What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-10-31 compared with 2023-07-31 · 176 added, 172 removed, 224 unchanged (61% of the section changed)

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

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

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

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

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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 1.5 million individua l members, who together compris e more than 832,000 memberships, as of June 30, 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 approximately 1.5 million individua l members, who together compris e more than 830,000 memberships, as of September 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.

We deliver high-quality experiences through our omni-channel physical and digital ecosystem that includes more than 160 centers—distinctive, resort-like athletic country club destinations—across 30 states in the United States and one province in Canada.

We deliver high-quality experiences through our omni-channel physical and digital ecosystem that includes 170 centers—distinctive, resort-like athletic country club destinations—across 31 states in the United States and one province in Canada.

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

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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 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.

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 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.

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.

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 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.

Our average revenue per center membership and the visits to our clubs for the nine months ended September 30, 2023 were $2,095 and 78 million, respectively, as compared to $1,885 and 65 million, respectively, for the nine months ended September 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 has enabled us to consistently grow our annual membership dues and in-center revenue.

Our total Center revenue increased to $1,608.3 million for the nine months ended September 30, 2023 as compared to $1,307.5 million for the nine months ended September 30, 2022.

We believe it will continue to grow as our new centers ramp to expected performance, we open new centers in desirable locations across the country and we continue to execute on our strategic initiatives discussed below.

Our new centers on average have taken three to four years to ramp to expected performance.

As of September 30, 2023, we had 27 centers open for less than three years.

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

As we open these new centers in more affluent markets, we believe our average revenue per center membership will naturally increase.

We believe we have significant opportunities to continue expanding our portfolio of premium centers in an asset-light manner with plans for 22 to 24 new centers over 2023 and 2024.

While we have shifted our new center growth strategy to pursue more asset-light opportunities that include leases with tenant improvement allowances and existing center takeovers with lower capital required, as of September 30, 2023, we had eight new centers under construction, with $285 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 and the future growth that we have not yet realized from the quicker turnaround center takeovers plus the capital expenditures already invested in our centers under construction creates a strong tailwind for the continued growth of our total Center revenue.

Coming out of the COVID-19 pandemic, we believe that we have built a healthier and stronger business model.

Our initial focus on center recovery has produced strong results in member engagement and increasing memberships, visits and Center revenue.

We have also been able to expand margins by significantly improving the efficiency of our club operations and corporate office.

We also expect to benefit from the greater flow through of our increased revenue and from new members joining at higher membership dues rates.

We have also implemented several strategic initiatives that are driving revenue, engagement and memberships as we continue to elevate and broaden our member experiences and allow our members to integrate health, fitness and wellness into their lives with greater ease and frequency.

These strategic initiatives include pickleball, Dynamic Personal Training, Dynamic Stretch, small group training such as Alpha, GTX and Ultra Fit, and our ARORA community focused on members aged 55 years and older, where we have experienced a significant increase in our unique participants or total sessions.

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.

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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 country club destinations across the United States and Canada.

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

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

As of June 30, 2023, we had 12 Life Time Work and two Life Time Living locations open and operating.

As of September 30, 2023, we had 13 Life Time Work and three 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.

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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.

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 rat es and delays on future sale-leaseback transactions.

We continue to explore sale-leaseback transactions but are being selective on whether to execute any additional sale-leasebacks in the current macroeconomic environment given our ability to add new centers through asset-light opportunities and our improved cash flow.

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

Non-GAAP Financial Measures

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

This discussion and analysis includes certain financial measures that are not presented in accordance with generally accepted accounting principles in the United States (“GAAP”), including Adjusted net income (loss), Adjusted net income (loss) per common share, Adjusted EBITDA and ratios related thereto.

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

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The reconciliations of the Company’s non-GAAP financial measures to the corresponding GAAP measures should be carefully eva luated.

We use Adjusted EBITDA as an important performance metric for the Company.

In addition, free cash flow before growth capital expenditures is an important liquidity metric we use to evaluate our ability to make principal payments on our indebtedness and to fund our capital expenditures and working capital requirements.

We use Adjusted net income (loss) and Adjusted EBITDA as important performance metrics for the Company.

