What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-05-01 compared with 2022-11-09 · 131 added, 205 removed, 207 unchanged (62% of the section changed)

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Certain statements in this discussion and analysis are forward-looking statements within the meaning of federal securities regulations.

Forward-looking statements in this discussion and analysis include, but are not limited to, our plans, possible or assumed future actions, strategies and prospects, both business and financial, including our financial outlook, events and results of operations.

Forward-looking statements in this discussion and analysis include, but are not limited to, our plans, strategies and prospects, both business and financial, including our financial outlook, possible or assumed future actions, opportunities for growth and margin expansion, improvements to our balance sheet and leverage, capital expenditures, consumer demand, industry and economic trends, business strategies, events or results of operations.

Generally, forward-looking statements are not based on historical facts but instead represent only our current beliefs and assumptions regarding future events.

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You should understand that forward-looking statements are not guarantees of performance or results and are preliminary in nature.

Statements preceded by, followed by or that otherwise include the words “believe,” “expects,” “anticipates,” “intends,” “projects,” “estimates,” “plans,” “may increase,” “may result,” “will result,” “may fluctuate,” and similar expressions or future or conditional verbs such as “will,” “should,” “would,” “may,” and “could” are generally forward-looking in nature and not historical facts.

Statements preceded by, followed by or that otherwise include the words “believe,” “assumes,” “expects,” “anticipates,” “intends,” “continues,” “projects,” “predicts,” “estimates,” “plans,” “potential,” “may increase,” “may result,” “will result,” “may fluctuate,” and similar expressions or future or conditional verbs such as “will,” “should,” “would,” “foreseeable,” “may,” and “could” as well as the negative version of these words or similar terms and phrases are generally forward-looking in nature and not historical facts.

In addition, any statements or information that refer to expectations, beliefs, plans, projections, objectives, performance or other characterizations of future events or circumstances, including any underlying assumptions, are forward-looking.

The forward-looking statements contained in this discussion and analysis are based on management’s current expectations and are not guarantees of future performance.

The forward-looking statements contained in this discussion and analysis are based on management’s current beliefs and assumptions and are not guarantees of future performance.

The forward-looking statements are subject to various risks, uncertainties, assumptions or changes in circumstances that are difficult to predict or quantify.

Actual results may differ materially from these expectations due to numerous factors, many of which are beyond our control, including risks relating to our business operations and competitive and economic environment, risks relating to our brand, risks relating to the growth of our business, risks relating to our technological operations, risks relating to our capital structure, risks relating to our human capital, risks relating to legal compliance and risk management, risks relating to our financial performance and risks relating to ownership of our common stock and the other important factors discussed under the caption “Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021 filed with the Securities and Exchange Commission (the “SEC”) and as such risk factors may be updated from time to time in our periodic filings with the SEC that are accessible on the SEC’s website at www.sec.gov .

Actual results may differ materially from these expectations due to numerous factors, many of which are beyond our control, including risks relating to our business operations and competitive and economic environment, risks relating to our brand, risks relating to the growth of our business, risks relating to our technological operations, risks relating to our capital structure and lease obligations, risks relating to our human capital, risks relating to legal compliance and risk management and risks relating to ownership of our common stock and the other important factors discussed under the caption “Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022 filed with the Securities and Exchange Commission (the “SEC”) and as such risk factors may be updated from time to time in our periodic filings with the SEC that are accessible on the SEC’s website at www.sec.gov .

Since it is not possible to foresee all such factors, these factors should not be considered as complete or exhaustive.

Consequently, we caution investors not to place undue reliance on any forward-looking statements, as no forward-looking statement can be guaranteed, and actual results may vary materially.

Additionally, our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures, investments or other strategic transactions we may make.

All forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by the foregoing cautionary statements.

Forward-looking statements speak only as of the date of this report.

We do not undertake any obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

We do not undertake any obligation to update or revise, or to publicly announce any update or revision to, any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

Initial Public Offering

On October 12, 2021, Life Time Group Holdings, Inc.

consummated its initial public offering (“IPO”) of 39.0 million shares of its common stock at a public offering price of $18.00 per share, resulting in total gross proceeds of $702.0 million before deducting the underwriting discounts and other offering expenses.

The shares of its common stock began trading on The New York Stock Exchange under the symbol “LTH” on October 7, 2021.

A registration statement on Form S-1 relating to the offering of these securities was declared effective by the SEC on October 6, 2021.

consummated its initial public offering (“IPO”) of 39.0 million shares of its common stock for total gross proceeds of $702.0 million before deducting the underwriting discounts and other offering expenses.

Additionally, on November 1, 2021, Life Time Group Holdings, Inc.

consummated the sale of nearly 1.6 million additional shares of its common stock at the IPO price of $18.00 per share pursuant to the partial exercise by the underwriters of their over-allotment option, resulting in total gross proceeds of approximately $28.4 million before deducting the underwriting discounts and commissions.

Life Time, the “Healthy Way of Life Company,” is a leading lifestyle brand offering premium health, fitness and wellness experiences to a community of more than 1.4 million individual members, who together comprise more than 776,000 memberships, as of September 30, 2022.

consummated the sale of nearly 1.6 million additional shares of its common stock pursuant to the partial exercise by the underwriters of their over-allotment option, resulting in total gross proceeds of approximately $28.4 million before deducting the underwriting discounts and commissions.

Business and Strategy

Life Time, the “Healthy Way of Life Co mpany,” is a leading lifestyle brand offering premium health, fitness and wellness experiences to a communit y of more than 1.4 million individua l members, who together compris e more than 813,000 memberships, as of March 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.

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Our track record of providing differentiated experiences to our members has fueled our strong, long-term financial performance.

Our luxurious athletic country clubs, which are located in both affluent suburban and urban locations, total more than 15 million square feet in the aggregate.

As of September 30, 2022, we had 17 new centers under construction and we believe we have significant opportunities to continue expanding our portfolio of premium centers with 12 planned new centers for 2022 and 11 new centers planned for 2023 in increasingly affluent markets.

We offer ex pansive 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 32,000 Life Time team members, including over 8,700 fitness professionals, ranging from personal trainers to studio performers.

Our luxurious athletic country clubs, which are located in both affluent suburban and urban locations, total approximately 16 million square feet in the aggregate.

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 35,000 Life Time team members, including over 9,200 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.

