What changed in this filing

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Item 1A. Risk Factors

2024-02-28 compared with 2023-03-08 · 102 added, 138 removed, 273 unchanged (47% of the section changed)

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The success of our business depends on our ability to attract and retain members and to optimize our revenue per center membership.

There are numerous factors that could lead to a decline in membership levels or sales of in-center services or that could prevent us from increasing membership and optimizing our revenue per center membership, any of which could adversely impact our business and results of operations.

These factors include changing desires and behaviors of consumers and our ability to anticipate and respond to shifts in consumer preferences, changing consumer confidence, changes in discretionary spending trends and general economic conditions, market or center maturity or saturation, a decline in our ability to deliver quality service, direct and indirect competition in our trade areas, a decline in the public’s interest in health and fitness, as well as social fears such as terror or health threats.

As we have emerged and grown out of the COVID-19 pandemic, we have implemented a new pricing strategy in an effort to optimize the number of memberships per club and the price for such memberships.

This strategy reflects at least initially a lower number of memberships paying on average higher membership dues, which benefits us as we bring on new members but also increases the adverse impact on our results of operations if we were to lose these memberships.

There are numerous factors that could lead to a decline in membership or in-center service levels or that could prevent us from increasing our memberships and optimizing our revenue per center membership, any of which could adversely impact our business, results of operations and financial condition.

These factors include our ability to deliver premium member experiences, changing desires and behaviors of consumers and our ability to anticipate and respond to shifts in consumer preferences, introductions of new products, services or technology, changing consumer confidence, changes in discretionary spending trends and general economic conditions, market or center maturity or saturation, direct and indirect competition in our trade areas, as well as social fears such as terror or health threats.

All of our members are able to cancel their membership at any time upon providing advance notice.

We must therefore continually engage existing members and attract new members in order to maintain our membership levels and sales from in-center services and earn the membership dues that we charge our members.

We are executing on several strategies to elevate and broaden our member experiences and drive additional revenue per center membership.

We must therefore continually engage existing members and attract new members in order to maintain our membership and in-center service levels and earn the membership dues and service fees that we charge our members.

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

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Additionally, we cannot be certain that these strategies will attract and retain members or deliver higher revenue per center membership.

Our business could be adversely affected by strong competition in the highly competitive health, fitness and wellness industry.

Our business could be adversely affected by competition in the highly competitive health, fitness and wellness industry.

We compete with numerous industry participants as detailed in “Item 1—Business—Competition” of this Annual Report.

Competitors compete with us to attract members in our markets.

Competitors may also attempt to copy all or portions of our business model, which could erode our market share and brand recognition or impair our business and results of operations.

It is also possible that competitors could introduce new products and services or new ways to provide those products and services that negatively impact consumer preference or willingness to pay for our business model.

Competitors compete with us to attract members in our markets and digitally.

Competitors may also attempt to copy all or portions of our business model or services, which could erode our market share and brand recognition or impair our business and results of operations.

Certain competitors may have advantages over us including greater name recognition and/or resources, and non-profit and government organizations may be able to obtain land and construct centers at a lower cost and collect membership fees without paying taxes, thereby allowing them to charge lower prices.

Additionally, consolidation in the health, fitness and wellness industry could result in increased competition among participants.

Furthermore, due to the increased number of low-cost health center and fitness center alternatives, we may face increased competition during periods when we increase our prices, discretionary spending declines or unemployment increases.

This competition may limit our ability to attract and retain members or to optimize our revenue per center membership, each of which could materially and adversely affect our business, results of operations and financial condition.

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The macroeconomic environment in which we operate can adversely impact our business, results of operations and prospects, including with respect to inflation, interest rates, labor and supply chain issues, as well as a potential economic recession .

For example, the inflation rate has remained elevated, which impacts our expenses in several areas, including wages, construction costs and other operating expenses.

These inflationary impacts pressure our margin performance, increase our capital expenditures and may cause us to delay new center construction.

The rising interest rate environment has also increased the cost of our term loan facility and our revolving credit facility and may result in increased cap rates on future sale-leaseback transactions.

Additionally, o ur business could be sensitive to reductions in discretionary consumer spending and in a depressed economic and consumer environment, consumers and businesses may postpone spending in response to tighter credit, negative financial news and/or declines in income or asset values, which could have a negative effect on the demand for our services and products.

The inflation rate has improved but remains elevated, which impacts our expenses and capital expenditures in several areas, including wages, construction costs and other operating expenses.

These inflationary impacts pressure our margin performance and increase our capital expenditures.

The rising interest rate environment has also increased the cost of our borrowings.

The combined impact of inflation and higher interest rates caused us to temporarily slow down the start of new construction on our ground-up suburban builds as future sale-leaseback transactions were delayed.

If our investment in new centers is higher than

we had planned, if the capitalization rates on our sale-leaseback transactions are higher than historical levels or if our investment takes longer to execute due to any number of reasons, we may need to outperform our operational plan to achieve our targeted return.

Additionally, consumers and businesses may reduce or postpone spending in response to tighter credit, negative financial news and/or declines in income or asset values, which could have a negative effect on the demand for our services and products.

Global pandemics or other health crises can also adversely impact our business, results of operations, financial condition and prospects.

We experienced a significant reduction in membership levels, revenue per center membership, center activity and new center growth related to the COVID-19 pandemic, including the response of governmental authorities to community transmission of COVID-19, which required closure of our centers in March 2020 and the suspension of significant real estate development and construction projects.

Several of our centers are still recovering from those negative impacts, depending in large part on when the governmental operating restrictions on our centers were lifted, similar to how our new centers take several years to mature to expected performance.

Failure by these centers to recover as we expect could materially and adversely affect our business, results of operations and financial condition.

Each of our centers and in-center businesses may continue to be impacted differently based upon considerations such as applicable government restrictions, community transmission and the sentiment of members or team members in particular geographic locations.

We cannot be certain that we will not need to close our centers, restrict operations within our centers or suspend or reduce the level of real estate or construction activities again related to continued community transmission of the coronavirus or its variants or another pandemic or health crisis.

The COVID-19 pandemic or any other pandemic or health crises may also lead to significant economic shifts across our areas of operation, which may reduce or change consumer demand in our industry.

