Life Time Group Holdings, Inc. 10-Q

ITEM 1. FINANCIAL STATEMENTS LIFE TIME GROUP HOLDINGS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands, except per share data) (Unaudited) March 31, 2023 December 31, 2022 ASSETS Current assets: Cash and cash equivalents $ 35,337 $ 25,509 Accounts receivable, net 16,777 13,381 Center operating supplies and inventories 46,233 45,655 Prepaid expenses and other current assets 58,526 45,743 Income tax receivable — 748 Total current assets 156,873 131,036 Property and equipment, net 2,961,992 2,901,242 Goodwill 1,235,029 1,233,176 Operating lease right-of-use assets 2,135,203 2,116,761 Intangible assets, net 173,063 173,404 Other assets 73,142 69,744 Total assets $ 6,735,302 $ 6,625,363 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities: Accounts payable $ 65,058 $ 73,973 Construction accounts payable 105,737 125,031 Deferred revenue 42,448 36,859 Accrued expenses and other current liabilities 144,788 154,427 Current maturities of debt 65,585 15,224 Current maturities of operating lease liabilities 52,786 51,892 Total current liabilities 476,402 457,406 Long-term debt, net of current portion 1,824,913 1,805,698 Operating lease liabilities, net of current portion 2,189,470 2,162,424 Deferred income taxes 47,731 41,393 Other liabilities 34,749 34,181 Total liabilities 4,573,265 4,501,102 Commitments and contingencies (Note 10) Stockholders’ equity: Common stock, $ 0.01 par value per share; 500,000 shares authorized; 194,998 and 194,271 shares issued and outstanding, respectively. 1,950 1,943 Additional paid-in capital 2,794,657 2,784,416 Accumulated deficit ( 625,416 ) ( 652,876 ) Accumulated other comprehensive loss ( 9,154 ) ( 9,222 ) Total stockholders’ equity 2,162,037 2,124,261 Total liabilities and stockholders’ equity $ 6,735,302 $ 6,625,363 See notes to unaudited condensed consolidated financial statements. 3 Table of Contents LIFE TIME GROUP HOLDINGS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share data) (Unaudited) Three Months Ended March 31, 2023 2022 Revenue: Center revenue $ 497,752 $ 381,621 Other revenue 13,099 10,633 Total revenue 510,851 392,254 Operating expenses: Center operations 274,109 239,573 Rent 66,537 55,964 General, administrative and marketing 42,497 66,561 Depreciation and amortization 58,197 58,107 Other operating expense (income) 2,127 ( 17,035 ) Total operating expenses 443,467 403,170 Income (loss) from operations 67,384 ( 10,916 ) Other (expense) income: Interest expense, net of interest income ( 31,195 ) ( 29,943 ) Equity in earnings of affiliate 143 26 Total other expense ( 31,052 ) ( 29,917 ) Income (loss) before income taxes 36,332 ( 40,833 ) Provision for (benefit from) income taxes 8,872 ( 2,867 ) Net income (loss) $ 27,460 $ ( 37,966 ) Income (loss) per common share: Basic $ 0.14 $ ( 0.20 ) Diluted $ 0.14 $ ( 0.20 ) Weighted-average common shares outstanding: Basic 194,572 192,465 Diluted 202,855 192,465 See notes to unaudited condensed consolidated financial statements. 4 Table of Contents LIFE TIME GROUP HOLDINGS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (In thousands) (Unaudited) Three Months Ended March 31, 2023 2022 Net income (loss) $ 27,460 $ ( 37,966 ) Foreign currency translation adjustments, net of tax of $ 0 68 1,631 Comprehensive income (loss) $ 27,528 $ ( 36,335 ) See notes to unaudited condensed consolidated financial statements. 5 Table of Contents LIFE TIME GROUP HOLDINGS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (In thousands) (Unaudited) Common Stock Additional Paid-In Capital Accumulated Deficit Accumulated Other Comprehensive Loss Total Equity Shares Amount Balance at December 31, 2022 194,271 $ 1,943 $ 2,784,416 $ ( 652,876 ) $ ( 9,222 ) $ 2,124,261 Net income — — — 27,460 — 27,460 Other comprehensive loss — — — — 68 68 Share-based compensation — — 5,422 — — 5,422 Stock option exercises 327 3 3,453 — — 3,456 Issuances of common shares in connection with the vesting of restricted stock units 310 3 ( 105 ) — — ( 102 ) Issuances of common stock in connection with business acquisitions 90 1 1,471 — — 1,472 Balance at March 31, 2023 194,998 $ 1,950 $ 2,794,657 $ ( 625,416 ) $ ( 9,154 ) $ 2,162,037 Common Stock Additional Paid-In Capital Accumulated Deficit Accumulated Other Comprehensive Loss Total Equity Shares Amount Balance at December 31, 2021 193,060 $ 1,931 $ 2,743,560 $ ( 651,083 ) $ ( 3,016 ) $ 2,091,392 Net loss — — — ( 37,966 ) — ( 37,966 ) Other comprehensive income — — — — 1,631 1,631 Share-based compensation — — 21,438 — — 21,438 Settlement of accrued compensation liabilities through the issuance of share-based compensation awards — — 505 — — 505 Balance at March 31, 2022 193,060 $ 1,931 $ 2,765,503 $ ( 689,049 ) $ ( 1,385 ) $ 2,077,000 See notes to unaudited condensed consolidated financial statements. 6 Table of Contents LIFE TIME GROUP HOLDINGS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) (Unaudited) Three Months Ended March 31, 2023 2022 Cash flows from operating activities: Net income (loss) $ 27,460 $ ( 37,966 ) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization 58,197 58,107 Deferred income taxes 6,333 ( 3,885 ) Share-based compensation 5,622 21,438 Non-cash rent expense 9,028 6,009 Impairment charges associated with long-lived assets — 227 Gain on disposal of property and equipment, net ( 6,693 ) ( 28,597 ) Amortization of debt discounts and issuance costs 1,966 1,945 Changes in operating assets and liabilities ( 23,650 ) ( 5,638 ) Other ( 3,915 ) ( 2,578 ) Net cash provided by operating activities 74,348 9,062 Cash flows from investing activities: Capital expenditures ( 170,814 ) ( 110,754 ) Proceeds from sale-leaseback transactions 32,676 79,666 Other 1,287 4,805 Net cash used in investing activities ( 136,851 ) ( 26,283 ) Cash flows from financing activities: Proceeds from borrowings 7,916 3,198 Repayments of debt ( 3,701 ) ( 5,745 ) Proceeds from revolving credit facility 345,000 230,000 Repayments of revolving credit facility ( 280,000 ) ( 200,000 ) Repayments of finance lease liabilities ( 244 ) ( 358 ) Proceeds from stock option exercises 3,456 — Other ( 102 ) ( 476 ) Net cash provided by financing activities 72,325 26,619 Effect of exchange rates on cash and cash equivalents 6 61 Increase in cash and cash equivalents 9,828 9,459 Cash and cash equivalents – beginning of period 25,509 31,637 Cash and cash equivalents – end of period $ 35,337 $ 41,096 See notes to unaudited condensed consolidated financial statements. 