What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-10-28 compared with 2024-08-01 · 114 added, 86 removed, 300 unchanged (40% of the section changed)

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We do not undertake any obligation to update or revise, or to publicly announce any update or revision to, any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

Equity Offering

On August 14, 2024, we consummated the registered offering, issuance and sale of 6.0 million shares of our common stock by the Company (the “Primary Shares”) and 7.8 million shares of our common stock by certain of our stockholders (the “Secondary Shares”) at an offering price of $21.75 per share, less underwriting discounts and commissions (collectively, the “Offering”).

We received total gross proceeds from the Primary Shares of $130.5 million, which was reduced by underwriting discounts and commissions and other expenses.

We did not receive any proceeds from the sale of the Secondary Shares.

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 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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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 $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.

Our average revenue per center membership increased to $2,361 for the nine months ended September 30, 2024 as compared to $2,095 for the nine months ended September 30, 2023.

Total visits to our clubs were 87 million for the nine months ended September 30, 2024 as compared to 78 million for the nine months ended September 30, 2023, and average visits per membership to our centers remained strong at 108 for the nine months ended September 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 $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 total Center revenue increased to $1,900.3 million for the nine months ended September 30, 2024 as compared to $1,608.3 million for the nine months ended September 30, 2023.

We believe it will continue to grow as we open new centers in desirable locations across the country, new members join at higher membership dues rates, our new centers that are open and operating ramp to expected performance, we benefit from capital expenditures already invested in our centers under construction 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 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.

As of September 30, 2024, we had 27 centers open for less than three years and nine 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 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 believe we have significant opportunities to continue expanding our portfolio of premium centers in an asset-light manner and we are targeting 10 to 12 new locations on average per year.

We believe these combined dynamics create 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.

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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 June 30, 2024, we had 15 Life Time Work and four Life Time Living locations open and operating.

As of September 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.

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

Inflation continues to remain elevated, which has impacted our expenses and capital expenditures in several areas, including wages, construction costs and other operating expenses, and thus pressured our margin performance.

Inflation has been elevated, which has impacted our expenses and capital expenditures in several areas, including wages, construction costs and other operating expenses, and thus pressured our margin performance.

Despite this headwind, we have experienced growth in our revenue and margins.

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

Our Term Loan Facility and Revolving Credit Facility have variable rates and are thus also impacted by the higher interest rates.

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

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

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

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

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

Three Months Ended Six Months Ended

June 30, June 30,

Three Months Ended Nine Months Ended

September 30, September 30,

2024 2023 2024 2023

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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 June 30, 2024, we opened three centers.

During the three months ended September 30, 2024, we opened two 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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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 Six Months Ended

June 30, June 30,

Three Months Ended Nine Months Ended

September 30, September 30,

($ in thousands) 2024 2023 2024 2023

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11,752 14,858 30,450 37,029

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

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

4,902 12,672 (2,620) 13,431

Legal settlements (c)

1,250 — 1,250 —

Asset impairments (d)

— 5,340 — 6,620

2,869 (312) (927) (4,852)

(5,850) (13,789) (7,072) (13,468)

Adjusted net income $ 56,278 $ 26,684 $ 140,158 $ 91,139

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Diluted 214,633 204,298 207,841 203,954

(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.

(a) Shar e-based compensation expense recognized during the three and nine months ended September 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 nine months ended September 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.

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

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

These costs are non-recurring in nature and do not reflect costs associated with our normal ongoing operations.

(d) Represents non-cash asset impairments of our long-lived assets.

(e) Includes (i) a $3.5 million write-off of the unamortized debt discounts and issuance costs associated with the extinguishment of our former Term Loan Facility and Construction Loan for the three and nine months ended September 30, 2024, (ii) (gain) loss on sales of land of $(0.6) million and $0.4 million for the three months ended September 30, 2024 and 2023,

respectively, and $(5.0) million and $0.4 million for the nine months ended September 30, 2024 and 2023, respectively, and (iii) legal-related expenses in pursuit of our claim against Zurich of $0.1 million for the three months ended September 30, 2023 , and $0.6 million and $0.7 million for the nine months ended September 30, 2024 and 2023, respectively.

For 2023, also includes a subsidy (credit) for our Canadian operations in connection with COVID-19 of $(0.3) million for the nine months ended September 30, 2023 and gain on sales of the Company’s triathlons and certain other assets of $(0.8) million and $(5.7) million for the three and nine months ended September 30, 2023 , respectively.