We experienced significant reductions in membership levels, revenue per center membership, center activity and new center growth related to the COVID-19 pandemic, including the responses of governmental authorities to community transmission of COVID-19, which required closure of our centers in March 2020 and the suspension of significant real estate development and construction projects.

Our business took time to recover from that pandemic, similar to how our new centers take several years to mature to expected performance, and the recovery varied by center.

Severe weather, natural disasters, shifting climate patterns, hostilities, gun violence, social unrest or terrorist activities (or expectations about them) can adversely affect our members, consumer spending and confidence levels, supply availability and costs, as well as the local operations in impacted markets, all of which could have an adverse effect on our results of operations and financial condition.

We may also be forced to temporarily close centers due to any number of unforeseen circumstances, including as a result of fire, flood, technical difficulties, shortage of employees, loss of power, a health and safety incident, social unrest, terrorist incident, natural disaster or an active shooting or other violence.

The severity and impact of center closures and center damage or destruction, and the cost to operate our centers, could increase as the climate and social environment changes.

The severity and impact of center closures and center damage or destruction, and the cost to operate our centers, could increase as the climate and social environment changes, including with respect to our water usage and the cost to cool our facilities.

That severity and impact could also be greater in the various geographical locations across the country where we operate multiple centers and as we expand.

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Our receipt of proceeds under any insurance we maintain with respect to some of these risks may be delayed or the proceeds may be insufficient to cover our losses fully .

We may incur rising or higher costs related to our business, including for construction of new centers, employees and maintenance and operation of our existing centers.

If we are not able to pass these cost increases through to our members, our financial results may be adversely affected.

Our centers require significant upfront and ongoing investment.

If our investment is higher than we had planned, including due to the macroeconomy as detailed above, or if our investment takes longer to execute due to any number of reasons, we may need to outperform our operational plan to achieve our targeted return.

Over the longer term, we believe that we can offset cost increases by increasing our membership dues and other fees and improving profitability through cost efficiencies, but market and economic pressures and higher costs in regions where we are opening new centers may be difficult to offset in the short term.

Additionally, while we have been a company focused on environmental, social and governance (“ESG”) matters from our formation, as we continue to develop and execute on our ESG initiatives, we could incur additional costs or risks that adversely impact our business.

Our results of operations are subject to seasonal and quarterly variations in our revenues and results of operations.

We have experienced, and expect to continue to experience, seasonal and quarterly variations in our revenues and results of operations.

These variations are primarily related to increased membership during the first quarter, as members tend to exercise more regularly at the beginning of each calendar year as a part of achieving goals that were set for the upcoming year.

We also experience increased membership in certain centers during the summer pool season and a slight increase in in-center business activity with summer programming and operating expenses due to our outdoor operations.

We then typically experience decreased membership and in-center business activity in the third and fourth quarters.

Our quarterly results of operations may also fluctuate significantly as a result of a variety of other factors, including the timing of new center openings, changes in pricing and revenues mix and changes in operating expenses.

As a result of these seasonal and quarterly fluctuations, we believe that comparisons of our operating results between different quarters within a single year are not necessarily meaningful and that these comparisons cannot be relied upon as indicators of our future performance.

Our dependence on third-party suppliers for equipment and certain products and services could result in disruptions to our business and could adversely affect our business, results of operations and financial condition.

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Our brand and our reputation are among our most important assets.

Our ability to attract and retain members and expand our business depends, in part, upon the external perceptions of Life Time, the quality of our centers and services and our corporate and management integrity.

Any adverse incidents, including any involving the potential safety of our members, guests or employees, physical or sexual abuse or other harm to a child at any of our children play areas or events or negative publicity regarding us, our competitors or the health, fitness and wellness industry, may damage our brand and our reputation, cause a loss of consumer confidence in Life Time and our industry and could have an adverse effect on our market share, business, results of operations and financial condition.

Our ability to attract and retain members and expand our business may be impacted by the external perceptions of Life Time, the quality and consistency of our centers and premium services and our corporate and management integrity.

Any operation of our centers that does not meet expectations, any adverse incidents, including any involving the potential safety of our members, guests or employees, physical or sexual abuse or other harm to a child at any of our children play areas, or any negative events or publicity regarding us, our competitors or the health, fitness and wellness industry, may damage our brand and our reputation, cause a loss of consumer confidence in Life Time and our industry and could have an adverse effect on our market share, business, results of operations and financial condition.

Use of social media platforms, and email, text messaging, phone and social media marketing, may adversely impact our reputation, business, results of operations, and financial condition or subject us to fines or other penalties.

There has been a substantial increase in the use of social media platforms.

Negative commentary about us or calls for collective action against us, such as boycotts, may be posted on social media platforms or similar devices at any time to a broad audience and may harm our brand, reputation or business without affording us an opportunity for redress or correction in a timely manner

Consumers value readily available information about health, fitness and wellness and often act on such information without further investigation and without regard to its accuracy.

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Risks Relating to the Growth of O ur Business

If we are unable to identify and acquire or lease suitable sites for centers or if we face increased construction and development costs, our revenue growth rate and profits may be negatively impacted.

If we are unable to successfully execute our asset-light growth strategy, our results of operations, cash flow and return on invested capital may be negatively impacted.

Our center profitability may decline as we open new centers.

We are executing on a strategy to grow our business by expanding the number of our centers in an asset-light manner as detailed in “Item 1—Business—Our Growth Strategies and Member Experience Initiatives” of this Annual Report.

To successfully expand our business, we must identify and acquire or lease sites that meet the site selection criteria we have established.

We may face significant competition for sites that meet our criteria, and as a result, we may lose those sites, our competitors could copy our format or we could be forced to pay significantly higher prices for those sites.

Additionally, as we partner with real estate developers in mall/retail and residential tower locations, their timeline and ability to move forward may differ from ours.

If we are unable to cost-effectively identify and acquire or lease sites for new centers, our revenue growth rate and profits may be negatively impacted.

Additionally, if our analysis of the suitability of a site is incorrect or if we do not anticipate all of the challenges relating to the expansion of our operations, we may not be able to expand profitably or recover our capital investment in developing and building the new center on the timeline or at the rate we expected.