Our center memberships increased from 649,373 at December 31, 2021 to 728,729 at September 30, 2022 as the trend of diminishing negative impacts from COVID-19 has continued .

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 enabled us to consistently grow our annual membership dues and in-center revenue for 20 consecutive years, prior to the impact of the COVID-19 pandemic.

The value our members place on our community is reflected in the continued strength and growth of our average revenue per center membership and the visits to our athletic country clubs.

Our average revenue per center membership and the visits to our clubs for the three months ended March 31, 2023 were $667 and 26 million, respectively, as compared to $580 and 20 million, respectively, for the three months ended March 31, 2022.

We have been focused on returning to consistent annual growth in our membership dues and in-center revenue.

For the nine months ended September 30, 2022 and 2021, our recurring membership dues and enrollment fees represented 70.1% and 70.0%, respectively, of our total Center revenue, while our in-center revenue, consisting of Life Time Training, LifeCafe, LifeSpa, Life Time Swim and Life Time Kids, among other services, represented 29.9% and 30.0%, respectively, of our total Center revenue.

Our average revenue per center membership increased to $1,885 for the nine months ended September 30, 2022 compared to $1,554 for the nine months ended September 30, 2021, which demonstrates the significant value that our members place on engaging with Life Time.

As we delivered and continued to enhance and broaden the premium experiences for our members, we have strategically increased our membership dues across most of our new and existing centers.

We believe we can continually refine our pricing as we deliver exceptional experiences and find the optimal balance among the number of memberships per center, the member experience and maximizing our return for each center.

We expect average revenue per center membership to continue to increase compared to the same period in the prior year as we acquire new members and open new centers in increasingly affluent markets.

We offer a variety of convenient month-to-month memberships with no long-term contracts.

We define memberships for our centers in two ways:

Center memberships and Digital On-hold memberships.

A Center membership is defined as one or more adults, plus any juniors under the age of 14.

Our base memberships provide individuals general access (with some amenities excluded) to a selected home center and all centers with the same or lower base monthly dues rate.

Our optimized pricing for a Center membership is determined center-by-center based on a variety of factors, including geography, market presence, demographic nature, population density, competition, initial investment in the center and available services and amenities.

Digital On-hold memberships do not provide access to our centers and are for those members who want to maintain certain member benefits including our Life Time Digital membership and the right to convert to a Center membership without paying enrollment fees.

We continue to evolve our premium lifestyle brand in ways that elevate and broaden our member experiences and allow our members to more easily and regularly integrate health, fitness and wellness into their lives.

For example, we are offering new types of Center memberships and communities, including our signature membership that includes unlimited small group training and priority registrations, and our ARORA community focused on members aged 55 years and older.

Our total Center revenue has grown significantly since the adverse impacts of the pandemic.

Our total Center revenue increased to $497.8 million for the three months ended March 31, 2023 as compared to $381.6 million for the three months ended March 31, 2022.

We expect it to continue to grow as our existing centers re-ramp in their performance, 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.

As of March 31, 2023, we h ad 20 new centers open for less th an three years and 10 new centers under construction, with $401 million of growth capital expenditures already invested into these yet-to-open new centers.

We believe the combined dynamic of our ramping new centers, which on average have taken three to four years to ramp to expected performance, plus the future growth that we have not yet realized from the capital expenditures already invested in our centers under construction creates a strong tailwind for the continued growth of our total Center revenue.

We also have significant opportunities to continue expanding our portfolio of premium centers with 18 to 20 new centers planned over 2023 and 2024 in increasingly affluent markets.

During the pandemic, we determined that we had been under-valuing the experiences delivered to our engaged members and that certain members would likely not return following the pandemic.

We thus began to implement a new pricing strategy coming out of the pandemic.

As we continued to enhance and broaden the premium experiences for our members, we strategically increased our membership pricing across most of our new and existing centers, particularly for our new member join rates.

New members are thus joining at higher membership dues rates and we expect these members to be incrementally more profitable than the members we lose over the long-term.

As expected, our total center memberships have not fully recovered to their 2019 pre-pandemic levels, b ut for the first time in the three months ended March 31, 2023, our membership dues revenue exceeded our pre-pandemic membership dues revenue for centers opened at the end of 2019.

We believe we can continually refine our pricing, and transition existing memberships to higher membership prices or tiers, as we deliver exceptional experiences and find the optimal balance among memberships per center, the member experience and financial returns for each center.

With the strong recovery of our membership dues revenue, we have also been able to focus on margin expansion.

We experienced significant margin expansion in the three months ended March 31, 2023, and we believe we have opportunities to continue to expand margins as we benefit from higher dues revenue and as we continue to optimize the roll-out of our strategic initiatives and improve the efficiency of our club operations and corporate office.

We have implemented several strategic initiatives as we continue to evolve our premium lifestyle brand in ways that elevate and broaden our member experiences and allow our members to integrate health, fitness and wellness into their lives with greater ease and frequency.

We believe these initiatives are driving significant increases in center usage and higher memberships.

These strategic initiatives include pickleball, Dynamic Personal Training, 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 also continue to enhance our digital platform to deliver a true omni-channel experience for our members.

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We are continuing to invest in our digital capabilities 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.

Elevating our member experiences and delivering a connected and digital environment 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 see the returns on our investments.

We also continue to expand our “Healthy Way of Life” ecosystem in response to our members’ desire to more holistically integrate health and wellness into every aspect of their daily lives.

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 generally receive access to all of our resor t-like athletic destinations across the United States and Canada.

At September 30, 2022, 10 Life Time Work locations were open and operating.

Additionally, we opened our first two Life Time Living locations, another asset-light extension of our “Healthy Way of Life” ecosystem, which offer luxury wellness-oriented residences.

Life Time Work members also generally receive access to all of our resort-like athletic destinations across the United States and Canada.

Life Time Living offers luxury wellness-oriented residences also in close proximity to one of our athletic country clubs.

At March 31, 2023, we had 11 Life Time Work and two 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 we had not previously had.

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.

We have continued to actively 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 .

The inflation rate continues to be elevated in 2022, which has had an impact on our expenses in several areas, including wages, construction costs and other operating expenses.

The inflation rate has been elevated for several quarters and continued to be elevated in the first quarter of 2023, which has had an impact on our expenses in several areas, including wages, construction costs and other operating expenses.

