What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-08-01 compared with 2024-05-07 · 159 added, 82 removed, 227 unchanged (51% of the section changed)

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Business and Strategy

Life Time, the “Healthy Way of Life Co mpany,” is a leading lifestyle and leisure brand offering premium health, fitness and wellness experiences to a communit y of more than 1.5 million individua l members, who together compr ise more than 853,000 memberships, as of March 31, 2024.

Life Time, the “Healthy Way of Life Co mpany,” is a leading lifestyle and leisure brand offering premium health, fitness and wellness experiences to a communit y of more than 1.5 million individual members, who together comprise more than 878,000 memberships, as of June 30, 2024.

Since our founding over 30 years ago, we have sought to continuously innovate ways for our members to lead healthy and happy lives by offering them the best places, programs and performers.

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Our centers are located in affluent suburban and urban locations.

Depending on the size and location of a center, we offer expansive fitness floors with top-of-the-line equipment, spacious locker rooms, group fitness studios and spaces, indoor and outdoor pools and bistros, indoor and outdoor tennis courts, pickleball courts, basketball courts, LifeSpa, LifeCafe and our childcare and Kids Academy learning spaces.

Depending on the size and location of a center, we offer expansive fitness floors with top-of-the-line equipment, spacious locker rooms, group fitness studios and spaces, indoor and outdoor pools and bistros, indoor and outdoor tennis courts, indoor and outdoor pickleball courts, basketball courts, LifeSpa, LifeCafe and our childcare and Kids Academy learning spaces.

Our premium service offerings are delivered by over 45,000 Life Time team members, including over 10,500 certified fitness professionals, ranging from personal trainers to studio performers.

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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, center usage and the visits to our athletic country clubs.

Our average revenue per center membership increased to $745 for the three months ended March 31, 2024 as compared to $667 for the three months ended March 31, 2023.

Total visits to our clubs were 28 million for the three months ended March 31, 2024 as compared to 26 million for the three months ended March 31, 2023, and average visits per membership remained strong at 36 average visits per membership to our centers for the three months ended March 31, 2024.

Our average revenue per center membership increased to $1,541 for the six months ended June 30, 2024 as compared to $1,369 for the six months ended June 30, 2023.

Total visits to our clubs were 57 million for the six months ended June 30, 2024 as compared to 52 million for the six months ended June 30, 2023, and average visits per membership remained strong at 72 average visits per membership to our centers for the six months ended June 30, 2024.

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 $580.5 million for the three months ended March 31, 2024 as compared to $497.8 million for the three months ended March 31, 2023.

Our total Center revenue increased to $1,225.5 million for the six months ended June 30, 2024 as compared to $1,039.9 million for the six months ended June 30, 2023.

We believe it will continue to grow as we open new centers in desirable locations across the country, our new centers ramp to expected performance 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 March 31, 2024, we had 27 centers open for less than three years and seven new centers under construction, with $204 million of growth capital expenditures already invested into these new centers that have yet to open.

We are 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 of June 30, 2024, we had 27 centers open for less than three years and eight new centers under construction, with significant growth capital expenditures already invested into these new centers that have yet to open.

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

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

We believe we have significant opportunities to continue expanding our portfolio of premium centers in an asset-light manner with plans for nine to 10 new centers in 2024.

We believe the combined dynamic of our ramping new centers that are open and operating 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 an even healthier and stronger business.

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

We were then able to focus on expanding margins by optimizing our average revenue per center membership and significantly improving the efficiency of our club operations and corporate office.

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

We believe we have significant opportunities to continue expanding our portfolio of premium centers in an asset-light manner and we are targeting eight to 12 new locations on average per year.

We believe the combined dynamic of our ramping new centers that are open and operating, new members joining at higher membership dues rates plus the capital expenditures already invested in our centers under construction creates a strong tailwind for the continued growth of our total Center revenue.

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.

We have also launched a pilot for our MIORA health optimization and longevity services and believe we also have opportunities to enhance our offerings within our LifeCafe and LifeSpa during 2024.

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

In addition, our digital health store offers a wide variety of equipment, wearables, apparel, beauty products and nutritional supplements.

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

We have also launched a pilot for our MIORA health optimization and longevity services and we have been executing on enhanced offerings within our LifeCafe, LifeShop and LifeSpa.