Any of these results could have a negative impact on our revenue growth rate and profits.

Our current focus for new centers continues to include wealthier demographic locations, including in urban and coastal markets and at mall/retail and residential tower locations.

Additionally, as we grow the number of our centers in an asset-light manner, we must engage and negotiate with numerous third parties, including landlords, developers, sellers, contractors and governmental authorities.

Their timeline and ability to move forward may differ from ours.

If we are unable to cost-effectively identify and acquire or lease sites for new centers, our revenue growth rate, profits, cash flow and return on invested capital may be negatively impacted.

Additionally, if our analysis of the suitability of a site is incorrect or if we do not adapt to or anticipate all of the challenges relating to the expansion of our operations, including the more diverse locations, sizes and types of buildings, remodels and timelines in new markets and spaces, we may not be able to expand profitably or recover our capital investment in developing and building or remodeling the new center on the timeline or at the rate we expected.

Any of these results could have a negative impact on our revenue growth rate, profits, cash flow and return on invested capital.

Our focus for new centers continues to include wealthier demographic locations, including in urban and coastal markets and at ground-up suburban builds, mall or retail locations, vertical residential and urban locations.

If we are unable to leverage our brand and what we bring to these markets and locations, we may be required to pay relatively higher costs for land or lease payments.

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We have also experienced escalating construction costs more generally due to inflation.

The higher gross invested capital and higher occupancy costs at these centers would require increases in the value of sale-leaseback transactions or higher operating profits per center to produce our targeted level of return.

Higher gross invested capital and higher occupancy costs at these centers would require increases in the value of sale-leaseback transactions or higher operating profits per center to produce our targeted rate of return.

At the same time, however, a result of opening new centers is that our center operating margins may be lower than they have been historically while the centers build membership base.

We expect both the increase in pre-opening expenses and the lower revenue volumes characteristic of newly opened centers to affect our operating margins at these new centers.

Opening new centers in existing markets may attract some memberships away from other centers in those markets, thereby leading to diminished revenue and profitability.

An increase in pre-opening expenses and lower revenue volumes characteristic of newly opened centers would affect our operating margins at these new centers.

Opening new centers in existing markets may attract some memberships away from other centers in those markets, which could lead to diminished revenue and profitability.

In addition, as a result of new center openings in existing markets, and because older centers will represent an increasing proportion of our center base over time, our same-center revenue increases may be lower in future periods than in the past.

Delays in new center openings could have an adverse effect on our growth.

A significant amount of time and expenditure of capital is required to develop and construct new centers.

If we are forced to halt development or construction or if we delay construction starts due to escalating construction costs or to manage capital expenditures or are otherwise significantly delayed in opening new centers, we could face increased costs and our competitors may be able to open new centers in the same market before we open our centers or improve centers currently open.

This change in the competitive landscape could negatively impact our pre-opening sales of memberships and increase our investment costs.

In addition, delays in opening new centers could hurt our ability to meet our growth objectives and could have an adverse effect on our results of operations and financial condition.

A significant amount of time and expenditure of capital is required to develop and construct our ground-up suburban builds, mall or retail locations, vertical residential and urban locations.

Our temporary delay in the start of new ground-up suburban builds due to elevated construction costs and management of capital expenditures could result in increased costs and our competitors may be able to open new centers in the same market before we open our centers or improve centers currently open.

In addition, delays in opening these new centers could hurt our ability to meet our growth objectives and could have an adverse effect on our results of operations and financial condition.

Our ability to open new centers on schedule and on budget or at all depends on a number of factors, many of which are beyond our control.

These factors include:

• obtaining acceptable financing including executing sale-leaseback transactions to fund construction of new sites;

• obtaining acceptable financing including executing sale-leaseback transactions to fund construction of new sites and negotiating tenant improvement contributions from developers and landlords;

• obtaining entitlements, permits and licenses necessary to complete construction of the new center on schedule and to operate the center;

• securing access to and the costs of labor and materials necessary to develop and construct our centers;

• negotiating the terms of the acquisition or lease of new centers;

• securing access to and the costs of labor and materials necessary to develop and construct or remodel our centers;

• delays or cost increases due to material shortages, labor issues, design changes, weather conditions, acts of God, pandemics or epidemics, discovery of contaminants, accidents, deaths or injunctions;

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Our growth and changes in the industry could place strains on our management, employees, information systems and internal controls, which may adversely impact our business.

Our plans for current and future expansion and development, including an increase in the number of our centers, development of new businesses and memberships, expansion of our “Healthy Way of Life” ecosystem and acquisitions of other businesses, as well as changes in the industry, may place significant demands on our administrative, operational, financial, technological and other resources.

Any failure to manage growth and development effectively could seriously harm our business.

Our plans for current and future expansion and development, including an increase in the number of our centers, development of existing and new businesses and memberships, expansion of our “Healthy Way of Life” ecosystem and acquisitions of other businesses, as well as changes in the industry, may place significant demands on our administrative, operational, financial, technological and other resources.

Any failure to manage growth and development effectively could harm our business.

To be successful, we will need to continue to develop technologically and implement management information systems and improve our operating, administrative, financial and accounting systems and controls.

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In order to elevate and broaden member experiences, increase our revenue per center membership, remain competitive, respond to consumer demands and expand our business, we have developed, and expect to continue to develop and re-imagine, in-center, digital and ancillary businesses and strategies as well as co-working and living spaces.

We may incur significant costs in

the development or refinement of these businesses and strategies, some of which may be outside of our core competency.

We may incur significant costs in the development or refinement of these businesses and strategies, some of which may be outside of our core competency.

In addition, we cannot guarantee that these businesses or strategies will be successful and contribute to earnings, and any of these businesses or strategies may lose money and have an adverse effect on our business, financial condition and operating results.

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Risks Relating to Our Techn ological Operations

We rely on technology and may need to adapt to significant and rapid technological change in order to deliver connected and digital experiences and to compete effectively.

We rely on technology and if we are unable to adapt to significant and rapid technological change and deliver connected and digital experiences, we may not compete effectively and our business could be adversely affected.