These inflationary impacts have resulted in pressure on our margin performance and an increase in our capital expenditures.

The rising interest rate environment has also increased the cost of our Term Loan Facility and Revolving Credit Facility and may result in increased cap rates on future sale-leaseback transactions.

We anticipate the remainder of fiscal year 2022 will continue to be a dynamic macroeconomic environment, including elevated levels of inflation and interest rates.

We remain focused on providing exceptional experiences to our members, while also focusing on center efficiencies and expense control given our recovery of a significant portion of our center memberships and membership dues.

We anticipate the remainder of fiscal year 2023 will continue to be a dynamic macroeconomic environment.

Non-GAAP Financial Measures

This discussion and analysis includes certain financial measures that are not presented in accordance with the generally accepted accounting principles in the United States (“GAAP”), including Adjusted EBITDA and free cash flow before growth capital expenditures and ratios related thereto.

This discussion and analysis includes certain financial measures that are not presented in accordance with generally accepted accounting principles in the United States (“GAAP”), including Adjusted EBITDA and free cash flow before growth capital expenditures and ratios related thereto.

These non-GAAP financial measures are not based on any comprehensive set of accounting rules or principles and should not be construed as an inference that our future results will be unaffected by unusual or non-recurring items.

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These are not measurements of our financial performance under GAAP and should not be considered as alternatives to any other performance measures derived in accordance with GAAP.

Set forth below are certain GAAP and non-GAAP measurements and key performance indicators for the three and nine months ended September 30, 2022 and 2021.

Set forth below are certain GAAP and non-GAAP measurements and key performance indicators for the three months ended March 31, 2023 and 2022.

The following information has been presented consistently for all periods presented.

Three Months Ended Nine Months Ended

September 30, September 30,

2022 2021 2022 2021

Three Months Ended

($ in thousands, except for Average Center revenue per center membership data)

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Average Center revenue per center membership (1)

$ 660 $ 555 $ 1,885 $ 1,554

Comparable center sales (2)

25.6% 58.7% 35.7% 29.9%

Comparable center revenue (2)

Net new center openings (3)

Total centers (end of period) (3)

156 155 156 155

Total center square footage (end of period) (4)

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$ 2,650 $ 4,941

Net cash provided by (used in) operating activities $ 44,995 $ (2,283) $ 125,320 $ (15,322)

Net cash provided by operating activities $ 74,348 $ 9,062

Free cash flow before growth capital expenditures (9)

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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 sales 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 are the number of centers that opened for the first time to members during the period, less any centers that closed during the 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.

As of September 30, 2022, all of our 156 centers were open.

(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.

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The following table provides a reconciliation of net income (loss), the most directly comparable GAAP measure, to Adjusted EBITDA:

Three Months Ended Nine Months Ended

September 30, September 30,

Three Months Ended

($ in thousands) 2023 2022

Net income (loss) $ 27,460 $ (37,966)

Interest expense, net of interest income (a)

27,696 39,849 84,732 176,144

Interest expense, net of interest income 31,195 29,943

Provision for (benefit from) income taxes 8,872 (2,867)

Depreciation and amortization 58,197 58,107

Share-based compensation expense (b)

5,803 4,078 33,214 6,959

COVID-19 related expenses (credits) (c)

354 (221) 937 (410)

(Gain) loss on sale-leaseback transactions (d)

(48,583) 2,227 (98,167) 3,057

Capital transaction costs (e)

— 588 255 588

Legal settlements (f)

Share-based compensation expense (a)

COVID-19 related expenses (b)

Gain on sale-leaseback transactions (c)

(6,732) (28,372)

Capital transaction costs (d)

(4,834) (124)

Adjusted EBITDA $ 120,102 $ 40,626

(a) For the nine months ended September 30, 2021, we incurred a non-cash expense of $41.0 million related to the extinguishment of a related party secured loan and $18.3 million related to the write-off of debt discounts and issuances costs in connection with the extinguishment of our prior term loan facility, senior unsecured notes and the related party secured loan.

(b) Shar e-based compensation expense recognized during the three and nine months ended September 30, 2022 is associated with stock options, restricted stock and restricted stock units.

Shar e-based compensation expense recognized during the three and nine months ended September 30, 2021 was associated with restricted stock and restricted stock units.

No share-based compensation expense was recognized during the three and nine months ended September 30, 2021 related to stock options because the vesting and exercisability of stock options granted by the Company up through September 30, 2021 was contingent upon the occurrence of a change of control or an initial public offering.

We adjust for these costs as they do not represent costs associated with our normal ongoing operations.

We believe that adjusting for these costs provides a more accurate and consistent representation of our actual operating performance from period to period.

For the three and nine months ended September 30, 2022, COVID-19 related expenses primarily consisted of legal-related costs in pursuit of our claim against Zurich.

(a) Shar e-based compensation expense recognized during the three months ended March 31, 2023 was associated with stock options, restricted stock units, our employee stock purchase plan (“ESPP”) that launched on December 1, 2022, and liability classified awards related to our short-term incentive plan for our executive officers in 2023.

Shar e-based compensation expense recognized during the three months ended March 31, 2022 was associated with stock options, restricted stock and restricted stock units.

The majority of this expense was associated with awards that were fully vested and became exercisable on April 4, 2022 in connection with the expiration of the lock-up period following our IPO.

(b) Represents the incremental expenses we recognized related to the COVID-19 pandemic.

We adjust for these expenses as they do not represent expenses associated with our normal ongoing operations.

We believe that adjusting for these expenses provides a more accurate and consistent representation of our actual operating performance from period to period.

For the three months ended March 31, 2023 and 2022 , COVID-19 related expenses primarily consisted of legal-related costs in pursuit of our claim against Zurich.

For more information regarding this claim, see Note 10, Commitments and Contingencies, to our condensed consolidated financial statements in this report.

For the three and nine months ended September 30, 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.

(d) We adjust for the impact of gains or losses on the sale-leaseback of our properties as they do not reflect costs associated with our ongoing operations.

For details on the gain on sale-leaseback transactions in the three and nine months ended September 30, 2022, see “Sale-Leaseback Transactions” within Note 7, Leases, to our condensed consolidated financial statements in this report.

