Life Time Group Holdings, Inc. (LTH) FY 2024 MD&A
This page reproduces the company's own Item 7 MD&A text from the linked SEC filing. It is filer text, not grepcent analysis, scoring, or investment advice.
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, 2023 filed with the SEC on February 28, 2024, for discussion of the results of operations for the year ended December 31, 2023 compared to the year ended December 31, 2022.
Overview
Business and Strategy
Life Time, the “Healthy Way of Life Company,” is a premier lifestyle and leisure brand offering premium health, fitness and wellness experiences to a community of more than 1.5 million individual members, who together comprise more than 866,000 memberships, as of December 31, 2024. We are a leading innovator in the industry having successfully created a leisure model that incorporates the country club wellness lifestyle within a fitness and active living community. We have earned the trust of our members for over 30 years to make their lives healthier and happier 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 175 centers—distinctive, resort-like athletic country club destinations—across 31 states in the United States and one province in Canada. Our continuous commitment to members has resulted in strong brand loyalty and fueled our strong, long-term financial performance.
Our luxurious athletic country clubs total over 17 million of indoor square feet and approximately seven million of outdoor square feet in the aggregate. Our centers are located in affluent suburban 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 and spaces, indoor and outdoor pools and bistros, indoor and outdoor tennis courts, indoor and outdoor pickleball courts, basketball courts, LifeSpa, LifeCafe and our childcare and Kids Academy learning spaces. Our premium service offerings are delivered by over 42,000 Life Time team members, including over 10,800 certified fitness professionals, ranging from personal trainers to studio performers.
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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 $3,160 for the year ended December 31, 2024 as compared to $2,810 for the year ended December 31, 2023 and $2,528 for the year ended December 31, 2022. Total visits to our clubs were over 114 million in 2024, 103 million in 2023 and 86 million in 2022, and average visits per membership to our centers remained strong at 143 in 2024. 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 $2,547 million for the year ended December 31, 2024 as compared to $2,154 million for the year ended December 31, 2023 and $1,770 million for the year ended December 31, 2022. We believe it will continue to grow as we open new centers in desirable locations across the country, new members join at higher membership dues rates, our new centers ramp to expected performance, we benefit from capital expenditures already invested in our centers under construction 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, 2024, we had 29 centers open for less than three years and 12 new centers under construction, with significant growth capital expenditures already invested into these new centers that have yet to open. We are expanding the number of our centers using an asset-light model that targets increasingly affluent markets with higher income members, higher average revenue per center membership and higher returns on invested capital. As we open these new centers in more affluent markets, our average revenue per center membership should naturally increase. We believe we have significant opportunities to continue expanding our portfolio of premium centers in an asset-light manner and we are targeting 10 to 12 new locations on average per year. We believe these combined dynamics create a strong tailwind for the continued growth of our total Center revenue.
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 launched a pilot location for our MIORA health optimization and longevity services in 2024 and we plan to expand these offerings to additional locations in 2025 and beyond. We have also been executing on enhanced offerings within our LifeCafe, LifeShop and LifeSpa, including our newly branded LTH nutritional products. Additionally, our digital platform is delivering a true omni-channel experience through our integrated digital app that is now available at no cost, 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 LifeShop digital health store offers a wide variety of equipment, wearables, apparel, beauty products and nutritional supplements. We are continuing to invest in our digital capabilities, including artificial intelligence, to strengthen our relationships with our members, reach more people looking for a Healthy Way of Life and more comprehensively address their health, fitness and wellness needs so that they can engage and connect 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 athletic country clubs 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, which are also an asset-light model, offer luxury wellness-oriented residences, also in close proximity to our athletic country clubs. As of December 31, 2024, we had 15 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 and deal terms that were not previously available to us. Our omni-channel platform continues to grow as we expand our footprint with new centers and nearby work and living spaces, as well as strengthen our digital capabilities.