Adjusted Net Income (Loss)

We define Adjusted net income (loss) as net income (loss) excluding the impact of share-based compensation expense, (gain) loss on sale-leaseback transactions, capital transaction costs, legal settlements, asset impairment, severance and other items that are not indicative of our ongoing operations, including incremental costs related to COVID-19, less the tax effect of these adjustments.

Adjusted EBITDA

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

Management uses Adjusted EBITDA to evaluate the Company’s performance.

We believe that Adjusted EBITDA is an important metric for management, investors and analysts as it removes the impact of items that we do not believe are indicative of our core operating performance and allows for consistent comparison of our operating results over time and relative to our peers.

We use Adjusted EBITDA to supplement GAAP measures of performance in evaluating the effectiveness of our business strategies, and to establish annual budgets and forecasts.

Management uses Adjusted net income (loss) and Adjusted EBITDA to evaluate the Company’s performance.

We believe that Adjusted net income (loss) and Adjusted EBITDA are important metrics for management, investors and analysts as they remove the impact of items that we do not believe are indicative of our core operating performance and allows for consistent comparison of our operating results over time and relative to our peers.

We use Adjusted net income (loss) and Adjusted EBITDA to supplement GAAP measures of performance in evaluating the effectiveness of our business strategies and to establish annual budgets and forecasts.

We also use Adjusted EBITDA or variations thereof to establish short-term incentive compensation for management.

Free Cash Flow Before Growth Capital Expenditures

We define free cash flow before growth capital expenditures as net cash provided by (used in) operating activities less center maintenance capital expenditures and corporate capital expenditures.

We believe free cash flow before growth capital expenditures assists investors and analysts in evaluating our liquidity and cash flows, including our ability to make principal payments on our indebtedness and to fund our capital expenditures and working capital requirements.

Our management considers free cash flow before growth capital expenditures to be a key indicator of our liquidity and we present this metric to our board of directors.

Additionally, we believe free cash flow before growth capital expenditures is frequently used by analysts, investors and other interested parties in the evaluation of companies in our industry.

We also believe that investors, analysts and rating agencies consider free cash flow before growth capital expenditures as a useful means of measuring our ability to make principal payments on our indebtedness and evaluating our liquidity, and management uses this measurement for one or more of these purposes.

Adjusted EBITDA and free cash flow before growth capital expenditures should be considered in addition to, and not as a substitute for or superior to, financial measures calculated in accordance with GAAP.

These are not measurements of our financial performance under GAAP and should not be considered as alternatives to net income (loss) or any other performance measures derived in accordance with GAAP or as an alternative to net cash provided by (used in) operating activities as a measure of our liquidity and may not be comparable to other similarly titled measures of other businesses.

Adjusted EBITDA and free cash flow before growth capital expenditures have limitations as analytical tools, and you should not consider these measures in isolation or as a substitute for analysis of our operating results or cash flows as reported under GAAP.

Furthermore, we compensate for the limitations described above by relying primarily on our GAAP results and using Adjusted EBITDA and free cash flow before growth capital expenditures only for supplemental purposes.

Adjusted net income (loss) and Adjusted EBITDA should be considered in addition to, and not as a substitute for or superior to, financial measures calculated in accordance with GAAP.

These are not measurements of our financial performance under GAAP and should not be considered as alternatives to net income (loss) or any other performance measures derived in accordance with GAAP and may not be comparable to other similarly titled measures of other businesses.

Adjusted net income (loss) and Adjusted EBITDA have limitations as analytical tools, and you should not consider these measures in isolation or as a substitute for analysis of our operating results as reported under GAAP.

Furthermore, we compensate for the limitations described above by relying primarily on our GAAP results and using Adjusted net income (loss) and Adjusted EBITDA only for supplemental purposes.

See our condensed consolidated financial statements included elsewhere in this report for our GAAP results.