7 Table of Contents LIFE TIME GROUP HOLDINGS, INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Table amounts in thousands except per share data) 454 1. Nature of Business and Basis of Presentation Nature of Business Life Time Group Holdings, Inc. (collectively with its direct and indirect subsidiaries, “Life Time,” “we,” “our,” or the “Company”) is a holding company incorporated in the state of Delaware. Life Time Group Holdings, Inc. changed its name from LTF Holdings, Inc. effective on June 21, 2021. As a holding company, Life Time Group Holdings, Inc. does not have its own independent assets or business operations, and all of our assets and business operations are through Life Time, Inc. and its direct and indirect subsidiaries. We are primarily dedicated to providing premium health, fitness and wellness experiences at our athletic country club destinations and via our comprehensive digital platform and portfolio of iconic athletic events – all with the objective of inspiring healthier, happier lives. We design, build and operate our athletic country club destinations that are distinctive and large, multi-use sports and athletic, professional fitness, family recreation and spa centers in a resort-like environment. As of March 31, 2023, we operated 164 centers in 29 states and one Canadian province. Basis of Presentation The unaudited condensed consolidated financial statements include the accounts of Life Time Group Holdings, Inc. and its wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation. The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (‘‘GAAP’’), which require 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. Actual 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 our consolidated operating results. All adjustments (consisting of normal recurring adjustments) considered necessary to fairly present our consolidated financial position, results of operations and cash flows for the periods have been included. Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted. A summary of our significant accounting policies is included in Note 2 to our annual consolidated financial statements. 2. Summary of Significant Accounting Policies New Accounting Pronouncements Not Yet Adopted In March 2020, the FASB issued ASU 2020-04, “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting.” ASU 2020-04 provides optional expedients and exceptions for applying GAAP to contract modifications, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. In response to the concerns about structural risks of interbank offered rates (“IBORs”) and, particularly, the risk of cessation of the London Interbank Offered Rate (“LIBOR”), regulators in several jurisdictions around the world have undertaken reference rate reform initiatives to identify alternative reference rates that are more observable or transaction-based and less susceptible to manipulation. ASU 2020-04 provides companies with optional guidance to ease the potential accounting burden associated with transitioning away from reference rates that are expected to be discontinued. In January 2021, the FASB issued ASU 2021-01, “Reference Rate Reform (Topic 848): Scope,” which provides implementation guidance associated with ASU 2020-04 and clarifies certain optional expedients in Topic 848. In December 2022, the FASB issued ASU 2022-06, “Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848,” which defers the sunset date of Topic 848 from December 31, 2022 to December 31, 2024, after which entities will no longer be permitted to apply the relief in Topic 848. We plan to replace LIBOR with Term Secured Overnight Financing Rate (“SOFR”) no later than June 30, 2023. We do not expect that the adoption of this ASU will have a material impact on our consolidated financial statements. Fair Value Measurements The accounting guidance establishes a framework for measuring fair value and expanded disclosures about fair value measurements. The guidance applies to all assets and liabilities that are measured and reported on a fair value basis. This enables the reader of the financial statements to assess the inputs used to develop those measurements by establishing a hierarchy for ranking the quality and reliability of the information used to determine fair values. The guidance requires that each asset and liability carried at fair value be classified into one of the following categories: 8 Table of Contents LIFE TIME GROUP HOLDINGS, INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Table amounts in thousands except per share data) Level 1: Quoted market prices in active markets for identical assets or liabilities. Level 2: Observable market-based inputs or unobservable inputs that are corroborated by market data. Level 3: Unobservable inputs that are not corroborated by market data. The carrying amounts related to cash and cash equivalents, accounts receivable, income tax receivable, accounts payable and accrued liabilities approximate fair value. Fair Value Measurements on a Recurring Basis. We had no material remeasurements of such assets or liabilities to fair value during the three months ended March 31, 2023 and 2022. Financial Assets and Liabilities. At March 31, 2023, the fair value of our outstanding Term Loan Facility, Secured Notes and Unsecured Notes (each of which is defined in Note 6, Debt) was approximately $ 273.6 million, $ 894.9 million and $ 451.3 million, respectively. At December 31, 2022, the fair value of our outstanding Term Loan Facility, Secured Notes and Unsecured Notes was approximately $ 272.3 million, $ 860.3 million and $ 425.1 million, respectively. The carrying amount of our outstanding Mortgage Notes and Construction Loan (each of which is defined in Note 6, Debt) at March 31, 2023 and December 31, 2022 approximates fair value. The fair value of our debt is based on the amount of future cash flows discounted using rates we would currently be able to realize for similar instruments of comparable maturity. If our long-term debt were recorded at fair value, it would be classified as Level 2 in the fair value hierarchy. For more information regarding our debt, see Note 6, Debt. Fair Value Measurements on a Nonrecurring Basis. Assets and liabilities that are measured at fair value on a nonrecurring basis primarily relate to our goodwill, intangible assets and other long-lived assets, which are remeasured when the derived fair value is below carrying value on our condensed consolidated balance sheets. For these assets, we do not periodically adjust carrying value to fair value except in the event of impairment. If we determine that impairment has occurred, the carrying value of the asset would be reduced to fair value and the difference would be recorded as a loss within operating income in our condensed consolidated statements of operations. During the three months ended March 31, 2022, 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 during the three months ended March 31, 2022. There were no impairment charges recognized during the three