Macroeconomy
We continue to monitor the macroeconomic environment and its impact on our business, including with respect to inflation, interest rates and labor, as well as a potential economic recession. Inflation has been elevated, which has impacted our expenses and capital expenditures and return on invested capital. Despite this headwind, we have experienced growth in our revenue and margins and have maintained strong returns on our invested capital. Our Term Loan Facility and Revolving Credit Facility have variable rates and thus are impacted by higher interest rates. 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.
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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.
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.
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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.
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, Adjusted EBITDA, free cash flow 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 as well as (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, 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 as well as (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.
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 incentive compensation for management.
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Free Cash Flow
We define free cash flow as net cash provided by operating activities less capital expenditures, net of construction reimbursements, plus net proceeds from sale-leaseback transactions and land sales. We believe free cash flow 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 to be a key indicator of our liquidity and we present this metric to our board of directors. Additionally, we believe free cash flow is frequently used by analysts, investors and other interested parties in the evaluation of companies in our industry.
Adjusted net income (loss), Adjusted EBITDA and free cash flow 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 net income (loss), Adjusted EBITDA and free cash flow 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. Furthermore, we compensate for the limitations described above by relying primarily on our GAAP results and using Adjusted net income (loss), Adjusted EBITDA and free cash flow 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.
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Set forth below are certain GAAP and non-GAAP measurements and key performance indicators for the years ended December 31, 2024, 2023 and 2022. The following information has been presented consistently for all periods presented.
| Year Ended December 31, | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| 2024 | 2023 | 2022 | ||||||||
| ($ in thousands, except for Average Center revenue per center membership data) | ||||||||||
| Membership Data | ||||||||||
| Center memberships | 812,062 | 763,216 | 725,206 | |||||||
| Digital On-hold memberships | 54,023 | 51,720 | 51,470 | |||||||
| Total memberships | 866,085 | 814,936 | 776,676 | |||||||
| Revenue Data | ||||||||||
| Membership dues and enrollment fees | 72.8% | 72.3% | 70.7% | |||||||
| In-center revenue | 27.2% | 27.7% | 29.3% | |||||||
| Total Center revenue | 100.0% | 100.0% | 100.0% | |||||||
| Membership dues and enrollment fees | $ | 1,853,963 | $ | 1,557,289 | $ | 1,251,693 | ||||
| In-center revenue | 692,688 | 597,040 | 517,827 | |||||||
| Total Center revenue | $ | 2,546,651 | $ | 2,154,329 | $ | 1,769,520 | ||||
| Average Center revenue per center membership (1) | $ | 3,160 | $ | 2,810 | $ | 2,528 | ||||
| Comparable center revenue (2) | 12.2% | 15.3% | 33.0% | |||||||
| Center Data | ||||||||||
| Net new center openings (3) | 8 | 10 | 10 | |||||||
| Total centers (end of period) (3) | 179 | 171 | 161 | |||||||
| Total center square footage (end of period) (4) | 17,600,000 | 16,800,000 | 16,000,000 | |||||||
| GAAP and Non-GAAP Financial Measures | ||||||||||
| Net income (loss) | $ | 156,240 | $ | 76,063 | $ | (1,793) | ||||
| Net income (loss) margin (5) | 6.0 | % | 3.4 | % | (0.1) | % | ||||
| Adjusted net income (loss) (6) | $ | 200,451 | $ | 129,704 | $ | (41,569) | ||||
| Adjusted net income (loss) margin (6) | 7.6 | % | 5.9 | % | (2.3) | % | ||||
| Adjusted EBITDA (7) | $ | 676,780 | $ | 536,831 | $ | 281,724 | ||||
| Adjusted EBITDA margin (7) | 25.8 | % | 24.2 | % | 15.5 | % | ||||
| Center operations expense | $ | 1,392,421 | $ | 1,184,370 | $ | 1,068,208 | ||||
| Pre-opening expenses (8) | $ | 6,003 | $ | 7,280 | $ | 12,399 | ||||
| Rent | $ | 304,945 | $ | 275,122 | $ | 245,226 | ||||
| Non-cash rent expense (open properties) (9) | $ | 31,034 | $ | 33,626 | $ | 27,737 | ||||
| Non-cash rent expense (properties under development) (9) | $ | 2,705 | $ | 3,918 | $ | 10,797 | ||||
| Net cash provided by operating activities | $ | 575,117 | $ | 463,004 | $ | 200,969 | ||||
| Free cash flow (10) | $ | 273,580 | $ | (108,989) | $ | (38,359) |
(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.