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

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

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

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

Three Months Ended Six Months Ended

June 30, June 30,

Three Months Ended Nine Months Ended

September 30, September 30,

2023 2022 2023 2022

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1.4 % 5.0 % 3.2 % (1.1) %

Adjusted net income (loss) (6)

$ 26,684 $ (11,535) $ 91,139 $ (66,832)

Adjusted net income (loss) margin (6)

4.6 % (2.3) % 5.5 % (5.0) %

Adjusted EBITDA (7)

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$ 861 $ 4,907 $ 1,238 $ 12,454

Net cash provided by operating activities $ 141,943 $ 71,263 $ 216,291 $ 80,325

Free cash flow before growth capital expenditures (9)

$ 82,062 $ 32,441 $ 109,298 $ (1,853)

(1) We define Average Center revenue per center membership as Center revenue less Digital On-hold revenue, divided by the average number of Center memberships for the period, where the average number of Center memberships for the period is an average derived from dividing the sum of the total Center memberships outstanding at the beginning of the period and at the end of each month during the period by one plus the number of months in each period.

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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.

During the third quarter of 2023, we opened six centers.

During the nine months ended September 30, 2023, we opened 10 centers and closed one center.

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

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(5) Net income (loss) margin is calculated as net income (loss) divided by total revenue.

(6) We present Adjusted net income (loss) as a supplemental measure of our performance.

Adjusted net income (loss) margin is calculated as Adjusted net income (loss) divided by total revenue.

The following table provides a reconciliation of net income (loss) and income (loss) per common share, the most directly comparable GAAP measures, to Adjusted net income (loss) and Adjusted net income (loss) per common share:

Three Months Ended Nine Months Ended

September 30, September 30,

($ in thousands) 2023 2022 2023 2022

Net income (loss) $ 7,915 $ 24,732 $ 52,379 $ (15,519)

Share-based compensation expense (a)

14,858 5,803 37,029 33,214

COVID-19 related expenses (b)

93 354 339 937

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

12,672 (48,583) 13,431 (98,167)

Capital transaction costs (d)

Asset impairments (e)

5,340 — 6,620 —

(405) 1,172 (5,191) 1,021

(13,789) 4,987 (13,468) 11,427

Adjusted net income (loss) $ 26,684 $ (11,535) $ 91,139 $ (66,832)

Income (loss) per common share:

Basic $ 0.04 $ 0.13 $ 0.27 $ (0.08)

Diluted $ 0.04 $ 0.12 $ 0.26 $ (0.08)

Adjusted income (loss) per common share:

Basic $ 0.14 $ (0.06) $ 0.47 $ (0.35)

Diluted $ 0.13 $ (0.06) $ 0.45 $ (0.35)

Weighted-average common shares outstanding:

Basic 196,146 193,918 195,404 193,364

Diluted 204,298 198,381 203,954 193,364

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

The majority of this expense in 2022 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 September 30, 2023 and the three and nine months ended September 30, 2022 , COVID-19 related expenses primarily consisted of legal-related costs in pursuit of our claim against Zurich.

For the nine months ended September 30, 2023, COVID-19 related expenses primarily consisted of legal-related costs in pursuit of our claim against Zurich, partially offset by a subsidy for our Canadian operations.

For 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 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 nine months ended September 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) Represents non-cash asset impairments of our long-lived assets.

(f) Includes benefits and costs associated with transactions that are unusual and non-recurring in nature.

(g) Represents the estimated tax effect of the total adjustments made to arrive at Adjusted net income (loss) using the effective income tax rates for the respective periods.

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

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

Three Months Ended Six Months Ended

June 30, June 30,

Three Months Ended Nine Months Ended

September 30, September 30,

($ in thousands) 2023 2022 2023 2022

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14,858 5,803 37,029 33,214

COVID-19 related (credits) expenses (b)

COVID-19 related expenses (a)

93 354 339 937

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

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

12,672 (48,583) 13,431 (98,167)

Capital transaction costs (d)

Capital transaction costs (a)

Asset impairments (a)

5,340 — 6,620 —

(405) 1,172 (5,191) 1,021

Adjusted EBITDA $ 142,981 $ 70,975 $ 399,123 $ 174,697

(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 (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 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.

(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.

(a) See the corresponding footnotes to the table in note 6 immediately above.

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

The number of centers under construction or development, the types of centers and our costs associated with any particular center opening can vary significantly from period to period.

