses for the nine months ended September 30, 2021 as compared to the nine months ended September 30, 2020 was primarily attributable to project cost write-offs recognized during the nine months ended September 30, 2020 for sites that were no longer deemed viable for construction as a result of COVID-19, partially offset by higher costs associated with our athletic events business during the nine months ended September 30, 20212023 as compared to the nine months ended September 30, 20202022, primarily due to lower cash incentive compensation expense and reduced center support overhead and advertising and marketing expenses.
Depreciation and amortization, as we were able to produce several of our iconic events during. Depreciation and amortization increased $8.4 million for the nine months ended September 30, 20212023 as compared to the nine months ended September 30, 2020 2022, primarily due to new center openings.
Other operating expense (income)when COVID-19 restrictions forced. Other operating expense for the cancellationnine months ended September 30, 2023 was $64.8 million as compared to Other operating income of most$56.6 million for the nine months ended September 30, 2022. The $121.4 million change was primarily attributable to the recognition of our events.a $13.4 million loss on sale-leaseback transactions during the nine months ended September 30, 2023 as compared to the recognition of a $98.0 milliongain on sale-leaseback transactions during the nine months ended September 30, 2022, as well as increased costs to support other revenue growth.
Interest expense, net of interest income. The T$80.4he $11.5 million increase increase in Interest expense, net of interest income for the nine months ended September 30, 20212023 as compared to the nine months ended September 30, 20202022 was primarily driven by debt issuance costsa higher average level of outstanding borrowings and original issuance discount costs associated with extinguished debt instruments that were written offhigher interest rates during the nine months ended September 30, 2021, including a $41.0 million non-cash expense recognized related to the conversion of our related party secured loan into Series A Preferred Stock. Additionally, the increase also reflects a relatively higher effective weighted average interest rate on an increased average level of outstanding borrowings during the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020.
Benefit from income taxes. The benefit from income taxes was $58.9 million for the nine months ended September 30, 2021 compared to $99.1 million for the nine months ended September 30, 2020. The effective tax rate was 17.7% and 26.4% for those same periods, respectively. The change in benefit from income taxes was primarily attributable to: (i) a decrease in our loss before income taxes for the nine months ended September 30, 20212023 as compared to the nine months ended September 30, 2020; (ii) a 2022$41.0.
Provision for (benefit from) income taxes. The provision for income taxes was $18.2 million loss related to the extinguishment of our related party secured loan that we recognized for GAAP purposes during the nine months ended September 30, 20212023 that is not recognizedas compared to a $3.5 million benefit from income taxes for tax purposes; (iii) the recognition during the nine months ended September 30, 2021 of an 2022. The effective tax rate was 25.8% and 18.2% for those same periods, respectively. The increase in provision for income taxes for the nine months ended September 30, 2023 as compared to the nine months ended September 30, 2022 was primarily driven by the increase in earnings before income taxes and the tax deficiencies associated with share-based payment awards, offset by a change in the valuation allowance to reduce theassociated with certain of our deferred tax asset associated with our state net operating loss carryforwards;assets and (iv) the favorable federalresearch tax credits. The effective tax rate differential from our net operating loss carryback claims filed in 2020 under the CARES Act. The favorable federal tax rate differential was dueapplied to our net operating losses generated in tax years with a federal taxpre-tax income for the nine months ended September 30, 2023 is slightly higher than our statutory rate of 21% whereasand reflects an increase due to deductibility limitations associated with executive compensation, the losses were carried backtax deficiencies associated with share-based payment awards and state income tax provisions, largely offset by a change in the valuation allowance associated with certain of our deferred tax assets and research tax credits.
Net income (loss). As a result of the factors described above, net income was $52.4 million for the nine months ended September 30, 2023 as compared to tax years with a federal tax ratenet loss of 35%$15.5 million for the nine months ended September 30, 2022.
Liquidity and Capital Resources
Liquidity
Our principal liquidity needs include the acquisition and development of new centers, lease requirements and debt service, and lease requirements, investments in our business and technology and expenditures necessary to maintain and update or enhance our centers and associated fitness equipment.equipment and member experiences. We have primarily satisfied our historical liquidity needs with cash flow from operations, drawing on the Revolving Credit Facility, construction reimbursements and through sale-leaseback transactions.