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(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.
(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 2024, we opened eight centers.
(4) Total center square footage (end of period) reflects the aggregate square footage excluding areas used for tennis courts, outdoor swimming pools, outdoor play areas and stand-alone Work, Sport and Swim locations. We use this metric for evaluating the efficiencies of a center as of the end of the period. 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 as well as (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, 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:
| Year Ended December 31, | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| ($ in thousands) | 2024 | 2023 | 2022 | |||||||
| Net income (loss) | $ | 156,240 | $ | 76,063 | $ | (1,793) | ||||
| Share-based compensation expense (a) | 51,034 | 50,144 | 37,291 | |||||||
| (Gain) loss on sale-leaseback transactions (b) | (2,618) | 13,624 | (97,632) | |||||||
| Capital transaction costs (c) | — | — | 255 | |||||||
| Legal settlements (d) | 1,250 | — | — | |||||||
| Asset impairments (e) | — | 6,620 | — | |||||||
| Other (f) | 9,409 | (3,541) | 2,008 | |||||||
| Taxes (g) | (14,864) | (13,206) | 18,302 | |||||||
| Adjusted net income (loss) | $ | 200,451 | $ | 129,704 | $ | (41,569) | ||||
| Income (loss) per common share: | ||||||||||
| Basic | $ | 0.77 | $ | 0.39 | $ | (0.01) | ||||
| Diluted | $ | 0.74 | $ | 0.37 | $ | (0.01) | ||||
| Adjusted income (loss) per common share: | ||||||||||
| Basic | $ | 0.99 | $ | 0.66 | $ | (0.21) | ||||
| Diluted | $ | 0.95 | $ | 0.64 | $ | (0.21) | ||||
| Weighted-average common shares outstanding: | ||||||||||
| Basic | 201,640 | 195,671 | 193,570 | |||||||
| Diluted | 211,164 | 204,005 | 193,570 |
(a)Share-based compensation expense recognized during the year ended December 31, 2024 was associated with stock options, restricted stock units, performance stock units, our employee stock purchase plan (“ESPP”) that launched on December 1, 2022, and liability-classified awards related to our 2024 short-term incentive plan. Share-based compensation expense recognized during the year ended December 31, 2023 was associated with stock options, restricted stock units, our ESPP and liability-classified awards related to our 2023 short-term incentive plan. Share-based compensation expense recognized during the year ended December 31, 2022 was associated with stock options, restricted stock, restricted stock units and our ESPP.
(b) We adjust for the impact of gains and losses on the sale-leaseback of our properties as they do not reflect costs associated with our ongoing operations. For details on the gain and loss on sale-leaseback transactions that we recognized during the years ended December 31, 2024, 2023 and 2022, see “Sale-Leaseback Transactions” within Note 9, Leases, to our consolidated financial statements in Part II, Item 8 of this Annual Report.
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(c) 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.
(d) We adjust for the impact of unusual legal settlements. These costs are non-recurring in nature and do not reflect costs associated with our normal ongoing operations.