Additionally, our digital platform is delivering a true omni-channel experience through our integrated digital app that is now available at no cost, including live streaming fitness classes, remote goal-based personal training, nutrition and weight loss support and curated award-winning health, fitness and wellness content.

In addition, our LifeShop digital health store offers a wide variety of equipment, wearables, apparel, beauty products and nutritional supplements.

We are continuing to invest in our digital capabilities, including artificial intelligence, to strengthen our relationships with our members, reach more people looking for a Healthy Way of Life and more comprehensively address their health, fitness and wellness needs so that they can engage and connect with Life Time at any time or place.

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

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

As of March 31, 2024, we had 15 Life Time Work and four Life Time Living locations open and operating.

Our Life Time Living offering is generating interest from new property developers and presenting opportunities for new center development that were not previously available to us.

As of June 30, 2024, we had 15 Life Time Work and four 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 and deal terms that were not previously available to us.

Our omni-channel platform continues to grow as we expand our footprint with new centers and nearby work and living spaces, as well as strengthen our digital capabilities.

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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 net income, Adjusted net income 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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Adjusted Net Income

We define Adjusted net income as net income 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.

We define Adjusted net income as net income excluding the impact of share-based compensation expense as well as (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, less the tax effect of these adjustments.

Adjusted EBITDA

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

We define Adjusted EBITDA as net income before interest expense, net, provision for income taxes and depreciation and amortization, excluding the impact of share-based compensation expense as well as (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.

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

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

Adjusted net income 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 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 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 and Adjusted EBITDA only for supplemental purposes.

Free Cash Flow

We define free cash flow as net cash provided by operating activities less capital expenditures, net of construction reimbursements, plus net proceeds from sale-leaseback transactions and land sales.

We believe free cash flow 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 to be a key indicator of our liquidity and we present this metric to our board of directors.

Additionally, we believe free cash flow 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 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 net income, Adjusted EBITDA and free cash flow 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 or any other performance measures derived in accordance with GAAP or as an alternative to net cash provided by operating activities as a measure of our liquidity and may not be comparable to other similarly titled measures of other businesses.

Adjusted net income, Adjusted EBITDA and free cash flow 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 net income, Adjusted EBITDA and free cash flow 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 months ended March 31, 2024 and 2023.

Set forth below are certain GAAP and non-GAAP measurements and key performance indicators for the three and six months ended June 30, 2024 and 2023.

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

Three Months Ended

Three Months Ended Six Months Ended

June 30, June 30,

2024 2023 2024 2023

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

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Average Center revenue per center membership (1)

$ 794 $ 701 $ 1,541 $ 1,369

Comparable center revenue (2)

12.0% 15.5% 11.6% 19.7%

Net new center openings (3)

Total centers (end of period) (3)

175 164 175 164

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

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Net income margin (5)

7.9 % 3.0 % 6.1 % 4.1 %

Adjusted net income (6)

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Adjusted net income margin (6)

7.9 % 6.8 % 6.6 % 5.6 %

Adjusted EBITDA (7)

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$ 1,727 $ 1,784 $ 3,005 $ 4,434

Net cash provided by operating activities $ 170,423 $ 141,943 $ 260,830 $ 216,291

Free cash flow (10)

$ 175,116 $ 21,045 $ 108,722 $ (42,745)

(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 three months ended March 31, 2024, we opened one center, which excludes two acquired centers that are not currently considered new center openings as they are under major remodel.

During the three months ended June 30, 2024, we opened three centers.

(4) Total center square footage (end of period) reflects the aggregate square footage, excluding areas used for tennis courts, outdoor swimming pools, outdoor play areas and stand-alone Work, Sport and Swim locations.

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

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

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

Three Months Ended

Three Months Ended Six Months Ended

June 30, June 30,

($ in thousands) 2024 2023 2024 2023

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Share-based compensation expense (a)

Gain on sale-leaseback transactions (b)

11,071 16,549 18,698 22,171

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

(7,558) 7,491 (7,522) 759

(3,974) 1,251 (3,796) (3,261)

96 (4,330) (1,726) (4,285)

Adjusted net income $ 52,440 $ 37,965 $ 83,376 $ 59,848

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Diluted 206,044 204,821 204,851 203,872

(a) Shar e-based compensation expense recognized during the three months ended March 31, 2024 was associated with stock options, restricted stock units, performance stock units and our employee stock purchase plan (“ESPP”) that launched on December 1, 2022.