months ended March 31, 2023. Fair value remeasurements are based on significant unobservable inputs (Level 3). Fixed asset fair values are primarily derived using a discounted cash flow (“DCF”) model to estimate the present value of net cash flows that the asset or asset group was expected to generate. The key inputs to the DCF model generally include our forecasts of net cash generated from revenue, expenses and other significant cash outflows, such as capital expenditures, as well as an appropriate discount rate. 3. Supplemental Balance Sheet and Cash Flow Information Prepaid Expenses and Other Current Assets Prepaid expenses and other current assets consisted of the following: March 31, 2023 December 31, 2022 Property held for sale $ 8,687 $ 4,987 Construction contract receivables 10,412 8,867 Prepaid insurance 7,936 3,414 Prepaid software licenses and maintenance 12,250 10,009 Other 19,241 18,466 Prepaid expenses and other current assets $ 58,526 $ 45,743 9 Table of Contents LIFE TIME GROUP HOLDINGS, INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Table amounts in thousands except per share data) Accrued Expenses and Other Current Liabilities Accrued expenses and other current liabilities consisted of the following: March 31, 2023 December 31, 2022 Real estate taxes $ 27,964 $ 32,373 Accrued interest 30,052 36,518 Payroll liabilities 19,246 19,908 Utilities 7,654 7,285 Self-insurance accruals 21,989 21,369 Corporate accruals 30,096 29,731 Other 7,787 7,243 Accrued expenses and other current liabilities $ 144,788 $ 154,427 Supplemental Cash Flow Information Decreases (increases) in operating assets and increases (decreases) in operating liabilities are as follows: Three Months Ended March 31, 2023 2022 Accounts receivable $ ( 4,428 ) $ ( 3,335 ) Center operating supplies and inventories ( 577 ) ( 947 ) Prepaid expenses and other current assets ( 8,268 ) ( 6,460 ) Income tax receivable 748 1,068 Other assets 82 271 Accounts payable ( 8,921 ) 4,205 Accrued expenses and other current liabilities ( 8,353 ) ( 5,481 ) Deferred revenue 5,920 6,735 Other liabilities 147 ( 1,694 ) Changes in operating assets and liabilities $ ( 23,650 ) $ ( 5,638 ) Additional supplemental cash flow information is as follows: Three Months Ended March 31, 2023 2022 Net cash paid for (received from) income taxes, net of refunds received (taxes paid) $ 66 $ ( 82 ) Cash payments for interest, net of capitalized interest 35,953 31,948 Capitalized interest 4,955 1,862 Non-cash activity: Issuance of common stock in connection with a business acquisition 1,472 — See Note 7, Leases, for supplemental cash flow information associated with our lease arrangements for the three months ended March 31, 2023 and 2022. 10 Table of Contents LIFE TIME GROUP HOLDINGS, INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Table amounts in thousands except per share data) 4. Goodwill and Intangibles The goodwill balance was $ 1,235.0 million and $ 1,233.2 million at March 31, 2023 and December 31, 2022, respectively. The $ 1.8 million change in goodwill for the three months ended March 31, 2023 was related to a business acquisition during the first quarter of 2023. Intangible assets consisted of the following: March 31, 2023 Gross Accumulated Amortization Net Trade name $ 163,000 $ — $ 163,000 Other 16,987 ( 6,924 ) 10,063 Total intangible assets $ 179,987 $ ( 6,924 ) $ 173,063 December 31, 2022 Gross Accumulated Amortization Net Trade name $ 163,000 $ — $ 163,000 Other 16,987 ( 6,583 ) 10,404 Total intangible assets $ 179,987 $ ( 6,583 ) $ 173,404 Other intangible assets at March 31, 2023 and December 31, 2022 include a facility license as well as trade names and customer relationships associated with our race registration and timing businesses. The facility license is associated with an outdoor enthusiast and bicycling event, which was acquired during the year ended December 31, 2021 for approximately $ 10.2 million, of which approximately $ 1.1 million was paid during the three months ended March 31, 2023. This license expires in April 2031. The transaction was accounted for as an asset acquisition, and the associated costs are being amortized on a straight-line basis over its estimated useful life of 9.8 years. Amortization expense associated with intangible assets for the three months ended March 31, 2023 and 2022 was $ 0.3 million and $ 0.5 million, respectively. Amortization expense associated with intangible assets is included in Depreciation and amortization in our condensed consolidated statements of operations. There were no goodwill or intangible asset impairment charges recorded during the three months ended March 31, 2023 and 2022. 5. Revenue Revenue associated with our membership dues, enrollment fees, and certain services from our in-center businesses is recognized over time as earned. Revenue associated with products and services offered in our cafes and spas, as well as through e-commerce, is recognized at a point in time. The following is a summary of revenue, by major revenue stream, that we recognized during the three months ended March 31, 2023 and 2022: Three Months Ended March 31, 2023 2022 Membership dues and enrollment fees $ 357,488 $ 271,915 In-center revenue 140,264 109,706 Total center revenue 497,752 381,621 Other revenue 13,099 10,633 Total revenue $ 510,851 $ 392,254 The timing associated with the revenue we recognized during the three months ended March 31, 2023 and 2022 is as follows: 11 Table of Contents LIFE TIME GROUP HOLDINGS, INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Table amounts in thousands except per share data) Three Months Ended March 31, 2023 Three Months Ended March 31, 2022 Center Revenue Other Revenue Total Revenue Center Revenue Other Revenue Total Revenue Goods and services transferred over time $ 439,017 $ 13,099 $ 452,116 $ 332,987 $ 10,633 $ 343,620 Goods and services transferred at a point in time 58,735 — 58,735 48,634 — 48,634 Total revenue $ 497,752 $ 13,099 $ 510,851 $ 381,621 $ 10,633 $ 392,254 Contract liabilities represent payments or consideration received in advance for goods or services that the Company has not yet transferred to the customer. Contract liabilities consist primarily of deferred revenue for fees collected in advance for membership dues, enrollment fees, Dynamic Personal Training and other center services offerings, as well as our media and athletic events. Contract liabilities at March 31, 2023 and December 31, 2022 were $ 44.8 million and $ 38.9 million, respectively. Contract liabilities that will be recognized within one year are classified as deferred revenue in our condensed consolidated balance sheets. Deferred revenue at March 31, 2023 and December 31, 2022 was $ 42.4 million and $ 36.9 million, respectively, and