WeOur top priorities remain improving our balance sheet, reducing leverage and having positive cash flow from operations after all capital expenditures. Our cash flow from operations continues to improve and we have taken significant actionactions to improve our liquidity. See “—ImpactIn May 2023, we refinanced our $273.6 million Term Loan Facility that had a maturity date in December 2024 to our $310.0 million Term Loan Facility that has a maturity date of COVID-19January 15, 2026. For more information regarding the debt refinancing transaction, see Note 6, Debt, to our condensed consolidated financial statements included in this report. In addition, during the nine months ended September 30, 2023, we completed sale-leaseback transactions associated with three properties. During 2022, we completed sale-leaseback transactions associated with nine properties and also rewired our Company to improve the efficiency of our club operations and corporate office. We continue to explore potential sale-leaseback opportunities for a number of our properties, but we are being selective on Our Business.”whether to execute any additional sale-leasebacks in the current macroeconomic environment given our ability to add new centers through asset-light opportunities and our improving cash flows from operations. For more information regarding the sale-leaseback transactions that were consummated during the nine months ended September 30, 2023, see Note 7, Leases, to our condensed consolidated financial statements included in this report. Additionally, we benefit from our in-house architecture, design and construction expertise that allows us to create operationally efficient centers and control the cost and pace of capital expenditures, including in determining when to begin or delay construction on a new athletic country club. We believe the steps we have taken to strengthen our balance sheet and to reduce our cash outflows leave us well-positioned to manage our business including through this pandemic.business.
As the opportunity arises or as our business needs require, we may seek to raise capital through additional debt financing or through equity financing. There can be no assurance that any such financing would be available on commercially acceptable terms, or at all. To date, we have not experienced difficulty accessing the credit and capital markets; however, volatilityVolatility in these markets, particularly in light of the impacts of COVID-19,rising interest rate environment, may increase costs associated with issuing debt instruments or affect our ability to access those markets, which could have an adverse impact on our ability to raise additional capital, to refinance existing debt and/or to react to changing economic and business conditions. In addition, it is possible that our ability to access the credit and capital markets could be limited at a time when we would like or need to do so.
As of September 30, 2021,2023, there were no $45.0 million of outstanding borrowings on theunder our Revolving Credit Facility and there were$40.1 $32.6 million of outstanding letters of credit. Ascredit, resulting in total availability under our Revolving Credit Facility of September 30, 2021, total cash and revolver availability was $262.6 million, consisting of total$397.4 million. Total cash and cash equivalents, exclusive of $44.8restricted cash, at September 30, 2023 was $9.2 million, resulting in total cash and total revolver availability subject to a $100.0 million minimum liquidity requirement (discussed in —“Debt Covenants” below),under our Revolving Credit Facility of $217.8$406.6 million.
The following table sets forth certain data included in our condensed consolidated statements of cash flows data (in thousands):
| | | | | | | | | | | |
| Nine Months Ended |
| September 30, |
| 2021 | | 2020 |
Net cash used in operating activities | $ | (15,322) | | | $ | (56,165) | |
Capital expenditures | (201,741) | | | (213,876) | |
Net cash used in investing activities | (138,190) | | | (62,662) | |
Net cash provided by financing activities | 165,129 | | | 111,118 | |
| | | | | | | | | | | |
| Nine Months Ended |
| September 30, |
| 2023 | | 2022 |
Net cash provided by operating activities | $ | 330,946 | | | $ | 125,320 | |
Net cash used in investing activities | (403,549) | | | (37,480) | |
Net cash provided by (used in) financing activities | 72,505 | | | (11,708) | |
Effect of exchange rates on cash and cash equivalents | 30 | | | (700) | |
(Decrease) increase in cash and cash equivalents | $ | (68) | | | $ | 75,432 | |
Operating Activities
The$40.8 million decrease$205.6 million increase in cash used inprovided by operating activities for the nine months ended September 30, 20212023 as compared to the nine months ended September 30, 20202022 was primarily the result of lower profitability during the nine months ended September 30, 2020 as compared to the nine months ended September 30, 2021 resulting from the adverse impact that COVID-19 has had on our business.higher profitability.
Investing Activities
Investing activities consist primarily of purchasing real property, constructingthe acquisition and development of new centers, acquisitionsinvestments in our business and purchasing new fitness equipment. In addition, we invest in capitaltechnology and expenditures necessary to maintain and update or enhance our existing centers.centers and associated fitness equipment. We finance the purchase of our property, centers and equipment through operating cash flows, proceeds from sale-leaseback transactions, construction reimbursements and draws on our Revolving Credit Facility, tenant allowances and proceeds from sale-leaseback transactions.Facility.