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

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

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

Three Months Ended Six Months Ended

June 30, June 30,

Three Months Ended Nine Months Ended

September 30, September 30,

($ in thousands) 2024 2023 2024 2023

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11,752 14,858 30,450 37,029

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

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

4,902 12,672 (2,620) 13,431

Legal settlements (c)

1,250 — 1,250 —

Asset impairments (d)

— 5,340 — 6,620

(641) (312) (4,437) (4,852)

Adjusted EBITDA $ 180,293 $ 142,981 $ 499,816 $ 399,123

(a) - (c) See the corresponding footnotes to the table in footnote 6 immediately above.

(a) - (d) See the corresponding footnotes to the table in footnote 6 immediately above.

(e) Includes (i) (gain) loss on sales of land of $(0.6) million and $0.4 million for the three months ended September 30, 2024 and 2023, respectively, and $(5.0) million and $0.4 million for the nine months ended September 30, 2024 and 2023, respectively, and (ii) legal-related expenses in pursuit of our claim against Zurich of $0.1 million for the three months ended September 30, 2023 , and $0.6 million and $0.7 million for the nine months ended September 30, 2024 and 2023, respectively.

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

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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,

Three Months Ended Nine Months Ended

September 30, September 30,

($ in thousands) 2024 2023 2024 2023

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Share-Based Compensation

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.

During the nine months ended September 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 $30.5 million.

During the nine months ended September 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 $37.0 million.

Critical Accounting Policies and Estimates

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Results of Operations

Three Months Ended June 30, 2024 Compared to Three 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 three months ended June 30, 2024 and 2023:

Three Months Ended June 30,

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

Three Months Ended September 30,

As a Percentage of Total Revenue

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Total revenue.

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.

The $108.1 million increase in Total revenue for the three months ended September 30, 2024 as compared to the three months ended September 30, 2023 was due to continued strong growth in membership dues and in-center revenue, including higher average dues as a result of pricing actions already completed and higher rack rates at newer centers, membership growth in our new and ramping centers and higher member utilization of our in-center offerings.

With respect to the $106.4 million increase in Center revenue for the three months ended September 30, 2024 as compared to the three months ended September 30, 2023:

• 75.4% was from membership dues and enrollment fees, which increased $80.2 million for the three months ended September 30, 2024 as compared to the three months ended September 30, 2023.

This increase reflects the improvement in our Center memberships, which increased to 826,502 as of September 30, 2024 from 784,331 as of September 30, 2023, as well as higher average monthly dues per Center membership during the three months ended September 30, 2024 as compared to the three months ended September 30, 2023 ;

• 24.6% was from in-center revenue, which increased $26.2 million for the three months ended September 30, 2024 as compared to the three months ended September 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 September 30, 2024 as compared to the three months ended September 30, 2023 .

T he $1.7 million increase in Other revenue for the three months ended September 30, 2024 as compared to the three months ended September 30, 2023 was primarily driven by the improved performance of our Life Time Work locations.

Center operations expenses .

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.

Th e $51.7 million increase in Center operations expenses for the three months ended September 30, 2024 as compared to the three months ended September 30, 2023 was primarily due to operating costs related to our new and ramping centers as well as costs to support growth in memberships and in-center business revenue.

Rent expense .

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.

The $9.4 million increase in Rent expense for the three months ended September 30, 2024 as compared to the three months ended September 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 September 30, 2024 as compared to the three months ended September 30, 2023.

General, administrative and marketing expenses.

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.

General, administrative and marketing expenses increased $6.1 million for the three months ended September 30, 2024 as compared to the three months ended September 30, 2023, primarily due to increased cash incentive compensatio n and benefit-related expen s 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 $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.

Depreciation and amortization increased $5.8 million for the three months ended September 30, 2024 as compared to the three months ended September 30, 2023, primarily due to new center openings.

Other operating expense .

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.

Other operating expense decreased $11.9 million for the three months ended September 30, 2024 as compared to the three months ended September 30, 2023, primarily due to the recognition of a $4.9 million loss on sale-leaseback transactions and a $0.6 million gain on sales of outparcels of land during the three months ended September 30, 2024 as compared to the recognition of a $12.7 million loss on sale-leaseback transactions and a $5.6 million loss on the sale of an outparcel of land during the three months ended September 30, 2023.

Interest expense, net of interest income .

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.