Technology is a key component of our business model and we regard it as crucial to our success moving forward.

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We also continue to invest in our mobile application and systems, which enable us to, among other things, enroll new members with an electronic membership agreement, streamline the collection of membership dues electronically, capture digital pictures of members for identification purposes, offer online reservations, offer live streaming classes and capture and maintain specific member information, including usage.

While we seek to offer our members best-in-class technology solutions to ensure a smooth customer experience, we operate in an environment that has undergone, and continues to experience, significant and rapid technological change.

To remain competitive, we must continue to maintain, enhance and improve the functionality, capacity, accessibility, reliability and features of our automated member interfaces and other technology offerings.

Our growth and success will depend, in part, on our ability to continue to elevate and broaden our member experiences, including through developing our omni-channel ecosystem, licensing leading technologies, systems and use rights, enhancing our existing platforms and services and creating new platforms and services, and to respond to member demands, technological advances and emerging industry standards and practices on a cost-effective and timely basis.

The adoption of new technologies or market practices may require us to devote significant additional resources to improve and adapt our services.

We must also respond to member demands, technological advances and emerging industry standards and practices on a cost-effective and timely basis.

The adoption of new technologies or market practices (including artificial intelligence) may require us to devote significant additional resources to improve and adapt our services.

We may also need to secure and maintain the rights to use music with our content, which can be costly depending on the method we use to provide our content and may involve many third parties and navigating complex and evolving legal issues.

Keeping pace with these ever-increasing technological and use requirements can be expensive, and we may be unable to make these improvements to our technology infrastructure or obtain the necessary use rights in a timely manner or at all.

If we are unable to anticipate and respond to the demand for new services, products and technologies on a timely and cost-effective basis, or to adapt to and leverage technological advancements and changing standards as successfully as our competitors, we may be unable to compete effectively, which could materially and adversely affect our business, results of operations and financial condition.

If we are unable to anticipate and respond to the demand for new services, products and technologies on a timely and cost-effective basis, or to adapt to and leverage technological advancements and changing standards, our business, results of operations and financial condition could be materially and adversely affected.

Furthermore, we may rely on the ability of our members to have the necessary hardware products (smartphones, tablets, watches, etc.) to support our new product offerings.

To the extent our members are not prepared to invest or lack the necessary resources or infrastructure, the success of any new initiatives may be compromised.

If we fail to properly maintain the operations, integrity and security of our systems and data or the data of our members, guests and employees, to comply with applicable privacy laws, or to strategically implement, upgrade or consolidate existing information systems, our reputation and business could be adversely affected.

The operations, integrity and security of our systems and data and the data of our members, guests and employees is critical to us.

Despite the security measures we have in place and our continuous assessment and improvements, our facilities and systems, and those of our third-party service providers, may be vulnerable to security breaches, acts of cyber terrorism, demands for ransom, vandalism or theft, computer viruses, misplaced or lost data, programming and/or human errors or other similar events.

Because such attacks are increasing in sophistication and frequently change in nature, we and our third-party service providers may be unable to anticipate these attacks or implement adequate preventative measures, and any compromise of our systems, or those of our third-party providers, may not be discovered and remediated promptly.

Changes in consumer behavior following a security breach or perceived breach, act of cyber terrorism or sabotage, vandalism or theft, computer viruses, loss or corruption of data or programming or human error or other similar event affecting us, a competitor, large retailer or financial institution may materially and adversely affect our business, which in turn may materially and adversely affect our reputation, results of operations and financial condition.

If we fail to properly maintain the operation, integrity and security of our systems and the security of our data or the data of our members, guests and employees, to comply with applicable privacy laws, or to strategically implement, upgrade or consolidate existing information systems, our reputation and business could be adversely affected.

The operation, integrity and security of our systems and the security of our data and the data of our members, guests and employees is critical to us.

Despite the security measures we have in place and our continuous assessment and improvements, our systems, and those of our third-party service providers, may be vulnerable to security breaches, acts of cyber terrorism, demands for ransom, vandalism or theft, computer viruses, misplaced or lost data, programming and/or human errors or other similar events.

Because such attacks are increasing in sophistication (including from the use of artificial intelligence) and frequently change in nature, we and our third-party service providers may be unable to anticipate these attacks or implement adequate preventative measures, and any compromise of our systems, or those of our third-party providers, may not be discovered and remediated promptly.

Changes in consumer behavior following such an event affecting us or a third party may materially and adversely affect our business, which in turn may materially and adversely affect our reputation, results of operations and financial condition.

Our receipt of proceeds under any insurance we maintain with respect to some of these risks may be delayed or the proceeds may be insufficient to cover our losses fully, which could have a material adverse effect on our business, results of operations and financial condition.

Additionally, the collection, maintenance, use, disclosure and disposal of individually identifiable data by our businesses are regulated at the federal, state and foreign levels as well as by certain financial industry groups, such as the Payment Card Industry Security Standards Council, NACHA, Canadian Payments Association and individual credit card issuers.

Additionally, the collection, maintenance, use, disclosure and disposal of individually identifiable or other personal data by our businesses are regulated at the federal, state and foreign levels as well as by certain financial industry groups, such as the Payment Card Industry Security Standards Council, Nacha, Canadian Payments Association and individual credit card issuers.

Some of this data is sensitive and could be an attractive target of a criminal attack by malicious third parties with a wide range of motives and expertise.

Federal, state and foreign regulators and financial industry groups have and may continue to also consider new privacy and security requirements that may apply to our businesses.

Compliance with evolving privacy and security laws, requirements and regulations may result in cost increases due to necessary systems changes, new limitations or constraints on our business models and the development of new administrative processes.

They also may impose further restrictions on our collection, disclosure and use of individually identifiable information that are housed in one or more of our databases.

Federal, state and foreign regulators and financial industry groups continue to adopt or consider new privacy and security requirements that may apply to our businesses.

Compliance with evolving and fragmenting privacy and security laws, requirements and regulations may result in cost increases due to necessary systems changes, new limitations or constraints on our business models and the development of new administrative processes.

They also may impose further

restrictions on our collection, disclosure and use of information that is housed in one or more of our databases.

Noncompliance with privacy laws, financial industry group requirements or a security breach involving the misappropriation, loss or other unauthorized disclosure of personal, sensitive and/or confidential information, whether by us or by one of our vendors, could have adverse effects on our business, operations, brand, reputation and financial condition, including decreased revenue, fines and penalties, increased financial processing fees, compensatory, statutory, punitive or other damages, adverse actions against our licenses to do business and injunctive relief.

Moreover, any failure or unforeseen issues, such as bugs, data inconsistencies, outages, fires, floods, changes in business processes and other interruptions with our systems or the systems of third-party vendors could adversely impact our business and member experiences and cause us to lose members.

Moreover, any failure or unforeseen issues, such as bugs, data inconsistencies, cloud concentration issues, outages, fires, floods, changes in business processes and other interruptions with our systems or the systems of third-party vendors could adversely impact our business and member experiences and cause us to lose members.

Disruptions or failures that affect our billing and other administrative functions could also have an adverse effect on our results of operations.

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Risks Relating to Our Capital Structure and Lease Obligations

Our substantial indebtedness and lease obligations, and the restrictive covenants in the documents governing such indebtedness and lease obligations, could adversely affect our financial condition and prevent us from growing our business, taking certain actions, responding to changes in the economy or our industry or fulfilling our obligations under our indebtedness and lease obligations.

Our level of indebtedness and lease obligations, and the restrictive covenants in the documents governing such indebtedness and lease obligations, could adversely affect our financial condition and prevent us from growing our business, taking certain actions or responding to changes in the economy or our industry.

As of December 31, 2023, we had total consolidated indebtedness outstanding of approximately $1,948 million, as detailed in Note 8—Debt, to our consolidated financial statements included in Part II, Item 8 of this Annual Report.

For the year ended December 31, 2023, our interest expense, net of interest income was $131 million.

Our annual debt service obligation is expected to be approximately $121.5 million for 2023.

Our annual debt service obligation for 2024 is expected to be approximately $146.4 million for interest and $73.8 million primarily for mortgage principal payments.

Despite our level of indebtedness, we and our subsidiaries may still incur substantially more debt, including secured debt.

This could further exacerbate the risks described below and impair our ability to operate our business.

We also have significant property lease obligations.

As of December 31, 2023, we had 165 leased properties, including 129 center leases (of which 11 are ground leases) and centers under construction.

For the year ended December 31, 2022, our rent expense was $245 million.

For the year ended December 31, 2023, our rent expense was approximately $275 million.

In addition to minimum lease payments, some of our center leases provide for additional rental payments based on a percentage of net sales, or “percentage rent,” if sales at the respective centers exceed specified levels, as well as the payment of common area maintenance charges, real property insurance and real estate taxes.

Many of our leases also have defined escalating rent provisions over the initial term and any extensions.

As we continue to execute on our asset light approach, including sale-leaseback transactions, we expect to lease, rather than own, the majority of our new centers in the future.

As we continue to execute on our asset-light growth strategy, including sale-leaseback transactions, we expect to lease, rather than own, the majority of our new centers in the future.

The indentures governing our secured and unsecured notes and the credit agreement governing our senior secured credit facility contain a number of covenants imposing significant restrictions on our business, including we are required to comply with a first lien net leverage ratio covenant under the revolving portion of our senior secured credit facility.

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Our ability to comply with these covenants may be affected by circumstances and events beyond our control, such as prevailing economic conditions, pandemics or epidemics and changes in regulations, and there is no assurance that we will be able to comply with such covenants.

Specifically, our high level of indebtedness and lease obligations, and the restrictions imposed thereby, could have material consequences, including:

• making it more difficult for us to satisfy our obligations with respect to our indebtedness, and if we fail to comply with these requirements, an event of default could result;

• limiting our ability to obtain or guarantee additional indebtedness or make certain investments, which could impact our ability or flexibility to fund or execute on future working capital, capital expenditures, our growth strategy including the development and construction of new centers, investments or acquisitions or other general corporate requirements or business opportunities;

• requiring a substantial portion of our cash flows to be dedicated to debt service and lease obligations instead of other purposes, thereby reducing the amount of cash flows available for working capital, capital expenditures, our growth strategy, investments or acquisitions and other general corporate purposes or business opportunities, and restricting our ability to pay dividends or make distributions on our capital stock;

• limiting our ability to incur liens, to sell assets, including capital stock of restricted subsidiaries, to agree to payment restrictions affecting our restricted subsidiaries, to consolidate, merge, sell or otherwise dispose of all or substantially all of our assets or to enter into transactions with our affiliates;

Specifically, our level of indebtedness and lease obligations, and the restrictions imposed thereby, could have material consequences, including:

• making it more difficult for us to satisfy our obligations with respect to our indebtedness and lease obligations, and if we fail to comply with these requirements, an event of default could result;

• limiting our ability to obtain or guarantee additional indebtedness or make certain investments, which could impact our ability to fund or execute on future working capital, capital expenditures, our growth strategy or other general corporate requirements or business opportunities;

• requiring a substantial portion of our cash flows to be dedicated to debt service and lease obligations, thereby reducing the amount of cash flows available for working capital, capital expenditures, our growth strategy and other general corporate purposes or business opportunities, and restricting our ability to pay dividends or make distributions on our capital stock;

• limiting our ability to incur liens, to sell assets, to consolidate, merge, sell or otherwise dispose of all or substantially all of our assets or to enter into transactions with our affiliates;

• increasing our vulnerability to general adverse economic and industry conditions;

• limiting our flexibility in planning for and reacting to changes in the industry in which we compete and to changing business and economic conditions;

• placing us at a disadvantage compared to other, less leveraged competitors and affecting our ability to compete;

• placing us at a disadvantage compared to other, less leveraged competitors;

• increasing our cost of borrowing or limiting our ability to refinance indebtedness.

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The occurrence of any one of these events could have a material adverse effect on our business, financial condition, results of operations and ability to grow our business or satisfy our obligations.

Rates under our senior secured credit facility are variable and currently use LIBOR as a benchmark for establishing certain interest rates.

Rates under our senior secured credit facility are variable, which could result in increased debt service obligations and decreased net income and cash flows.

