# Life Time Group Holdings, Inc. (LTH) FY 2023 MD&A

Verbatim Item 7 Management's Discussion and Analysis from Life Time Group Holdings, Inc.'s 10-K for fiscal year 2023.

SEC filing source: https://www.sec.gov/Archives/edgar/data/1869198/000186919824000008/lth-20231231.htm
Accession: 0001869198-24-000008
Filing date: 2024-02-28
Report date: 2023-12-31
Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary.
Confidence: high

Company profile: /company/LTH/
All MD&A years: /company/LTH/mda/
Previous year: /company/LTH/mda/fy2022/ (FY 2022)
Next year: /company/LTH/mda/fy2024/ (FY 2024)

Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read the following discussion and analysis of our financial condition and results of operations together with our consolidated financial statements and the related notes and other financial information included elsewhere in this Annual Report. Some of the information included in this discussion and analysis or set forth elsewhere in this Annual Report, including information with respect to our plans and strategy for our business, includes forward-looking statements that involve risks and uncertainties. You should review the “Cautionary Note Regarding Forward-Looking Statements” and “Risk Factors” sections of this Annual Report for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.

Refer to Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, in our Form 10-K for the year ended December 31, 2022 filed with the SEC on March 8, 2023, for discussion of the results of operations for the year ended December 31, 2022 compared to the year ended December 31, 2021.

Overview

Business and Strategy

Life Time, the “Healthy Way of Life Company,” is a leading lifestyle brand offering premium health, fitness and wellness experiences to a community of nearly 1.5 million individual members, who together comprise nearly 815,000 memberships, as of December 31, 2023. Since our founding over 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 170 centers—distinctive, resort-like athletic country club destinations—across 31 states in the United States and one province in Canada. Our brand loyalty and track record of providing differentiated experiences to our members has fueled our strong, long-term financial performance.

Our luxurious athletic country clubs total approximately 17 million square feet in the aggregate. Our centers are located in affluent suburban and urban locations and include ground-up suburban builds, mall or retail locations, vertical residential and urban locations. Depending on the size and location of a center, we offer expansive 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 offerings are delivered by over 37,000 Life Time team members, including over 9,800 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, center usage and the visits to our athletic country clubs. Our average revenue per center membership increased to $2,810 for the year ended December 31, 2023 as compared to $2,528 for the year ended December 31, 2022 and $2,098 for the year ended December 31, 2021. We had 135 average visits per membership to our centers in 2023 compared to 124 and 113 in 2022 and 2021, respectively, and total visits to our clubs were 103 million in 2023, 86 million in 2022 and 69 million in 2021. We believe that no other company in the United States delivers the same quality and breadth of health, fitness and wellness experiences that we deliver, which has enabled us to consistently grow our annual membership dues and in-center revenues.

Our total Center revenue increased to $2,154 million for the year ended December 31, 2023 as compared to $1,770 million for the year ended December 31, 2022 and $1,287 million for the year ended December 31, 2021. We believe it will continue to grow as our new centers ramp to expected performance, we 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 December 31, 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 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 nine to 10 new centers in 2024. While we have temporarily slowed down the start of new construction on our ground-up suburban builds and pursued more asset-light opportunities that include leases with tenant improvement allowances and existing facility takeovers with lower capital required and quicker turnaround times, as of December 31, 2023, we had seven new centers under construction, with $241 million of growth capital expenditures already invested into these new centers that

32

Table of Contents    

have yet to open. We believe the combined dynamic of our ramping new centers 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 an even healthier and stronger business. Our initial focus on center recovery produced strong results in member engagement and increasing memberships, visits and Center revenue. We were then able to focus on expanding margins by optimizing our average revenue per center membership and significantly improving the efficiency of our club operations and corporate office. We have also benefited from the greater flow through of our increased revenue and from new members joining at higher membership dues rates.

We have also implemented several strategic initiatives that are driving revenue, engagement and memberships as we continue to elevate and broaden our member experiences and allow our members to integrate health, fitness and wellness into their lives 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. We have also launched a pilot for our MIORA health optimization and longevity services and believe we also have opportunities to enhance our offerings within our LifeCafe and LifeSpa during 2024. Additionally, our enhanced digital platform is delivering a true omni-channel experience for our members, including live streaming fitness classes, remote goal-based personal training, nutrition and weight loss support and curated award-winning health, fitness and wellness content. 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 and artificial intelligence, 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 also continue to expand our “Healthy Way of Life” ecosystem in response to the desire of our members to 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, our Life Time Living locations offer luxury wellness-oriented residences, also in close proximity to one of our athletic country clubs. As of December 31, 2023, we had 14 Life Time Work and four 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. While the inflation rate has improved, it remains elevated and the 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, we have experienced growth in our revenue and margins. The rising interest rate environment has also increased the cost of our Term Loan Facility and Revolving Credit Facility and may result in increased capitalization rates and delays on future sale-leaseback transactions. We continue to explore sale-leaseback transactions but are being selective on the timing and rates given our current 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.

