LTH.NYSELife Time Group Holdings, INC
10-K: Life Time Group Holdings Reports Strong 2023 Financial Results, Exceeding Pre-Pandemic Margins
Sentiment:
Annual Results
Life Time Group Holdings' 2023 annual report showcases a robust recovery and financial performance, exceeding pre-pandemic margins with a focus on member engagement and strategic growth initiatives.
Delay expectedThe combined impact of inflation and higher interest rates caused us to temporarily slow down the start of new construction on our ground-up suburban builds as future sale-leaseback transactions were delayed.
Better than expectedThe company achieved a 3.4% net income margin and a 24.2% Adjusted EBITDA margin, surpassing the 1.6% net income margin and 23.0% Adjusted EBITDA margin in 2019.Average revenue per center membership increased to $2,810 in 2023, compared to $2,528 in 2022 and $2,098 in 2021.
Summary
- Life Time Group Holdings, Inc. reported its annual results for the year ended December 31, 2023.
- The company achieved a 3.4% net income margin and a 24.2% Adjusted EBITDA margin, surpassing the 1.6% net income margin and 23.0% Adjusted EBITDA margin in 2019.
- As of December 31, 2023, Life Time had nearly 1.5 million individual members, comprising approximately 815,000 memberships.
- The company operates over 170 centers across 31 states in the United States and one province in Canada.
- Average revenue per center membership increased to $2,810 in 2023, compared to $2,528 in 2022 and $2,098 in 2021.
- The company plans to open nine to 10 new centers in 2024.
- Life Time is expanding its national footprint in affluent metropolitan areas using an asset-light strategy.
- The company is investing in technology, including the Life Time app and artificial intelligence, to enhance member experiences.
- Life Time is committed to environmental, social and governance (ESG) matters.
- The company is involved in a legal proceeding with Zurich American Insurance Company regarding COVID-19 related business interruption claims.
Sentiment
Score: 8
Explanation: The document presents a positive outlook with strong financial results, growth in key metrics, and strategic initiatives for future expansion. While risks are acknowledged, the overall tone is optimistic and confident in the company's ability to navigate challenges.
Positives
- Strong financial performance in 2023, exceeding pre-pandemic margins.
- Growth in membership and average revenue per center membership.
- Strategic expansion plans with new center openings and an asset-light model.
- Investment in technology and omni-channel offerings to enhance member experiences.
- Successful strategic initiatives like pickleball, dynamic personal training, and ARORA driving member engagement.
- Strong member demographics with a median household income of $145,000.
- Effective internal control over financial reporting as of December 31, 2023.
- The company is focused on improving the ratio of net debt to Adjusted EBITDA.
Negatives
- The company is involved in a legal proceeding with Zurich American Insurance Company regarding COVID-19 related business interruption claims.
- The company has a high level of indebtedness and lease obligations.
- The company is exposed to interest rate risk due to variable rates on its senior secured credit facility.
- The company is subject to extensive governmental laws and regulations.
- The company may be unable to maintain the required type or level of insurance coverage on acceptable terms or at an acceptable cost.
Risks
- Inability to attract and retain members or optimize revenue per center membership.
- Competition in the highly competitive health, fitness, and wellness industry.
- Adverse effects from macroeconomic environments, including inflation and interest rates.
- Dependence on third-party suppliers for equipment and certain products and services.
- Deterioration in the quality or reputation of the Life Time brand.
- Inadequate protection of intellectual property rights.
- Failure to successfully execute the asset-light growth strategy.
- Delays in new center openings.
- Strains on management, employees, information systems, and internal controls due to growth.
- Inability to successfully acquire or integrate suitable businesses.
- Failure to properly maintain the operation, integrity, and security of systems and data.
- Inability to generate sufficient cash to service indebtedness and lease obligations.
- Limitations on the ability to raise capital in the future.
- Inability to retain key employees and hire additional qualified employees.
- Changes in governmental laws and regulations.
- Claims related to the construction or operation of facilities.
- Adverse developments in applicable tax laws.
- Volatility in the share price of Life Time's common stock.
- Control of the company by certain stockholders whose interests may not be aligned with others.
- Limitations on the ability to use net operating loss carryforwards and certain other tax attributes.
Future Outlook
Life Time expects to continue growing its revenue as new centers ramp to expected performance, new centers open in desirable locations, and strategic initiatives are executed. The company plans to open nine to 10 new centers in 2024 and aims to be cash flow positive after all capital expenditures starting in the second quarter of 2024.
Management Comments
- Coming out of the COVID-19 pandemic, we believe that we have built an even healthier and stronger business.
- 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.
Industry Context
Life Time operates in the highly competitive health, fitness, and wellness industry, competing with various participants, including health center operators, non-profit organizations, digital fitness services, and home-use fitness equipment companies. The company believes its brand, comprehensive product offering, and focus on premium services and amenities provide a distinct competitive advantage.
Comparison to Industry Standards
- Life Time competes with health center operators such as Equinox Holdings, Inc., The Bay Club Company, Invited (formerly ClubCorp), LA Fitness International, LLC and 24 Hour Fitness Worldwide, Inc.
- Life Time also competes with smaller fitness clubs and studios and other boutique fitness offerings, including Anytime Fitness, Snap Fitness, Planet Fitness, Orange Theory, Barre3, StretchLab and others.
- Life Time's focus on premium services and amenities differentiates it from lower-cost competitors like Planet Fitness.
- Life Time's comprehensive product offering, including fitness, wellness, and social activities, sets it apart from specialized fitness studios like Orange Theory and Barre3.
Management Changes
| Role | Previous Person | New Person | Effective Date | Reason |
|---|---|---|---|---|
| Interim Chief Financial Officer | Unknown | Erik Weaver | N/A | Thomas E. Bergmann retired from the Company effective as of December 30, 2022. |
| President and Chief Operating Officer | Jeffrey G. Zwiefel | N/A | December 31, 2023 | Jeffrey G. Zwiefel resigned as President and Chief Operating Officer and as an employee of the Company, and from all other offices, directorships and positions he may hold at the Company and the Company's direct and indirect subsidiaries. |
Corporate Governance
| Change Type | Description | Effective Date | Impact Assessment |
|---|---|---|---|
| Executive Incentive Compensation Recovery Policy | The Board of Directors adopted an Executive Incentive Compensation Recovery Policy pursuant to Rule 10D-1 of the Securities and Exchange Act of 1934, as amended (the Exchange Act), the Securities and Exchange Commission (SEC) regulations promulgated thereunder, and applicable New York Stock Exchange (NYSE) listing standards. | September 22, 2023 | The policy requires Covered Executives to return Erroneously Awarded Compensation to the Company upon a Recoupment Event. |
Legal Proceedings
- Life Time, Inc. et al. v. Zurich American Insurance Company: The company is engaged in a legal proceeding with Zurich American Insurance Company regarding COVID-19 related business interruption claims.
Related Party Transactions
- The company has entered into sale-leaseback transactions and leases with entities related to its CEO and other board members.
- An affiliate of one of the company's stockholders was one of the initial purchasers in Life Time, Inc.'s offering of the Unsecured Notes and received customary initial purchaser discounts and commissions.
- Life Time, Inc. acquired Mr. Bergmanns 50% interest in an aircraft in October 2022 for approximately $1.8 million.
- The daughter of our CEO currently serves as a senior director of real estate development for Life Time, Inc.
Stakeholder Impact
- Shareholders: The company's strong financial performance and growth initiatives are expected to benefit shareholders.
- Employees: The company's commitment to human capital and employee benefits aims to create a positive work environment.
- Members: The company's investment in member experiences and omni-channel offerings is expected to enhance member satisfaction.
- Landlords and Property Developers: The company believes that the presence of a Life Time center benefits landlords and property developers and the value of the underlying property and surrounding neighborhoods.
Next Steps
- Continue to execute on strategic initiatives to grow the business and engage members.
- Expand the national footprint in affluent metropolitan areas.
- Leverage the asset-light real estate strategy.
- Strengthen digital capabilities and omni-channel platform.
- Monitor the macroeconomic environment and adapt business strategies accordingly.
Key Dates
| Date | Description |
|---|---|
| 1992 | Life Time was founded by Bahram Akradi. |
| 2000 | Life Time has grown its revenue each year since 2000, except in 2020 due to COVID-19. |
| 2003 | Life Time Foundation was formed. |
| 2010 | Life Time Foundation focused on helping children reach their full potential by collaborating with school food leaders. |
| May 8, 2020 | Life Time re-opened its first center after COVID-19 closures. |
| October 7, 2021 | Life Time's common stock began trading on the NYSE under the symbol LTH. |
| October 12, 2021 | Life Time Group Holdings, Inc. consummated its initial public offering (IPO). |
| November 1, 2021 | Life Time Group Holdings, Inc. consummated the sale of additional shares of its common stock pursuant to the partial exercise by the underwriters of their over-allotment option. |
| April 4, 2022 | Stock options granted prior to the IPO became exercisable. |
| December 1, 2022 | Life Time launched the first offering period under the ESPP. |
| May 9, 2023 | Life Time, Inc. and certain of its other wholly-owned subsidiaries entered into a tenth amendment to the credit agreement governing our senior secured credit facilities. |
| December 6, 2023 | Life Time, Inc. and certain of its other wholly-owned subsidiaries entered into an eleventh amendment to the Credit Agreement which reduced the interest rate under the Term Loan Facility by 0.50%. |
| December 31, 2023 | End of the fiscal year for which the annual report was filed. |
| February 26, 2024 | Date of record for shares outstanding. |
| February 28, 2024 | Date of the report. |
| April 26, 2024 | Date of the Annual Meeting of Stockholders. |
Keywords
Life Time, memberships, fitness, revenue, centers, EBITDA, growth, members, wellness, health
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