What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2023-07-31 compared with 2023-05-01 · 159 added, 101 removed, 237 unchanged (52% of the section changed)

24 unchanged sentences

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.

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 1.5 million individua l members, who together compris e more than 832,000 memberships, as of June 30, 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.

6 unchanged sentences

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.

Our average revenue per center membership and the visits to our clubs for the six months ended June 30, 2023 were $1,369 and 52 million, respectively, as compared to $1,219 and 42 million, respectively, for the six months ended June 30, 2022.

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, and now again as we have emerged from the pandemic.

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

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.

Our total Center revenue has grown significantly since the adverse impacts of the COVID-19 pandemic.

Our total Center revenue increased to $1,039.9 million for the six months ended June 30, 2023 as compared to $827.5 million for the six months ended June 30, 2022.

We believe it will 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 June 30, 2023, we h ad 21 new centers open for less th an three years and 10 new centers under construction, with $327 million of growth capital expenditures already invested into these new centers that have yet to open.

We believe the combined dynamic of our ramping new centers, 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.

We also believe we 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.

We are also expanding the number of our centers using an asset-light model that targets higher income members, higher average annual revenue per center membership and higher returns on invested capital.

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.

As a result, new members are 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 our membership dues revenue in the six months ended June 30, 2023 exceeded our pre-pandemic membership dues revenue for centers opened at the end of 2019.

We believe that we have built a healthier and stronger business model and that we can continue to refine our pricing and transition existing memberships to higher membership prices or tiers, as we deliver exceptional experiences and optimize the 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 have significantly improved the efficiency of our club operations and corporate office, and we are benefiting from the greater flow through of our increased revenue.

We experienced significant margin expansion in the six months ended June 30, 2023, and we believe we have opportunities to continue to expand margins.

We have also 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.

Our Life Time Digital offering delivers live streaming fitness classes, remote goal-based personal training, nutrition and weight loss support and curated award-winning health, fitness and wellness content.

Additionally, our enhanced digital platform is delivering a true omni-channel experience for our members, including live streaming fitness classes, remote goal-based personal training, nutrition and weight loss support and curated award-winning health, fitness and wellness content.

In addition, our members are able to purchase a wide variety of equipment, wearables, apparel, beauty products and nutritional supplements via our digital health store.

We are continuing to invest in our digital capabilities in order to strengthen our relationships with our members and more comprehensively address their health, fitness and wellness needs so that they can remain engaged and connected with Life Time at any time or place.

We are continuing to invest in our digital capabilities, including our integrated digital app, in order to strengthen our relationships with our members and more comprehensively address their health, fitness and wellness needs so that they can remain engaged and connected with Life Time at any time or place.

We 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 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.

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

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

As of June 30, 2023, we had 12 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 were not previously available to us.

As we expand our footprint with new centers and nearby work and living spaces, as well as strengthen our digital capabilities, we expect to continue to grow our omni-channel platform to support the “Healthy Way of Life” journey of our members.

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 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.

We continue to monitor the macroeconomic environment and its impact on our business, including with respect to inflation, interest rates, labor and supply chain issues, as well as a potential economic recession .

More than two years of elevated inflation has impacted our expenses and capital expenditures in several areas, including wages, construction costs and other operating expenses, and thus pressured our margin performance.

Despite this headwind that has shown signs of easing, we have experienced growth in our revenue and margins as discussed above.

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

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

We will continue to monitor the macroeconomic environment, but we believe that our business is resilient and has performed well historically during different economic cycles including during a recession.

Non-GAAP Financial Measures

26 unchanged sentences

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 months ended March 31, 2023 and 2022.

Set forth below are certain GAAP and non-GAAP measurements and key performance indicators for the three and six months ended June 30, 2023 and 2022.