consists primarily of prepaid membership dues, enrollment fees, Dynamic Personal Training and other in-center services, as well as media and athletic events . The $ 5.5 million increase was primarily driven by prepayment of athletic events and kids camps that have yet to be serviced. Contract liabilities that will be recognized in a future period greater than one year are classified as a component of Other liabilities in our condensed consolidated balance sheets. Long-term contract liabilities at March 31, 2023 and December 31, 2022 were $ 2.4 million and $ 2.0 million, respectively, and consist primarily of deferred enrollment fees. 6. Debt Debt consisted of the following: March 31, 2023 December 31, 2022 Term Loan Facility, maturing December 2024 $ 273,625 $ 273,625 Revolving Credit Facility, maturing December 2026 85,000 20,000 Secured Notes, maturing January 2026 925,000 925,000 Unsecured Notes, maturing April 2026 475,000 475,000 Construction Loan, maturing February 2026 28,000 21,330 Mortgage Notes, various maturities 116,226 119,928 Other debt 4,122 4,122 Fair value adjustment 1,005 1,166 Total debt 1,907,978 1,840,171 Less unamortized debt discounts and issuance costs ( 17,480 ) ( 19,249 ) Total debt less unamortized debt discount and issuance costs 1,890,498 1,820,922 Less current maturities ( 65,585 ) ( 15,224 ) Long-term debt, less current maturities $ 1,824,913 $ 1,805,698 Senior Secured Credit Facility In June 2015, Life Time, Inc. and certain of our other wholly-owned subsidiaries entered into a senior secured credit facility with a group of lenders led by Deutsche Bank AG as the administrative agent. On January 22, 2021, Life Time, Inc. and certain of our other wholly-owned subsidiaries entered into an eighth amendment to the credit agreement governing our senior secured credit agreement (the “Credit Agreement”). Pursuant to such eighth amendment to the Credit Agreement, Life Time, Inc. and such other subsidiaries, among other things, (i) entered into a new term loan facility (the “Term Loan Facility”) and incurred new term loans in an aggregate principal amount of $ 850.0 million and (ii) extended the maturity on the vast majority of commitments under the revolving portion of our senior secured credit facility (the “Revolving Credit Facility” and together with the Term Loan Facility, the “Credit Facilities”). On December 2, 2021, Life Time, Inc. and certain of our other wholly-owned subsidiaries entered into a ninth amendment to the Credit Agreement. Pursuant to such 12 Table of Contents LIFE TIME GROUP HOLDINGS, INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Table amounts in thousands except per share data) ninth amendment, Life Time, Inc. and such other subsidiaries increased the commitments under the Revolving Credit Facility to $ 475.0 million and extended the maturity of the Revolving Credit Facility to December 2, 2026, except that the maturity will be: (a) September 22, 2024 if we have not refinanced or amended the Term Loan Facility in a manner set forth in such amendment by such date; (b) October 16, 2025 if we have at least $ 100.0 million remaining outstanding on the senior unsecured notes (the “Unsecured Notes”) that mature in April 2026 on such date; and (c) January 14, 2026 if we have at least $ 100.0 million remaining outstanding on the senior secured notes (the “Secured Notes”) that mature in January 2026 on such date. Upon the exercise of an accordion feature and subject to certain conditions, borrowings under the Credit Facilities may be increased subject, in certain cases, to meeting a first lien net leverage ratio. The Credit Facilities are secured by a first priority lien (on a pari-passu basis with the Secured Notes described below) on substantially all of our assets. Term Loan Facility The $ 850.0 million Term Loan Facility matures in December 2024. On October 13, 2021, we used a portion of net proceeds we received in connection with the IPO to pay down $ 575.7 million of our Term Loan Facility. As a result of the pay down, we are no longer required to make quarterly principal payments on the Term Loan Facility prior to its maturity. At March 31, 2023, the Term Loan Facility loan balance was $ 273.6 million, with interest due at intervals ranging from 30 to 180 days at interest rates ranging from LIBOR plus 4.75 % or base rate plus 3.75 %, in either case subject to a 1.00 % rate floor. Revolving Credit Facility Our Revolving Credit Facility provides for a $ 475.0 million revolver and matures in December 2026, or earlier as detailed above under “—Senior Secured Credit Facility.” At March 31, 2023, there were $ 85.0 million of outstanding borrowings under the Revolving Credit Facility and there were $ 30.5 million of outstanding letters of credit, resulting in total revolver availability of $ 359.5 million, which was available at intervals ranging from 30 to 180 days at interest rates ranging from LIBOR plus 4.00 % or base rate plus 3.00 %. The weighted average interest rate and debt outstanding under the Revolving Credit Facility for the three months ended March 31, 2023 was 8.69 % and $ 76.3 million, respectively. The highest month-end balance during that same period was $ 115.0 million. Secured Notes On January 22, 2021, Life Time, Inc. issued the Secured Notes in an aggregate principal amount of $ 925.0 million. These notes mature in January 2026 and interest only payments are due semi-annually in arrears at 5.75 %. Life Time, Inc. has the option, which began on January 15, 2023, to call the Secured Notes, in whole or in part, on one or more occasions, subject to the payment of a redemption price that includes a call premium that varies depending on the year of redemption. In addition, at any time prior to January 15, 2023, Life Time, Inc. could have redeemed up to 40.00 % of the aggregate principal amount of the Secured Notes outstanding with the net proceeds of certain equity offerings by us at a redemption price equal to 105.75 % of the principal amount of the Secured Notes, plus accrued and unpaid interest, if any, to, but not including, the redemption date. Life Time, Inc. did not exercise this redemption right. The Secured Notes and the r elated guarantees are our senior secured obligations and are secured on a first-priority basis by security interests on substantially all of our assets. Unsecured Notes On February 5, 2021, Life Time, Inc. issued the Unsecured Notes in the original principal amount of $ 475.0 million. The Unsecured Notes mature in April 2026 and interest only payments are due semi-annually in arrears at 8.00 %. Life Time, Inc. has the option, which began on February 1, 2023, to redeem the Unsecured Notes, in whole or in part, on one or more occasions, subject to the payment of a redemption price that includes a call premium that varies depending on the year of redemption . In addition, at any time prior to February 1, 2023, Life Time, Inc. could have redeemed up to 40.00 % of the aggregate principal amount of the Unsecured Notes outstanding with the net proceeds of certain equity offerings by us at a redemption price equal to 108.00 % of the principal amount of the Unsecured Notes, plus accrued and unpaid interest, if any, to, but not including, the redemption date. Life Time, Inc. did not exercise this redemption right. The Unsecured Notes and the related guarantees are our general senior unsecured obligations and will rank equally in right of payment with all of our existing and future senior indebtedness without giving effect to collateral arrangements. 