Life Time Group Holdings, Inc. 10-Q

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Forward-Looking Statements Certain statements in this discussion and analysis are forward-looking statements within the meaning of federal securities regulations. Forward-looking statements in this discussion and analysis include, but are not limited to, our plans, strategies and prospects, both business and financial, including our financial outlook and cash flow, possible or assumed future actions, opportunities for growth and margin expansion, improvements to our balance sheet and leverage, capital expenditures, consumer demand, industry and economic trends, business strategies, events or results of operations. Generally, forward-looking statements are not based on historical facts but instead represent only our current beliefs and assumptions regarding future events. All forward-looking statements are, by nature, subject to risks, uncertainties and other factors. This discussion and analysis does not purport to identify factors that could cause actual results to differ materially from those expressed or implied in forward-looking statements. You should understand that forward-looking statements are not guarantees of performance or results and are preliminary in nature. We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements. Statements preceded by, followed by or that otherwise include the words “believes,” “assumes,” “expects,” “anticipates,” “intends,” “continues,” “projects,” “predicts,” “estimates,” “plans,” “potential,” “may increase,” “may result,” “will result,” “may fluctuate,” and similar expressions or future or conditional verbs such as “will,” “should,” “would,” “foreseeable,” “may,” and “could” as well as the negative version of these words or similar terms and phrases are generally forward-looking in nature and not historical facts. In addition, any statements or information that refer to expectations, beliefs, plans, projections, objectives, performance or other characterizations of future events or circumstances, including any underlying assumptions, are forward-looking. The forward-looking statements contained in this discussion and analysis are based on management’s current beliefs and assumptions and are not guarantees of future performance. The forward-looking statements are subject to various risks, uncertainties, assumptions or changes in circumstances that are difficult to predict or quantify. Actual results may differ materially from these expectations due to numerous factors, many of which are beyond our control, including risks relating to our business operations and competitive and economic environment, risks relating to our brand, risks relating to the growth of our business, risks relating to our technological operations, risks relating to our capital structure and lease obligations, risks relating to our human capital, risks relating to legal compliance and risk management and risks relating to ownership of our common stock and the other important factors discussed under the caption “Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023 filed with the Securities and Exchange Commission (the “SEC”) and as such risk factors may be updated from time to time in our periodic filings with the SEC that are accessible on the SEC’s website at www.sec.gov . Since it is not possible to foresee all such factors, these factors should not be considered as complete or exhaustive. Consequently, we caution investors not to place undue reliance on any forward-looking statements, as no forward-looking statement can be guaranteed, and actual results may vary materially. Additionally, our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures, investments or other strategic transactions we may make. All forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by the foregoing cautionary statements. Forward-looking statements speak only as of the date of this report. 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. Overview 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. 17 Table of Contents 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 876,000 memberships, as of September 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. We deliver high-quality experiences through our omni-channel physical and digital ecosystem that includes more than 175 centers—distinctive, resort-like athletic country club destinations—across 31 states in the United States and one province in Canada. Our brand loyalty and track record of providing differentiated experiences to our members has fueled our strong, long-term financial performance. Our luxurious athletic country clubs total approximately 17 million square feet in the aggregate. 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, 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 41,000 Life Time team members, including over 10,700 certified fitness professionals, ranging from personal trainers to studio performers. Our members are highly engaged and draw inspiration from the experiences and community we have created. 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 $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 $1,900.3 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 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 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. 