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

Three Months Ended

Three Months Ended Six Months Ended

June 30, June 30,

2023 2022 2023 2022

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

10 unchanged sentences

Average Center revenue per center membership (1)

$ 701 $ 639 $ 1,369 $ 1,219

Comparable center revenue (2)

15.5% 36.2% 19.7% 42.4%

Net new center openings (3)

Total centers (end of period) (3)

164 153 164 153

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

24 unchanged sentences

Total centers (end of period) is the number of centers operational as of the last day of the period.

During the second quarter of 2023, we opened one center and closed one smaller-format leased center.

(4) Total center square footage (end of period) reflects the aggregate fitness square footage, which we use as a metric for evaluating the efficiencies of a center as of the end of the period.

3 unchanged sentences

(6) We present Adjusted EBITDA as a supplemental measure of our performance.

We define Adjusted EBITDA as net income (loss) before interest expense, net, provision for (benefit from) income taxes and depreciation and amortization, excluding the impact of share-based compensation expense, (gain) loss on sale-leaseback transactions, capital transaction costs, legal settlements, asset impairment, severance and other items that are not indicative of our ongoing operations, including incremental costs related to COVID-19.

We define Adjusted EBITDA as net income (loss) before interest expense, net, provision for (benefit from) income taxes and depreciation and amortization, excluding the impact of share-based compensation expense, loss (gain) on sale-leaseback transactions, capital transaction costs, legal settlements, asset impairment, severance and other items that are not indicative of our ongoing operations, including incremental costs related to COVID-19.

Adjusted EBITDA margin is calculated as Adjusted EBITDA divided by total revenue.

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

Three Months Ended

Three Months Ended Six Months Ended

June 30, June 30,

($ in thousands) 2023 2022 2023 2022

4 unchanged sentences

Share-based compensation expense (a)

COVID-19 related expenses (b)

Gain on sale-leaseback transactions (c)

16,549 5,973 22,171 27,411

COVID-19 related (credits) expenses (b)

(76) 371 246 583

Loss (gain) on sale-leaseback transactions (c)

7,491 (21,212) 759 (49,584)

Capital transaction costs (d)

1 unchanged sentence

Adjusted EBITDA $ 136,039 $ 63,096 $ 256,141 $ 103,722

(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.

(a) Shar e-based compensation expense recognized during the three and six months ended June 30, 2023 was associated with stock options, restricted stock units, our employee stock purchase plan (“ESPP”) that launched on December 1, 2022, and liability classified awards related to our short-term incentive plan in 2023.

Shar e-based compensation expense recognized during the three and six months ended June 30, 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.

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

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

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

For the three months ended June 30, 2023, COVID-19 related (credits) primarily consisted of a subsidy for our Canadian operations, partially offset by legal-related costs in pursuit of our claim against Zurich.

For the six months ended June 30, 2023, and the three and six months ended June 30, 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.

(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.

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

For details on the loss on sale-leaseback transactions that we recognized during the six months ended June 30, 2023, see “Sale-Leaseback Transactions” within Note 7, Leases, to our condensed consolidated financial statements in this report.

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

(e) Includes benefits and 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.

5 unchanged sentences

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

Three Months Ended

Three Months Ended Six Months Ended

June 30, June 30,

($ in thousands) 2023 2022 2023 2022

9 unchanged sentences

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.

The performance of our centers has improved significantly as our centers have ramped back from the adverse impacts of COVID-19, with 102 centers across 24 states that were open prior to 2020 having recovered to or exceeded 2019 membership dues levels as of June 30, 2023.

The timing and magnitude of this recovery has been dependent on various factors, including how early we were able to re-open our centers, 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, 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.

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

1 unchanged sentence

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.

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

Investment in Business

1 unchanged sentence

Elevating our member experiences requires investment in our team members, programs, products, services and centers.

These investments may impact our short-term results of operations and cash flows as our investments in our business may be made more quickly than we achieve additional revenue per center membership.

While we remain focused on providing exceptional experiences to our members and growing our revenue, we are also focused on center efficiencies and expense control given our recovery of membership dues and a significant portion of our center memberships.