Borrowings under the revolving portion of our senior secured credit facility (the “Revolving Credit Facility”) and the term loan portion of our senior secured credit facility (the “Term Loan Facility” and, together with the Revolving Credit Facility, the “Credit Facilities”) are at variable rates of interest and expose us to interest rate risk.

If interest rates were to increase, our debt service obligations on the variable rate indebtedness would increase even though the amount borrowed remained the same, and our net income and cash flows, including cash available for servicing our indebtedness, would correspondingly decrease.

Assuming no prepayments of the Term Loan Facility and that the Revolving Credit Facility is fully drawn (and to the extent that LIBOR is in excess of the floor rate applicable to the Term Loan Facility), each one percentage point change in interest rates would result in an approximately $7.5 million change in annual interest expense on the indebtedness under the Credit Facilities.

As interest rates increase, our debt service obligations on the variable rate indebtedness increases even though the amount borrowed remains the same, and our net income and cash flows, including cash available for servicing our indebtedness, correspondingly decreases.

Assuming no prepayments of the Term Loan Facility and that the Revolving Credit Facility is fully drawn (and to the extent that SOFR is in excess of the floor rate applicable to the Term Loan Facility), each one percentage point change in interest rates would result in an approximately $7.9 million change in annual interest expense on the indebtedness under the Credit Facilities.

In the future, we may enter into interest rate swaps that involve the exchange of floating for fixed rate interest payments in order to reduce interest rate volatility or risk.

However, we may not maintain interest rate swaps with respect to any of our variable rate indebtedness, and any swaps we enter into may not fully or effectively mitigate our interest rate risk.

In addition, certain of our financial arrangements, including the Credit Facilities, use the London Interbank Offered Rate (“LIBOR”) (or metrics derived from or related to LIBOR), as a benchmark for establishing the interest rate.

While the Credit Facilities have a built-in mechanism to transition automatically from LIBOR as its benchmark, the consequences of the end of LIBOR and any related developments cannot be entirely predicted and could have an adverse impact on the market value for or value of our LIBOR-linked securities, loans and other financial obligations or extensions of credit held by or due to us.

Changes in market interest rates may influence our financing costs, returns on financial investments and the valuation of derivative contracts and could reduce our earnings and cash flows.

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We depend on cash flow from operations to pay our indebtedness and lease obligations.

We also expect that we will need to refinance all or a portion of our indebtedness on or before maturity, including the need to repay, refinance, replace or otherwise extend the maturity of the Term Loan Facility and our secured notes before the maturity of our unsecured notes.

Our ability to make scheduled payments on our indebtedness and lease obligations, to refinance our debt obligations or to negotiate favorable terms on new or expiring leases depends on our financial condition and operating performance, which are subject to prevailing economic and competitive conditions and to certain financial, business, market, legislative, regulatory, environmental and other factors beyond our control.

We also need to refinance all or a portion of our indebtedness on or before maturity.

Our ability to make scheduled payments on our indebtedness and lease obligations, to refinance our debt obligations or to negotiate favorable terms on new or expiring leases depends on our financial condition and operating performance, which could be subject to prevailing economic and competitive conditions and to certain financial, business, market, legislative, regulatory, environmental and other factors beyond our control.

Our inability to generate sufficient cash flows to satisfy our debt and lease obligations, or to refinance our indebtedness at comparable interest rates and on commercially reasonable terms or at all, or to renew our leasehold interests on their expiration or on terms that are as favorable as the current terms, would materially and adversely affect our business, financial position and results of operations.

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We may not be able to effect any such alternative measures on commercially reasonable terms or at all and, even if successful, those alternative actions may not allow us to meet our operating needs or our scheduled debt service obligations.

If we cannot make scheduled payments on our debt and lease obligations, we will be in default, and holders of our secured and unsecured notes could declare all outstanding principal and interest to be due and payable, our landlords could declare us in breach and terminate the applicable lease(s), and the lenders under the Credit Facilities and our secured notes could foreclose against the assets securing their borrowings and we could be forced into bankruptcy or liquidation.

Our ability to raise capital in the future may be limited.

Our business and operations may consume resources faster than we anticipate.

Our ability to raise capital in the future may be limited, which could impact our operations and ability to grow.

Our business requires capital to operate and grow.

We may need or choose to raise additional funds through the issuance of new equity securities, debt or a combination of both.

Additional financing may not be available on favorable terms, or at all.

If adequate funds are not available on acceptable terms, we may be unable to fund our capital requirements.

If we issue new debt securities, the debt holders would have rights senior to common stockholders to make claims on our assets, and the terms of any debt could further restrict our operations, including our ability to pay dividends on our common stock.

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Risks Relating to Our Human Capital

If we cannot retain our key employees, hire additional highly qualified employees and optimize our support structure, we may not be able to successfully manage our businesses, expand our margins and pursue our strategic objectives.

If we cannot retain our key employees, hire additional highly qualified employees and optimize our support structure, we may not be able to successfully manage our businesses, achieve our growth targets and pursue our strategic objectives.

We may also continue to face increased labor costs that could reduce our profitability.

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Competition for such employees is intense.

Our inability to attract, retain, train and motivate qualified employees, including due to a significant portion of the equity awards granted to key employees now being vested and exercisable, could reduce member satisfaction, harm our brand and reputation and adversely affect our operating efficiency and financial results.

We have implemented several initiatives to rewire the corporate and management support of our centers to operate more effectively and efficiently.

Failure to operate as planned under these new structures could adversely affect our business and reduce our expected margin expansion from these initiatives.

Staffing shortages, including for our centers and for key corporate and technology resources, could also hinder our ability to implement our business strategy and increase our labor costs.

Our inability to attract, retain, train and motivate qualified employees could reduce member satisfaction, harm our brand and reputation and adversely affect our operating efficiency and financial results.

We rewired the corporate and management support of our centers to operate more effectively and efficiently.

Failure to operate as planned under these structures could adversely affect our business.

Staffing shortages, including for our centers and for key corporate and technology resources, could also hinder our ability to implement our business and growth strategy.

Payroll costs are a major component of the operating expenses at our centers.

