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, 2024 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. 17 Table of Contents Overview Business and Strategy Life Time, the “Healthy Way of Life Co mpany,” is a premier 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 879,000 memberships, as of March 31, 2025. We are a leading innovator in the industry having successfully created a leisure model that incorporates the country club wellness lifestyle within a fitness and active living community. We have earned the trust of our members for over 30 years to make their lives healthier and happier by offering them the best places, programs and performers. We deliver high-quality experiences through our omni-channel physical and digital ecosystem that includes 180 centers—distinctive, resort-like athletic country club destinations—across 31 states in the United States and one province in Canada. Our continuous commitment to members has resulted in strong brand loyalty and fueled our strong, long-term financial performance. Our luxurious athletic country clubs total over 17 million of indoor square feet and approximately seven million of outdoor 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, recovery 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 43,000 Life Time team members, including over 10,800 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 $844 for the three months ended March 31, 2025 as compared to $745 for the three months ended March 31, 2024. Total visits to our clubs were over 30 million for the three months ended March 31, 2025 as compared to 28 million for the three months ended March 31, 2024, and average visits per membership to our centers remained strong at 38 for the three months ended March 31, 2025. 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 $685.7 million for the three months ended March 31, 2025 as compared to $580.5 million for the three months ended March 31, 2024. 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 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 March 31, 2025, we had 28 centers open for less than three years and 13 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 also continue to execute on 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 launched a pilot location for our MIORA performance and longevity health offering in 2024 and we have now opened our second location with plans to expand these offerings to additional locations in 2025 and beyond. We have also been executing on enhanced offerings within our LifeCafe, LifeShop, LifeSpa and e-commerce, including our newly branded LTH nutritional products. 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 18 Table of Contents looking for a Healthy Way of Life and more comprehensively address their health, fitness and wellness needs so that they can engage and connect with Life Time at any time or place. We also continue to expand our “Healthy Way of Life” ecosystem in response to the desire of our members to holistically integrate health and wellness into every aspect of their daily lives. In 2018, we launched Life Time Work, an asset-light branded co-working model that offers premium work spaces in close proximity to our athletic country clubs 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, which are also an asset-light model, offer luxury wellness-oriented residences, also in close proximity to our athletic country clubs. As of March 31, 2025, 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 tariffs, inflation, interest rates and labor, as well as a potential economic recession . There continues to be significant macroeconomic uncertainty in many markets around the world, including as a result of international trade policy and new or elevated tariffs, which have increased certain of our expenses and capital expenditures, but have not had a material impact on our business. We continue to analyze the potential impact of these events and any resulting downstream impacts, including higher inflation. Despite these headwinds, we have experienced growth in our revenue and expanded our operating margins. We will continue to monitor the macroeconomic environment and while any future uncertainty or volatility, a decline in the U.S. or global economy, or the public perception that any of these events may occur, could adversely affect our business and results of operations, 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 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. 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. Set forth below are certain GAAP and non-GAAP measurements and key performance indicators for the three months ended March 31, 2025 and 2024. The following information has been presented consistently for all periods presented. 