The $75.5$366.1 million increase in net cash used in investing activities for the nine months ended September 30, 20212023 as compared to the nine months ended September 30, 20202022 was primarily driven by a relatively higher level of new center construction activity and a lower amount of proceeds that we received from landlords for sale-leaseback transactions during the nine months ended September 30, 2020 2023 as compared to the nine months ended September 30, 2021 and proceeds we received from the sale of land held for sale during nine months ended September 30, 2020. Cash used in investing activities for the nine months ended September 30, 2021 also includes a $9.1 million payment we made in connection with the acquisition of the assets associated with an outdoor bicycling event. Of the $10.2 million total purchase price associated with the acquisition of these assets, $1.1 million had yet to be paid as of September 30, 2021.
The following schedule reflects capital expenditures, net by type of expenditure (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| September 30, | | September 30, |
| 2021 | | 2020 | | 2021 | | 2020 |
Growth capital expenditures (New center land and construction, growth initiatives, major remodels of acquired centers and the purchase of previously-leased centers), net of tenant allowances | $ | 43,418 | | | $ | 25,806 | | | $ | 117,605 | | | $ | 124,775 | |
Center maintenance capital expenditures | 18,078 | | | 4,823 | | | 43,045 | | | 29,075 | |
Corporate capital expenditures | 18,272 | | | 14,955 | | | 41,091 | | | 60,026 | |
Total capital expenditures, net | $ | 79,768 | | | $ | 45,584 | | | $ | 201,741 | | | $ | 213,876 | |
The $12.1 million decrease in total capital expenditures, net for the nine months ended September 30, 2021 as compared to the nine months ended September 30, 2020 was primarily driven by lower corporate capital expenditures for the nine months ended September 30, 2021 as compared to the nine months ended September 30, 2020, reflecting our strong operating discipline and continued effort to control expenditures, partially offset by higher center maintenance capital expenditures for the nine months ended September 30, 2021 as compared to the nine months ended September 30, 2020, primarily driven by the timing of the subsequent reopening of our centers. Our contracts with construction subcontractors contain clauses that allow us to terminate any project. Therefore, we have the ability to cancel any project and, in the event of such a cancellation, we will only be obligated to pay for work actually performed up to the date of cancellation. Our unpaid obligations to construction subcontractors for work performed up through September 30, 2021 is recognized in Construction accounts payable on our September 30, 2021 condensed consolidated balance sheet.
Financing Activities
Financing activities for the nine months ended September 30, 2021 and 2020 include net proceeds from and repayments of debt, including those associated with our senior secured credit facility. In addition, financing activities for the nine months ended September 30, 2020 include proceeds from equity transactions.
The $54.0$84.2 million increase in cash provided by financing activities for the nine months ended September 30, 20212023 as compared to the nine months ended September 30, 20202022 was primarily driven by net incremental proceeds we received from new borrowings under our Term Loan Facility, Revolving Credit Facility and Construction Loan and proceeds from stock option exercises during the nine months ended September 30, 2021 in connection with debt refinancing2023.
We expect to satisfy our short-term and long-term obligations through a combination of cash on hand, funds generated from operations, sale-leaseback transactions partially offset by proceeds we received fromand the issuance of the Company’s common stock during the nine months ended September 30, 2020.
Debt Covenants
Our senior secured credit facility as well as the indentures governingborrowing capacity available under our outstanding senior secured notes and senior unsecured notes contain a number of covenants imposing significant restrictions on our business. These restrictions may affect our ability to operate our business and may limit our ability to take advantage of potential business opportunities as they arise. The restrictions these covenants place on us include limitations on our ability to:
•incur or guarantee additional indebtedness;
•make certain investments;
•pay dividends or make distributions on our capital stock;
•sell assets, including capital stock of restricted subsidiaries;
•agree to payment restrictions affecting our restricted subsidiaries;
•consolidate, merge, sell or otherwise dispose of all or substantially all of our assets;
•enter into transactions with our affiliates;
•incur liens; and
•designate any of our subsidiaries as unrestricted subsidiaries.
We are also required to comply with a first lien net leverage ratio covenant under the Revolving Credit Facility. However, the Amended Senior Secured Credit Facility includes a covenant modification period ending on the earlier
Effective as of the end of the first fiscal quarter following the Covenant Modification Period and continuing throughout the remaining term of the Revolving Credit Facility, we will be required to maintain a first lien net leverage ratio, if 30% or more of the Revolving Credit Facility commitments are outstanding shortly after the end of any fiscal quarter (excluding all cash collateralized undrawn letters of credit and other undrawn letters of credit up to $20.0 million). During the first three quarterly test periods following the Covenant Modification Period, certain financial measures used in the calculation of the first lien net leverage ratio will be calculated on a pro forma basis by annualizing the respective financial measures recognized during those test periods.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to market risks in the ordinary course of our business that include changes in interest rates and changes in foreign currency exchange rates. Information relating to quantitative and qualitative disclosures about these market risks is set forth below.