We have experienced and may continue to experience a labor market that requires higher wages, which places pressure on our profitability and margin expansion initiatives.

We have experienced and may continue to experience a labor market that requires higher wages, which places pressure on our profitability.

Increases in minimum wage rates could also result in increased costs for us, which may adversely affect our results of operations and financial condition.

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• statutes that regulate the sale and terms of our membership contracts;

• health or safety regulations related to various center operations, such as our Dynamic Personal Training, LifeCafe, LifeSpa, Life Time Swim and Life Time Kids;

• health or safety regulations related to various center operations, such as our Dynamic Personal Training, MIORA, LifeCafe, LifeSpa, Life Time Swim and Life Time Kids;

• regulation or licensing of ancillary health, fitness and wellness-related products and services;

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Additionally, as we expand our business and “Healthy Way of Life” ecosystem, including potentially offering our digital membership or other services internationally, we could be exposed to new or incremental regulatory, economic and political risks in addition to those we already face in the United States and Canada.

We could be subject to claims related to the construction or operation of our facilities and in the use or condition of our premises, facilities, equipment, services, activities or products, which could have a negative effect on our results of operations and financial condition.

We could be subject to claims related to the construction or operation of our facilities and the use or condition of our premises, facilities, equipment, services, activities or products, which could have a negative effect on our results of operations and financial condition.

Use of our premises, facilities, equipment, services, activities or products pose potential health or safety risks to members and guests.

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We could be subject to claims related to our health, fitness and wellness-related offerings or other claims, and the value and reputation of our brand may suffer.

We offer directly or through third parties a variety of health, fitness and wellness-related products and services, such as nutritional products, blood screenings and other fitness assessments, health and fitness content and services, chiropractic services and medi-spa services.

We offer directly or through third parties a variety of health, fitness and wellness-related products and services, such as nutritional and weight loss products, blood screenings and other fitness assessments, anti-aging and longevity services, health and fitness content and services, chiropractic services and medi-spa services.

There is no assurance that there will be no claims against us related to these services and products, including regarding the ingredients in, manufacture of or results of using our nutritional products, our provision of other health, fitness and wellness-related services or our relationships with third parties.

Furthermore, there is no assurance that any rights we have under indemnification provisions and/or insurance policies will be sufficient to cover any losses that might result from such claims.

Furthermore, there is no assurance that any rights we have under indemnification provisions and/or insurance policies will be

sufficient to cover any losses that might result from such claims.

Any publicity surrounding such claims may negatively impact the value of our brand.

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Any adverse developments in tax laws or regulations, including legislative changes, judicial holdings or administrative interpretations, could have a material and adverse effect on our business, financial condition and results of operations.

Finally, changes in the scope of our operations, including expansion to new products or new geographies, could increase the amount and type of taxes to which we are subject, and could increase our effective tax rate.

Changes in the scope of our operations, including expansion to new products or new geographies, could also increase the amount and type of taxes to which we are subject, and could increase our effective tax rate.

Risks Relating to Ownership of Our Common Stock

Our share price may change significantly, and stockholders may not be able to resell our common stock at or above the price per share paid or at all.

The stock market has experienced volatility, and the trading price of our common stock has also experienced volatility.

The trading price of our common stock has experienced volatility.

Stock volatility often has been unrelated or disproportionate to the operating performance of particular companies.

Additionally, the development of a trading market on the NYSE for our common stock and how active and liquid that market may become may be impacted by the fact that certain of our existing stockholders who were stockholders before the IPO, who we collectively refer to as the “Voting Group,” collectively held as of December 31, 2022, approximately 84.3% of the voting power of our common stock.

Additionally, how active and liquid the trading market on the NYSE for our common stock is or may become may be impacted by the fact that certain of our existing stockholders who were stockholders before the IPO, who we refer to as the “Voting Group,” collectively held as of February 26, 2024, approximately 74.7% of the voting power of our common stock.

If an active and liquid trading market does not develop or continue, stockholders may have difficulty selling any of the shares of common stock that they purchased.

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In addition, price volatility may be greater if the public float and trading volume of our common stock remain low.

In the past, following periods of market volatility, stockholders have instituted securities class action litigation.

In the past, following periods of market volatility, stockholders of companies have instituted securities class action litigation.

If we were involved in securities litigation, it could have a substantial cost and divert resources and the attention of executive management from our business regardless of the outcome of such litigation.

We are controlled by certain of our stockholders, whose interests may not be aligned with yours.

The Voting Group is party to an amended and restated stockholders agreement with the Company (the “Stockholders Agreement”) and collectively held as of December 31, 2022 approximately 84.3% of the voting power of our common stock.

The Voting Group is party to an amended and restated stockholders agreement with the Company (the “Stockholders Agreement”) and collectively held approximately 74.7% of the voting power of our common stock as of February 26, 2024.

The Voting Group includes investment funds affiliated with Leonard Green & Partners, L.P.

and its affiliates (“LGP”) and TPG Inc.

and its affiliates (“TPG”), which collectively hold approximately 52.4% of the voting power of our common stock.

and its affiliates (“TPG”), which collectively held approximately 51.8% of the voting power of our common stock as of February 26, 2024.

Pursuant to the terms of the Stockholders Agreement, certain members of the Voting Group are entitled to designate individuals to be included in the slate of nominees recommended by our board of directors for election to our board of directors, subject to certain stock ownership thresholds set forth in the Stockholders Agreement, and the members of the Voting Group have agreed to vote their shares of our common stock in favor of the election of such nominees.

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As a result, we qualify for and are currently relying on exemptions from certain corporate governance requirements that provide protection to stockholders of other companies.

As a result of the Voting Group owning a majority of our common stock, we are a “controlled company” within the meaning of the corporate governance standards of the NYSE.

As a result of the Voting Group owning a majority of our common stock, we are a “controlled company” within the meaning of the corporate governance standards of the NYSE and the rules of the SEC.

Under these rules, a “controlled company” may elect not to comply with certain corporate governance requirements, including:

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• the requirement for an annual performance evaluation of the nominating and corporate governance and compensation committees.

We are currently relying on certain of the exemptions listed above, including that we do not currently have a nominating and corporate governance committee or compensation committee that consists entirely of independent directors.