13 Table of Contents LIFE TIME GROUP HOLDINGS, INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Table amounts in thousands except per share data) Construction Loan On January 22, 2021, we closed on a construction loan (the “Construction Loan”) providing up to $ 28.0 million to partially finance the construction of a Life Time Living location. The Construction Loan has a maturity date of February 15, 2026 and is collateralized by the property. Borrowings under the Construction Loan bear interest at a variable annual rate of no less than 4.80 %. Interest only payments are due monthly beginning April 15, 2022 and continuing through February 15, 2024. Beginning March 15, 2024, based on the principal balance due as of February 15, 2024, monthly principal and interest installment payments will be due in an amount sufficient to fully amortize the principal balance at maturity. At March 31, 2023 and December 31, 2022, there were $ 28.0 million and $ 21.3 million of outstanding borrowings under the Construction Loan, respectively. Mortgage Notes Certain of our subsidiaries have entered into mortgage facilities with various financial institutions (collectively, the “Mortgage Notes”), which are collateralized by certain of our related real estate and buildings, including one of our corporate headquarters properties. The Mortgage Notes have varying maturity dates from February 2024 through August 2027 and carried a weighted average interest rate of 5.13 % and 5.12 % at March 31, 2023 and December 31, 2022, respectively. Payments of principal and interest on each of the Mortgage Notes are payable monthly on the first business day of each month. The Mortgage Notes contain customary affirmative covenants, including but not limited to, payment of property taxes, granting of lender access to inspect the properties, maintenance of the properties, providing financial statements, providing estoppel certificates and lender consent to leases. The Mortgage Notes also contain various customary negative covenants, including, but not limited to, restrictions on transferring the property, change in control of the borrower and changing the borrower’s business or principal place of business. As of March 31, 2023, we were either in compliance in all material respects with the covenants associated with the Mortgage Notes or the covenants were not applicable. Debt Discounts and Issuance Costs Unamortized debt discounts and issuance costs associated with the Term Loan Facility, Secured Notes, Unsecured Notes and Construction Loan of $ 17.5 million and $ 19.2 million are included in Long-term debt, net of current portion on our condensed consolidated balance sheets at March 31, 2023 and December 31, 2022, respectively. Unamortized revolver-related debt issuance costs of $ 2.9 million and $ 3.1 million are included in Other assets on our condensed consolidated balance sheets at March 31, 2023 and December 31, 2022, respectively. Debt Covenants We are required to comply with certain affirmative and restrictive covenants under our Credit Facilities, Secured Notes and Unsecured Notes. We are also required to comply with a first lien net leverage ratio covenant under the Revolving Credit Facility, which requires us to maintain a first lien net leverage ratio, if 30.00 % or more of the Revolving Credit Facility commitments are outstanding shortly after the end of any fiscal quarter (excluding all cash collateralized undrawn letters of credit and other undrawn letters of credit up to $ 20.0 million). As of March 31, 2023, we were either in compliance in all material respects with the covenants under the Credit Facilities, or the covenants were not applicable. Future Maturities of Long-Term Debt Aggregate annual future maturities of long-term debt, excluding unamortized discounts, issuance costs and fair value adjustments, at March 31, 2023 were as follows: April 2023 through March 2024 $ 65,585 April 2024 through March 2025 285,869 April 2025 through March 2026 965,925 April 2026 through March 2027 570,747 April 2027 through March 2028 15,799 Thereafter 3,048 Total future maturities of long-term debt $ 1,906,973 14 Table of Contents LIFE TIME GROUP HOLDINGS, INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Table amounts in thousands except per share data) 7. Leases Lease Cost Lease cost included in our condensed consolidated statements of operations for the three months ended March 31, 2023 and 2022 consisted of the following: Three Months Ended March 31, Classification in Condensed Consolidated Statements of Operations 2023 2022 Lease cost: Operating lease cost $ 63,785 $ 54,753 Rent Short-term lease cost 386 356 Rent Variable lease cost 2,366 855 Rent Finance lease cost: Amortization of right-of-use assets 251 355 Depreciation and amortization Interest on lease liabilities 19 32 Interest expense, net of interest income Interest on financing obligations 579 — Interest expense, net of interest income Total lease cost $ 67,386 $ 56,351 Operating and Finance Lease Right-of-Use Assets and Lease-Related Liabilities Operating and finance lease right-of-use assets and lease-related liabilities were as follows: March 31, 2023 December 31, 2022 Classification on Condensed Consolidated Balance Sheets Lease right-of-use assets: Operating leases $ 2,135,203 $ 2,116,761 Operating lease right-of-use assets Finance leases (1) 996 1,083 Other assets Total lease right-of-use assets $ 2,136,199 $ 2,117,844 Lease liabilities: Current Operating leases $ 52,786 $ 51,892 Current maturities of operating lease liabilities Finance leases 682 796 Accrued expenses and other current liabilities Non-Current Operating leases 2,189,470 2,162,424 Operating lease liabilities, net of current portion Finance leases 336 312 Other liabilities Financing obligations 21,580 21,557 Other liabilities Total lease-related liabilities $ 2,264,854 $ 2,236,981 (1) Finance lease right-of-use assets were reported net of accumulated amortization of $ 2.0 million and $ 1.8 million at March 31, 2023 and December 31, 2022, respectively. 