The $2.9 million increase in Interest expense, net of interest income for the three months ended September 30, 2024 as compared to the three months ended September 30, 2023 was primarily driven by the write-off of unamortized debt discounts and issuance costs associated with the extinguishment of our former Term Loan Facility and Construction Loan during the three months ended September 30, 2024.

Provision for 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 $10.4 million increase in provision for income taxes for the three months ended September 30, 2024 as compared to the three months ended September 30, 2023 was primarily driven by an increase in earnings before taxes and a change in the valuation allowance associated with certain of our deferred tax assets, partially offset by reduced tax deficiencies associated with share-based payment awards.

The effective tax rate was 28.2% and 42.4% for those same periods, 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,

The effective tax rate applied to our pre-tax income for the three months ended September 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 $41.4 million for the three months ended September 30, 2024 as compared to $7.9 million for the three months ended September 30, 2023.

Nine Months Ended September 30, 2024 Compared to Nine Months Ended September 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 nine months ended September 30, 2024 and 2023:

Nine Months Ended September 30,

As a Percentage of Total Revenue

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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.

The $300.0 million increase in Total revenue for the nine months ended September 30, 2024 as compared to the nine months ended September 30, 2023 was due to continued strong growth in membership dues and in-center revenue, includi ng higher average dues as a result of pricing actions already completed and higher rack rates at newer centers, membership growth in our new and ramping centers and higher member utilization of our in-center offerings.

With respect to the $292.0 million increase in Center revenue for the nine months ended September 30, 2024 as compared to the nine months ended September 30, 2023:

• 76.6% was from membership dues and enrollment fees, which increased $223.7 million for the nine months ended September 30, 2024 as compared to the nine months ended September 30, 2023.

This increase reflects the improvement in our Center memberships, which increased to 826,502 as of September 30, 2024 from 784,331 as of September 30, 2023, as well as higher average monthly dues per Center membership during the nine months ended September 30, 2024 as compared to the nine months ended September 30, 2023;

• 23.4% was from in-center revenue, which increased $68.3 million for the nine months ended September 30, 2024 as compared to the nine months ended September 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 nine months ended September 30, 2024 as compared to the nine months ended September 30, 2023.

Th e $8.0 million increase in Other revenue for the nine months ended September 30, 2024 as compared to the nine months ended September 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.

The $152.4 million increase in Center operations expenses for the nine months ended September 30, 2024 as compared to the nine months ended September 30, 2023 was primarily due to operating costs related to our new and ramping centers as well as costs to support 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.

The $22.6 million increase in Rent expense for the nine months ended September 30, 2024 as compared to the nine months ended September 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 nine months ended September 30, 2024 as compared to the nine months ended September 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.

General, administrative and marketing expenses increased $12.8 million for the nine months ended September 30, 2024 as compared to the nine months ended September 30, 2023, primarily due to increased cash incentive compensation and benefit-related expenses, information technology costs, center support overhead to enhance and broaden our member services and experiences and the timing of marketing expenses primarily related to our new club openings, 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.

Depreciation and amortization increased $25.0 million for the nine months ended September 30, 2024 as compared to the nine months ended September 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.

Other operating expense decreased $16.9 million for the nine months ended September 30, 2024 as compared to the nine months ended September 30, 2023, primarily due to the recognition of a $2.6 million gain on sale-leaseback transaction s and a $5.0 million gain on sales of outparcels of land during the nine months ended September 30, 2024 as compared to the recognition of a $13.4 million loss on sale-leaseback transactions and a $5.6 million loss on the sale of an outparcel of land during the nine months ended September 30, 2023, partially offset by a $4.9 million gain on the sale of two triathlon events during the nine months ended September 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 .

T he $14.8 million increase in Interest expense, net of interest income for the nine months ended September 30, 2024 as compared to the nine months ended September 30, 2023 was driven by a decrease in capitalized interest during the nine months ended September 30, 2024 as compared to the nine months ended September 30, 2023 and the write-off of unamortized debt discounts and issuance costs associated with the extinguishment of our former Term Loan Facility and Construction Loan during the nine months ended September 30, 2024 .

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 $21.7 million increase in provision for income taxes for the nine months ended September 30, 2024 as compared to the nine months ended September 30, 2023 was primarily driven by an increase in earnings before taxes, partially offset by a reduction in the valuation allowance associated with certain of our deferred tax assets.

The effective tax rate was 25.1% and 25.8% 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.