We do not currently have a nominating and corporate governance committee or compensation committee that consists entirely of independent directors.

We may also elect to rely on additional exemptions for so long as we remain a “controlled company.” As a result, in the future our board of directors and those committees may have more directors who do not meet the NYSE’s independence standards than they would if those standards were to apply.

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These sales, or the possibility that these sales may occur, also might make it more difficult for us to sell equity securities in the future at a time and at a price that we deem appropriate.

As of December 31, 2022, we had a total of 194,271,493 shares of common stock outstanding and the Voting Group held 163,820,107 shares, or approximately 84.3%, of our common stock.

As of February 26, 2024, we had a total of 196,705,443 shares of common stock outstanding and the Voting Group held 146,864,926 shares, or approximately 74.7%, of our common stock.

The shares of our common stock held by the Voting Group are “restricted securities” under Rule 144 of the Securities Act and subject to certain restrictions on resale.

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These factors could also make it more difficult for us to raise additional funds through future offerings of our common stock or other securities.

In addition, our shares of common stock subject to outstanding awards or reserved for future issuance under our 2021 Incentive Award Plan and our 2021 Employee Stock Purchase Plan will become eligible for sale in the public market once those shares are issued, subject to provisions relating to various vesting agreements.

In the future, we may also issue our securities in connection with investments or acquisitions.

We may also issue our securities in connection with investments or acquisitions.

The amount of our common stock issued in connection with an investment or acquisition could constitute a material portion of our then-outstanding common stock.

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These provisions could discourage, delay or prevent a transaction involving a change in control of our Company.

They could also discourage proxy contests and make it more difficult for stockholders to elect directors of their choosing and cause us to take corporate actions other than those which the stockholders desire.

We are exposed to risks relating to evaluations of controls required by Section 404 of the Sarbanes-Oxley Act.

As a public company, we are required to evaluate our internal control over financial reporting in a manner that meets the standards of publicly traded companies required by Section 404(a) of the Sarbanes-Oxley Act of 2002 (“Section 404” and the “Sarbanes-Oxley Act,” respectively).

Our internal control over financial reporting is currently managed by an internal financial reporting team with support from a third-party service provider.

The process of designing and implementing effective internal controls that we manage is a continuous effort that requires us to anticipate and react to changes in our business and the economic and regulatory environments and to expend significant resources to maintain a system of internal controls that is adequate to satisfy our reporting obligations as a public company.

If we are unable to establish or maintain appropriate internal financial reporting controls and procedures, it could cause us to fail to meet our reporting obligations on a timely basis, result in material misstatements in our consolidated financial statements and harm our results of operations.

In addition, this Annual Report is our first that we are required, pursuant to Section 404, to furnish a report by management on, among other things, the effectiveness of our internal control over financial reporting.

The rules governing the standards that must be met for our management to assess our internal control over financial reporting are complex and require significant documentation, testing and possible remediation.

Our independent registered public accounting firm may be required to issue an attestation report on effectiveness of our internal controls.

We may encounter problems or delays in completing the remediation of any deficiencies identified by our independent registered public accounting firm in connection with the issuance of their attestation report.

Our testing, or the subsequent testing by our independent registered public accounting firm, may reveal deficiencies in our internal control over financial reporting that are deemed to be material weaknesses.

A material weakness in our internal controls could result in our failure to detect a material misstatement of our annual or quarterly consolidated financial statements or disclosures.

We may not be able to conclude on an ongoing basis that we have effective internal control over financial reporting in accordance with Section 404.

If we are unable to conclude that we have effective internal control over financial reporting, investors could lose confidence in our reported financial information, which could have a material adverse effect on the trading price of our common stock.

We became a public company in October 2021 and are incurring increased costs as a result of operating as a publicly traded company, and our management is required to devote substantial time to public company compliance initiatives.

As a publicly traded company, we are incurring additional legal, accounting, insurance and other expenses that we did not previously incur.

In addition, the Sarbanes-Oxley Act, the Dodd-Frank Wall Street Reform and Consumer Protection Act and the rules of the SEC, and the stock exchange on which our common stock is listed, have imposed various requirements on public companies.

Our management and other personnel devote a substantial amount of time to these compliance initiatives as well as investor relations.

Moreover, these rules and regulations increase our legal and financial compliance costs and make some activities more time-consuming and costly.

Our ability to use our net operating loss carryforwards and certain other tax attributes may become subject to limitation.

As of December 31, 2023, we had U.S.

federal and state net operating loss carryforwards of approximately $393.8 million ($82.7 million tax effected) and $295.6 million ($16.9 million tax effected), respectively, and disallowed interest expense carryforwards under Section 163(j) of the Internal Revenue Code of 1986, as amended (the “Code”), of approximately $143.4 million ($35.3 million tax effected).

Our ability to utilize our federal net operating carryforwards and disallowed interest expense carryforwards (the “Tax Attributes”) may become limited under Section 382 of the Code.

federal and state net operating loss carryforwards of approximat ely $329.1 million ($69.1 million tax effected) and $196.9 million ($11.0 million tax effected), respectively, and disallowed interest expense carryforwards under Section 163(j) of the Internal Revenue Code of 1986, as amended (the “Code”), of approximately $229.6 million ($57.8 million tax effected).

Our ability to utilize our federal net operating carryforwards and disallowed in terest expense carryforwards (the “Tax Attributes”) may become limited under Section 382 of the Code.

The limitation applies if we experience an “ownership change,” which is generally defined as a greater than 50 percentage point change (by value) in the ownership of our equity by certain stockholders over a rolling three-year period.

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federal income tax on gain realized on a sale or other taxable disposition of our common stock if such Non-U.S.

Holder has owned, actually or constructively, more than 5% of our common stock at any time during the shorter of the five-year period ending on the date of the sale or other taxable disposition or the Non-U.S.

Holder has owned, actually or constructively, more than 5% of our common stock at any time

during the shorter of the five-year period ending on the date of the sale or other taxable disposition or the Non-U.S.

Holder’s holding period in such stock.

UNRESOLVED STAFF COMMENTS

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-K

Item 1A. Risk Factors