(e) Represents one-time costs related to capital transactions, including debt and equity offerings that are non-recurring in nature but excluding direct costs related to the IPO that were netted against the proceeds of the IPO.

(f) We adjust for the impact of large class action and unusual legal settlements paid or recoveries received.

These are non-recurring in nature and do not reflect costs associated with our normal ongoing operations.

(g) Includes costs associated with incremental expenses related to a winter storm that resulted in historical freezing temperatures affecting our Texas region in 2021, severance and other transactions which are unusual and non-recurring in nature.

(c) We adjust for the impact of gains on the sale-leaseback of our properties as they do not reflect costs associated with our ongoing operations.

For details on the gain on sale-leaseback transactions that we recognized during the three months ended March 31, 2023, see “Sale-Leaseback Transactions” within Note 7, Leases, to our condensed consolidated financial statements in this report.

(d) Represents one-time 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) Includes costs associated with transactions that are unusual and non-recurring in nature.

(7) Represents non-capital expenditures associated with opening new centers, which are incurred prior to the commencement of a new center opening.

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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.

(9) Free cash flow before growth capital expenditures, a non-GAAP financial measure, is calculated as net cash provided by (used in) operating activities less center maintenance capital expenditures and corporate capital expenditures.

The following table provides a reconciliation from net cash provided by (used in) operating activities to free cash flow before growth capital expenditures:

Three Months Ended Nine Months Ended

September 30, September 30,

(9) Free cash flow before growth capital expenditures, a non-GAAP financial measure, is calculated as net cash provided by operating activities less center maintenance capital expenditures and corporate capital expenditures.

The following table provides a reconciliation from net cash provided by operating activities to free cash flow before growth capital expenditures:

Three Months Ended

($ in thousands) 2023 2022

Net cash provided by (used in) operating activities $ 44,995 $ (2,283) $ 125,320 $ (15,322)

Net cash provided by operating activities $ 74,348 $ 9,062

Center maintenance capital expenditures (32,899) (16,396)

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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 report, including this “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” when we refer to “COVID-19,” 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.

Throughout this 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.

The performance of our centers has improved significantly with that improvement having varied depending on various factors, including how early we were able to re-open them, whether we were required to close them again, their geographic location and applicable governmental restrictions.

The performance of our centers was also impacted in 2021 as a result of the Delta variant and then again later in 2021 and into 2022 with the Omicron variant.

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, but our improvement has varied depending on various factors, including how early we were able to re-open them, whether we were required to close them again, their geographic location and applicable governmental restrictions.

We have experienced a slightly faster recovery in our membership dues revenue compared to our in-center revenue.

We expect membership dues revenue to remain a higher percentage of our total revenue in the near term and return to more historical levels over time.

We continue to be encouraged by our improved business performance and the diminishing negative impacts from COVID-19;

however, the full extent of the impact of COVID-19, including any new variants and any resulting operating restrictions, remains uncertain and is dependent on future developments that cannot be accurately predicted at this time.

As of September 30, 2022, all of our 156 centers were open and our total memberships were 776,002, an increase of 3.0% compared to 753,355 at September 30, 2021.

Center memberships were 728,729, an increase of 9.0% compared to 668,310 at September 30, 2021.

Digital On-hold memberships were 47,273, a decrease of 44.4% compared to 85,045 at September 30, 2021.

As the first nine months of 2022 have progressed, we have experienced a significant decrease in the COVID-19 related restrictions on our operations.

We continue to be encouraged by our improved business performance, the traction of our strategic initiatives and the diminishing negative impacts from COVID-19.

As of March 31, 2023, total memberships were 813,506, an increase of 9.3% compared to 744,272 at March 31, 2022.

Center memberships were 764,173, an increase of 13.4% compared to 673,983 at March 31, 2022.

Digital On-hold memberships were 49,333, a decrease of 29.8% compared to 70,289 at March 31, 2022.

We have experienced a significant decrease in COVID-19 related restrictions on our operations.

While we are still utilizing certain of the processes we implemented to provide a healthy and clean environment for our members and team members, we are no longer subject to the stricter requirements such as face coverings, vaccine mandates or negative test results.

We will continue to monitor governmental orders regarding the operations of our centers, as well as our center operating processes and protocols.

The rates of recovery for our centers and in-center businesses have progressed differently based upon considerations such as their geogr aphic location, vaccination rates, impacts of variants, applicable government restrictions and guidance, and team member and member sentiment with respect to our center operating processes and protocols and working in and/or using our centers.

While this uneven performance may continue, we are hopeful that as we continue to emerge from the COVID-19 pandemic and more time passes since the restrictive operating requirements have been lifted, our performance will begin to improve across the country and we will continue to see an increase in Center memberships and center utilization.

Cash Flows and Liquidity

Although there is uncertainty related to the full impact of COVID-19 on our financial position, results of operations, liquidity and cash flows, we believe that the combination of our current cash position, our availability under the Revolving Credit Facility, the actions we have taken with respect to our debt and equity and strengthening our balance sheet, as well as the actions we have taken to reduce our cash outflows, leave us well-positioned to manage our business.

If our available liquidity were not sufficient to meet our operating and debt service obligations as they come due, we would need to pursue alternative arrangements through additional debt or equity financing to meet our cash requirements.

There can be no assurance that any such financing would be available on commercially acceptable terms, or at all.

We also intend to continue to explore sale-leaseback transactions.

During the nine months ended September 30, 2022, we completed sale-leaseback transactions associated with nine properties for aggregate gross proceeds of $375.0 million.

For more information regarding the sale-leaseback transactions that were consummated during the nine months ended September 30, 2022, see Note 7, Leases, to our condensed consolidated financial statements included elsewhere in this report.

We are focused on improving the ratio of our net debt to Adjusted EBITDA, or our leverage ratio.

We define net debt as the current and long-term portion of our debt, excluding unamortized debt discounts and issuance costs and fair value adjustments, less cash and cash equivalents.

Our leverage ratio has been elevated due in part to the adverse impacts o f COVID-19, which required us to incur additional debt and significantly reduced our Adjusted EBITDA.

We believe that we can significantly improve our leverage ratio in 2023 as our profitability improves and we continue to strengthen our balance sheet, including through sale-leaseback transactions.

During the three months ended March 31, 2023, we completed a sale-leaseback transaction of one property for aggregate gross proceeds of $33.0 million.