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Non-cash rent expense for our properties under development represents non-cash expense associated with properties that are still under development at the end of each period presented.

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

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

Three Months Ended Six Months Ended

June 30, June 30,

($ in thousands) 2023 2022 2023 2022

Net cash provided by operating activities $ 141,943 $ 71,263 $ 216,291 $ 80,325

Center maintenance capital expenditures (44,470) (19,057) (77,369) (35,453)

Corporate capital expenditures (15,411) (19,765) (29,624) (46,725)

Free cash flow before growth capital expenditures $ 82,062 $ 32,441 $ 109,298 $ (1,853)

Factors Affecting the Comparability of our Results of Operations

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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, 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.

The performance of our centers has improved significantly as our centers have ramped back from the adverse impacts of COVID-19.

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 expect membership dues revenue to remain a higher percentage of our total revenue for at least the near term.

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

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

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

We 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.

Our leverage ratio was 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 have significantly improved our leverage ratio in the first nine 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.

Investment in Business

We have continued to invest in our business to elevate and broaden our member experiences and drive additional revenue per center membership, including improving our in-center services and products, such as pickleball, Dynamic Personal Training, small group training and our ARORA community, introducing new types of memberships, providing concierge-type member services and expanding our omni-channel offerings.

We have continued to invest in our business to elevate and broaden our member experiences and drive additional revenue per center membership, including improving our in-center services and products, such as pickleball, Dynamic Personal Training, Dynamic Stretch, small group training and our ARORA community, introducing new types of memberships, providing concierge-type member services and expanding our omni-channel offerings.

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

These investments may impact our short-term results of

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

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.

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

Approximately 66% of our centers are now leased, including approximately 89% of our new centers opened since 2015, versus a predominantly owned real estate strategy prior to 2015.

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

The impact of these increases is dependent upon the timing of our centers under development and the center openings and terms of the leases for the new centers or sale-leaseback transactions.

The impact of these increases is dependent upon the timing of our centers under development and the center openings, the timing of sale-leaseback transactions and terms of the leases for the new centers or sale-leaseback transactions.

Macroeconomic Trends

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Share-Based Compensation

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.

During the nine months ended September 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 $37.0 million .

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

Critical Accounting Policies and Estimates

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Ultimate results could differ from those estimates.

In recording transactions and balances resulting from business operations, we use estimates based on the best information available.

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.

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Results of Operations

Three Months Ended June 30, 2023 Compared to Three 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 three months ended June 30, 2023 and 2022:

Three Months Ended June 30,

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

Three Months Ended September 30,

As a Percentage of Total Revenue

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Total other expense (33,019) (27,601) (5.7) % (5.5) %

Income (loss) before income taxes 20,517 (6,275) 3.6 % (1.4) %

Provision for (benefit from) income taxes 3,513 (3,990) 0.6 % (0.9) %

Net income (loss) $ 17,004 $ (2,285) 3.0 % (0.5) %

Income before income taxes 13,730 28,133 2.3 % 5.7 %

Provision for income taxes 5,815 3,401 1.0 % 0.7 %

Net income $ 7,915 $ 24,732 1.3 % 5.0 %

Total revenue.

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.

The $88.8 million increase in Total revenue for the three months ended September 30, 2023 as compared to the three months ended September 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 $88.4 million increase in Center revenue for the three months ended September 30, 2023 as compared to the three months ended September 30, 2022:

• 81.7% was from membership dues and enrollment fees, which increased $72.2 million for the three months ended September 30, 2023 as compared to the three months ended September 30, 2022.

This increase reflects the improvement in our Center memberships, which increased to 784,331 as of September 30, 2023 from 728,729 as of September 30, 2022, as well as higher average monthly dues per Center membership during the three months ended September 30, 2023 as compared to the three months ended September 30, 2022 ;

• 18.3% was from in-center revenue, which increased $16.2 million for the three months ended September 30, 2023 as compared to the three months ended September 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 September 30, 2023 as compared to the three months ended September 30, 2022 .

T he $0.4 million increase in Other revenue for the three months ended September 30, 2023 as compared to the three months ended September 30, 2022 was primarily driven by the improved performance of our Life Time Work and Life Time Living locations.