These investments may impact our short-term results of

operations and cash flows as our investments in our business may be made more quickly than we achieve additional revenue per center membership.

While we remain focused on providing exceptional experiences to our members and growing our revenue, we are also focused on center and overhead support efficiencies given our recovery of membership dues and a significant portion of our center memberships.

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

Our asset-light, flexible real estate strategy has allowed us to expand our business by leveraging operating leases and sale-leaseback transactions.

Approximately 66% of our centers are now leased, including approximately 93% of our new centers opened within the last five years, versus a predominantly owned real estate strategy prior to 2015.

Approximately 66% of our centers are now leased, including approximately 88% of our new centers opened since 2015, versus a predominantly owned real estate strategy prior to 2015.

Rent expense, which includes both cash and non-cash rent expense, will continue to increase as we lease more centers and will therefore impact the comparability of our results of operations.

1 unchanged sentence

Macroeconomic Trends

We have been actively monitoring the macroeconomic environment and its impact on our business, including with respect to inflation, interest rates, labor and supply chain issues, as well as a potential economic recession .

See “—Overview—Business” for additional information.

We have been monitoring the macroeconomic environment and its impact on our business, including with respect to inflation, interest rates, labor and supply chain issues, as well as a potential economic recession .

See “—Overview—Macroeconomy” for additional information.

Share-Based Compensation

During the 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.

During the six months ended June 30, 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 in 2023, totaling approximately $22.2 million .

During the six months ended June 30, 2022, we recognized share-based compensation expense associated with stock options, restricted stock and restricted stock units totaling approximately $27.4 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.

9 unchanged sentences

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 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.

1 unchanged sentence

Results of Operations

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

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 March 31, 2023 and 2022:

Three Months Ended March 31,

Three Months Ended June 30, 2023 Compared to Three Months Ended June 30, 2022

Three Months Ended June 30,

As a Percentage of Total Revenue

10 unchanged sentences

Total operating expenses 509,323 440,457 90.7 % 95.5 %

Income (loss) from operations 67,384 (10,916) 13.2 % (2.8) %

Income from operations 52,408 20,810 9.3 % 4.5 %

Other (expense) income:

6 unchanged sentences

Total revenue.

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.

The $100.5 million increase in Total revenue for the three months ended June 30, 2023 as compared to the three months ended June 30, 2022 was due to continued strong growth in membership dues and in-center revenue, including continuing to realize the benefits of pricing actions already completed, membership growth in our new and ramping centers and higher member utilization of our in-center offerings.

With respect to the $96.2 million increase in Center revenue for the three months ended June 30, 2023 as compared to the three months ended June 30, 2022:

• 80.9% was from membership dues and enrollment fees, which increased $77.9 million for the three months ended June 30, 2023 as compared to the three months ended June 30, 2022.

This increase reflects the improvement in our Center memberships, which increased to 790,238 as of June 30, 2023 from 724,778 as of June 30, 2022, as well as higher average monthly dues per Center membership during the three months ended June 30, 2023 as compared to the three months ended June 30, 2022 ;

• 19.1% was from in-center revenue, which increased $18.4 million for the three months ended June 30, 2023 as compared to the three months ended June 30, 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 June 30, 2023 as compared to the three months ended June 30, 2022 .

T he $4.2 million increase in Other revenue for the three months ended June 30, 2023 as compared to the three months ended June 30, 2022 was primarily driven by our athletic events business, as well as the improved performance of our Life Time Work and Life Time Living locations.

Center operations expenses .

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.

Th e $23.0 million increase in Center operations expenses for the three months ended June 30, 2023 as compared to the three months ended June 30, 2022 was primarily due to operating costs related to our new and ramping centers.

Rent expense .

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 .

T he $7.4 million increase in Rent expense for the three months ended June 30, 2023 as compared to the three months ended June 30, 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 three properties since May 31, 2022 for future centers where we started incurring GAAP rent expense, most of which is non-cash .