For more information regarding the sale-leaseback transaction that was consummated during the three months ended March 31, 2023, see Note 7, Leases, to our condensed consolidated financial statements included elsewhere in this report.

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 introducing new types of memberships, providing concierge-type member services, expanding our omni-channel offerings and improving our in-center services and products.

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, 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, we are also focusing on center efficiencies and expense control given our recovery of a significant portion of our center memberships and membership dues.

While we remain focused on providing exceptional experiences to our members and growing our revenue, we are also focused on center efficiencies and expense control 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

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Share-Based Compensation

During the nine months ended September 30, 2022, we recognized share-based compensation expense associated with stock options, restricted stock and restricted stock units totaling approximately $33.2 million.

During the nine months ended September 30, 2021, we recognized share-based compensation expense associated with restricted stock and restricted stock units totaling approximately $7.0 million.

No share-based compensation expense related to stock options was recognized during the nine months ended September 30, 2021 , because the vesting and exercisability of stock options granted by the Company up through September 30, 2021 was contingent upon the occurrence of a change of control or an initial public offering.

During the three months ended March 31, 2023, we recognized share-based compensation expense associated with stock options, restricted stock units, our ESPP that launched on December 1, 2022 and liability classified awards related to our short-term incentive plan for our executive officers in 2023, totaling approximately $5.6 million.

During the three months ended March 31, 2022, we recognized share-based compensation expense associated with stock options, restricted stock and restricted stock units totaling approximately $21.4 million.

The majority of this expense was associated with awards that were fully vested and became exercisable on April 4, 2022 in connection with the expiration of the lock-up period following our IPO.

Critical Accounting Policies and Estimates

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Certain of these policies involve a higher degree of judgment or complexity and are most significant to reporting our results of operations and financial position, and are, therefore, discussed as critical.

Our most significant estimates and assumptions that materially affect the Company’s unaudited condensed consolidated financial statements involve difficult, subjective or complex judgments which management used while performing goodwill, indefinite-lived intangible and long-lived asset impairment analyses.

Our most significant estimates and assumptions that materially affect the Company’s unaudited condensed consolidated financial statements involve difficult, subjective or complex judgments, which management used while performing goodwill, indefinite-lived intangible and long-lived asset impairment analyses and sale-leaseback arrangements.

Given the additional effects from the COVID-19 pandemic, these estimates can be more challenging, and actual results could differ materially from our estimates.

As it relates to the long-lived asset impairment analyses that we have performed d uring both the three and nine months ended September 30, 2022 and 2021, we determined that certain projects were no longer deemed viable for construction, and that the previously capitalized site development costs associated with these projects were impaired.

Accordingly, as it relates to these long-lived assets, we recognized impairment charges of $0.2 million and $0.7 million for the three months ended September 30, 2022 and 2021, respectively, and $0.2 million and $2.5 million for the nine months ended September 30, 2022 and 2021, respectively.

As it relates to the long-lived asset impairment analyses that we have performed d uring the three months ended March 31, 2023 and 2022, we determined during the three months ended March 31, 2022 that certain projects were no longer deemed viable for construction, and that the previously capitalized site development costs associated with these projects were impaired during the three months ended March 31, 2022.

Accordingly, as it relates to these long-lived assets, we recognized impairment charges of $0.2 million during the three months ended March 31, 2022.

There were no impairment charges recognized during the three months ended March 31, 2023.

More information on all of our significant accounting policies can be found in Note 2, “Summary of Significant Accounting Policies” to our audited consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022 filed with the SEC.

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Results of Operations

Three Months Ended September 30, 2022 Compared to Three Months Ended September 30, 2021

The following table sets forth our condensed consolidated statements of operations data (amounts in thousands) and data as a percentage of total revenue for the three months ended September 30, 2022 and 2021:

Three Months Ended September 30,

Three Months Ended March 31, 2023 Compared to Three Months Ended March 31, 2022

Three Months Ended March 31,

As a Percentage of Total Revenue

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Depreciation and amortization 58,197 58,107 11.4 % 14.8 %

Other operating (income) expense (31,358) 14,796 (6.3) % 3.8 %

Other operating expense (income) 2,127 (17,035) 0.4 % (4.3) %

Total operating expenses 443,467 403,170 86.8 % 102.8 %

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Interest expense, net of interest income (31,195) (29,943) (6.1) % (7.6) %

Equity in earnings (loss) of affiliate 95 (28) — % — %

Equity in earnings of affiliate 143 26 — % — %

Total other expense (31,052) (29,917) (6.1) % (7.6) %

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Total revenue.

The $111.3 million increase in Total revenue for the three months ended September 30, 2022 as compared to the three months ended September 30, 2021 reflects the continued improvement of our operations after the adverse impacts of COVID-19, which has been supported by our strategic investments in our business, the pricing initiatives we have implemented at the majority of our centers since the third quarter of 2021, which have resulted in higher average Center membership dues being charged during the three months ended September 30, 2022 as compared to the three months ended September 30, 2021, as well as the opening of three and five new centers during the three and nine months ended September 30, 2022, respectively.

With respect to the $108.0 million increase in Center revenue for the three months ended September 30, 2022 compared to the three months ended September 30, 2021:

• 69.2% was from membership dues and enrollment fees, which increased $74.7 million for the three months ended September 30, 2022 as compared to the three months ended September 30, 2021.

This increase reflects the improvement in our Center memberships, which increased to 728,729 as of September 30, 2022 from 668,310 as of September 30, 2021 for the reasons noted above for Total revenue ;

• 30.8% was from in-center revenue, which increased $33.3 million for the three months ended September 30, 2022 as compared to the three months ended September 30, 2021 .

This increase was recognized across all of our primary in-center businesses and reflects the higher utilization of our services by our members as our operations continue to improve after the adverse impacts of COVID-19, which has been supported by our strategic investments in our business.

The $3.3 million increase in Other revenue for the three months ended September 30, 2022 as compared to the three months ended September 30, 2021 was primarily driven by our athletic events business, as we experienced a higher level of event participation during the three months ended September 30, 2022 as compared to the three months ended September 30, 2021 when COVID-19 had reduced our event participation rates.

The $118.6 million increase in Total revenue for the three months ended March 31, 2023 as compared to the three months ended March 31, 2022 primarily reflects strong growth in membership dues and in-center revenues, which included the continued ramp of our centers and higher utilization of our in-center offerings by our members.