20 Table of Contents Three Months Ended March 31, 2025 2024 ($ in thousands, except for Average Center revenue per center membership data) Membership Data Center memberships 826,374 802,010 On-hold memberships 53,377 51,062 Total memberships 879,751 853,072 Revenue Data Membership dues and enrollment fees 73.2% 73.3% In-center revenue 26.8% 26.7% Total Center revenue 100.0% 100.0% Membership dues and enrollment fees $ 501,653 $ 425,411 In-center revenue 184,001 155,074 Total Center revenue $ 685,654 $ 580,485 Average Center revenue per center membership (1) $ 844 $ 745 Comparable center revenue (2) 12.9% 11.1% Center Data Net new center openings (3) 1 1 Total centers (end of period) (3) 180 172 Total center square footage (end of period) (4) 17,700,000 16,900,000 GAAP and Non-GAAP Financial Measures Net income $ 76,142 $ 24,917 Net income margin (5) 10.8 % 4.2 % Adjusted net income (6) $ 88,147 $ 30,525 Adjusted net income margin (6) 12.5 % 5.1 % Adjusted EBITDA (7) $ 191,588 $ 145,977 Adjusted EBITDA margin (7) 27.1 % 24.5 % Center operations expense $ 370,987 $ 321,900 Pre-opening expenses (8) $ 1,373 $ 2,452 Rent $ 81,165 $ 72,282 Non-cash rent expense (open properties) (9) $ 2,295 $ 4,184 Non-cash rent expense (properties under development) (9) $ 1,108 $ 1,774 Net cash provided by operating activities $ 183,856 $ 90,407 Free cash flow (10) $ 41,374 $ (66,394) (1) We define Average Center revenue per center membership as Center revenue less 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 March 31, 2025, we opened one center. (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 March 31, ($ in thousands) 2025 2024 Net income $ 76,142 $ 24,917 Share-based compensation expense (a) 11,909 7,626 Capital transaction costs (b) 920 — Other (c) 186 214 Taxes (d) (1,010) (2,232) Adjusted net income $ 88,147 $ 30,525 Income per common share: Basic $ 0.36 $ 0.13 Diluted $ 0.34 $ 0.12 Adjusted income per common share: Basic $ 0.42 $ 0.15 Diluted $ 0.39 $ 0.15 Weighted-average common shares outstanding: Basic 211,958 197,498 Diluted 223,619 202,756 (a) Shar e-based compensation expense recognized during the three months ended March 31, 2025 was associated with stock options, restricted stock units, performance stock units, our employee stock purchase plan (“ESPP”) and liability-classified awards related to our 2025 short-term incentive plan. Shar e-based compensation expense recognized during the three months ended March 31, 2024 was associated with stock options, restricted stock units, performance stock units, our ESPP and liability-classified awards related to our 2024 short-term incentive plan. (b) Represents one-time costs related to capital transactions, including debt and equity offerings that are non-recurring in nature. (c) Includes (i) legal-related expenses in pursuit of our claim against Zurich of $0.1 million and $0.2 million for the three months ended March 31, 2025 and 2024, respectively, and (ii) other immaterial transactions that are unusual or non-recurring in nature of $0.1 million for the three months ended March 31, 2025. (d) Represents the estimated tax effect of the total adjustments made to arrive at Adjusted net income using the effective income tax rates for the respective periods. 22 Table of Contents (7) We present Adjusted EBITDA as a supplemental measure of our performance. We define Adjusted EBITDA as net income before interest expense, net, provision for income taxes and depreciation and amortization, excluding the impact of share-based compensation expense as well as (gain) loss on sale-leaseback transactions, capital transaction costs, legal settlements, asset impairment, severance and other items that are not indicative of our ongoing operations. Adjusted EBITDA margin is calculated as Adjusted EBITDA divided by total revenue. The following table provides a reconciliation of net income, the most directly comparable GAAP measure, to Adjusted EBITDA: Three Months Ended March 31, ($ in thousands) 2025 2024 Net income $ 76,142 $ 24,917 Interest expense, net of interest income 25,107 37,403 Provision for income taxes 6,405 9,914 Depreciation and amortization 70,919 65,903 Share-based compensation expense (a) 11,909 7,626 Capital transaction costs (b) 920 — Other (c) 186 214 Adjusted EBITDA $ 191,588 $ 145,977 (a) - (c) See the corresponding footnotes to the table in footnote 6 immediately above. (8) Represents non-capital expenditures associated with opening new centers that are incurred prior to the commencement of a new center opening. The number of centers under construction or development, the types of centers and our costs associated with any particular center opening can vary significantly from period to period. (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: Three Months Ended March 31, ($ in thousands) 2025 2024 Net cash provided by operating activities $ 183,856 $ 90,407 Capital expenditures, net of construction reimbursements (142,482) (156,801) Free cash flow $ 41,374 $ (66,394) Factors Affecting the Comparability of our Results of Operations 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 74% of our centers are now leased, including approximately 89% of our new centers opened since 2015, versus a predominantly owned real estate strategy prior to 2015. Rent expense, which includes both cash and non-cash rent expense, will continue to increase as we lease more centers and will therefore impact the comparability of our results of operations. The impact of these increases is dependent upon the timing of our centers under development and the center openings, the timing of sale-leaseback transactions and terms of the leases for the new centers or sale-leaseback transactions. 23 Table of Contents Macroeconomic Trends We have been monitoring the macroeconomic environment and its impact on our business, including with respect to tariffs, inflation, interest rates and labor, as well as a potential economic recession . See “—Overview—Macroeconomy” for additional information. 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, 2024 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. 24 Table of Contents Results of Operations Three Months Ended March 31, 2025 Compared to Three Months Ended March 31, 2024 The following table sets forth our condensed consolidated statements of operations data (amounts in thousands) and data as a percentage of total revenue for the three months ended March 31, 2025 and 2024: Three Months Ended March 31, As a Percentage of Total Revenue 2025 2024 2025 2024 Revenue: Center revenue $ 685,654 $ 580,485 97.1 % 97.3 % Other revenue 20,387 16,232 2.9 % 2.7 % Total revenue 706,041 596,717 100.0 % 100.0 % Operating expenses: Center operations 370,987 321,900 52.5 % 53.9 % Rent 81,165 72,282 11.5 % 12.1 % General, administrative and marketing 57,847 48,853 8.2 % 8.2 % Depreciation and amortization 70,919 65,903 10.0 % 11.0 % Other operating expense 17,453 15,722 2.5 % 2.6 % Total operating expenses 598,371 524,660 84.7 % 87.8 % Income from operations 107,670 72,057 15.3 % 12.2 % Other (expense) income: Interest expense, net of interest income (25,107) (37,403) (3.6) % (6.3) % Equity in (loss) earnings of affiliates (16) 177 — % — % Total other expense (25,123) (37,226) (3.6) % (6.3) % Income before income taxes 82,547 34,831 11.7 % 5.9 % Provision for income taxes 6,405 9,914 0.9 % 1.7 % Net income $ 76,142 $ 24,917 10.8 % 4.2 % Total revenue. The $109.3 million increase in Total revenue for the three months ended March 31, 2025 as compared to the three months ended March 31, 2024 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 $105.2 million increase in Center revenue for the three months ended March 31, 2025 as compared to the three months ended March 31, 2024: • 72.5% was from membership dues and enrollment fees, which increased $76.2 million for the three months ended March 31, 2025 as compared to the three months ended March 31, 2024. This increase reflects the improvement in our Center memberships, which increased to 826,374 as of March 31, 2025 from 802,010 as of March 31, 2024, as well as higher average monthly dues per Center membership during the three months ended March 31, 2025 as compared to the three months ended March 31, 2024 ; and • 27.5% was from in-center revenue, which increased $28.9 million for the three months ended March 31, 2025 as compared to the three months ended March 31, 2024 . 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 March 31, 2025 as compared to the three months ended March 31, 2024 . T he $4.2 million increase in Other revenue for the three months ended March 31, 2025 as compared to the three months ended March 31, 2024 was primarily driven by the improved performance of our media and events business and Life Time Work locations. 25 Table of Contents Center operations expenses . Th e $49.1 million increase in Center operations expenses for the three months ended March 31, 2025 as compared to the three months ended March 31, 2024 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 $8.9 million increase in Rent expense for the three months ended March 31, 2025 as compared to the three months ended March 31, 2024 was primarily driven by the timing of sale-leaseback transactions during the 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. General, administrative and marketing expenses. The $9.0 million increase in General, administrative and marketing expenses for the three months ended March 31, 2025 as compared to the three months ended March 31, 2024 was primarily due to the timing of share-based compensatio n and benefit-related expen s es, increases in center support overhead to enhance and broaden our member services and experiences, information technology costs and costs attributable to the secondary offering of common stock