General, administrative and marketing expenses.

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.

General, administrative and marketing expenses increased $0.9 million for the three months ended June 30, 2023 as compared to the three months ended June 30, 2022, primarily due to higher share-based compensation expense, which was largely offset by reduced center support overhead, advertising and marketing, public company and cash incentive compensation expenses.

Depreciation and amortization .

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.

Depreciation and amortization increased $1.1 million for the three months ended June 30, 2023 as compared to the three months ended June 30, 2022, primarily due to new and ramping centers.

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.

Other operating expense for the three months ended June 30, 2023 was $28.2 million as compared to Other operating income of $8.2 million for the three months ended June 30, 2022.

The $36.4 million change was primarily attributable to the recognition of a $7.5 million loss on a sale-leaseback transaction during the three months ended June 30, 2023 as compared to the recognition of a $21.3 million gain on sale-leaseback transactions during the three months ended June 30, 2022, as well as increased costs to support other revenue growth.

Interest expense, net of interest income .

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.

The $4.9 million increase in Interest expense, net of interest income for the three months ended June 30, 2023 as compared to the three months ended June 30, 2022 was driven by a higher average level of outstanding borrowings and higher interest rates during the three months ended June 30, 2023 as compared to the three months ended June 30, 2022.

Provision for (benefit from) income taxes .

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 provision for income taxes was $3.5 million for the three months ended June 30, 2023 as compared to a $4.0 million benefit from income taxes for the three months ended June 30, 2022.

The effective tax rate was 17.1% and 63.6% for those same periods, respectively.

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.

The increase in provision for income taxes for the three months ended June 30, 2023 as compared to the three months ended June 30, 2022 was primarily driven by the increase in earnings before income taxes and a change in the valuation allowance associated with certain of our deferred tax assets, partially offset by the tax deduction associated with share-based payment awards.

The effective tax rate applied to our pre-tax income for the three months ended June 30, 2023 is lower than our statutory rate of 21.0% and reflects a change in the valuation allowance associated with certain of our deferred tax assets and the tax deduction associated with share-based payment awards, partially offset by an increase due to the deductibility limitations associated with executive compensation and state income tax provisions.

Net income (loss) .

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.

As a result of the factors described above, net income was $17.0 million for the three months ended June 30, 2023 as compared to a net loss of $2.3 million for the three months ended June 30, 2022.

Six Months Ended June 30, 2023 Compared to Six Months Ended June 30, 2022

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 six months ended June 30, 2023 and 2022:

Six Months Ended June 30,

As a Percentage of Total Revenue

2023 2022 2023 2022

Center revenue $ 1,039,877 $ 827,503 97.0 % 97.0 %

Other revenue 32,705 26,018 3.0 % 3.0 %

Total revenue 1,072,582 853,521 100.0 % 100.0 %

Operating expenses:

Center operations 576,712 519,130 53.8 % 60.8 %

Rent 133,971 115,953 12.5 % 13.6 %

General, administrative and marketing 95,337 118,511 8.9 % 13.9 %

Depreciation and amortization 116,449 115,280 10.8 % 13.6 %

Other operating expense (income) 30,321 (25,247) 2.8 % (3.0) %

Total operating expenses 952,790 843,627 88.8 % 98.9 %

Income from operations 119,792 9,894 11.2 % 1.1 %

Other (expense) income:

Interest expense, net of interest income (63,174) (57,036) (5.9) % (6.7) %

Equity in earnings of affiliate 231 34 — % — %

Total other expense (62,943) (57,002) (5.9) % (6.7) %

Income (loss) before income taxes 56,849 (47,108) 5.3 % (5.6) %

Provision for (benefit from) income taxes 12,385 (6,857) 1.2 % (0.9) %

Net income (loss) $ 44,464 $ (40,251) 4.1 % (4.7) %

Total revenue.

The $219.1 million increase in Total revenue for the six months ended June 30, 2023 as compared to the six months ended June 30, 2022 was due to continued strong growth in membership dues and in-center revenue, including continuing to realize the benefits of pricing actions already completed, membership growth in our new and ramping centers, the continued re-ramp of our centers and higher member utilization of our in-center offerings.

With respect to the $212.4 million increase in Center revenue for the six months ended June 30, 2023 as compared to the six months ended June 30, 2022:

• 77.0% was from membership dues and enrollment fees, which increased $163.4 million for the six months ended June 30, 2023 as compared to the six months ended June 30, 2022.

This increase reflects the improvement in our Center memberships, which increased to 790,238 as of June 30, 2023 from 724,778 as of June 30, 2022, as well as higher average monthly dues per Center membership during the six months ended June 30, 2023 as compared to the six months ended June 30, 2022;

• 23.0% was from in-center revenue, which increased $48.9 million for the six months ended June 30, 2023 as compared to the six months ended June 30, 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 six months ended June 30, 2023 as compared to the six months ended June 30, 2022.

Th e $6.7 million increase in Other revenue for the six months ended June 30, 2023 as compared to the six months ended June 30, 2022 was primarily driven by our athletic events business, as well as the improved performance of our Life Time Work and Life Time Living locations.

Center operations expenses .

The $57.6 million increase in Center operations expenses for the six months ended June 30, 2023 as compared to the six months ended June 30, 2022 was primarily due to operating costs related to our new and ramping centers and utility cost inflation.

Rent expense .

The $18.0 million increase in Rent expense for the six months ended June 30, 2023 as compared to the six months ended June 30, 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 three properties since May 31, 2022 for future centers where we started incurring GAAP rent expense, most of which is non-cash .

General, administrative and marketing expenses.

General, administrative and marketing expenses decreased $23.2 million for the six months ended June 30, 2023 as compared to the six months ended June 30, 2022, due to lower share-based compensation expense, lower cash incentive compensation expense and reduced center support overhead, advertising and marketing and public company expenses.

Depreciation and amortization .

Depreciation and amortization increased $1.2 million for the six months ended June 30, 2023 as compared to the six months ended June 30, 2022, primarily due to new and ramping centers.

Other operating expense (income) .

Other operating expense for the six months ended June 30, 2023 was $30.3 million as compared to Other operating income of $25.2 million for the six months ended June 30, 2022.

The $55.6 million change was primarily attributable to the recognition of a $0.8 million loss on sale-leaseback transactions during the six months ended June 30, 2023 as compared to the recognition of a $49.6 million gain on sale-leaseback transactions during the six months ended June 30, 2022, as well as increased costs to support other revenue growth.

Interest expense, net of interest income .

T he $6.1 million increase in Interest expense, net of interest income for the six months ended June 30, 2023 as compared to the six months ended June 30, 2022 was driven by a higher average level of outstanding borrowings and higher interest rates during the six months ended June 30, 2023 as compared to the six months ended June 30, 2022 .

Provision for (benefit from) income taxes .

The provision for income taxes was $12.4 million for the six months ended June 30, 2023 as compared to a $6.9 million benefit from income taxes for the six months ended June 30, 2022 .

The effective tax rate was 21.8% and 14.6% for those same periods, respectively.

The increase in provision for income taxes for the six months ended June 30, 2023 as compared to the six months ended June 30, 2022 was primarily driven by the increase in earnings before income taxes, offset by a change in the valuation allowance associated with certain of our deferred tax assets and the tax deduction associated with share-based payment awards.

The effective tax rate applied to our pre-tax income for the six months ended June 30, 2023 is slightly higher than our statutory rate of 21% and reflects an increase due to deductibility limitations associated with executive compensation as well as state income tax provisions, largely offset by a change in the valuation allowance associated with certain of our deferred tax assets and the tax deduction associated with share-based payment awards.