Shar e-based compensation expense recognized during the three months ended March 31, 2023 was associated with stock options, restricted stock units, our ESPP and liability classified awards related to our short-term incentive plan in 2023.

(b) 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.

(a) Shar e-based compensation expense recognized during the three and six months ended June 30, 2024 was associated with stock options, restricted stock units, performance stock units, our employee stock purchase plan (“ESPP”) that launched on December 1, 2022, and liability-classified awards related to our 2024 short-term incentive plan.

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 ESPP and liability-classified awards related to our 2023 short-term incentive plan.

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

For details on the gain on sale-leaseback transactions that we recognized during the six months ended June 30, 2024, see Note 6, Leases, to our condensed consolidated financial statements in this report.

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

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

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

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

Three Months Ended

Three Months Ended Six Months Ended

June 30, June 30,

($ in thousands) 2024 2023 2024 2023

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Share-based compensation expense (a)

Gain on sale-leaseback transactions (b)

11,071 16,549 18,698 22,171

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

(7,558) 7,491 (7,522) 759

(3,974) 1,251 (3,796) (3,261)

Adjusted EBITDA $ 173,545 $ 136,039 $ 319,523 $ 256,141

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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.

(10) Free cash flow, a non-GAAP financial measure, is calculated as net cash provided by operating activities less capital expenditures, net of construction reimbursements, plus net proceeds from sale-leaseback transactions and land sales.

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

Three Months Ended Six Months Ended

June 30, June 30,

($ in thousands) 2024 2023 2024 2023

Net cash provided by operating activities $ 170,423 $ 141,943 $ 260,830 $ 216,291

Capital expenditures, net of construction reimbursements (144,306) (166,262) (301,107) (337,076)

Proceeds from sale-leaseback transactions 142,671 45,364 142,671 78,040

Proceeds from land sales 6,328 — 6,328 —

Free cash flow $ 175,116 $ 21,045 $ 108,722 $ (42,745)

Factors Affecting the Comparability of our Results of Operations

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We have significantly improved our leverage ratio 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 member engagement and 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.

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.

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

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Share-Based Compensation

During the three months ended March 31, 2024, we recognized share-based compensation expense associated with stock options, restricted stock units, performance stock units and our ESPP, totaling approximately $7.6 million.

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

During the six months ended June 30, 2024, we recognized share-based compensation expense associated with stock options, restricted stock units, performance stock units, our ESPP and liability-classified awards related to our 2024 short-term incentive plan, totaling approximately $18.7 million.

During the six months ended June 30, 2023, we recognized share-based compensation expense associated with stock options, restricted stock units, our ESPP and liability-classified awards related to our 2023 short-term incentive plan, totaling approximately $22.2 million.

Critical Accounting Policies and Estimates

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

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

More information on all of our significant accounting policies can be found in Note 2, “Summary of Significant Accounting Policies” to our audited consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023 filed with the SEC.

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Results of Operations

Three Months Ended March 31, 2024 Compared to Three Months Ended March 31, 2023

The following table sets forth our condensed consolidated statements of operations data (amounts in thousands) and data as a percentage of total revenue for the three months ended March 31, 2024 and 2023:

Three Months Ended March 31,

Three Months Ended June 30, 2024 Compared to Three Months Ended June 30, 2023

Three Months Ended June 30,

As a Percentage of Total Revenue

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Interest expense, net of interest income (37,669) (31,979) (5.6) % (5.7) %

Equity in earnings of affiliates 177 143 — % — %

Equity in (loss) earnings of affiliates (464) 88 (0.1) % — %

Total other expense (38,133) (31,891) (5.7) % (5.7) %

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Total revenue.

The $85.8 million increase in Total revenue for the three months ended March 31, 2024 as compared to the three months ended March 31, 2023 was due to continued strong growth in membership dues and in-center revenue, includi ng 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 $82.7 million increase in Center revenue for the three months ended March 31, 2024 as compared to the three months ended March 31, 2023:

• 82.1% was from membership dues and enrollment fees, which increased $67.9 million for the three months ended March 31, 2024 as compared to the three months ended March 31, 2023.