Interest rate risk
Our cash consists primarily of an interest-bearing account at a large U.S.United States bank with limited interest rate risk. At September 30, 2021,2023, we held no investments in marketable securities.
In connection with the refinancing of our Term Loan Facility in May 2023, we converted the facilities under the Amended Credit Agreement from LIBOR to Term Secured Overnight Financing Rate (“SOFR”). We incur interest at variable rates under the revolving portion of our senior secured credit facility.Revolving Credit Facility. At September 30, 2021,2023, there were no$45.0 million of outstanding borrowings onunder the Revolving Credit Facility and there were $40.1$32.6 million of outstanding letters of credit, resulting in total revolver availability subject to a $100.0of $397.4 million, which wasminimum liquidity requirement, of $217.8 million, of which $185.1 millionwas available at intervals ranging from 30 to 180 days at interest rates of SOFR plus an applicable credit adjustment spread ranging from LIBORfrom 0.11448% to 0.42826% depending on the duration of borrowing plus 4.25%3.50% or base rate plus 3.25%, while interest on2.50%. Our Term Loan Facility is also subject to variable rates of SOFR plus the remaining $32.7 millionwas available at intervals ranging from 30 to 180 days at LIBORapplicable credit adjustment spread plus 3.00%4.75% or base rate plus 2.00%3.75% and had an outstanding balance of $310.0 million at September 30, 2023.
39
Assuming no prepayments of the Term Loan Facility and that the Revolving Credit Facility is fully drawn (and that SOFR is in excess of the floor rate applicable to the Term Loan Facility), each one percentage point change in interest rates would result in an approximately
$7.9 million
change in annual interest expense on the indebtedness under the Credit Facilities.Foreign currency exchange risk
We operate primarily in the United States with three centers operating in Canada. Given theour limited amount of operations outside of the United States, fluctuations due to changes in foreign currency exchange rates would not have a material impact on our business.
ITEM 4. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
The Company’sOur management, with the participation of the Company’s Chief Executive Officerour CEO and Chief Financial Officer, has carried out an evaluation of the effectiveness of the Company’sour disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this Quarterly Report on Form 10-Q. Based upon that evaluation, the Chief Executive Officerour CEO and Chief Financial Officer have concluded that, as of such date, the Company’sour disclosure controls and procedures were effective at a reasonable assurance level.
Changes in Internal Control over Financial Reporting
There were no changes in the Company’sour internal control over financial reporting identified in connection with the evaluation required by Rule 13a-15(d) and 15d-15(d) of the Exchange Act during the quarter covered by this report that have materially affected, or are reasonably likely to materially affect, the Company’sour internal control over financial reporting.
Part II — OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
From time to time, we are engaged in litigation or other proceedings incidental to the normal course of business, including investigations and claims regarding employment law including wage and hour and unfair labor practices; supplier, customer and service provider contract terms; products liability; and real estate. Other than as set forth in Note 10—10, Commitments and Contingencies, in Part I, Item I1 of this Quarterly Report on Form 10-Q, which is incorporated herein, there are no pending material legal proceedings to which we are a party or to which our property is subject.
ITEM 1A. RISK FACTORS
In addition to the other information set forth in this Quarterly Report on Form 10-Q, you should carefully consider the factors discussed under the caption “Risk Factors” in the Company’s Registration StatementAnnual Report on Form S-110-K for the year ended December 31, 2022 filed with the Securities and Exchange Commission on September 13, 2021 (File No. 333-259495)SEC, which could materially affect our business, financial condition or future results. There have been no material changes from the risk factors previously disclosed in that prospectus.Annual Report.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES, AND USE OF PROCEEDS, AND ISSUER PURCHASES OF EQUITY SECURITIES
UseNone.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
None.
ITEM 5. OTHER INFORMATION
(c) On August 14, 2023, Jeffrey Zwiefel, the Company’s President and Chief Operating Officer, adopted a Rule 10b5-1 trading plan (the “Trading Plan”) that is intended to satisfy the affirmative defense conditions of Proceeds from Public OfferingRule 10b5-1(c). The Trading Plan provides for the exercise of Common Stock
On October 12, 2021, we completedvested stock options to acquire up to a maximum of 250,000 shares and the initial public offering (“IPO”)associated sale of our common stock at a price to the public of $18.00 per share. We issued and sold 40,581,192 shares of common stock in the IPO, including 1,581,192 shares of common stock issuedsuch shares. The Trading Plan will terminate on March 29, 2024 unless sooner terminated pursuant to the partial exercise of the underwriters’ option to purchase additional shares as previously disclosed in the IPO prospectus. The shares sold in the IPO were registered under the Securities Act pursuant to the Company’s Registration Statement on Form S-1 (File No. 333-259495), which was declared effective by the SEC on October 6, 2021. Our common stock is listed on The New York Stock Exchange under the symbol “LTH.” The IPO, including the partial exercise of the underwriters’ option to purchase additional shares, generated net proceeds to us of approximately $706.2 million after deducting underwriting discounts and commissions and estimated offering expenses.
We used a portion of the net proceeds received by us from the IPO to repay $570.0 million in aggregate principal amount of borrowings under the Term Loan Facility, plus $4.4 million in accrued interest and a 1% prepayment penalty of $5.7 million and pay offering fees and expenses. The excess net proceeds from the offering will be used for working capital and general corporate purposes.
ITEM 6. EXHIBITS
All exhibits as set forth on the Exhibit Index.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Exhibit Number | | Description of Exhibit | | Form | | File No. | | Exhibit | | Filing Date |
3.1 | | | | 8-K | | 001-40887 | | 3.1 | | 10/12/2021 |
3.2 | | | | 8-K | | 001-40887 | | 3.2 | | 10/12/2021 |
10.1 | | | | S-1 | | 333-259495 | | 10.27 | | 9/13/2021 |
10.2 † | | | | S-1 | | 333-259495 | | 10.32 | | 9/13/2021 |
31.1 | | | | | | | | | | Filed herewith |
31.2 | | | | | | | | | | Filed herewith |
32.1 | | | | | | | | | | Furnished herewith |
32.2 | | | | | | | | | | Furnished herewith |
101.INS | | Inline XBRL Instance Document –– the Instance Document does not appear in the interactive data file because its XBRL tags are Embedded within the Inline XBRL Document. | | | | | | | | Filed herewith |
101.SCH | | Inline XBRL Schema Document. | | | | | | | | Filed herewith |
101.CAL | | Inline XBRL Taxonomy Extension Calculation Linkbase Document. | | | | | | | | Filed herewith |
101.DEF | | Inline XBRL Taxonomy Extension Definition Linkbase Document. | | | | | | | | Filed herewith |
101.LAB | | Inline XBRL Taxonomy Extension Label Linkbase Document. | | | | | | | | Filed herewith |
101.PRE | | Inline XBRL Taxonomy Extension Presentation Linkbase Document. | | | | | | | | Filed herewith |
104 | | Cover Page Interactive Data File –– the cover page interactive data file does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. | | | | | | | | Filed herewith |
Exhibit Index†Certain | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Exhibit Number | | Description of the exhibits and schedules to this Exhibit have been omitted in accordance with Regulation S-K Item 601(a)(5). The Registrant agrees to furnish a copy of all omitted exhibits and schedules to the SEC upon its request. | | Form | | File No. | | Exhibit | | Filing Date |
31.1 | | | | | | | | | | Filed herewith |
31.2 | | | | | | | | | | Filed herewith |
32.1 | | | | | | | | | | Furnished herewith |
32.2 | | | | | | | | | | Furnished herewith |
101.INS | | Inline XBRL Instance Document –– the Instance Document does not appear in the interactive data file because its XBRL tags are Embedded within the Inline XBRL Document. | | | | | | | | Filed herewith |
101.SCH | | Inline XBRL Schema Document. | | | | | | | | Filed herewith |
101.CAL | | Inline XBRL Taxonomy Extension Calculation Linkbase Document. | | | | | | | | Filed herewith |
101.DEF | | Inline XBRL Taxonomy Extension Definition Linkbase Document. | | | | | | | | Filed herewith |
101.LAB | | Inline XBRL Taxonomy Extension Label Linkbase Document. | | | | | | | | Filed herewith |
101.PRE | | Inline XBRL Taxonomy Extension Presentation Linkbase Document. | | | | | | | | Filed herewith |
104 | | Cover Page Interactive Data File –– the cover page interactive data file does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. | | | | | | | | Filed herewith |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| | | | | | | | |
| Life Time Group Holdings, Inc. |
| | |
Date: November 17, 2021October 31, 2023 | By: | /s/ Thomas E. BergmannRobert Houghton |
| | Thomas E. BergmannRobert Houghton |
| | Executive Vice President & Chief Financial Officer |