Components of Our Results of Operations

Total revenue

Total revenue consists of center revenue and other revenue (each defined below).

Center revenue

Center revenue consists of membership dues, enrollment fees and revenue generated within a center, which we refer to as in-center revenue. In-center revenue includes fees for Dynamic Personal Training, aquatics and kids programming and other member services, as well as sales of products at our cafés, and sales of products and services offered at our spas and tennis and pickleball programs.

33

Table of Contents    

Other revenue

Other revenue includes revenue generated from our businesses outside our centers, which are primarily media, athletic events and related services. Our media revenue includes our magazine, Experience Life®, our athletic events revenue includes endurance activities such as running and cycling, and our related services revenue includes revenue from our race registration and timing businesses. Other revenue also includes revenue generated from our Life Time Work and Life Time Living locations.

Center operations expenses

Center operations expenses consist of direct expenses related to the operation of our centers, such as salaries, commissions, payroll taxes, benefits, real estate taxes and other occupancy costs (excluding rent), utilities, repairs and maintenance, supplies and pre-opening expenses.

Rent expense

Rent expense consists of both cash and non-cash expense related to our operating leases booked on a straight-line basis over the lease term in accordance with generally accepted accounting principles in the United States (“GAAP”).

Non-cash rent expense

Non-cash rent expense reflects the non-cash portion of our annual GAAP operating lease expense that is greater or less than the cash operating lease payments. Non-cash rent expense for our open properties represents non-cash expense associated with properties that were operating 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.

General, administrative and marketing expenses

General, administrative and marketing expenses include:

•Costs relating to our centralized support functions, such as accounting, information systems, procurement, real estate and development and member relations, as well as share-based compensation expense;

•Marketing expenses, which primarily consist of marketing department costs and media and advertising costs to support and grow Center membership levels, in-center businesses, new center openings and our businesses outside of our centers; and

•Indirect support costs related to the operation of our centers, including payroll-related expenses associated with our regional center management structure and in-center business support.

Depreciation and amortization expense

Depreciation and amortization expense consists of depreciation and amortization for our depreciable long-lived assets, including assets related to our owned centers.

Other operating expense (income)

Other operating expense (income) consists primarily of expenses (income) related to our other revenue, which is generated from our businesses outside of our centers. In addition, we record other non-recurring operating expenses (income) that we believe are not indicative of our core operating performance, as a component of other operating expense (income).

Interest expense, net of interest income

Interest expense, net of interest income consists primarily of cash interest expense on borrowings and non-cash interest expense, which includes the amortization of debt issuance costs, partially offset by interest earned.

Equity in earnings (loss) of affiliates

Equity in earnings (loss) of affiliates includes investments in unconsolidated subsidiaries, which we account for using the equity method of accounting.

34

Table of Contents    

Provision for (benefit from) income taxes

The provision for (benefit from) income taxes consists of an estimate for U.S. federal, state and foreign income taxes based on enacted rates, as adjusted for allowable credits, deductions, uncertain tax positions, changes in deferred tax assets and liabilities and changes in the tax law.

Net income (loss)

Net income (loss) consists of our total revenue, less our total operating expenses, and then adjusted for other (income) expenses and provision for (benefit from) income taxes, as set forth on our consolidated statements of operations.

Non-GAAP Financial Measures

This discussion and analysis includes certain financial measures that are not presented in accordance with GAAP, including Adjusted net income (loss), Adjusted net income (loss) per common share and Adjusted EBITDA and ratios and calculations 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.

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 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 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 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 are important metrics for management, investors and analysts as they remove the impact of items that we do not believe are indicative of our core operating performance and allow 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.

Adjusted net income (loss) and Adjusted EBITDA 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 and may not be comparable to other similarly titled measures of other businesses. Adjusted net income (loss) and Adjusted 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 as reported under GAAP. Furthermore, we compensate for the limitations described above by relying primarily on our GAAP results and using Adjusted net income (loss) and Adjusted EBITDA only for supplemental purposes. See our consolidated financial statements included elsewhere in this Annual 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. 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.

35

Table of Contents    

Set forth below are certain GAAP and non-GAAP measurements and key performance indicators for the years ended December 31, 2023, 2022 and 2021. The following information has been presented consistently for all periods presented.