15 Table of Contents LIFE TIME GROUP HOLDINGS, INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Table amounts in thousands except per share data) Remaining Lease Terms and Discount Rates The weighted-average remaining lease terms and discount rates associated with our lease-related liabilities at March 31, 2023 were as follows: March 31, 2023 Weighted-average remaining lease term (1) Operating leases 17.6 years Finance leases 2.4 years Financing obligations 24.4 years Weighted-average discount rate Operating leases 8.32 % Finance leases 6.46 % Financing obligations 10.84 % (1) The weighted-average remaining lease term associated with our operating and finance lease liabilities does not include all of the optional renewal periods available to us under our current lease arrangements. Rather, the weighted-average remaining lease term only includes periods covered by an option to extend a lease if we are reasonably certain to exercise that option. Sale-Leaseback Transaction During the three months ended March 31, 2023, we entered into and consummated a sale-leaseback transaction with an unrelated third party. Under this transaction, we sold one property with a combined net book value of $ 26.0 million for $ 33.0 million, which was reduced by transaction costs of $ 0.3 million, for net cash proceeds of $ 32.7 million. The estimated fair value of the property sold was $ 33.0 million, which resulted in the recognition of a gain of $ 6.7 million on this transaction. This gain is inclu ded in Other operating expense (income) in o ur condensed consolidated statement of operations. Supplemental Cash Flow Information Supplemental cash flow information associated with our operating and finance leases is as follows: Three Months Ended March 31, 2023 2022 Cash paid for amounts included in the measurement of lease liabilities: Operating cash flows from operating leases $ 53,662 $ 48,022 Operating cash flows from finance leases 19 32 Operating cash flows from financing obligations 556 — Financing cash flows from finance leases 244 358 Non-cash information: Right-of-use assets obtained in exchange for initial lease liabilities: Operating leases 17,615 67,940 Finance leases 163 — Right-of-use asset adjustments recognized as a result of the remeasurement of existing lease liabilities: Operating leases 18,869 2,882 Non-cash increase in operating lease right-of-use assets associated with below-market sale-leaseback transactions — 15,600 Non-cash increase in financing obligations as a result of interest accretion 23 — 16 Table of Contents LIFE TIME GROUP HOLDINGS, INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Table amounts in thousands except per share data) Maturities of Operating and Finance Lease Liabilities The maturities associated with our operating and finance lease liabilities at March 31, 2023 are as follows: Operating Leases Finance Leases Financing Obligations Total April 2023 through March 2024 $ 229,155 $ 756 $ 2,243 $ 232,154 April 2024 through March 2025 237,017 245 2,277 239,539 April 2025 through March 2026 240,974 109 2,311 243,394 April 2026 through March 2027 242,177 2 2,346 244,525 April 2027 through March 2028 244,282 — 2,381 246,663 Thereafter 3,240,075 — 54,266 3,294,341 Total lease payments 4,433,680 1,112 65,824 4,500,616 Less: Imputed interest 2,191,424 94 44,244 2,235,762 Present value of lease liabilities $ 2,242,256 $ 1,018 $ 21,580 $ 2,264,854 Leases Not Yet Commenced As of March 31, 2023, we had several leases associated with future centers and Life Time Work locations that were executed, but we did not yet have control of the underlying assets. Accordingly, a s of March 31, 2023, we did not recognize any right-of-use assets or lease liabilities associated with these arrangements on our condensed consolidated balance sheet. These arrangements contain undiscounted lease payments that are payable during the initial lease terms, which range from 15 to 25 years, totaling approximately $ 380.0 million. 8. Stockholders’ Equity 2021 Equity Incentive Plan In connection with the IPO and effective October 6, 2021, we adopted the 2021 Incentive Award Plan (the “2021 Equity Plan”), under which we may grant cash and equity-based incentive awards to our employees, consultants and directors. The maximum number of shares of our common stock available for issuance under the 2021 Equity Plan is equal to the sum of (i) approximately 14.5 million shares of our common stock, (ii) an annual increase on the first day of each year beginning in 2022 and ending in and including 2031, equal to the lesser of (A) 4 % of the outstanding shares of our common stock on the last day of the immediately preceding fiscal year and (B) such lesser amount as determined by our board of directors, and (iii) the approximately 1.0 million shares of our common stock that were available for issuance under the LTF Holdings, Inc. 2015 Equity Incentive Plan (the “2015 Equity Plan”) as of October 6, 2021, provided, however, no more than 14.5 million shares may be issued upon the exercise of incentive stock options. Effective January 1, 2022, the number of shares of our common stock available for issuance under the 2021 Equity Plan increased by approximately 7.7 million shares pursuant to the evergreen feature described in part (ii) of the immediately preceding sentence. Our board of directors determined that no additional shares would become available under such evergreen feature effective as of January 1, 2023. Additionally, the number of shares of our common stock available for issuance under the 2021 Equity Plan may increase with respect to awards under the 2015 Equity Plan which are forfeited or lapse unexercised and which following the effective date of the 2021 Equity Plan are not issued under such prior plan. The share reserve formula under the 2021 Equity Plan is intended to provide us with the continuing ability to grant equity awards to eligible employees, directors and consultants for the 10 -year term of the 2021 Equity Plan. As of March 31, 2023, approximately 18.4 million shares were available for future awards to employees and other eligible participants under the 2021 Equity Plan. 2021 Employee Stock Purchase Plan In connection with the IPO and effective October 6, 2021, we adopted the 2021 Employee Stock Purchase Plan (the “ESPP”). The ESPP is designed to allow our eligible employees to purchase shares of our common stock, at periodic intervals, with their accumulated payroll deductions. The ESPP consists of two components: an Internal Revenue Service (“IRS”) Code section 423 (“Section 423”) component, which is intended to qualify under Section 423 of the IRS Code and a non-Section 423 component, which need not qualify under Section 423 of the IRS Code. The aggregate number of shares of our common stock that has initially been reserved for issuance under the ESPP is equal to (i) approximately 2.9 million shares of our common stock, and (ii) an annual increase on the first day of each year beginning in 2022 and ending in and 17 Table of Contents LIFE TIME GROUP HOLDINGS, INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Table amounts in thousands except per share data) including 2031, equal to the lesser of (A) 1 % of the aggregate number of shares of our common stock outstanding on the final day of the immediately preceding calendar year and (B) such smaller number of our shares of common stock as determined by our board of directors; provided that in no event will more than 29.0 million shares of our common stock be available for issuance under the Section 423 component of the ESPP. Our board of directors determined that no additional shares would become available under the ESPP as of January 1, 2022 or January 1, 2023 pursuant to the evergreen feature described in part (ii) of the immediately preceding sentence. Our board of directors or the compensation committee will have authority to interpret the terms of the ESPP and determine eligibility of participants. We launched the first offering period under the ESPP on December 1, 2022. The ESPP permits participants to purchase common stock through payroll deductions of up to 15 % of their eligible compensation, which includes a participant’s gross base compensation for services to us. On the first trading day of each offering period, each participant is automatically granted an option to purchase shares of our common stock. The purchase option expires at the end of the applicable offering period and will be exercised on each purchase date during such offering period to the extent of the payroll deductions accumulated during the offering period. We have consecutive offering periods of approximately six months in length commencing on each June 1 and December 1 during the term of the ESPP. The purchase price for a share of our common stock is 90 % of the fair market value of a share on the enrollment date for such offering period or on the purchase date, whichever is lower, and subject to adjustment by our board of directors or compensation committee. Participants may voluntarily end their participation in the ESPP prior to the end of the applicable offering period and are paid their accrued payroll deductions that have not yet been used to purchase shares of common stock. Upon exercise, the participant purchases the number of whole shares that his or her accumulated payroll deductions will buy at the purchase option price, subject to the certain participation limitations. Participation ends automatically upon a participant’s termination of employment. No shares were issued under the ESPP as of March 31, 2023 . We recognized $ 0.2 million of share-based compensation expense for the discount received by participants for the three months ended March 31, 2023 , all of which is included in General, administrative and marketing in our condensed consolidated statement of operations. As of March 31, 2023 , unrecognized share-based compensation expense related to the first offering period under the ESPP was approximately $ 0.1 million, which is expected to be recognized over a weighted average remaining period of 0.2 years. Stock Options During the three months ended March 31, 2023, the Company granted approximately 0.7 million stock option awards under the 2021 Equity Plan. These options have a 10-year contractual term from the date of grant and vest in four ratable annual installments on each of the first four anniversaries of the grant date, subject to continuous employment or service from the grant date through the applicable vesting date. The exercise price associated with each of these awards is not less than the fair market value per share of our common stock at the time of grant. The fair value of the options granted during the three months ended March 31, 2023 was calculated using the Black-Scholes option pricing model. Approximately 0.3 million stock options were exercised during the three months ended March 31, 2023. As of March 31, 2023 , options to purchase approximately 25.2 million shares of our common stock were outstanding, of which approximately 21.6 million were exercisable. Share-based compensation expense associated with stock options for the three months ended March 31, 2023 was $ 2.2 million, of which $ 0.2 million and $ 2.0 million is included in Center operations and General, administrative and marketing, respectively, in our condensed consolidated statements of operations. Share-based compensation expense associated with stock options for the three months ended March 31, 2022 was $ 11.4 million, of which $ 1.0 million, $ 10.1 million and $ 0.3 million is included in Center operations, General, administrative and marketing and Other operating expense (income), respectively, in our condensed consolidated statements of operations. As of March 31, 2023 , unrecognized share-based compensation expense related to stock options was approximately $ 20.4 million, which is expected to be recognized over a weighted average remaining period of 2.8 years. Restricted Stock Units During the three months ended March 31, 2023, the Company granted approximately 0.7 million restricted stock unit awards to our executives under the 2021 Equity Plan, of which approximately 0.3 million were performance-based and approximately 0.4 million were subject to time-based vesting over four years with a performance qualifier, in each case subject to continuous employment or service from the grant date through the applicable vesting date. At March 31, 2023, approximately 2.5 million restricted stock units were outstanding. In the event actual performance exceeds the target amount for the performance-based restricted stock units, the above-target amount is to be paid through the issuance of fully-vested shares of the Company’s common stock at such time of determination in 2024. Accordingly, we account for the projected above-target amount as liability-classified share-based 18 Table of Contents LIFE TIME GROUP HOLDINGS, INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Table amounts in thousands except per share data) payment awards. For information regarding our liability-classified share-based payment awards, see “ —Liability-Classified Share-Based Payment Awards” below. Share-based compensation expense associated with restricted stock units for the three months ended March 31, 2023 was $ 3.0 million, of which $ 0.5 million, $ 2.3 million and $ 0.2 million is included in Center operations, General, administrative