(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 (i) a $13.8 million write-off of the unamortized debt discounts and issuance costs associated with the extinguishment of our former Term Loan Facility and Construction Loan and the loss on the satisfaction and discharge of our 5.750% Senior Secured Notes and 8.000% Senior Unsecured Notes for the year ended December 31, 2024, (ii) (gain) loss on sales of land of $(5.0) million and $0.4 million for the years ended December 31, 2024 and 2023, respectively, (iii) incremental net expenses we recognized related to the COVID-19 pandemic of $0.6 million, $0.5 million and $3.1 million for the years ended December 31, 2024, 2023 and 2022, respectively, (iv) gain on sales of the Company’s triathlons and certain other assets of $(4.9) million and $(1.9) million for the years ended December 31, 2023 and 2022, respectively, (v) large corporate restructuring charges and executive level involuntary terminations of $0.5 million and $1.2 million for the years ended December 31, 2023 and 2022, respectively, and (vi) other transactions which are unusual or non-recurring in nature of $(0.4) million for the year ended December 31, 2022.
(g) Represents the estimated tax effect of the total adjustments made to arrive at Adjusted net income (loss) using the effective income tax rates for the respective periods.
(7) We present Adjusted EBITDA as a supplemental measure of our performance. We define Adjusted EBITDA as net income (loss) before interest expense, net, provision for (benefit from) income taxes and depreciation and amortization, excluding the impact of share-based compensation expense as well as (gain) loss on sale-leaseback transactions, capital transaction costs, legal settlements, asset impairment, severance and other items that are not indicative of our ongoing operations.
Adjusted EBITDA margin is calculated as Adjusted EBITDA divided by total revenue.
The following table provides a reconciliation of net income (loss), the most directly comparable GAAP measure, to Adjusted EBITDA:
| Year Ended December 31, | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| ($ in thousands) | 2024 | 2023 | 2022 | |||||||
| Net income (loss) | $ | 156,240 | $ | 76,063 | $ | (1,793) | ||||
| Interest expense, net of interest income (f) | 148,095 | 130,797 | 113,537 | |||||||
| Provision for (benefit from) income taxes | 52,528 | 18,727 | (825) | |||||||
| Depreciation and amortization | 274,681 | 244,397 | 228,883 | |||||||
| Share-based compensation expense (a) | 51,034 | 50,144 | 37,291 | |||||||
| (Gain) loss on sale-leaseback transactions (b) | (2,618) | 13,624 | (97,632) | |||||||
| Capital transaction costs (c) | — | — | 255 | |||||||
| Legal settlements (d) | 1,250 | — | — | |||||||
| Asset impairments (e) | — | 6,620 | — | |||||||
| Other (g) | (4,430) | (3,541) | 2,008 | |||||||
| Adjusted EBITDA | $ | 676,780 | $ | 536,831 | $ | 281,724 |
(a) – (e) See the corresponding footnotes to the table in footnote 6 immediately above.
(f) Includes (i) a $13.8 million write-off of the unamortized debt discounts and issuance costs associated with the extinguishment of our former Term Loan Facility and Construction Loan and the loss on the satisfaction and discharge of our 5.750% Senior Secured Notes and 8.000% Senior Unsecured Notes for the year ended December 31, 2024.
(g) Includes (i) (gain) loss on sales of land of $(5.0) million and $0.4 million for the years ended December 31, 2024 and 2023, respectively, (ii) incremental net expenses we recognized related to the COVID-19 pandemic of $0.6 million, $0.5 million and $3.1 million for the years ended December 31, 2024, 2023 and 2022, respectively, (iii)
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gain on sales of the Company’s triathlons and certain other assets of $(4.9) million and $(1.9) million for the years ended December 31, 2023 and 2022, respectively, (iv) large corporate restructuring charges and executive level involuntary terminations of $0.5 million and $1.2 million for the years ended December 31, 2023 and 2022, respectively, and (v) other transactions which are unusual or non-recurring in nature of $(0.4) million for the year ended December 31, 2022.
(8) Represents non-capital expenditures associated with opening new centers that are incurred prior to the commencement of a new center opening. The number of centers under construction or development, the types of centers and our costs associated with any particular center opening can vary significantly from period to period.