This increase reflects the improvement in our Center memberships, which increased to 802,010 as of March 31, 2024 from 764,173 as of March 31, 2023, as well as higher average monthly dues per Center membership during the three months ended March 31, 2024 as compared to the three months ended March 31, 2023;

• 17.9% was from in-center revenue, which increased $14.8 million for the three months ended March 31, 2024 as compared to the three months ended March 31, 2023.

This increase was recognized across all of our primary in-center businesses and reflects the higher utilization of our offerings by our members during the three months ended March 31, 2024 as compared to the three months ended March 31, 2023.

Th e $3.1 million increase in Other revenue for the three months ended March 31, 2024 as compared to the three months ended March 31, 2023 was primarily driven by the improved performance of our Life Time Work and Life Time Living locations.

The $106.0 million increase in Total revenue for the three months ended June 30, 2024 as compared to the three months ended June 30, 2023 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 $102.9 million increase in Center revenue for the three months ended June 30, 2024 as compared to the three months ended June 30, 2023:

• 73.5% was from membership dues and enrollment fees, which increased $75.6 million for the three months ended June 30, 2024 as compared to the three months ended June 30, 2023.

This increase reflects the improvement in our Center memberships, which increased to 832,636 as of June 30, 2024 from 790,238 as of June 30, 2023, as well as higher average monthly dues per Center membership during the three months ended June 30, 2024 as compared to the three months ended June 30, 2023 ;

• 26.5% was from in-center revenue, which increased $27.3 million for the three months ended June 30, 2024 as compared to the three months ended June 30, 2023 .

This increase was recognized across all of our primary in-center businesses and reflects the higher utilization of our offerings by our members, particularly Dynamic Personal Training, during the three months ended June 30, 2024 as compared to the three months ended June 30, 2023 .

T he $3.1 million increase in Other revenue for the three months ended June 30, 2024 as compared to the three months ended June 30, 2023 was primarily driven by the improved performance of our Life Time Work locations and athletic events business.

Center operations expenses .

The $47.8 million increase in Center operations expenses for the three months ended March 31, 2024 as compared to the three months ended March 31, 2023 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.

Th e $52.9 million increase in Center operations expenses for the three months ended June 30, 2024 as compared to the three months ended June 30, 2023 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 $5.7 million increase in Rent expense for the three months ended March 31, 2024 as compared to the three months ended March 31, 2023 was primarily driven by the timing of sale-leaseback transactions during the prior year as well as our taking possession of four properties since May 31, 2023 f or future centers where we started incurring GAAP rent expense, most of which is non-cash .

The $7.5 million increase in Rent expense for the three months ended June 30, 2024 as compared to the three months ended June 30, 2023 was primarily driven by the timing of sale-leaseback transactions during both the current and prior year, the timing of taking possession of other leased properties, as well as the recognition of a higher level of contingent rent expense, which is generally determined based on a percentage of center-specific revenue and/or other center-specific financial metrics over contractually specified levels, during the three months ended June 30, 2024 as compared to the three months ended June 30, 2023.

General, administrative and marketing expenses.

General, administrative and marketing expenses increased $6.4 million for the three months ended March 31, 2024 as compared to the three months ended March 31, 2023, primarily due to higher share-based compensation expense, timing of marketing expenses primarily related to our new club openings and increased information technology costs.

General, administrative and marketing expenses increased $0.4 million for the three months ended June 30, 2024 as compared to the three months ended June 30, 2023, primarily due to increases in cash incentive compensation expens es, information technology costs and center support overhead to enhance and broaden our member services and experiences, partially offset by lower share-based compensation expense.

Depreciation and amortization .

Depreciation and amortization increased $7.7 million for the three months ended March 31, 2024 as compared to the three months ended March 31, 2023, primarily due to new center openings.

Depreciation and amortization increased $11.5 million for the three months ended June 30, 2024 as compared to the three months ended June 30, 2023, primarily due to new center openings.

Other operating expense .

Other operating expense increased $13.6 million for the three months ended March 31, 2024 as compared to the three months ended March 31, 2023, primarily due to the recognition of a $6.7 million gain on sale-leaseback transactions and a $4.8 million gain on the sale of two triathlon events during the three months ended March 31, 2023, as well as increased costs to support other revenue growth.