and marketing and Other operating expense (income), respectively, in our condensed consolidated statements of operations. Share-based compensation expense associated with restricted stock units for the three months ended March 31, 2022 was $ 5.2 million, of which $ 0.2 million and $ 5.0 million is included in Center operations and General, administrative and marketing, respectively, in our condensed consolidated statements of operations. As of March 31, 2023 , unrecognized share-based compensation expense related to restricted stock units was approximately $ 36.3 million, which is expected to be recognized over a weighted average remaining period of 2.4 years. Liability-Classified Share-Based Payment Awards Because the projected above-target amount for the performance-based restricted stock units (which is described in “ —Restricted Stock Units” above) represents a fixed dollar amount that, if payable, would be settled in a variable number of shares of the Company’s common stock, we account for such share-based payment awards as a liability-classified award. Based on our current assessment, we have deemed it probable that the target performance amount will be exceeded. Accordingly, we recognized $ 0.2 million of share-based compensation expense associated with these liability-classified share-based payment awards during the three months ended March 31, 2023 , all of which is included in General, administrative and marketing in our condensed consolidated statements of operations. The offset to this share-based compensation expense was recognized as an increase in Accrued expenses and other current liabilities on our condensed consolidated balance sheet. Restricted Stock Share-based compensation expense associated with restricted common stock for the three months ended March 31, 2022 was $ 4.8 million, all of which is included in General, administrative and marketing in our condensed consolidated statements of operations. These restricted shares were fully vested as of April 4, 2022 , and there is no unrecognized share-based compensation expense related to these shares. 9. Income (Loss) Per Share For the three months ended March 31, 2023 , o ur potentially dilutive securities include stock options, restricted stock units and shares to be issued under our ESPP. For the three months ended March 31, 2022 , o ur potentially diluti ve securities include stock options, restricted stock units and restricted stock. Due to the net loss that we recognized during th e three months ended March 31, 2022, the potentially dilutive shares of common stock associated with these equity-based securities were determined to be antidilutive and, therefore, are excluded from the computation of diluted loss per share for the three months ended March 31, 2022. The following table sets forth the calculation of basic and diluted income (loss) per share for the three months ended March 31, 2023 and 2022: Three Months Ended March 31, 2023 2022 Net income (loss) $ 27,460 $ ( 37,966 ) Weighted-average common shares outstanding – basic 194,572 192,465 Dilutive effect of stock-based compensation awards 8,283 — Weighted-average common shares outstanding – diluted 202,855 192,465 Income (loss) per common share – basic $ 0.14 $ ( 0.20 ) Income (loss) per common share – diluted $ 0.14 $ ( 0.20 ) 19 Table of Contents LIFE TIME GROUP HOLDINGS, INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Table amounts in thousands except per share data) The following is a summary of potential shares of common stock that were antidilutive and excluded from the weighted average share computations for the three months ended March 31, 2023 and 2022: Three Months Ended March 31, 2023 2022 Stock options 6,044 25,465 Restricted stock units 693 1,925 Restricted stock — 595 Potential common shares excluded from the weighted average share calculations 6,737 27,985 10. Commitments and Contingencies Life Time, Inc. et al. v. Zurich American Insurance Company On August 19, 2020, Life Time, Inc., several of its subsidiaries, and a joint venture entity, Bloomingdale Life Time Fitness LLC (collectively, the “Life Time Parties”) filed a complaint against Zurich American Insurance Company (“Zurich”) in the Fourth Judicial District of the State of Minnesota, County of Hennepin (Case No. 27-CV-20-10599) (the “Action”) seeking declaratory relief and damages with respect to Zurich’s failure under a property/business interruption insurance policy to provide certain coverage to the Life Time Parties related to the closure or suspension by governmental authorities of their business activities due to the spread or threat of the spread of COVID-19. On March 15, 2021, certain of the Life Time Parties filed a First Amended Complaint in the Action adding claims against Zurich under a Builders’ Risk policy related to the suspension of multiple construction project s. The parties are currently in discovery. The Action is subject to many uncertainties, and the outcome of the matter is not predictable with any assurance. Other We are also engaged in other proceedings incidental to the normal course of business. Due to their nature, such legal proceedings involve inherent uncertainties, including but not limited to court rulings, negotiations between affected parties and governmental intervention. We establish reserves for matters that are probable and estimable in amounts we believe are adequate to cover reasonable adverse judgments. Based upon the information available to us and discussions with legal counsel, it is our opinion that the outcome of the various legal actions and claims that are incidental to our business will not have a material adverse impact on our consolidated financial position, results of operations or cash flows. Such matters are subject to many uncertainties, and the outcomes of individual matters are not predictable with assurance. 11. Subsequent Events On March 16, 2023, the Company entered into an agreement for the sale-leaseback of one property for gross proceeds of $ 45.5 million. The closing on this property was completed on April 20, 2023. On March 29, 2023, the Company entered into an agreement for the sale-leaseback of one property for gross proceeds of $ 45.5 million. The closing on this property is expected to be completed on or before September 30, 2023. In preparing the accompanying condensed consolidated financial statements, we have evaluated the period from March 31, 2023 through the date the condensed consolidated financial statements were issued for material subsequent events. There have been no other such events or transactions during this time which would have a material effect on the condensed consolidated financial statements and therefore would require recognition or disclosure . 20 Table of Contents