With respect to the $116.1 million increase in Center revenue for the three months ended March 31, 2023 as compared to the three months ended March 31, 2022:

• 73.7% was from membership dues and enrollment fees, which increased $85.6 million for the three months ended March 31, 2023 as compared to the three months ended March 31, 2022.

This increase reflects the improvement in our Center memberships, which increased to 764,173 as of March 31, 2023 from 673,983 as of March 31, 2022, as well as higher average monthly dues per Center membership during the three months ended March 31, 2023 as compared to the three months ended March 31, 2022 ;

• 26.3% was from in-center revenue, which increased $30.6 million for the three months ended March 31, 2023 as compared to the three months ended March 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 three months ended March 31, 2023 as compared to the three months ended March 31, 2022 .

The $2.5 million increase in Other revenue for the three months ended March 31, 2023 as compared to the three months ended March 31, 2022 was primarily driven by the improved performance of our Life Time Work and Life Time Living locations, as well as our race registration and timing businesses.

Center operations expenses .

The $63.3 million increase in Center operations expenses for the three months ended September 30, 2022 as compared to the three months ended September 30, 2021 was primarily driven by increased staffing requirements resulting from increased usage of our centers and strategic investments in our business during the three months ended September 30, 2022 as compared to the three months ended September 30, 2021 , the opening of three and five new centers during the three and nine months ended September 30, 2022, respectively, as well as higher labor and utility costs due to inflation du ring the three months ended September 30, 2022 as compared to the three months ended September 30, 2021.

The $34.5 million increase in Center operations expenses for the three months ended March 31, 2023 as compared to the three months ended March 31, 2022 was primarily driven by additional staffing requirements to support increased usage in existing and new centers, expanded programming, increased labor costs and utility cost inflation during the three months ended March 31, 2023 as compared to the three months ended March 31, 2022.

Rent expense .

The $10.7 million increase in Rent expense for the three months ended September 30, 2022 as compared to the three months ended September 30, 2021 was primarily driven by our taking possession of nine properties since June 30, 2021 for future centers where we started incurring GAAP rent expense, most of which is non-cash, and the sale-leaseback of nine centers during the current year, five of which occurred during the three months ended September 30, 2022.

The $10.6 million increase in Rent expense for the three months ended March 31, 2023 as compared to the three months ended March 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 two properties since March 31, 2022 for future centers where we started incurring GAAP rent expense, most of which is non-cash .

General, administrative and marketing expenses.

The $11.8 million increase in General, administrative and marketing expenses for the three months ended September 30, 2022 as compared to the three months ended September 30, 2021 was primarily driven by a $2.2 million increase in overhead costs that was primarily labor-related to enhance and broaden our member services and experiences, a $1.8 million increase in marketing and information technology expenses, a $1.6 million increase in share-based and incentive compensation expenses, a $1.4 million increase in public company-related expenses and a $1.3 million increase in severance costs .

The $24.1 million decrease in General, administrative and marketing expenses for the three months ended March 31, 2023 as compared to the three months ended March 31, 2022 was primarily driven by a $15.2 million decrease in share-based compensation expense as well as the benefits that we experienced during the three months ended March 31, 2023 from operational efficiency efforts.

Depreciation and amortization .

The $1.6 million decrease in Depreciation and amortization for the three months ended September 30, 2022 as compared to the three months ended September 30, 2021 consists of $1.7 million lower depreciation, driven by the timing of sale-leaseback transactions, partially offset by $0.1 million higher amortization .

Other operating (income) expenses .

Other operating income for the three months ended September 30, 2022 was $31.4 million, as compared to Other operating expenses of $14.8 million for the three months ended September 30, 2021.

The $46.2 million change was primarily attributable to the recognition of a gain of $47.9 million o n a sale-leaseback transaction associated with five properties that was completed during the three months ended September 30, 2022, partially offset by higher costs associated with our athletic events business, as we experienced a higher level of event participatio n during t he three months ended September 30, 2022 as compared to the three months ended September 30, 2021.

Depreciation and amortization was $58.2 million for the three months ended March 31, 2023, a $0.1 million increase compared to $58.1 million for the three months ended March 31, 2022.

Other operating expense (income) .

Other operating expense for the three months ended March 31, 2023 was $2.1 million, as compared to Other operating income of $17.0 million for the three months ended March 31, 2022.

The $19.1 million change was primarily attributable to the recognition of a $28.4 million gain on sale-leaseback transactions during the three months ended March 31, 2022, partially offset by the recognition of a $6.7 million gain on a sale-leaseback transaction and increased costs to support the revenue growth we experienced in our Life Time Work, Life Time Living and race registration and timing businesses during the t hree months ended March 31, 2023.

Interest expense, net of interest income .

The $12.2 million decrease in Interest expense, net of interest income for the three months ended September 30, 2022 as compared to the three months ended September 30, 2021 was driven by a lower average level of outstanding borrowings during the three months ended September 30, 2022 as compared to the three months ended September 30, 2021 .

The $1.3 million increase in Interest expense, net of interest income for the three months ended March 31, 2023 as compared to the three months ended March 31, 2022 was driven by a higher average level of outstanding borrowings and higher interest rates during the three months ended March 31, 2023 as compared to the three months ended March 31, 2022.

Provision for (benefit from) income taxes .

The provision for income taxes was $3.4 million for the three months ended September 30, 2022 as compared to the $12.0 million benefit from income taxes for the three months ended September 30, 2021 .

The provision for income taxes was $8.9 million for the three months ended March 31, 2023 as compared to a $2.9 million benefit from income taxes for the three months ended March 31, 2022.

The effective tax rate was 24.4% and 7.0% for those same periods, respectively.

The effective tax rate applied to our pre-tax income for the three months ended September 30, 2022 is 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 deductibility limitations associated with executive compensation and an increase in the state income tax provision .

The increase in provision for income taxes for the three months ended March 31, 2023 as compared to the three months ended March 31, 2022 was primarily driven by the increase in earnings before tax, 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 three months ended March 31, 2023 is higher than our statutory rate of 21.0% and reflects an increase due to the deductibility limitations associated with executive compensation and state income tax provisions, partially offset by a decrease in the valuation allowance associated with certain of our deferred tax assets.