Other operating expense decreased $18.6 million for the three months ended June 30, 2024 as compared to the three months ended June 30, 2023, primarily due to the recognition of a $7.6 million gain on sale-leaseback transactions and a $4.3 million gain on the sale of land during the three months ended June 30, 2024 as compared to the recognition of a $7.5 million loss on sale-leaseback transactions during the three months ended June 30, 2023.

Interest expense, net of interest income .

T he $6.2 million increase in Interest expense, net of interest income for the three months ended March 31, 2024 as compared to the three months ended March 31, 2023 was driven by a higher average level of outstanding borrowings during the three months ended March 31, 2024 as compared to the three months ended March 31, 2023 .

The $5.7 million increase in Interest expense, net of interest income for the three months ended June 30, 2024 as compared to the three months ended June 30, 2023 was driven by a higher average level of outstanding borrowings and higher interest rates associated with our variable rate debt during the three months ended June 30, 2024 as compared to the three months ended June 30, 2023.

Provision for income taxes .

The $1.0 million increase in provision for income taxes for the three months ended March 31, 2024 as compared to the three months ended March 31, 2023 was primarily driven by a change in the valuation allowance associated with certain of our deferred tax assets and tax deficiencies associated with share-based payment awards, offset by a decrease in earnings before income taxes.

The provision for income taxes was $13.8 million for the three months ended June 30, 2024 as compared to $3.5 million for the three months ended June 30, 2023.

The effective tax rate was 20.7% and 17.1% for those same periods, respectively.

The effective tax rate applied to our pre-tax income for the three months ended March 31, 2024 is higher than our statutory rate of 21% and reflects an increase due to deductibility limitations associated with executive compensation and state income tax provisions.

As a result of the factors described above, net income was $24.9 million and $27.5 million for the three months ended March 31, 2024 and 2023, respectively.

The increase in provision for income taxes for the three months ended June 30, 2024 as compared to the three months ended June 30, 2023 was primarily driven by an increase in earnings before taxes and the tax deficiencies associated with share-based payment awards, partially offset by a reduction in the valuation allowance associated with certain of our deferred tax assets.

As a result of the factors described above, net income was $52.8 million for the three months ended June 30, 2024 as compared to $17.0 million for the three months ended June 30, 2023.

Six Months Ended June 30, 2024 Compared to Six Months Ended June 30, 2023

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, 2024 and 2023:

Six Months Ended June 30,

As a Percentage of Total Revenue

2024 2023 2024 2023

Center revenue $ 1,225,492 $ 1,039,877 96.9 % 97.0 %

Other revenue 38,986 32,705 3.1 % 3.0 %

Total revenue 1,264,478 1,072,582 100.0 % 100.0 %

Operating expenses:

Center operations 677,410 576,712 53.6 % 53.8 %

Rent 147,229 133,971 11.6 % 12.5 %

General, administrative and marketing 102,099 95,337 8.1 % 8.9 %

Depreciation and amortization 135,617 116,449 10.7 % 10.8 %

Other operating expense 25,310 30,321 2.0 % 2.8 %

Total operating expenses 1,087,665 952,790 86.0 % 88.8 %

Income from operations 176,813 119,792 14.0 % 11.2 %

Other (expense) income:

Interest expense, net of interest income (75,072) (63,174) (6.0) % (5.9) %

Equity in (loss) earnings of affiliates (287) 231 — % — %

Total other expense (75,359) (62,943) (6.0) % (5.9) %

Income before income taxes 101,454 56,849 8.0 % 5.3 %

Provision for income taxes 23,732 12,385 1.9 % 1.2 %

Net income $ 77,722 $ 44,464 6.1 % 4.1 %

Total revenue.

The $191.9 million increase in Total revenue for the six months ended June 30, 2024 as compared to the six months ended June 30, 2023 was due to continued strong growth in membership dues and in-center revenue, includi ng 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 $185.6 million increase in Center revenue for the six months ended June 30, 2024 as compared to the six months ended June 30, 2023:

• 77.3% was from membership dues and enrollment fees, which increased $143.5 million for the six months ended June 30, 2024 as compared to the six months ended June 30, 2023.