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 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. 18 Table of Contents We also continue to expand our “Healthy Way of Life” ecosystem in response to the desire of our members to holistically integrate health and wellness into every aspect of their daily lives. In 2018, we launched Life Time Work, an asset-light branded co-working model that offers premium work spaces in close proximity to our centers and integrates ergonomic furnishings and promotes a healthy working environment. Life Time Work members also have the ability to receive access to all of our resort-like athletic country club destinations across the United States and Canada. Additionally, our Life Time Living locations offer luxury wellness-oriented residences, also in close proximity to one of our athletic country clubs. As of 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. 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. Macroeconomy 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 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. 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. 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, free cash flow 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. In addition, these non-GAAP financial measures should be read in conjunction with our financial statements prepared in accordance with GAAP. The reconciliations of the Company’s non-GAAP financial measures to the corresponding GAAP measures should be carefully eva luated. Adjusted Net Income 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 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. We believe that Adjusted net income and Adjusted EBITDA are important metrics for management, investors and analysts as they remove the impact of items that we do not believe are indicative of our core operating performance and allows for consistent comparison of our operating results over time and relative to our peers. We use Adjusted net income and Adjusted EBITDA to supplement GAAP measures of performance in evaluating the effectiveness of our business strategies and to establish annual budgets and forecasts. We also use Adjusted EBITDA or variations thereof to establish short-term incentive compensation for management. 19 Table of Contents 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. Non-GAAP Measurements and Key Performance Indicators We prepare and analyze various non-GAAP performance metrics and key performance indicators to assess the performance of our business and allocate resources. For more information regarding our non-GAAP performance metrics, see “—Non-GAAP Financial Measures” above. 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. 20 Table of Contents 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 Nine Months Ended September 30, September 30, 2024 2023 2024 2023 ($ in thousands, except for Average Center revenue per center membership data) Membership Data Center memberships 826,502 784,331 826,502 784,331 Digital On-hold memberships 50,007 45,708 50,007 45,708 Total memberships 876,509 830,039 876,509 830,039 Revenue Data Membership dues and enrollment fees 72.3% 71.8% 72.4% 71.7% In-center revenue 27.7% 28.2% 27.6% 28.3% Total Center revenue 100.0% 100.0% 100.0% 100.0% Membership dues and enrollment fees $ 488,105 $ 407,903 $ 1,376,212 $ 1,152,506 In-center revenue 186,670 160,499 524,055 455,773 Total Center revenue $ 674,775 $ 568,402 $ 1,900,267 $ 1,608,279 Average Center revenue per center membership (1) $ 815 $ 722 $ 2,361 $ 2,095 Comparable center revenue (2) 12.1% 11.4% 11.8% 16.6% Center Data Net new center openings (3) 2 6 6 9 Total centers (end of period) (3) 177 170 177 170 Total center square footage (end of period) (4) 17,400,000 16,700,000 17,400,000 16,700,000 GAAP and Non-GAAP Financial Measures Net income $ 41,355 $ 7,915 $ 119,077 $ 52,379 Net income margin (5) 6.0 % 1.4 % 6.1 % 3.2 % Adjusted net income (6) $ 56,278 $ 26,684 $ 140,158 $ 91,139 Adjusted net income margin (6) 8.1 % 4.6 % 7.2 % 5.5 % Adjusted EBITDA (7) $ 180,293 $ 142,981 $ 499,816 $ 399,123 Adjusted EBITDA margin (7) 26.0 % 24.4 % 25.5 % 24.1 % Center operations expense $ 371,134 $ 319,401 $ 1,048,544 $ 896,113 Pre-opening expenses (8) $ 1,164 $ 1,477 $ 4,819 $ 6,146 Rent $ 78,575 $ 69,225 $ 225,804 $ 203,196 Non-cash rent expense (open properties) (9) $ 9,684 $ 8,409 $ 20,734 $ 25,662 Non-cash rent expense (properties under development) (9) $ 1,847 $ 861 $ 4,447 $ 1,238 Net cash provided by operating activities $ 151,146 $ 114,655 $ 411,976 $ 330,946 Free cash flow (10) $ 138,332 $ (30,274) $ 247,054 $ (73,019) (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. 21 Table of Contents (2) We measure the results of our centers based on how long each center has been open as of the most recent measurement period. We include a center, for comparable center revenue purposes, beginning on the first day of the 13 th full calendar month of the center’s operation, in order to assess the center’s growth rate after one year of operation. (3) Net new center openings is calculated as the number of centers that opened for the first time to members during the period, less any centers that closed during the period. Total centers (end of period) is the number of centers operational as of the last day of the period. 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. We use this metric for evaluating the efficiencies of a center as of the end of the period. These figures are approximations. (5) Net income margin is calculated as net income divided by total revenue. (6) We present Adjusted net income as a supplemental measure of our performance. 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 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 Nine Months Ended September 30, September 30, ($ in thousands) 2024 2023 2024 2023 Net income $ 41,355 $ 7,915 $ 119,077 $ 52,379 Share-based compensation expense (a) 11,752 14,858 30,450 37,029 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 Other (e) 2,869 (312) (927) (4,852) Taxes (f) (5,850) (13,789) (7,072) (13,468) Adjusted net income $ 56,278 $ 26,684 $ 140,158 $ 91,139 Income per common share: Basic $ 0.20 $ 0.04 $ 0.60 $ 0.27 Diluted $ 0.19 $ 0.04 $ 0.57 $ 0.26 Adjusted income per common share: Basic $ 0.28 $ 0.14 $ 0.70 $ 0.47 Diluted $ 0.26 $ 0.13 $ 0.67 $ 0.45 Weighted-average common shares outstanding: Basic 202,945 196,146 199,793 195,404 Diluted 214,633 204,298 207,841 203,954 (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 nine months ended September 30, 2024, see Note 6, Leases, to our condensed consolidated financial statements in this report. (c) We adjust for the impact of unusual legal settlements. 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, 22 Table of Contents 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 $(5.7) million for the three and nine months ended September 30, 2023 , respectively. (f) Represents the estimated tax effect of the total adjustments made to arrive at Adjusted net income using the effective income tax rates for the respective periods. (7) We present Adjusted EBITDA as a supplemental measure of our performance. We define Adjusted EBITDA as net income before interest expense, net, provision for income taxes and depreciation and amortization, excluding the impact of share-based compensation expense as well as (gain) loss on sale-leaseback transactions, capital transaction costs, legal settlements, asset impairment, severance and other items that are not indicative of our ongoing operations. Adjusted EBITDA margin is calculated as Adjusted EBITDA divided by total revenue. The following table provides a reconciliation of net income, the most directly comparable GAAP measure, to Adjusted EBITDA: Three Months Ended Nine Months Ended September 30, September 30, ($ in thousands) 2024 2023 2024 2023 Net income $ 41,355 $ 7,915 $ 119,077 $ 52,379 Interest expense, net of interest income 36,011 33,075 111,083 96,249 Provision for income taxes 16,213 5,815 39,945 18,200 Depreciation and amortization 69,451 63,618 205,068 180,067 Share-based compensation expense (a) 11,752 14,858 30,450 37,029 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 Other (e) (641) (312) (4,437) (4,852) Adjusted EBITDA $ 180,293 $ 142,981 $ 499,816 $ 399,123 (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. 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 $(5.7) million for the three and nine months ended September 30, 2023 , respectively. (8) Represents non-capital expenditures associated with opening new centers that are incurred prior to the commencement of a new center opening. The number of centers under construction or development, the types of centers and our costs associated with any particular center opening can vary significantly from period to period. (9) Reflects the non-cash portion of our annual GAAP operating lease expense that is greater or less than the cash operating lease payments. Non-cash rent expense for our open properties represents non-cash expense associated with properties that were operating at the end of each period presented. Non-cash rent expense for our properties under development represents non-cash expense associated with properties that are still under development at the end of each period presented. (10) Free cash flow, a non-GAAP financial measure, is calculated as net cash provided by operating activities less capital expenditures, net of construction reimbursements, plus net proceeds from sale-leaseback transactions and land sales. The following table provides a reconciliation from net cash provided by operating activities to free cash flow: 23 Table of Contents Three Months Ended Nine Months Ended September 30, September 30, ($ in thousands) 2024 2023 2024 2023 Net cash provided by operating activities $ 151,146 $ 114,655 $ 411,976 $ 330,946 Capital expenditures, net of construction reimbursements (87,106) (192,889) (388,213) (529,965) Proceeds from sale-leaseback transactions 65,043 43,791 207,714 121,831 Proceeds from land sales 9,249 4,169 15,577 4,169 Free cash flow $ 138,332 $ (30,274) $ 247,054 $ (73,019) Factors Affecting the Comparability of our Results of Operations Impact of COVID-19 on our Business Overview In March 2020, the World Health Organization declared the outbreak of COVID-19 as a pandemic, the United States declared a National Public Health Emergency and we closed all of our centers based on orders and advisories from federal, state and local governmental authorities regarding COVID-19. Throughout this report, including this “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” when we refer to “COVID-19” or “the pandemic,” such as when we describe the “impact of COVID-19” on our operations, we mean the coronavirus-related orders issued by governmental authorities affecting our operations and/or the presence of coronavirus in our centers, including COVID-19 positive members or team members. We re-opened our first center on May 8, 2020, and continued to re-open our centers as state and local governmental authorities permitted, subject to operating processes and protocols that we developed in consultation with an epidemiologist (MD/PhD) to provide a healthy and clean environment for our members and team members and to meet various governmental requirements and restrictions. Our centers were also impacted in 2021 as a result of the Delta variant and then again later in 2021 and into 2022 with the Omicron variant. The performance of our centers has improved significantly as our centers have ramped back from the adverse impacts of COVID-19. Leverage We are focused on improving the ratio of our net debt to Adjusted EBITDA, or our leverage ratio. We define net debt as the current and long-term portion of our debt, excluding unamortized debt discounts and issuance costs and fair value adjustments, less cash and cash equivalents. Our leverage ratio was elevated due in part to the adverse impacts o f COVID-19, which required us to incur additional debt and significantly reduced our Adjusted EBITDA. We have significantly improved our leverage ratio and believe that we can continue to improve our leverage ratio as our profitability improves and we continue to strengthen our balance sheet. Impact of Our Asset-light, Flexible Real Estate Strategy on Rent Expense Our asset-light, flexible real estate strategy has allowed us to expand our business by leveraging operating leases and sale-leaseback transactions, among other asset-light opportunities. Approximately 68% of our centers are now leased, including approximately 86% of our new centers opened since 2015, versus a predominantly owned real estate strategy prior to 2015. Rent expense, which includes both cash and non-cash rent expense, will continue to increase as we lease more centers and will therefore impact the comparability of our results of operations. The impact of these increases is dependent upon the timing of our centers under development and the center openings, the timing of sale-leaseback transactions and terms of the leases for the new centers or sale-leaseback transactions. Macroeconomic Trends We have been monitoring 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 . See “—Overview—Macroeconomy” for additional information. Share-Based Compensation 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. 24 Table of Contents Critical Accounting Policies and Estimates The preparation of financial statements in conformity with GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Ultimate results could differ from those estimates. In recording transactions and balances resulting from business operations, we use estimates based on the best information available. We revise the recorded estimates when better information is available, facts change or we can determine actual amounts. These revisions can affect operating results. Management has evaluated the development and selection of our critical accounting policies and estimates used in the preparation of the Company’s unaudited condensed consolidated financial statements and related notes and believes these policies to be reasonable and appropriate. Certain of these policies involve a higher degree of judgment or complexity and are most significant to reporting our results of operations and financial position, and are, therefore, discussed as critical. 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. 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. There have been no material changes to our critical accounting policies as compared to the critical accounting policies described in such Annual Report on Form 10-K. Results of Operations Three Months Ended September 30, 2024 Compared to Three 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 three months ended September 30, 2024 and 2023: Three Months Ended September 30, As a Percentage of Total Revenue 2024 2023 2024 2023 Revenue: Center revenue $ 674,775 $ 568,402 97.3 % 97.1 % Other revenue 18,459 16,775 2.7 % 2.9 % Total revenue 693,234 585,177 100.0 % 100.0 % Operating expenses: Center operations 371,134 319,401 53.5 % 54.6 % Rent 78,575 69,225 11.3 % 11.8 % General, administrative and marketing 57,737 51,668 8.3 % 8.8 % Depreciation and amortization 69,451 63,618 10.0 % 10.9 % Other operating expense 22,642 34,516 3.3 % 5.9 % Total operating expenses 599,539 538,428 86.4 % 92.0 % Income from operations 93,695 46,749 13.6 % 8.0 % Other (expense) income: Interest expense, net of interest income (36,011) (33,075) (5.2) % (5.7) % Equity in (loss) earnings of affiliates (116) 56 — % — % Total other expense (36,127) (33,019) (5.2) % (5.7) % Income before income taxes 57,568 13,730 8.4 % 2.3 % Provision for income taxes 16,213 5,815 2.3 % 1.0 % Net income $ 41,355 $ 7,915 6.1 % 1.3 % Total revenue. 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. 25 Table of Contents 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 ; and • 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 $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 $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 $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 $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 $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 $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 $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 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. Net income . 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. 26 Table of Contents 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 2024 2023 2024 2023 Revenue: Center revenue $ 1,900,267 $ 1,608,279 97.1 % 97.0 % Other revenue 57,445 49,480 2.9 % 3.0 % Total revenue 1,957,712 1,657,759 100.0 % 100.0 % Operating expenses: Center operations 1,048,544 896,113 53.6 % 54.1 % Rent 225,804 203,196 11.5 % 12.3 % General, administrative and marketing 159,836 147,005 8.2 % 8.9 % Depreciation and amortization 205,068 180,067 10.5 % 10.8 % Other operating expense 47,952 64,837 2.4 % 3.9 % Total operating expenses 1,687,204 1,491,218 86.2 % 90.0 % Income from operations 270,508 166,541 13.8 % 10.0 % Other (expense) income: Interest expense, net of interest income (111,083) (96,249) (5.7) % (5.8) % Equity in (loss) earnings of affiliates (403) 287 — % — % Total other expense (111,486) (95,962) (5.7) % (5.8) % Income before income taxes 159,022 70,579 8.1 % 4.2 % Provision for income taxes 39,945 18,200 2.0 % 1.1 % Net income $ 119,077 $ 52,379 6.1 % 3.1 % Total revenue. 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; and • 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 $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. 27 Table of Contents Rent expense . 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 $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 $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 $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 $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 $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 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. Net income . 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 Liquidity Our principal liquidity needs include the acquisition and development of new centers, lease requirements and debt service, investments in our business and technology and expenditures necessary to maintain and update or enhance our centers and associated equipment and member experiences. We have primarily satisfied our historical liquidity needs with cash flow from operations, drawing on the Revolving Credit Facility, construction reimbursements and through sale-leaseback transactions. Our top priorities continue to include improving our balance sheet, reducing leverage and generating positive free cash flow. 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 28 Table of Contents 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. There can be no assurance that any such financing would be available on commercially acceptable terms, or at all. Volatility in these markets, particularly in light of the higher interest rate environment, may increase costs associated with issuing debt instruments or affect our ability to access those markets, which could have an adverse impact on our ability to raise additional capital, to refinance existing debt and/or to react to changing economic and business conditions. In addition, it is possible that our ability to access the credit and capital markets could be limited at a time when we would like or need to do so. As of 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): Nine Months Ended September 30, 2024 2023 Net cash provided by operating activities $ 411,976 $ 330,946 Net cash used in investing activities (162,103) (403,549) Net cash (used in) provided by financing activities (142,748) 72,505 Effect of exchange rates on cash and cash equivalents and restricted cash and cash equivalents (38) 30 Increase (decrease) in cash and cash equivalents and restricted cash and cash equivalents $ 107,087 $ (68) Operating Activities 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 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 29 Table of Contents 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 Nine Months Ended September 30, September 30, 2024 2023 2024 2023 Growth capital expenditures (1) $ 46,416 $ 131,871 $ 259,885 $ 368,842 Maintenance capital expenditures (2) 21,566 29,676 70,002 81,785 Modernization and technology capital expenditures (3) 19,124 31,342 58,326 79,338 Total capital expenditures $ 87,106 $ 192,889 $ 388,213 $ 529,965 (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 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 $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.