completed in February 2025. Depreciation and amortization expenses . The $5.0 million increase in Depreciation and amortization expenses for the three months ended March 31, 2025 as compared to the three months ended March 31, 2024 was primarily due to new center openings. Other operating expense . The $1.7 million increase in Other operating expense for the three months ended March 31, 2025 as compared to the three months ended March 31, 2024 was primarily due to increased costs to support Other revenue growth. Interest expense, net of interest income . The $12.3 million decrease in Interest expense, net of interest income for the three months ended March 31, 2025 as compared to the three months ended March 31, 2024 was primarily driven by lower average levels of outstanding borrowings and a slightly lower interest rate during the three months ended March 31, 2025 as compared to the three months ended March 31, 2024. Provision for income taxes . The $3.5 million decrease in provision for income taxes for the three months ended March 31, 2025 as compared to the three months ended March 31, 2024 was primarily driven by the excess tax deduction associated with stock option exercises, partially offset by an increase in earnings before taxes. The effective tax rate was 7.8% and 28.5% for those same periods, respectively. The effective tax rate applied to our pre-tax income for the three months ended March 31, 2025 is lower than our statutory rate of 21% and is primarily due to the excess tax deduction associated with stock option exercises, partially offset by the state income tax provisions and deductibility limitations associated with executive compensation. Net income . As a result of the factors described above, net income was $76.1 million for the three months ended March 31, 2025 as compared to $24.9 million for the three months ended March 31, 2024. 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. 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 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 March 31, 2025, there were no outstanding borrowings under our Revolving Credit Facility and there were $30.8 million of outstanding letters of credit, resulting in total availability under our $650.0 million Revolving Credit Facility of $619.2 26 Table of Contents million. Total cash and cash equivalents at March 31, 2025 was $59.0 million , resulting in total cash and availability under our Revolving Credit Facility of $678.2 million . The following table sets forth our condensed consolidated statements of cash flows data (amounts in thousands): Three Months Ended March 31, 2025 2024 Net cash provided by operating activities $ 183,856 $ 90,407 Net cash used in investing activities (141,643) (158,588) Net cash provided by financing activities 7,380 74,975 Effect of exchange rates on cash and cash equivalents and restricted cash and cash equivalents — (36) Increase in cash and cash equivalents and restricted cash and cash equivalents $ 49,593 $ 6,758 Operating Activities The $93.4 million increase in net cash provided by operating activities for the three months ended March 31, 2025 as compared to the three months ended March 31, 2024 was primarily the result of increased business performance and profitability and timing of cash interest payments. 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 $16.9 million decrease in net cash used in investing activities for the three months ended March 31, 2025 as compared to the three months ended March 31, 2024 was primarily driven by a $14.3 million decrease in capital expenditures. The following table reflects capital expenditures by type of expenditure (in thousands): Three Months Ended March 31, 2025 2024 Growth capital expenditures (1) $ 93,483 $ 105,225 Maintenance capital expenditures (2) 29,403 39,479 Modernization and technology capital expenditures (3) 19,596 12,097 Total capital expenditures $ 142,482 $ 156,801 (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 three months ended March 31, 2025 as compared to the three months ended March 31, 2024 was primarily driven by the timing and type of new center construction activity and maintenance expenditures, slightly offset by higher modernization and technology expenditures during the three months ended March 31, 2025 for center remodels, fitness floor reconfigurations and digital and artificial intelligence initiatives. 27 Table of Contents Financing Activities The $67.6 million decrease in net cash provided by financing activities for the three months ended March 31, 2025 as compared to the three months ended March 31, 2024 was primarily driven by higher net repayments under our Revolving Credit Facility, offset by lower payments of mortgage notes and higher proceeds from stock option exercises. We believe we will generate 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.