This increase reflects the improvement in our Center memberships, which increased to 832,636 as of June 30, 2024 from 790,238 as of June 30, 2023, as well as higher average monthly dues per Center membership during the six months ended June 30, 2024 as compared to the six months ended June 30, 2023;

• 22.7% was from in-center revenue, which increased $42.1 million for the six months ended June 30, 2024 as compared to the six months ended June 30, 2023.

This increase was recognized across all of our primary in-center businesses and reflects the higher utilization of our offerings by our members, particularly Dynamic Personal Training, during the six months ended June 30, 2024 as compared to the six months ended June 30, 2023.

Th e $6.3 million increase in Other revenue for the six months ended June 30, 2024 as compared to the six months ended June 30, 2023 was primarily driven by the improved performance of our Life Time Work locations, media and events business and Life Time Living locations.

Center operations expenses .

The $100.7 million increase in Center operations expenses for the six months ended June 30, 2024 as compared to the six months ended June 30, 2023 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 $13.3 million increase in Rent expense for the six months ended June 30, 2024 as compared to the six months ended June 30, 2023 was primarily driven by the timing of sale-leaseback transactions during both the current and prior year, the timing of taking possession of other leased properties, as well as the recognition of a higher level of contingent rent expense, which is generally determined based on a percentage of center-specific revenue and/or other center-specific financial metrics over contractually specified levels, during the six months ended June 30, 2024 as compared to the six months ended June 30, 2023.

General, administrative and marketing expenses.

General, administrative and marketing expenses increased $6.8 million for the six months ended June 30, 2024 as compared to the six months ended June 30, 2023, primarily due to increases in our cash-based incentive compensation and information technology costs, the timing of marketing expenses primarily related to our new club openings and center support overhead to enhance and broaden our member services and experiences, partially offset by lower share-based compensation expense.

Depreciation and amortization .

Depreciation and amortization increased $19.2 million for the six months ended June 30, 2024 as compared to the six months ended June 30, 2023, primarily due to new center openings.

Other operating expense .

Other operating expense decreased $5.0 million for the six months ended June 30, 2024 as compared to the six months ended June 30, 2023, primarily due to the recognition of a $7.5 million gain on sale-leaseback transaction s and a $4.3 million gain on sale of land during the six months ended June 30, 2024 as compared to the recognition of a $0.8 million loss on sale-leaseback transactions during the six months ended June 30, 2023, partially offset by a $4.9 million gain on the sale of two triathlon events during the six months ended June 30, 2023 and increased costs to support other revenue growth.

Interest expense, net of interest income .

T he $11.9 million increase in Interest expense, net of interest income for the six months ended June 30, 2024 as compared to the six months ended June 30, 2023 was driven by a higher average level of outstanding borrowings and higher interest rates associated with our variable rate debt during the six months ended June 30, 2024 as compared to the six months ended June 30, 2023 .

Provision for income taxes .

The $11.3 million increase in provision for income taxes for the six months ended June 30, 2024 as compared to the six months ended June 30, 2023 was primarily driven by an increase in earnings before taxes and the tax deficiencies associated with share-based payment awards, partially offset by a reduction in the valuation allowance associated with certain of our deferred tax assets.

The effective tax rate was 23.4% and 21.8% for those same periods, respectively.

The effective tax rate applied to our pre-tax income for the six months ended June 30, 2024 is higher than our statutory rate of 21% and reflects an increase due to deductibility limitations associated with executive compensation and state income tax provisions, partially offset by a reduction in valuation allowance associated with certain of our deferred tax assets.

As a result of the factors described above, net income was $77.7 million and $44.5 million for the six months ended June 30, 2024 and 2023, respectively.

Liquidity and Capital Resources

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In December 2023, we amended our Term Loan Facility to reduce the interest rate by 0.50%.

During 2023, we completed sale-leaseback transactions associated with three properties.

We are optimistic that we will execute sale-leaseback transactions for multiple properties in 2024.

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.

During 2023, we completed sale-leaseback transactions associated with three properties and year-to-date 2024 we have completed sale-leaseback transactions for four properties.

For more information regarding the sale-leaseback transactions that were consummated during the six months ended June 30, 2024 , see Note 6, Leases, to our condensed consolidated financial statements included in this report.

Additionally, we 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.