(9) Reflects the non-cash portion of our annual GAAP operating lease expense that is greater or less than the cash operating lease payments. Non-cash rent expense for our open properties represents non-cash expense associated with properties that were operating at the end of each period presented. Non-cash rent expense for our properties under development represents non-cash expense associated with properties that are still under development at the end of each period presented.
(10) Free cash flow, a non-GAAP financial measure, is calculated as net cash provided by operating activities less capital expenditures, net of construction reimbursements, plus net proceeds from sale-leaseback transactions and land sales.
The following table provides a reconciliation from net cash provided by operating activities to free cash flow:
| Year Ended December 31, | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| ($ in thousands) | 2024 | 2023 | 2022 | |||||||
| Net cash provided by operating activities | $ | 575,117 | $ | 463,004 | $ | 200,969 | ||||
| Capital expenditures, net of construction reimbursements | (524,535) | (697,993) | (591,178) | |||||||
| Proceeds from sale-leaseback transactions | 207,421 | 121,831 | 351,850 | |||||||
| Proceeds from land sales | 15,577 | 4,169 | — | |||||||
| Free cash flow | $ | 273,580 | $ | (108,989) | $ | (38,359) |
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.
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. We have significantly improved our leverage ratio and believe that we can reach and maintain a leverage ratio of 2.25 times or below.
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 68% of our centers are now leased, including approximately 87% 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.
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Macroeconomic Trends
We have been monitoring the macroeconomic environment and its impact on our business, including with respect to inflation, interest rates and labor, as well as a potential economic recession. See “—Overview—Macroeconomy” for additional information.
Share-Based Compensation
During the year ended December 31, 2024, we recognized share-based compensation expense associated with stock options, restricted stock units, performance stock units, our ESPP and liability-classified awards related to our 2024 short-term incentive plan, totaling approximately $51.0 million. 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 2023 short-term incentive plan, 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. 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.
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 $11.0 million, $14.5 million and $2.1 million associated with long-lived assets during the years ended December 31, 2024, 2023 and 2022, respectively.
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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.
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Results of Operations
Year Ended December 31, 2024 Compared to Year Ended December 31, 2023
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:
| Year Ended December 31, | |||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| As a Percentage of Total Revenue | |||||||||||||
| 2024 | 2023 | 2024 | 2023 | ||||||||||
| Revenue: | |||||||||||||
| Center revenue | $ | 2,546,651 | $ | 2,154,329 | 97.2 | % | 97.2 | % | |||||
| Other revenue | 74,344 | 62,264 | 2.8 | % | 2.8 | % | |||||||
| Total revenue | 2,620,995 | 2,216,593 | 100.0 | % | 100.0 | % | |||||||
| Operating expenses: | |||||||||||||
| Center operations | 1,392,421 | 1,184,370 | 53.1 | % | 53.4 | % | |||||||
| Rent | 304,945 | 275,122 | 11.6 | % | 12.4 | % | |||||||
| General, administrative and marketing | 221,047 | 201,131 | 8.4 | % | 9.1 | % | |||||||
| Depreciation and amortization | 274,681 | 244,397 | 10.5 | % | 11.0 | % | |||||||
| Other operating expense | 70,418 | 86,363 | 2.7 | % | 3.9 | % | |||||||
| Total operating expenses | 2,263,512 | 1,991,383 | 86.3 | % | 89.8 | % | |||||||
| Income from operations | 357,483 | 225,210 | 13.7 | % | 10.2 | % | |||||||
| Other (expense) income: | |||||||||||||
| Interest expense, net of interest income | (148,095) | (130,797) | (5.7) | % | (5.9) | % | |||||||
| Equity in (loss) earnings of affiliates | (620) | 377 | — | % | — | % | |||||||
| Total other expense | (148,715) | (130,420) | (5.7) | % | (5.9) | % | |||||||
| Income before income taxes | 208,768 | 94,790 | 8.0 | % | 4.3 | % | |||||||
| Provision for income taxes | 52,528 | 18,727 | 2.0 | % | 0.9 | % | |||||||
| Net income | $ | 156,240 | $ | 76,063 | 6.0 | % | 3.4 | % |
Total revenue. The $404.4 million increase in Total revenue for the year ended December 31, 2024 as compared to the year ended December 31, 2023 was due to continued strong growth in membership dues and in-center revenue, including higher average dues as a result of pricing actions already completed and higher rack rates at newer centers, membership growth in our new and ramping centers and higher member utilization of our in-center offerings.
With respect to the $392.3 million increase in Center revenue for the year ended December 31, 2024 as compared to the year ended December 31, 2023:
•75.6% was from membership dues and enrollment fees, which increased $296.7 million for the year ended December 31, 2024 as compared to the year ended December 31, 2023. This increase reflects the improvement in our Center memberships, which increased to 812,062 as of December 31, 2024 from 763,216 as of December 31, 2023, as well as higher average monthly dues per Center membership during the year ended December 31, 2024 as compared to the year ended December 31, 2023; and
•24.4% was from in-center revenue, which increased $95.6 million for the year ended December 31, 2024 as compared to the year ended December 31, 2023. This increase was recognized across all of our primary in-center businesses and reflects the higher utilization of our offerings by our members, particularly Dynamic Personal Training, during the year ended December 31, 2024 as compared to the year ended December 31, 2023.
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The $12.1 million increase in Other revenue for the year ended December 31, 2024 as compared to the year ended December 31, 2023 was primarily driven by the improved performance of our Life Time Work locations, media and events business and Life Time Living locations.
Center operations expenses. The $208.1 million increase in Center operations expenses for the year ended December 31, 2024 as compared to the year ended December 31, 2023 was primarily due to operating costs related to our new and ramping centers as well as costs to support growth in memberships and in-center business revenue.
Rent expense. The $29.8 million increase in Rent expense for the year ended December 31, 2024 as compared to the year ended December 31, 2023 was primarily driven by the timing of sale-leaseback transactions during both the current and prior year, the timing of taking possession of other leased properties, as well as the recognition of a higher level of contingent rent expense, which is generally determined based on a percentage of center-specific revenue and/or other center-specific financial metrics over contractually specified levels.
General, administrative and marketing expenses. The $19.9 million increase in General, administrative and marketing expenses for the year ended December 31, 2024 as compared to the year ended December 31, 2023 was primarily due to increased information technology costs, center support overhead to enhance and broaden our member services and experiences and share-based compensation and benefit-related expenses.
Depreciation and amortization expenses. The $30.3 million increase in Depreciation and amortization expenses for the year ended December 31, 2024 as compared to the year ended December 31, 2023 was primarily due to new center openings.
Other operating expense. The $15.9 million decrease in Other operating expense for the year ended December 31, 2024 as compared to the year ended December 31, 2023 was primarily due to the recognition of a $5.0 million gain on sales of outparcels of land, a $2.6 million gain on sale-leaseback transactions and the recognition of $11.0 million of impairment charges associated with property development cost write-offs during the year ended December 31, 2024 as compared to the recognition of a $5.6 million loss on the sale of an outparcel of land, of which $5.3 million was recognized as an impairment charge, a $13.6 million loss on sale-leaseback transactions, the recognition of $9.1 million of impairment charges associated with property development cost write-offs during the year ended December 31, 2023, partially offset by a $4.9 million gain on the sale of two triathlon events during the year ended December 31, 2023 and increased costs to support other revenue growth during the year ended December 31, 2024.
Interest expense, net of interest income. The $17.3 million increase in Interest expense, net of interest income for the year ended December 31, 2024 as compared to the year ended December 31, 2023 was driven by the write-off of unamortized debt discounts and issuance costs associated with the extinguishment of our former Term Loan Facility and Construction Loan and the loss on the satisfaction and discharge of our 5.750% Senior Secured Notes and 8.000% Senior Unsecured Notes during the year ended December 31, 2024.
Provision for income taxes. The $33.8 million increase in provision for income taxes for the year ended December 31, 2024 as compared to the year ended December 31, 2023 was primarily driven by an increase in earnings before taxes, offset by a reduction in valuation allowance associated with certain of our deferred tax assets. The effective tax rate was 25.2% and 19.8% for those same periods, respectively. The effective tax rate applied to our pre-tax income for the year ended December 31, 2024 was higher than our statutory federal rate of 21% and reflects an increase due to deductibility limitations associated with executive compensation and state income tax provisions, partially offset by a reduction in valuation allowance associated with certain of our deferred tax assets.
Net income. As a result of the factors described above, net income was $156.2 million for the year ended December 31, 2024 as compared to $76.1 million for the year ended December 31, 2023.
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 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.
We made significant progress in 2024 towards our priorities of improving our balance sheet, reducing leverage and generating positive free cash flow. Transactions we consummated during 2024 to execute on these priorities included:
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•Consummated a registered offering for the issuance and sale of 6.0 million shares of our common stock in August 2024 for total gross proceeds of $130.5 million, which was reduced by underwriting discounts and commissions and other expenses. We used $110.0 million of these net proceeds to pay down the aggregate principal amount outstanding under our former Term Loan Facility.
•Amended our senior secured credit agreement in September 2024 to, among other things, (i) increase the commitments under the revolving credit facility to $650.0 million, (ii) reduce the floating interest rate per annum to, at our option, Term Secured Overnight Financing Rate (“SOFR”) plus an applicable margin of 2.50% or a base rate plus 1.50% (subject to certain first lien leverage and ratings-based step-downs), and reduce the undrawn commitment fee rate from 50 basis points to 25 basis points, and (iii) extend the maturity of the revolving credit facility to September 2029.
•Paid off the remaining aggregate principal amount of $200.0 million of our former Term Loan Facility in September 2024.
•Amended our senior secured credit agreement in November 2024 to, among other things, incur new term loans in an aggregate principal amount of $1,000 million that mature in 2031 and bear interest at a rate per annum of SOFR plus an applicable margin of 2.50% (subject to a certain ratings-based step-down). Concurrently with the new term loans, we issued $500 million in aggregate principal amount of 6.000% Senior Secured Notes due 2031. We used the net proceeds from the secured notes and new term loans and cash from our balance sheet to fund the satisfaction and discharge of the 5.750% Senior Secured Notes due 2026 and 8.000% Senior Unsecured Notes due 2026.
•Completed sale-leaseback transactions associated with six properties.
Additionally, we benefit from our in-house architecture, design and construction expertise that allows us to create operationally efficient centers and control the pace of capital expenditures, including in determining when to begin or delay construction on a new athletic country club. 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 2024, as well as the sale-leaseback transactions that were consummated in 2023 and 2022, see Note 9, Leases, to our consolidated financial statements in Part II, Item 8 of this Annual Report.
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, 2024, there were $10.0 million of outstanding borrowings under our Revolving Credit Facility and there were $31.2 million of outstanding letters of credit, resulting in total availability under our Revolving Credit Facility of $608.8 million. Total cash and cash equivalents at December 31, 2024 was $10.9 million, resulting in total cash and availability under our Revolving Credit Facility of $619.7 million.
The following table sets forth our consolidated statements of cash flows data (amounts in thousands):
| Year Ended December 31, | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| 2024 | 2023 | 2022 | ||||||||
| Net cash provided by operating activities | $ | 575,117 | $ | 463,004 | $ | 200,969 | ||||
| Net cash used in investing activities | (292,744) | (574,160) | (243,542) | |||||||
| Net cash (used in) provided by financing activities | (284,385) | 115,552 | 36,798 | |||||||
| Effect of exchange rate on cash and cash equivalents and restricted cash and cash equivalents | (76) | 61 | (353) | |||||||
| (Decrease) increase in cash and cash equivalents and restricted cash and cash equivalents | $ | (2,088) | $ | 4,457 | $ | (6,128) |
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Operating Activities
The $112.1 million increase in net cash provided by operating activities for the year December 31, 2024 as compared to the year ended December 31, 2023 was primarily the result of increased business performance and profitability.
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 increased business performance and profitability.
Investing Activities
Investing activities consist primarily of the acquisition and development of new centers, expenditures necessary to maintain and update or enhance our centers and associated equipment and investments in our business and technology. We fund 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.
The $281.4 million decrease in net cash used in investing activities for the year December 31, 2024 as compared to the year ended December 31, 2023 was primarily driven by a $173.5 million decrease in capital expenditures, a $85.6 million increase in proceeds that we received from sale-leaseback transactions, and a $11.4 million increase in proceeds from the sale of land during the year ended December 31, 2024 as compared to the year ended December 31, 2023. Of the $211.7 million, $123.3 million and $373.2 million in total proceeds we received from sale-leaseback transactions during the years ended December 31, 2024, 2023 and 2022, respectively, $207.4 million, $121.8 million and $351.8 million were reported within investing activities and $4.3 million, $1.5 million and $21.4 million were reported within financing activities on our consolidated statement of cash flows during the years ended December 31, 2024, 2023 and 2022, respectively.
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 $106.8 million increase in capital expenditures for the year ended December 31, 2023 as compared to the year ended December 31, 2022.
The following table reflects capital expenditures by type of expenditure (in thousands):
| Year Ended December 31, | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| 2024 | 2023 | 2022 | ||||||||
| Growth capital expenditures (1) | $ | 334,479 | $ | 467,895 | $ | 409,435 | ||||
| Maintenance capital expenditures (2) | 108,635 | 102,880 | 98,111 | |||||||
| Modernization and technology capital expenditures (3) | 81,421 | 127,218 | 83,632 | |||||||
| Total capital expenditures | $ | 524,535 | $ | 697,993 | $ | 591,178 |
(1) Consist of new center land and construction, initial major remodels of acquired centers, major remodels of existing centers that expand existing square footage, asset acquisitions including the purchase of previously leased centers and other growth initiatives.
(2) Consist of general maintenance of existing centers.
(3) Consist of modernization of existing centers and technology.
The decrease in total capital expenditures for the year ended December 31, 2024 as compared to the year ended December 31, 2023 was primarily driven by the amount, timing and type of new center construction activity and higher modernization expenditures during the year ended December 31, 2023 as part of our pickleball expansion and studio and fitness floor conversions. 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 investments into our existing centers to modernize them as we executed our strategic initiatives.
Financing Activities
The $399.9 million increase in net cash used in financing activities for the year ended December 31, 2024 as compared to the year ended December 31, 2023 was primarily driven by the purchase of U.S. government obligations in connection with the satisfaction and discharge of debt, the payoff of our former Term Loan Facility and Construction Loan, lower net borrowings under our Revolving Credit Facility and payments of our mortgage notes, partially offset by the proceeds from our new Term Loan Facility, 6.000% Senior Secured Notes and equity offering during the year ended December 31, 2024.
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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 former Term Loan Facility, Revolving Credit Facility and our construction loan and proceeds from stock option exercises during the year ended December 31, 2023.
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 $102.8 million of interest in the next 12 months and approximately $588.4 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.
Contracted Services
Contracted services include agreements with third-party service providers for software licenses and support, and marketing services. We expect to pay approximately $11.1 million for contracted services in the next 12 months and approximately $4.3 million beyond 12 months.
Capital Expenditures
Our primary capital expenditure requirements include growth capital expenditures, which include new center land and construction, initial major remodels of acquired centers, major remodels of existing centers that expand existing square footage, asset acquisitions including the purchase of previously leased centers and other growth initiatives, maintenance capital expenditures to keep our centers operational and meeting our standards, and capital expenditures for the modernization of existing centers and technology.
We believe we will generate 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.