[[GREPCENT_TABLE]]
[["","Year Ended December 31,"],["","2023","","2022","","2021"],["","($ in thousands, except for Average Center revenue per center membership data)"],["Membership Data"],["Center memberships","763,216","","725,206","","649,373"],["Digital On-hold memberships","51,720","","51,470","","74,767"],["Total memberships","814,936","","776,676","","724,140"],["Revenue Data"],["Membership dues and enrollment fees","72.3%","","70.7%","","70.5%"],["In-center revenue","27.7%","","29.3%","","29.5%"],["Total Center revenue","100.0%","","100.0%","","100.0%"],["Membership dues and enrollment fees","$","1,557,289","","","$","1,251,693","","","$","907,111"],["In-center revenue","597,040","","","517,827","","","379,523"],["Total Center revenue","$","2,154,329","","","$","1,769,520","","","$","1,286,634"],["Average Center revenue per center membership (1)","$","2,810","","$","2,528","","$","2,098"],["Comparable center revenue (2)","15.3%","","33.0%","","35.3%"],["Center Data"],["Net new center openings (3)","10","","10","","2"],["Total centers (end of period) (3)","171","","161","","151"],["Total center square footage (end of period) (4)","16,800,000","","16,000,000","","15,000,000"],["GAAP and Non-GAAP Financial Measures"],["Net income (loss)","$","76,063","","$","(1,793)","","$","(579,369)"],["Net income (loss) margin (5)","3.4","%","","(0.1)","%","","(44.0)","%"],["Adjusted net income (loss) (6)","$","129,704","","$","(41,569)","","$","(305,370)"],["Adjusted net income (loss) margin (6)","5.9","%","","(2.3)","%","","(23.2)","%"],["Adjusted EBITDA (7)","$","536,831","","$","281,724","","$","80,299"],["Adjusted EBITDA margin (7)","24.2","%","","15.5","%","","6.1","%"],["Center operations expense","$","1,184,370","","$","1,068,208","","$","844,098"],["Pre-opening expenses (8)","7,280","","12,399","","7,021"],["Rent","275,122","","245,226","","209,823"],["Non-cash rent expense (open properties) (9)","33,626","","27,737","","9,959"],["Non-cash rent expense (properties under development) (9)","3,918","","10,797","","12,643"]]
[[/GREPCENT_TABLE]]

(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 revenue 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.

36

Table of Contents    

(3)    Net new center openings is 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. During 2023, we opened 11 centers 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 income (loss) margin is calculated as net income (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:

[[GREPCENT_TABLE]]
[["","Year Ended December 31,"],["($ in thousands)","2023","","2022","","2021"],["Net income (loss)","$","76,063","","","$","(1,793)","","","$","(579,369)"],["Share-based compensation expense (a)","50,144","","","37,291","","","334,339"],["COVID-19 related expenses (b)","470","","","3,056","","","(1,589)"],["Loss (gain) on sale-leaseback transactions (c)","13,624","","","(97,632)","","","2,380"],["Capital transaction costs (d)","\u2014","","","255","","","2,904"],["Asset impairments (e)","6,620","","","\u2014","","","\u2014"],["Other (f)","(4,011)","","","(1,048)","","","2,338"],["Taxes (g)","(13,206)","","","18,302","","","(66,373)"],["Adjusted net income (loss)","$","129,704","","","$","(41,569)","","","$","(305,370)"],["Income (loss) per common share:"],["Basic","$","0.39","","","$","(0.01)","","","$","(3.73)"],["Diluted","$","0.37","","","$","(0.01)","","","$","(3.73)"],["Adjusted income (loss) per common share:"],["Basic","$","0.66","","","$","(0.21)","","","$","(1.96)"],["Diluted","$","0.64","","","$","(0.21)","","","$","(1.96)"],["Weighted-average common shares outstanding:"],["Basic","195,671","","","193,570","","","155,470"],["Diluted","204,005","","","193,570","","","155,470"]]
[[/GREPCENT_TABLE]]

(a)Share-based compensation expense recognized during the year ended December 31, 2023 is 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 year ended December 31, 2022 is associated with stock options, restricted stock, restricted stock units and our ESPP. A significant portion of the share-based compensation expense that we recognized during the year ended December 31, 2021 is associated with stock options that were granted prior to 2021. As of the effective date of the IPO in October 2021, these stock options became fully vested, and they became exercisable either immediately or on April 4, 2022, subject to continued service through such date. Accordingly, during the period from the effective date of the IPO through April 4, 2022, we recognized share-based compensation expense associated with these stock options in an amount equal to the proportion of the total service period that passed from the respective grant dates associated with each of these stock option awards through April 4, 2022. Because the exercisability of these stock options was contingent upon the occurrence of a change of control or an initial public offering, no share-based compensation expense associated with these stock options was recognized prior to the

37

Table of Contents    

IPO.

(b)    Represents the incremental net expenses (credits) we recognized related to the COVID-19 pandemic. We adjust for these expenses (credits) as they do not represent expenses (credits) associated with our normal ongoing operations. We believe that adjusting for these expenses (credits) provides a more accurate and consistent representation of our actual operating performance from period to period. For the year ended December 31, 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 the year ended December 31, 2022, COVID-19 related expenses primarily consisted of site development cost write-offs and legal-related costs in pursuit of our claim against Zurich. For the year ended December 31, 2021, COVID-19 related credits primarily consisted of the recovery of certain qualifying expenses under the CARES Act, partially offset by COVID-19 legal-related costs in pursuit of our claim against Zurich. For more information regarding this claim against Zurich, see Item 3, Legal Proceedings, in this Annual 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 and gain on sale-leaseback transactions that we recognized during the years ended December 31, 2023, 2022 and 2021, see “Sale-Leaseback Transactions” within Note 9, Leases, to our consolidated financial statements in Part II, Item 8 of this Annual 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, excluding impairments on development costs that are part of our normal course of business.

(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 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 income (loss), the most directly comparable GAAP measure, to Adjusted EBITDA:

[[GREPCENT_TABLE]]
[["","Year Ended December 31,"],["($ in thousands)","2023","","2022","","2021"],["Net income (loss)","$","76,063","","","$","(1,793)","","","$","(579,369)"],["Interest expense, net of interest income","130,797","","","113,537","","","224,516"],["Provision for (benefit from) income taxes","18,727","","","(825)","","","(140,344)"],["Depreciation and amortization","244,397","","","228,883","","","235,124"],["Share-based compensation expense (a)","50,144","","","37,291","","","334,339"],["COVID-19 related expenses (credits) (b)","470","","","3,056","","","(1,589)"],["Loss (gain) on sale-leaseback transactions (c)","13,624","","","(97,632)","","","2,380"],["Capital transaction costs (d)","\u2014","","","255","","","2,904"],["Asset impairments (e)","6,620","","","\u2014","","","\u2014"],["Other (f)","(4,011)","","","(1,048)","","","2,338"],["Adjusted EBITDA","$","536,831","","","$","281,724","","","$","80,299"]]
[[/GREPCENT_TABLE]]

(a) – (f) See the corresponding footnotes to the table in footnote 6 immediately above.

(8)    Represents non-capital expenditures associated with opening new centers that 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.

38

Table of Contents    

(9)    Reflects the non-cash portion of our annual GAAP operating lease expense that is greater or less than the cash operating lease payments. Non-cash rent expense for our open properties represents non-cash expense associated with properties that were operating 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

Overview

In March 2020, the World Health Organization declared the outbreak of COVID-19 as a pandemic, the United States declared a National Public Health Emergency and we closed all of our centers based on orders and advisories from federal, state and local governmental authorities regarding COVID-19. Throughout this Annual Report, including this “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” when we refer to “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 as state and local governmental authorities permitted, subject to operating processes and protocols that we developed in consultation with an epidemiologist (MD/PhD) to provide a healthy and clean environment for our members and team members and to meet various governmental requirements and restrictions. Our centers were also impacted in 2021 as a result of the Delta variant and then again later in 2021 and into 2022 with the Omicron variant. The performance of our centers has improved significantly as our centers have ramped back from the adverse impacts of COVID-19.

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 unrestricted 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 2023 and believe that we can continue to improve our leverage ratio as our profitability improves and we continue 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 memberships, providing concierge-type member services and expanding our omni-channel offerings. Elevating our member experiences requires investment in our team members, programs, products, services and centers. These investments may impact our short-term results of operations and cash flows as 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 membership dues and a significant portion of our center memberships.

Impact of Our Asset-light, Flexible Real Estate Strategy on Rent Expense

Our asset-light, flexible real estate strategy has allowed us to expand 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 88% 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.

39

Table of Contents    

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 a potential economic recession. See “—Overview—Macroeconomy” for additional information.

Share-Based Compensation

During the year ended December 31, 2023, we recognized share-based compensation expense associated with stock options, restricted stock units, our ESPP and liability classified awards related to our short-term incentive plan in 2023, totaling approximately $50.1 million. During the year ended December 31, 2022, we recognized share-based compensation expense associated with stock options, restricted stock, restricted stock units and our ESPP, totaling approximately $37.3 million. During the year ended December 31, 2021, we recognized share-based compensation expense associated with stock options, restricted Series A Preferred Stock, restricted stock and restricted stock units totaling approximately $334.3 million, a significant portion of which is associated with stock options that were granted prior to 2021. As of the effective date of the IPO, these stock options became fully vested, and they became exercisable either immediately or on April 4, 2022, subject to continued service through such date. Accordingly, during the period from the effective date of the IPO through April 4, 2022, we recognized share-based compensation expense associated with these stock options in an amount equal to the proportion of the total service period that passed from the respective grant dates associated with each of these stock option awards through April 4, 2022. Because the exercisability of these stock options was contingent upon the occurrence of a change of control or an initial public offering, no share-based compensation expense associated with these stock options was recognized prior to the IPO. For more information on our share-based compensation arrangements, see Note 10, Stockholders’ Equity, to our consolidated financial statements included in Part II, Item 8 of this Annual Report.

Critical Accounting Estimates

The preparation of financial statements in conformity with 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. We have identified below the following accounting policies and estimates that we consider to be critical.

Impairment of Goodwill and Indefinite-Lived Intangible Assets

We assess the recoverability of goodwill and indefinite-lived intangible assets, such as our Life Time trade name, on an annual basis, or more often if circumstances warrant. We assess the recoverability of goodwill by estimating the fair value of the reporting unit to which the goodwill relates and comparing this fair value to the net book value of the reporting unit. We assess the recoverability of the Life Time trade name through the use of the relief from royalty valuation method. If the fair value of goodwill or indefinite-lived intangible assets is less than net book value, we reduce the book value accordingly and record a corresponding impairment loss. Our policy is to test goodwill and indefinite-lived intangible assets for impairment on October 1 of each year. The valuation of goodwill and indefinite-lived intangible assets requires assumptions and estimates of many critical factors, including revenue and market growth, operating margins, membership trends, strategic initiatives, royalty rates and discount rates. A significant change in the factors noted above could cause us to reduce the estimated fair value of some or all of our reporting units or indefinite-lived intangible assets and recognize a corresponding impairment of our goodwill and indefinite-lived intangible assets in connection with a future impairment test. Adverse changes in strategy, market conditions or assumed market capitalization may result in an impairment of goodwill. Based upon our review and analysis, no material impairments of goodwill or indefinite-lived intangible assets were deemed to have occurred during any of the periods presented.

40

Table of Contents    

Impairment of Long-Lived Assets

We test long-lived asset groups for impairment when events or circumstances indicate that the net book value of the asset group may not be recoverable. A long-lived asset group may include property and equipment, finite-lived intangible assets and/or operating lease right-of-use assets. We consider a history of consistent and significant operating losses, or the inability to recover net book value over the remaining useful life, to be our primary indicators of potential impairment. Judgments regarding existence of impairment indicators are based on factors such as operational performance (including revenue and expense growth rates), market conditions and expected holding period of the primary asset associated with each asset group. We evaluate long-lived asset groups for impairment at the lowest levels for which there are identifiable cash flows, which is generally at an individual asset group level. The determination of whether impairment has occurred is based on an estimate of undiscounted future cash flows directly related to that asset group, compared to the carrying value of the related assets. If an impairment has occurred, the amount of impairment recognized is determined by estimating the fair value of these assets and recording a loss if the carrying value is greater than the fair value. Worsening operational performance, market conditions or change in expected holding periods of each asset may cause us to re-evaluate the assumptions used in management’s analysis. We recognized impairment charges of $14.5 million, $2.1 million and $2.1 million associated with long-lived assets during the years ended December 31, 2023, 2022 and 2021, respectively.

Sale-Leaseback Arrangements

We assess each of our sale-leaseback arrangements to determine whether a sale has occurred under Accounting Standards Codification (“ASC”) Topic 606: Revenue from Contracts with Customers (“ASC 606”), as well as assess whether the classification of the lease and/or the payment terms associated with the renewal options preclude sale accounting under ASC 842, Leases (“ASC 842”). These assessments involve a determination of whether or not control of the underlying property has been transferred to the buyer. If we determine control of the underlying property has been transferred to the buyer, we account for the arrangement as a sale and leaseback transaction. If we determine control of the underlying property has not been transferred to the buyer, we account for the arrangement as a financing transaction. Since our adoption of ASC 842, we have accounted for each of our sale-leaseback arrangements as a sale and leaseback transaction.

For each sale-leaseback arrangement we have entered into with an unrelated third party since our adoption of ASC 842, the measurements associated with the gain or loss recognized on the sale and the lease-related right-of-use assets and liabilities have been adjusted for off-market terms. These off-market adjustments are based on the difference between the sale price of the property and its fair value. The determination of the fair value of the property related to our sale-leaseback arrangements requires subjectivity and estimates, including the use of multiple valuation techniques and uncertain inputs, such as market price per square foot and assumed capitalization rates or the replacement cost of the assets, where applicable. Where real estate valuation expertise is required, we obtain independent third-party appraisals to determine the fair value of the underlying asset. While determining fair value requires a variety of input assumptions and judgment, we believe our estimates of fair value are reasonable.

41

Table of Contents    

Results of Operations

Year Ended December 31, 2023 Compared to Year Ended December 31, 2022

The following table sets forth our consolidated statements of operations data (amounts in thousands) and data as a percentage of total revenue for the periods indicated:

[[GREPCENT_TABLE]]
[["","Year Ended December 31,"],["","","","","","As a Percentage of Total Revenue"],["","2023","","2022","","2023","","2022"],["Revenue:"],["Center revenue","$","2,154,329","","","$","1,769,520","","","97.2","%","","97.1","%"],["Other revenue","62,264","","","53,037","","","2.8","%","","2.9","%"],["Total revenue","2,216,593","","","1,822,557","","","100.0","%","","100.0","%"],["Operating expenses:"],["Center operations","1,184,370","","","1,068,208","","","53.4","%","","58.6","%"],["Rent","275,122","","","245,226","","","12.4","%","","13.4","%"],["General, administrative and marketing","201,131","","","213,976","","","9.1","%","","11.7","%"],["Depreciation and amortization","244,397","","","228,883","","","11.0","%","","12.6","%"],["Other operating expense (income)","86,363","","","(44,355)","","","3.9","%","","(2.4)","%"],["Total operating expenses","1,991,383","","","1,711,938","","","89.8","%","","93.9","%"],["Income from operations","225,210","","","110,619","","","10.2","%","","6.1","%"],["Other (expense) income:"],["Interest expense, net of interest income","(130,797)","","","(113,537)","","","(5.9)","%","","(6.2)","%"],["Equity in earnings of affiliates","377","","","300","","","\u2014","%","","\u2014","%"],["Total other expense","(130,420)","","","(113,237)","","","(5.9)","%","","(6.2)","%"],["Income (loss) before income taxes","94,790","","","(2,618)","","","4.3","%","","(0.1)","%"],["Provision for (benefit from) income taxes","18,727","","","(825)","","","0.9","%","","\u2014","%"],["Net income (loss)","$","76,063","","","$","(1,793)","","","3.4","%","","(0.1)","%"]]
[[/GREPCENT_TABLE]]

Total revenue. The $394.0 million increase in Total revenue for the year ended December 31, 2023 as compared to the year ended December 31, 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, the continued re-ramp of our centers and higher member utilization of our in-center offerings.

With respect to the $384.8 million increase in Center revenue for the year ended December 31, 2023 as compared to the year ended December 31, 2022:

•79.4% was from membership dues and enrollment fees, which increased $305.6 million for the year ended December 31, 2023 as compared to the year ended December 31, 2022. This increase reflects pricing adjustments we made in our existing centers, as well as an increase in dues revenue as a result of our new and ramping centers; and

•20.6% was from in-center revenue, which increased $79.2 million for the year ended December 31, 2023 as compared to the year ended December 31, 2022. This increase was recognized across all of our primary in-center businesses and reflects the higher utilization of our offerings by our members during the year ended December 31, 2023 as compared to the year ended December 31, 2022.

The $9.2 million increase in Other revenue for the year ended December 31, 2023 as compared to the year ended December 31, 2022 was primarily driven by the improved performance of our Life Time Work and Life Time Living locations.

Center operations expenses. The $116.2 million increase in Center operations expenses for the year ended December 31, 2023 as compared to the year ended December 31, 2022 was primarily due to increased operating costs related to our new and ramping centers, which consisted primarily of labor-related costs in support of increased membership and in-center business,

42

Table of Contents    

increased costs in our existing centers to support the higher utilization of our in-center business offerings by our members, and the continued investment in our facilities to deliver the highest member experience.

Rent expense. The $29.9 million increase in Rent expense for the year ended December 31, 2023 as compared to the year ended December 31, 2022 was primarily driven by the timing of sale-leaseback transactions during both the current and prior year as well as our taking possession of six properties since May 31, 2022 for future centers where we started incurring GAAP rent expense, most of which is non-cash.

General, administrative and marketing expenses. General, administrative and marketing expenses decreased $12.8 million for the year ended December 31, 2023 as compared to the year ended December 31, 2022 primarily due to reduced center support overhead and advertising and marketing, partially offset by an increase in share-based compensation.

Depreciation and amortization expenses. Depreciation and amortization expenses increased $15.5 million for the year ended December 31, 2023 as compared to the year ended December 31, 2022 primarily due to new center openings.

Other operating expense (income). Other operating expense for the year ended December 31, 2023 was $86.4 million as compared to Other operating income of $44.4 million for the year ended December 31, 2022. The $130.8 million change was primarily attributable to the recognition of a $13.6 million loss on sale-leaseback transactions during the year ended December 31, 2023 as compared to the recognition of a $97.5 million gain on sale-leaseback transactions during the year ended December 31, 2022, the recognition of $9.1 million of property development cost write-offs during the year ended December 31, 2023 as compared to the recognition of $2.1 million of property development cost write-offs during the year ended December 31, 2022, a $5.6 million loss associated with the sale of an outparcel of land during the year ended December 31, 2023, of which $5.3 million was recognized as an impairment charge, and increased costs in support of increased business activity for the year ended December 31, 2023 as compared to the year ended December 31, 2022.

Interest expense, net of interest income. The $17.3 million increase in Interest expense, net of interest income for the year ended December 31, 2023 as compared to the year ended December 31, 2022 was driven by a higher average level of outstanding borrowings and higher interest rates during the year ended December 31, 2023 as compared to the year ended December 31, 2022.

Provision for (benefit from) income taxes. The provision for income taxes was $18.7 million for the year ended December 31, 2023 as compared to a $0.8 million benefit from income taxes for the year ended December 31, 2022. The effective tax rate was 19.8% and 31.5% for those periods, respectively. The increase in provision for income taxes for the year ended December 31, 2023 as compared to the year ended December 31, 2022 was primarily driven by the increase in earnings before income taxes, partially offset by the decrease in valuation allowance associated with certain of our deferred tax assets. The effective tax rate applied to our pre-tax income for the year ended December 31, 2023 was slightly lower than our statutory rate of 21% and reflects a decrease in the valuation allowance associated with certain of our deferred tax assets, partially offset by the tax deficiencies associated with the share-based payment awards and increase in state income tax provisions.

Net income (loss). As a result of the factors described above, net income was $76.1 million for the year ended December 31, 2023 as compared to a net loss of $1.8 million for the year ended December 31, 2022.

Liquidity and Capital Resources

Liquidity

Our principal liquidity needs include the acquisition and development of new centers, lease requirements and debt service, investments in our business and technology and expenditures necessary to maintain and update or enhance our centers and associated fitness 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.

Our 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 actions to improve our liquidity. In 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 January 15, 2026. In December 2023, we amended our Term Loan Facility to reduce the interest rate by 0.50%. In addition, during the year ended December 31, 2023, we completed sale-leaseback transactions associated with three properties. During 2022, we completed sale-leaseback transactions associated with nine properties and rewired our Company to improve the efficiency of our club operations and corporate office. During 2021, we refinanced a significant portion of our outstanding debt and we completed sale-leaseback transactions associated with two

43

Table of Contents    

properties. For information regarding the debt refinancing transactions, see Note 8, Debt, to our consolidated financial statements in Part II, Item 8 of this Annual Report. For more information regarding the sale-leaseback transactions that were consummated during 2023, 2022 and 2021, see Note 9, Leases, to our consolidated financial statements in Part II, Item 8 of this Annual Report. We continue to explore potential sale-leaseback transactions, but we are being selective on the timing and rates given our ability to add new centers through asset-light opportunities and our improved cash flows from operations. 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.

Additionally, on October 12, 2021, we completed our IPO of 39.0 million shares of our common stock at a public offering price of $18.00 per share, resulting in total gross proceeds of $702.0 million before deducting the underwriting discounts and other offering expenses. Additionally, on November 1, 2021, we consummated the sale of nearly 1.6 million additional shares of our 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. 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 used the remaining net proceeds from the IPO, along with the additional net proceeds of approximately $27.1 million from the sale of the additional nearly 1.6 million shares of common stock, for general corporate purposes. 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.

As the opportunity arises or as our business needs require, we may seek to raise capital through additional debt or equity financing. There can be no assurance that any such financing would be available on commercially acceptable terms, or at all. Volatility in these markets, particularly in light of the higher 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 December 31, 2023, there were $90.0 million of outstanding borrowings under our Revolving Credit Facility and there were $32.9 million of outstanding letters of credit, resulting in total availability under our Revolving Credit Facility of $352.1 million. Total cash and cash equivalents, exclusive of restricted cash, at December 31, 2023 was $11.2 million, resulting in total cash and availability under our Revolving Credit Facility of $363.3 million.

The following table sets forth our consolidated statements of cash flows data (amounts in thousands):

[[GREPCENT_TABLE]]
[["","Year Ended December 31,"],["","2023","","2022","","2021"],["Net cash provided by (used in) operating activities","$","463,004","","","$","200,969","","","$","(20,029)"],["Net cash used in investing activities","(574,160)","","","(243,542)","","","(269,919)"],["Net cash provided by financing activities","115,552","","","36,798","","","288,399"],["Effect of exchange rate on cash and cash equivalents","61","","","(353)","","","(9)"],["Increase (decrease) in cash and cash equivalents","$","4,457","","","$","(6,128)","","","$","(1,558)"]]
[[/GREPCENT_TABLE]]

Operating Activities

The $262.0 million increase in net cash provided by operating activities for the year December 31, 2023 as compared to the year ended December 31, 2022 was primarily the result of higher profitability.

The $221.0 million increase in net cash provided by operating activities for the year December 31, 2022 as compared to the year ended December 31, 2021 was primarily the result of higher profitability, before the impact of non-cash share-based compensation expense, due to the recovery from the impact of COVID-19 on our business.

Investing Activities

Investing activities consist primarily of the acquisition and development of new centers, investments in our business and technology and expenditures necessary to maintain and update or enhance our 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.

44

Table of Contents    

The $330.6 million increase in net cash used in investing activities for the year December 31, 2023 as compared to the year ended December 31, 2022 was primarily driven by a $230.0 million decrease in the amount of proceeds that we received from sale-leaseback transactions during the year ended December 31, 2023 as compared to the year ended December 31, 2022 and a $102.7 million increase in capital expenditures for the year ended December 31, 2023 as compared to the year ended December 31, 2022. The increase in total capital expenditures for the year ended December 31, 2023 as compared to the year ended December 31, 2022 was primarily driven by new center construction activity and investment into our existing centers to modernize them as we executed our strategic initiatives. Of the $123.3 million in total proceeds we received from sale-leaseback transactions during the year ended December 31, 2023, $121.8 million and $1.5 million is reported within investing activities and financing activities, respectively, on our consolidated statement of cash flows. Of the $373.2 million in total proceeds we received from sale-leaseback transactions during the year ended December 31, 2022, $351.8 million and $21.4 million is reported within investing activities and financing activities, respectively, on our consolidated statement of cash flows.

The $26.4 million decrease in net cash used in investing activities for the year December 31, 2022 as compared to the year ended December 31, 2021 was primarily driven by a $277.9 million increase in the amount of proceeds that we received from sale-leaseback transactions during the year ended December 31, 2022 as compared to the year ended December 31, 2021, partially offset by a $262.3 million increase in capital expenditures for the year ended December 31, 2022 as compared to the year ended December 31, 2021. During the year ended December 31, 2021, we received $74.0 million of proceeds from sale-leaseback transactions, all of which is reporting within investing activities on our consolidated statement of cash flows. The increase in total capital expenditures for the year ended December 31, 2022 as compared to the year ended December 31, 2021 was primarily driven by new center construction activity, continued investments in technology and corporate capital expenditures related to Life Time Work.

Financing Activities

The $78.8 million increase in net cash provided by financing activities for the year ended December 31, 2023 as compared to the year ended December 31, 2022 was primarily driven by net incremental proceeds we received from borrowings under our Term Loan Facility, Revolving Credit Facility and our construction loan and proceeds from stock option exercises during the year ended December 31, 2023.

The $251.6 million decrease in net cash provided by financing activities for the year ended December 31, 2022 as compared to the year ended December 31, 2021 was primarily driven by net proceeds we received from borrowings under our Term Loan Facility and our secured and unsecured notes during the year ended December 31, 2021.

Cash Requirements

Our cash requirements within the next twelve months include accounts payable, construction accounts payable, accrued expenses and other current liabilities.

Our cash requirements greater than twelve months from various contractual obligations and commitments include:

Debt Obligations and Interest Payments

Refer to Note 8, Debt, to our consolidated financial statements included in Part II, Item 8 of this Annual Report for further detail of our debt and the timing of expected future principal payments. We expect to pay approximately $146.4 million of interest in the next 12 months and approximately $218.9 million of interest beyond 12 months.

Operating and Finance Leases

Refer to Note 9, Leases, to our consolidated financial statements included in Part II, Item 8 of this Annual Report for further detail of our lease obligations and the timing of expected future payments.

Deferred Compensation Obligations

Refer to Note 14, Executive Nonqualified Plan, to our consolidated financial statements included in Part II, Item 8 of this Annual Report for further detail of our deferred compensation plans.

45

Table of Contents    

Contracted Services

Contracted services include agreements with third-party service providers for software licenses and support, and marketing services. We expect to pay approximately $12.5 million for contracted services in the next 12 months and approximately $4.0 million beyond 12 months.

Capital Expenditures

Our primary capital expenditure requirements include growth capital expenditures, which include new center land and construction, growth initiatives and major remodels of existing centers, as well as maintenance capital expenditures to keep our centers operational and meeting our standards.

We believe we have adequate amounts of cash to meet our requirements and plans for cash in the short-term and long-term and expect to satisfy our short-term and long-term obligations through a combination of cash on hand, funds generated from operations, sale-leaseback transactions, the borrowing capacity available under our Revolving Credit Facility and additional debt and equity financing as needed.