Center operations expenses .

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.

Th e $24.1 million increase in Center operations expenses for the three months ended September 30, 2023 as compared to the three months ended September 30, 2022 was primarily due to increased operating costs related to our new and ramping centers as well as growth in memberships and in-center business revenue.

Rent expense .

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 .

T he $6.0 million increase in Rent expense for the three months ended September 30, 2023 as compared to the three months ended September 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 two properties during the current year fo r 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 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.

General, administrative and marketing expenses decreased $5.5 million for the three months ended September 30, 2023 as compared to the three months ended September 30, 2022, primarily due to reduced center support overhead, advertising and marketing and cash incentive compensation expenses, partially offset by higher share-based compensation expense.

Depreciation and amortization .

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.

Depreciation and amortization increased $7.2 million for the three months ended September 30, 2023 as compared to the three months ended September 30, 2022, primarily due to new center openings.

Other operating expense (income) .

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.

Other operating expense for the three months ended September 30, 2023 was $34.5 million as compared to Other operating income of $31.4 million for the three months ended September 30, 2022.

The $65.9 million change was primarily attributable to the recognition of a $13.2 million loss on a sale-leaseback transaction during the three months ended September 30, 2023 as compared to the recognition of a $47.9 million gain on sale-leaseback transactions during the three months ended September 30, 2022, and a $5.6 million loss associated with the sale of an outparcel of land during the three months ended September 30, 2023, of which $5.3 million was recognized as an impairment charge.

Interest expense, net of interest income .

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 $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 $5.4 million increase in Interest expense, net of interest income for the three months ended September 30, 2023 as compared to the three months ended September 30, 2022 was driven by a higher average level of outstanding borrowings and higher interest rates during the three months ended September 30, 2023 as compared to the three months ended September 30, 2022.

Provision for income taxes .

The provision for income taxes was $5.8 million for the three months ended September 30, 2023 as compared to $3.4 million for the three months ended September 30, 2022.

The effective tax rate was 42.4% and 12.1% for those same periods, respectively.

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 $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,

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

The effective tax rate applied to our pre-tax income for the three months ended September 30, 2023 is higher than our statutory rate of 21.0% and reflects the tax deficiencies associated with share-based payment awards and state income tax provisions, partially offset by a decrease in the valuation allowance associated with certain of our deferred tax assets and research tax credits.

As a result of the factors described above, net income was $7.9 million for the three months ended September 30, 2023 as compared to $24.7 million for the three months ended September 30, 2022.

Nine Months Ended September 30, 2023 Compared to Nine Months Ended September 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 nine months ended September 30, 2023 and 2022:

Nine Months Ended September 30,

As a Percentage of Total Revenue

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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.

The $307.9 million increase in Total revenue for the nine months ended September 30, 2023 as compared to the nine months ended September 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 $300.8 million increase in Center revenue for the nine months ended September 30, 2023 as compared to the nine months ended September 30, 2022:

• 78.3% was from membership dues and enrollment fees, which increased $235.6 million for the nine months ended September 30, 2023 as compared to the nine months ended September 30, 2022.

This increase reflects the improvement in our Center memberships, which increased to 784,331 as of September 30, 2023 from 728,729 as of September 30, 2022, as well as higher average monthly dues per Center membership during the nine months ended September 30, 2023 as compared to the nine months ended September 30, 2022;

• 21.7% was from in-center revenue, which increased $65.2 million for the nine months ended September 30, 2023 as compared to the nine months ended September 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 nine months ended September 30, 2023 as compared to the nine months ended September 30, 2022.

Th e $7.1 million increase in Other revenue for the nine months ended September 30, 2023 as compared to the nine months ended September 30, 2022 was primarily driven by 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.

The $81.7 million increase in Center operations expenses for the nine months ended September 30, 2023 as compared to the nine months ended September 30, 2022 was primarily due to increased operating costs related to our new and ramping centers as well as growth in memberships and in-center business revenue.

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 .

The $24.0 million increase in Rent expense for the nine months ended September 30, 2023 as compared to the nine months ended September 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 f or 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.

General, administrative and marketing expenses decreased $28.6 million for the nine months ended September 30, 2023 as compared to the nine months ended September 30, 2022, primarily due to lower cash incentive compensation expense and reduced center support overhead and advertising and marketing 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.

Depreciation and amortization increased $8.4 million for the nine months ended September 30, 2023 as compared to the nine months ended September 30, 2022, primarily due to new center openings.

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.

Other operating expense for the nine months ended September 30, 2023 was $64.8 million as compared to Other operating income of $56.6 million for the nine months ended September 30, 2022.

The $121.4 million change was primarily attributable to the recognition of a $13.4 million loss on sale-leaseback transactions during the nine months ended September 30, 2023 as compared to the recognition of a $98.0 million gain on sale-leaseback transactions during the nine months ended September 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 .

T he $11.5 million increase in Interest expense, net of interest income for the nine months ended September 30, 2023 as compared to the nine months ended September 30, 2022 was driven by a higher average level of outstanding borrowings and higher interest rates during the nine months ended September 30, 2023 as compared to the nine months ended September 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 provision for income taxes was $18.2 million for the nine months ended September 30, 2023 as compared to a $3.5 million benefit from income taxes for the nine months ended September 30, 2022 .

The effective tax rate was 25.8% and 18.2% 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.

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

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

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 .

As a result of the factors described above, net income was $52.4 million for the nine months ended September 30, 2023 as compared to a net loss of $15.5 million for the nine months ended September 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.

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

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

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

We have taken significant actions to improve our liquidity.

Our top priorities remain improving our balance sheet, reducing leverage and having positive cash flow from operations after all capital expenditures.

Our cash flow from operations continues to improve and we have taken significant actions to improve our liquidity.

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

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.

In addition, during the nine months ended September 30, 2023, we completed sale-leaseback transactions associated with three 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 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 continue to explore potential sale-leaseback opportunities for a number of our properties, but we are being selective on whether to execute any additional sale-leasebacks in the current macroeconomic environment given our ability to add new centers through asset-light opportunities and our improving cash flows from operations.

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

Additionally, w e 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.

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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.

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

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

As of 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.

As of September 30, 2023, there were $45.0 million of outstanding borrowings under our Revolving Credit Facility and there were $32.6 million of outstanding letters of credit, resulting in total availability under our Revolving Credit Facility of $397.4 million.

Total cash and cash equivalents, exclusive of restricted cash, at September 30, 2023 was $9.2 million, resulting in total cash and availability under our Revolving Credit Facility of $406.6 million.

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

Six Months Ended

Nine Months Ended

September 30,

Net cash provided by operating activities $ 330,946 $ 125,320

Net cash used in investing activities (403,549) (37,480)

Net cash provided by financing activities 48,420 27,139

Net cash provided by (used in) financing activities 72,505 (11,708)

Effect of exchange rates on cash and cash equivalents 30 (700)

Increase in cash and cash equivalents $ 5,349 $ 29,652

(Decrease) increase in cash and cash equivalents $ (68) $ 75,432

Operating Activities

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.

The $205.6 million increase in cash provided by operating activities for the nine months ended September 30, 2023 as compared to the nine months ended September 30, 2022 was primarily the result of higher profitability.

Investing Activities

Investing activities consist primarily of purchasing real property, constructing new centers, acquisitions and purchasing new fitness equipment.

In addition, we invest in capital expenditures to maintain and update our existing centers.

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 $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)

$ 106,381 $ 103,064 $ 230,083 $ 170,462

Center maintenance capital expenditures 44,470 19,057 77,369 35,453

Corporate capital expenditures 15,411 19,765 29,624 46,725

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

(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.

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

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

The $366.1 million increase in net cash used in investing activities for the nine months ended September 30, 2023 as compared to the nine months ended September 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 nine months ended September 30, 2023 as compared to the nine months ended September 30, 2022.

Financing Activities

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.

The $84.2 million increase in cash provided by financing activities for the nine months ended September 30, 2023 as compared to the nine months ended September 30, 2022 was primarily driven by net incremental proceeds we received from borrowings under our Term Loan Facility, Revolving Credit Facility and Construction Loan and proceeds from stock option exercises during the nine months ended September 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