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

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

As of March 31, 2024, there were $220.0 million of outstanding borrowings under our Revolving Credit Facility and there were $30.9 million of outstanding letters of credit, resulting in total availability under our $475.0 million Revolving Credit Facility of $224.1 million.

Total cash and cash equivalents at March 31, 2024 was $18.6 million , resulting in total cash and availability under our Revolving Credit Facility of $242.7 million.

As of June 30, 2024, there were $65.0 million of outstanding borrowings under our Revolving Credit Facility and there were $30.9 million of outstanding letters of credit, resulting in total availability under our $475.0 million Revolving Credit Facility of $379.1 million.

Total cash and cash equivalents at June 30, 2024 was $34.5 million , resulting in total cash and availability under our Revolving Credit Facility of $413.6 million .

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

Three Months Ended

Six Months Ended

Net cash provided by operating activities $ 260,830 $ 216,291

Net cash used in investing activities (154,281) (259,498)

Net cash provided by financing activities 74,975 72,325

Net cash (used in) provided by financing activities (87,102) 48,420

Effect of exchange rates on cash and cash equivalents and restricted cash and cash equivalents (55) 136

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Operating Activities

The $16.1 million increase in net cash provided by operating activities for the three months ended March 31, 2024 as compared to the three months ended March 31, 2023 was primarily the result of increased business performance and profitability.

The $44.5 million increase in net cash provided by operating activities for the six months ended June 30, 2024 as compared to the six months ended June 30, 2023 was primarily the result of increased business performance and profitability.

Investing Activities

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 equipment.

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

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 $21.7 million increase in net cash used in investing activities for the three months ended March 31, 2024 as compared to the three months ended March 31, 2023 was primarily driven by a $32.7 million decrease in the amount of proceeds that we received from sale-leaseback transactions, offset by a $14.0 million decrease in capital expenditures during the three months ended March 31, 2024 as compared to the three months ended March 31, 2023.

The $105.2 million decrease in net cash used in investing activities for the six months ended June 30, 2024 as compared to the six months ended June 30, 2023 was primarily driven by a $64.6 million increase in the amount of proceeds that we received from sale-leaseback transactions, a $36.0 million decrease in capital expenditures and $6.3 million of proceeds from the sale of land during the six months ended June 30, 2024 as compared to the six months ended June 30, 2023.

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

Three Months Ended

Three Months Ended Six Months Ended

June 30, June 30,

2024 2023 2024 2023

Growth capital expenditures (1)

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27,298 27,310 48,436 52,109

Modernization and technology capital expenditures (3)

8,448 26,657 39,202 47,996

Total capital expenditures $ 144,306 $ 166,262 $ 301,107 $ 337,076

(1) Includes new center land and construction, asset acquisitions and initial major remodels of acquired centers.

(2) Includes general maintenance and modernization of existing centers and technology.

The decrease in total capital expenditures for the three months ended March 31, 2024 as compared to the three months ended March 31, 2023 was primarily driven by less new center construction activity.

(1) Consist of new center land and construction, initial major remodels of acquired centers, major remodels of existing centers that expand existing square footage, asset acquisitions including the purchase of previously leased centers and other growth initiatives.

(2) Consist of general maintenance of existing centers.

(3) Consist of modernization of existing centers and technology.

The decrease in total capital expenditures for the six months ended June 30, 2024 as compared to the six months ended June 30, 2023 was primarily driven by less new center construction activity.

Financing Activities

The $2.7 million increase in net cash provided by financing activities for the three months ended March 31, 2024 as compared to the three months ended March 31, 2023 was primarily driven by net incremental proceeds we received from borrowings under our Revolving Credit Facility, largely offset by our payment of a mortgage note and less proceeds from stock option exercises, during the three months ended March 31, 2024.

The $135.5 million decrease in net cash provided by financing activities for the six months ended June 30, 2024 as compared to the six months ended June 30, 2023 was primarily driven by net payments on borrowings under our Revolving Credit Facility, payments of mortgage notes and less proceeds from stock option exercises during the six months ended June 30, 2024.

We believe we have adequate amounts of cash to meet our requirements and plans for cash in the short-term and long-term and expect to satisfy our short-term and long-term obligations through a combination of cash on hand, funds generated from operations, sale-leaseback transactions, the borrowing capacity available under our Revolving Credit Facility and additional debt and equity financing as needed.

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