Net income (loss) .

As a result of the factors described above, net income was $44.5 million for the six months ended June 30, 2023 as compared to a net loss of $40.3 million for the six months ended June 30, 2022 .

Liquidity and Capital Resources

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

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

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

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

We have taken significant actions to improve our liquidity.

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

associated with one property.

In May 2023, we refinanced our $273.6 million Term Loan Facility that had a maturity date in December 2024 to our $310.0 million Term Loan Facility that has a maturity date of January 15, 2026.

For more information regarding the debt refinancing transaction, see Note 6, Debt, to our condensed consolidated financial statements included in this report.

In addition, during the six months ended June 30, 2023, we completed sale-leaseback transactions associated with two properties.

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

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

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 .

For more information regarding the sale-leaseback transactions that were consummated during the six months ended June 30, 2023 , see Note 7, Leases, to our condensed consolidated financial statements included in this report .

Additionally, w e also benefit from our in-house architecture, design and construction expertise that allows us to create operationally efficient centers and control the cost and pace of capital expenditures, including in determining when to begin or delay construction on a new athletic country club.

We believe the steps we have taken to strengthen our balance sheet and to reduce our cash outflows leave us well-positioned to manage our business.

As the opportunity arises or as our business needs require, we may seek to raise capital through additional debt financing or through equity financing.

As the opportunity arises or as our business needs require, we may seek to raise capital through additional debt or equity financing.

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

To date, we have not experienced difficulty accessing the credit and capital markets;

however, volatility in these markets, particularly in light of the rising interest rate environment and any continued impacts of COVID-19, may increase costs associated with issuing debt instruments or affect our ability to access those markets, which could have an adverse impact on our ability to raise additional capital, to refinance existing debt and/or to react to changing economic and business conditions.

however, volatility in these markets, particularly in light of the rising interest rate environment and any continued impacts of COVID-19, may increase

costs associated with issuing debt instruments or affect our ability to access those markets, which could have an adverse impact on our ability to raise additional capital, to refinance existing debt and/or to react to changing economic and business conditions.

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

As of 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.

As of June 30, 2023, there were $20.0 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 $424.5 million.

Total cash and cash equivalents, exclusive of restricted cash, at June 30, 2023 was $15.8 million, resulting in total cash and availability under our Revolving Credit Facility of $440.3 million.

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

Three Months Ended

Six Months Ended

Net cash provided by operating activities $ 216,291 $ 80,325

4 unchanged sentences

Operating Activities

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.

The $136.0 million increase in cash provided by operating activities for the six months ended June 30, 2023 as compared to the six months ended June 30, 2022 was primarily the result of higher profitability.

Investing Activities

2 unchanged sentences

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 $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

The $181.8 million increase in net cash used in investing activities for the six months ended June 30, 2023 as compared to the six months ended June 30, 2022 was primarily driven by a higher level of new center construction activity and a lower amount of proceeds that we received from sale-leaseback transactions during the six months ended June 30, 2023 as compared to the six months ended June 30, 2022.

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

Three Months Ended Six Months Ended

June 30, June 30,

2023 2022 2023 2022

Growth capital expenditures, net of construction reimbursements (1)

3 unchanged sentences

Total capital expenditures $ 166,262 $ 141,886 $ 337,076 $ 252,640

(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 $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.

(1) Growth capital expenditures include new center land and construction and major remodels of existing centers.

The $84.4 million increase in total capital expenditures for the six months ended June 30, 2023 as compared to the six months ended June 30, 2022 was primarily driven by higher growth capital expenditures for new centers.

Financing Activities

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.

The $21.3 million increase in cash provided by financing activities for the six months ended June 30, 2023 as compared to the six months ended June 30, 2022 was primarily driven by net incremental proceeds we received from borrowings under our Term Loan Facility and Construction Loan and proceeds from stock option exercises during the six months ended June 30, 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