Net income (loss) .

As a result of the factors described above, net income was $24.7 million for the three months ended September 30, 2022 as compared to a net loss of $45.4 million for the three months ended September 30, 2021 .

Nine Months Ended September 30, 2022 Compared to Nine Months Ended September 30, 2021

The following table sets forth our condensed consolidated statements of operations data (amounts in thousands) and data as a percentage of total revenue for the nine months ended September 30, 2022 and 2021:

Nine Months Ended September 30,

As a Percentage of Total Revenue

2022 2021 2022 2021

Center revenue $ 1,307,498 $ 933,690 96.9 % 97.5 %

Other revenue 42,404 23,835 3.1 % 2.5 %

Total revenue 1,349,902 957,525 100.0 % 100.0 %

Operating expenses:

Center operations 814,383 625,322 60.3 % 65.3 %

Rent 179,166 154,552 13.3 % 16.1 %

General, administrative and marketing 175,650 126,896 13.0 % 13.3 %

Depreciation and amortization 171,680 177,005 12.7 % 18.5 %

Other operating (income) expense (56,605) 30,660 (4.2) % 3.2 %

Total operating expenses 1,284,274 1,114,435 95.1 % 116.4 %

Income (loss) from operations 65,628 (156,910) 4.9 % (16.4) %

Other (expense) income:

Interest expense, net of interest income (84,732) (176,144) (6.3) % (18.4) %

Equity in earnings (loss) of affiliate 129 (412) — % — %

Total other expense (84,603) (176,556) (6.3) % (18.4) %

Loss before income taxes (18,975) (333,466) (1.4) % (34.8) %

Benefit from income taxes (3,456) (58,867) (0.3) % (6.1) %

Net loss $ (15,519) $ (274,599) (1.1) % (28.7) %

Total revenue.

The $392.4 million increase in Total revenue for the nine months ended September 30, 2022 as compared to the nine months ended September 30, 2021 reflects the continued improvement of our operations after the adverse impacts of COVID-19, which has been supported by our strategic investments in our business, the pricing initiatives we have implemented at the majority of our centers since the third quarter of 2021, which have resulted in higher average Center membership dues being charged during the nine months ended September 30, 2022 as compared to the nine months ended September 30, 2021, as well the opening of five new centers during the nine months ended September 30, 2022.

With respect to the $373.8 million increase in Center revenue for the nine months ended September 30, 2022 as compared to the nine months ended September 30, 2021:

• 70.4% was from membership dues and enrollment fees, which increased $263.3 million for the nine months ended September 30, 2022 as compared to the nine months ended September 30, 2021.

• 29.6% was from in-center revenue, which increased $110.5 million for the nine months ended September 30, 2022 as compared to the nine months ended September 30, 2021.

This increase was recognized across all of our primary in-center businesses and reflects the higher utilization of our services as our operations continue to improve after the adverse impacts of COVID-19, which has been supported by our strategic investments in our business.

The $18.6 million increase in Other revenue for the nine months ended September 30, 2022 as compared to the nine months ended September 30, 2021 was primarily driven by our athletic events business, as we experienced a higher level of event participation during the nine months ended September 30, 2022 as compared to the nine months ended September 30, 2021 when COVID-19 had reduced our event participation rates.

Also, were able to produce more of our iconic events during the nine months ended September 30, 2022 as compared to the nine months ended September 30, 2021 when COVID-19 restrictions forced the cancellation of certain of our events.

Center operations expenses .

The $189.1 million increase in Center operations expenses for the nine months ended September 30, 2022 as compared to the nine months ended September 30, 2021 was driven by increased staffing requirements resulting from increased usage of our centers and strategic investments in our business during the nine months ended September 30, 2022 as compared to the nine months ended September 30, 2021, the opening of five new centers during the nine months ended September 30, 2022, as well as higher labor and utility costs due to inflation during the nine months ended September 30, 2022 as compared to the nine months ended September 30, 2021.

Rent expense .

The $24.6 million increase in Rent expense for the nine months ended September 30, 2022 as compared to the nine months ended September 30, 2021 was primarily driven by our taking possession of nine properties since June 30, 2021 for future centers where we started incurring GAAP rent expense, most of which is non-cash, and the sale-leaseback of nine centers during the nine months ended September 30, 2022.

General, administrative and marketing expenses.

The $48.8 million increase in General, administrative and marketing expenses for the nine months ended September 30, 2022 as compared to the nine months ended September 30, 2021 was primarily driven by a $24.1 million increase in share-based and incentive compensation expenses, a $9.4 million increase in overhead costs that was primarily labor-related to enhance and broaden our member services and experiences, a $6.8 million increase in marketing and information technology expenses, a $5.0 million increase in public company-related expenses and a $0.8 million increase in severance costs.

Depreciation and amortization .

The $5.3 million decrease in Depreciation and amortization for the nine months ended September 30, 2022 as compared to the nine months ended September 30, 2021 consists of $5.8 million lower depreciation, driven by the timing of sale-leaseback transactions, partially offset by $0.5 million higher amortization, driven by a facility license associated with an outdoor enthusiast and bicycling event that we acquired during the third quarter of 2021 .

Other operating (income) expenses .

Other operating income for the nine months ended September 30, 2022 was $56.6 million as compared to Other operating expenses of $30.7 million for the nine months ended September 30, 2021.

The $87.3 million change was primarily attributable to the recognition of a gain of $98.0 million on sale-leaseback transactions associated with nine prope rties that were completed during the nine months ended September 30, 2022, partially offset by higher costs associated with our athletic events business, as we experienced a higher level of event participation and we were able to produce more of our iconic events during the nine months ended September 30, 2022 as compared to the nine months ended September 30, 2021.

Interest expense, net of interest income .

The $91.4 million decrease in Interest expense, net of interest income for the nine months ended September 30, 2022 as compared to the nine months ended September 30, 2021 was driven by $41.0 million of non-cash expense that was recognized during the nine months ended September 30, 2021 in connection with the conversion of a related-party secured loan into Series A Preferred Stock, write-offs of debt issuance costs and original issuance discount costs totaling $18.3 million that were recognized during the nine months ended September 30, 2021 in connection with extinguished debt instruments, as well as a lower average level of outstanding borrowings during the nine months ended September 30, 2022 as compared to the nine months ended September 30, 2021 .