The effective tax rate applied to our pre-tax income for the nine months ended September 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 $119.1 million and $52.4 million for the nine months ended September 30, 2024 and 2023, respectively.

Liquidity and Capital Resources

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Our top priorities continue to include improving our balance sheet, reducing leverage and generating positive free cash flow.

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

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

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 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.

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

In August 2024, we consummated the registered offering, issuance and sale of 6.0 million shares of our common stock by the Company for total gross proceeds of $130.5 million , which was reduced by underwriting discounts and commissions and other expenses.

We used $110.0 million of these net proceeds to pay down the aggregate principal amount outstanding under our former Term Loan Facility.

Additionally, in September 2024, we amended our senior secured credit agreement to, among other things, (i) increase the commitments under the revolving credit facility to $650.0 million , (ii) reduce the floating interest rate per annum of, at our option, Term Secured Overnight Financing Rate (“SOFR”) plus an applicable margin of 2.50% or a base rate plus 1.50% , and reduce the undrawn commitment fee rate from 50 basis points to 25 basis points, and (iii) extend the maturity of the revolving credit facility to September 2029, subject to a springing maturity for our Senior Secured Notes and Senior Unsecured Notes.

In September 2024, we paid the remaining

aggregate principal amount of $200.0 million of our former Term Loan Facility and no borrowings remained outstanding under our former Term Loan Facility as of September 30, 2024.

On October 22, 2024, Life Time, Inc., an indirect subsidiary of Life Time Group Holdings, Inc., priced $500 million in aggregate principal amount of 6.000% senior secured notes due 2031.

The offering is expected to close on November 5, 2024, subject to customary closing conditions.

Concurrently with the closing of the offering, we intend to amend the Amended Credit Agreement to, among other things, incur new term loans in an aggregate principal amount of $1,000 million that will mature in 2031 and bear interest at a rate per annum of SOFR plus an applicable margin of 2.50% (subject to a certain ratings-based step-down).

We intend to use the net proceeds from the senior secured notes and new term loans and cash from our balance sheet to fund the satisfaction and discharge of the Senior Secured Notes due 2026 and Senior Unsecured Notes due 2026.

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

For more information regarding the sale-leaseback transactions that were consummated during the nine months ended September 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 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 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 .

As of September 30, 2024, there were $210.0 million of outstanding borrowings under our Revolving Credit Facility and there were $31.2 million of outstanding letters of credit, resulting in total availability under our $650.0 million Revolving Credit Facility of $408.8 million.

Total cash and cash equivalents at September 30, 2024 was $120.9 million , resulting in total cash and availability under our Revolving Credit Facility of $529.7 million .

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

Six Months Ended

Nine Months Ended

September 30,

Net cash provided by operating activities $ 411,976 $ 330,946

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Effect of exchange rates on cash and cash equivalents and restricted cash and cash equivalents (38) 30

Increase in cash and cash equivalents and restricted cash and cash equivalents $ 19,392 $ 5,349

Increase (decrease) in cash and cash equivalents and restricted cash and cash equivalents $ 107,087 $ (68)

Operating Activities

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.

The $81.0 million increase in net cash provided by operating activities for the nine months ended September 30, 2024 as compared to the nine months ended September 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, 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 $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.

We fund 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 $241.4 million decrease in net cash used in investing activities for the nine months ended September 30, 2024 as compared to the nine months ended September 30, 2023 was primarily driven by a $141.8 million decrease in capital expenditures, a $85.9 million increase in proceeds that we received from sale-leaseback transactions and a $11.4 million

increase in proceeds from the sale of land during the nine months ended September 30, 2024 as compared to the nine months ended September 30, 2023.

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

Three Months Ended Six Months Ended

June 30, June 30,

Three Months Ended Nine Months Ended

September 30, September 30,

2024 2023 2024 2023

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(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.

The decrease in total capital expenditures for the nine months ended September 30, 2024 as compared to the nine months ended September 30, 2023 was primarily driven by the timing and type of new center construction activity and higher modernization expenditures during the nine months ended September 30, 2023 as we accelerated our pickleball expansion and studio and fitness floor conversions.

Financing Activities

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.

The $215.3 million decrease in net cash provided by financing activities for the nine months ended September 30, 2024 as compared to the nine months ended September 30, 2023 was primarily driven by the payoff of our former Term Loan Facility and Construction Loan and payments of our mortgage notes, offset by proceeds from the equity offering that we completed and higher net borrowings under our Revolving Credit Facility during the nine months ended September 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