Benefit from income taxes .

The benefit from income taxes was $3.5 million for the nine months ended September 30, 2022 as compared to $58.9 million for the nine months ended September 30, 2021 .

The effective tax rate was 18.2% and 17.7% for those same periods, respectively.

The change in benefit from income taxes was primarily attributable to the decrease in our loss before income taxes for the nine months ended September 30, 2022 as compared to the nine months ended September 30, 2021.

The effective tax rate applied to our pre-tax loss for the nine months ended September 30, 2022 is lower than our statutory rate of 21% and reflects deductibility limitations associated with executive compensation, partially offset by a decrease in the projected valuation allowance associated with certain of our deferred tax assets.

As a result of the factors described above, net loss decreased by $259.1 million for the nine months ended September 30, 2022 as compared to the nine months ended September 30, 2021 .

As a result of the factors described above, net income was $27.5 million for the three months ended March 31, 2023 as compared to a net loss of $38.0 million for the three months ended March 31, 2022.

Liquidity and Capital Resources

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We have primarily satisfied our historical liquidity needs with cash flow from operations, drawing on the Revolving Credit Facility and through sale-leaseback transactions.

One of our top priorities remains improving our balance sheet and reducing leverage.

We have taken significant actions to improve our liquidity.

During 2021, we refinanced a significant portion of our outstanding debt.

For information regarding the refinancing actions we took during 2021, see Note 6, Debt, to our condensed consolidated financial statements in this report.

Additionally, we consummated our IPO in October 2021.

During the nine months ended September 30, 2022, we completed sale-leaseback transactions associated with nine properties.

In addition, we continue to explore potential sale-leaseback opportunities for a number of our properties.

For more information regarding the sale-leaseback transactions that were consummated during the nine months ended September 30, 2022 , see Note 7, Leases, to our condensed consolidated financial statements included in this report .

During the three months ended March 31, 2023, we completed a sale-leaseback transaction

associated with one property.

During 2022, we completed sale-leaseback transactions associated with nine properties and also rewired our Company to improve the efficiency of our club operations and corporate office.

We continue to explore potential sale-leaseback opportunities for a number of our properties.

For more information regarding the sale-leaseback transaction that was consummated during the three months ended March 31, 2023 , see Note 7, Leases, to our condensed consolidated financial statements included in this report .

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.

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In addition, it is possible that our ability to access the credit and capital markets could be limited at a time when we would like or need to do so.

As of September 30, 2022, there were no outstanding borrowings under our Revolving Credit Facility and there were $31.7 million of outstanding letters of credit.

As of September 30, 2022, total cash and revolver availability was $540.7 million, consisting of total cash and cash equivalents, exclusive of restricted cash, of $97.4 million and total revolver availability of $443.3 million.

As of March 31, 2023, there were $85.0 million of outstanding borrowings under our Revolving Credit Facility and there were $30.5 million of outstanding letters of credit, resulting in total availability under our Revolving Credit Facility of $359.5 million.

Total cash and cash equivalents, exclusive of restricted cash, at March 31, 2023 was $23.2 million, resulting in total cash and availability under our Revolving Credit Facility of $382.7 million.

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

Nine Months Ended

September 30,

Net cash provided by (used in) operating activities $ 125,320 $ (15,322)

Three Months Ended

Net cash provided by operating activities $ 74,348 $ 9,062

Net cash used in investing activities (136,851) (26,283)

Net cash (used in) provided by financing activities (11,708) 165,129

Net cash provided by financing activities 72,325 26,619

Effect of exchange rates on cash and cash equivalents 6 61

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Operating Activities

The $140.6 million increase in cash provided by operating activities for the nine months ended September 30, 2022 as compared to the nine months ended September 30, 2021 was primarily the result of higher profitability due to the recovery from the impact of COVID-19 on our business.

The $65.3 million increase in cash provided by operating activities for the three months ended March 31, 2023 as compared to the three months ended March 31, 2022 was primarily the result o f higher profitability.

Investing Activities

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We finance the purchase of our property and equipment through operating cash flows, proceeds from sale-leaseback transactions, construction reimbursements and draws on our Revolving Credit Facility.

The $100.7 million decrease in cash used in investing activities for the nine months ended September 30, 2022 as compared to the nine months ended September 30, 2021 was primarily driven by a higher amount of proceeds that we received from sale-leaseback transactions, partially offset by a higher level of new center construction activity during the nine months ended September 30, 2022.

The $110.6 million increase in net cash used in investing activities for the three months ended March 31, 2023 as compared to the three months ended March 31, 2022 was primarily driven by a higher level of new center construction activity, partially offset by a lower amount of proceeds that we received from sale-leaseback transactions during the three months ended March 31, 2023 as compared to the three months ended March 31, 2022.

The following schedule reflects capital expenditures by type of expenditure (in thousands):

Three Months Ended Nine Months Ended

September 30, September 30,

2022 2021 2022 2021

Three Months Ended

Growth capital expenditures, net of construction reimbursements (1)

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(1) Growth capital expenditures include new center land and construction, growth initiatives, major remodels of acquired centers and the purchase of previously leased centers.

The $208.2 million increase in total capital expenditures for the nine months ended September 30, 2022 as compared to the nine months ended September 30, 2021 was primarily driven by higher growth capital expenditures for new centers, continued investments in technology and corporate capital expenditures related to Life Time Work.

The $60.1 million increase in total capital expenditures for the three months ended March 31, 2023 as compared to the three months ended March 31, 2022 was primarily driven by higher growth capital expenditures for new centers.

Financing Activities

The $176.8 million decrease in cash provided by financing activities for the nine months ended September 30, 2022 as compared to the nine months ended September 30, 2021 was primarily driven by net proceeds we received from borrowings under our Term Loan Facility, Secured Notes and Unsecured Notes during the nine months ended September 30, 2021.

The $45.7 million increase in cash provided by financing activities for the three months ended March 31, 2023 as compared to the three months ended March 31, 2022 was primarily driven by net proceeds we received from borrowings under our Revolving Credit Facility and Construction Loan and proceeds from stock option exercises during the three months ended March 31, 2023.

We expect to satisfy our short-term and long-term obligations through a combination of cash on hand, funds generated from operations, sale-leaseback transactions and the borrowing capacity available under our Revolving Credit Facility.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis