LIFE TIME GROUP HOLDINGS, INC. 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, possible or assumed future actions, strategies and prospects, both business and financial, including our financial outlook, events and 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. Statements preceded by, followed by or that otherwise include the words "believe," "expects," "anticipates," "intends," "projects," "estimates," "plans," "may increase," "may result," "will result," "may fluctuate," and similar expressions or future or conditional verbs such as "will," "should," "would," "may," and "could" 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 expectations 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 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, risks relating to our human capital, risks relating to legal compliance and risk management, risks relating to our financial performance 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 endedDecember 31, 2021 filed with theSecurities and Exchange Commission (the "SEC") and as such risk factors may be updated from time to time in our periodic filings with theSEC that are accessible on theSEC'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. 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 any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law. Overview Initial Public Offering OnOctober 12, 2021 ,Life Time Group Holdings, Inc. consummated its initial public offering ("IPO") of 39.0 million shares of its common stock at a public offering price of$18.00 per share, resulting in total gross proceeds of$702.0 million before deducting the underwriting discounts and other offering expenses. The shares of its common stock began trading onThe New York Stock Exchange under the symbol "LTH" onOctober 7, 2021 . A registration statement on Form S-1 relating to the offering of these securities was declared effective by theSEC onOctober 6, 2021 . Additionally, onNovember 1, 2021 ,Life Time Group Holdings, Inc. consummated the sale of nearly 1.6 million additional shares of its common stock at the IPO price of$18.00 per share pursuant to the partial exercise by the underwriters of their over-allotment option, resulting in total gross proceeds of approximately$28.4 million before deducting the underwriting discounts and commissions.
Business
Life Time, the "Healthy Way ofLife Company ," is a leading lifestyle brand offering premium health, fitness and wellness experiences to a community of nearly 1.3 million individual members,who together comprise more than 744,000 memberships, as ofMarch 31, 2022 . Since our founding nearly 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 150 centers-distinctive, resort-like athletic country club destinations-across 29 states inthe United States and one province inCanada . Our track record of providing differentiated experiences to our members has fueled our strong, long-term financial performance. 21
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Our luxurious athletic centers, which are located in both affluent suburban and urban locations, total more than 15 million square feet in the aggregate. As ofMarch 31, 2022 , we had 14 new centers under construction and we believe we have significant opportunities to continue expanding our portfolio of premium centers with 11 or more planned new centers for 2022 and similar growth annually for the foreseeable future in increasingly affluent markets. We offer expansive fitness floors with top-of-the-line equipment, spacious locker rooms, group fitness studios, indoor and outdoor pools and bistros, indoor and outdoor tennis courts, pickleball courts, basketball courts, LifeSpa, LifeCafe and our childcare andKids Academy learning spaces. Our premium service offerings are delivered by over 31,000 Life Time team members, including over 7,700 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. Our center memberships increased from 649,373 atDecember 31, 2021 to 673,983 atMarch 31, 2022 , with month over month growth of 3,330, 4,376 and 16,904 for January, February andMarch 2022 , respectively, as the impact from the Omicron variant subsided. As we grow our business with more team members and more centers, we may be impacted by broader market conditions such as inflation and labor. We believe that no other company inthe United States delivers the same quality and breadth of health, fitness and wellness experiences that we deliver, which enabled us to consistently grow our recurring membership dues and in-center revenue for 20 consecutive years, prior to the impact of the COVID-19 pandemic. We are focused on returning to consistent growth in our recurring membership dues and in-center revenue. For the three months endedMarch 31, 2022 and 2021, our recurring membership dues represented 71.3% and 71.5%, respectively, of our total Center revenue, while our in-center revenue, consisting of Life Time Training, LifeCafe, LifeSpa, Life Time Swim and Life Time Kids, among other services, represented 28.7% and 28.5%, respectively, of our total Center revenue. Our average revenue per center membership increased to$580 for the three months endedMarch 31, 2022 compared to$459 for the three months endedMarch 31, 2021 and$532 for the three months endedMarch 31, 2019 prior to the COVID-19 pandemic, a testament to the significant value that our members place on engaging with Life Time. As we delivered and continued to enhance and broaden the premium experiences for our members, we strategically increased our membership dues across most of our new and existing centers in 2021. We believe we can continually refine our pricing as we deliver exceptional experiences and find the optimal balance among the number of memberships per center, the member experience and maximizing our return for each center. We expect average revenue per center membership to continue to increase compared to the same period in prior year as we acquire new members and open new centers in increasingly affluent markets. We offer a variety of convenient month-to-month memberships with no long-term contracts. We define memberships for our centers in two ways: Center memberships and Digital On-hold memberships. A Center membership is defined as one or more adults 14 years of age or older, plus any juniors under the age of 14. Our base memberships provide individuals general access (with some amenities excluded) to a selected home center and all centers with the same or a lower base monthly dues rate. Our optimized pricing for a Center membership is determined center-by-center based on a variety of factors, including geography, market presence, demographic nature, population density, initial investment in the center and available services and amenities. Digital On-hold memberships do not provide access to our centers and are for those memberswho want to maintain certain member benefits including our Life Time Digital membership and the right to convert to a Center membership without paying enrollment fees. We continue to evolve our premium lifestyle brand in ways that elevate and broaden our member experiences and allow our members to more easily and regularly integrate health, fitness and wellness into their lives. We are now offering new types of Center memberships and communities, including our signature membership that includes unlimited small group training and priority registrations, and our new ARORA community focused on members aged 55 years and older. We are also enhancing our digital platform to deliver a true omni-channel experience for our members. Our Life Time Digital offering delivers live streaming fitness classes, remote goal-based personal training, nutrition and weight loss support and curated award-winning health, fitness and wellness content. Through an agreement with Apple®, we also provide Apple Fitness+ to our members, which gives our members expanded content and wellness data monitoring on the go. In addition, our members are able to purchase a wide variety of equipment, wearables, apparel, beauty products and nutritional supplements via our digital health store. We are continuing to invest in our digital capabilities in order to strengthen our relationships with our members and more comprehensively address their health, fitness and wellness needs so that they can remain engaged and connected with Life Time at any time or place. Elevating our member experiences and delivering a connected and digital environment requires investment in our team members, programs, products, services and centers. These investments may impact our short-term results of operations and cash flows as our investments in our business may be made more quickly than we see the returns on our investments. We are also expanding our "Healthy Way of Life" ecosystem in response to our members' desire to more 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 receive access to all of our resort-like athletic destinations acrossthe United States andCanada . Additionally, we opened our first Life Time Living location in 2021, another asset-light extension of our "Healthy Way of Life" ecosystem, which offers luxury wellness-oriented 22
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residences. As we expand our footprint with new centers and nearby work and
living spaces, as well as strengthen our digital capabilities, we expect to
continue to grow our omni-channel platform to support the "
Non-GAAP Financial Measures This discussion and analysis includes certain financial measures that are not presented in accordance with the generally accepted accounting principles inthe United States ("GAAP"), including Adjusted EBITDA and free cash flow before growth capital expenditures 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 evaluated. We use Adjusted EBITDA as an important performance metric for the Company. In addition, free cash flow before growth capital expenditures is an important liquidity metric we use to evaluate our ability to make principal payments on our indebtedness and to fund our capital expenditures and working capital requirements.
Adjusted EBITDA
We define Adjusted EBITDA as net income (loss) before interest expense, net, provision for (benefit from) income taxes and depreciation and amortization, excluding the impact of share-based compensation expense, (gain) loss on sale-leaseback transactions, capital transaction costs, legal settlements, asset impairment, severance and other items that are not indicative of our ongoing operations, including incremental costs related to COVID-19. Management uses Adjusted EBITDA to evaluate the Company's performance. We believe that Adjusted EBITDA is an important metric for management, investors and analysts as it removes 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 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.
Free Cash Flow Before Growth Capital Expenditures
We define free cash flow before growth capital expenditures as net cash provided
by (used in) operating activities less center maintenance capital expenditures
and corporate capital expenditures. We believe free cash flow before growth
capital expenditures 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 before growth capital
expenditures to be a key indicator of our liquidity and we present this metric
to our board of directors. Additionally, we believe free cash flow before growth
capital expenditures 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
before growth capital expenditures 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 EBITDA and free cash flow before growth capital expenditures 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 loss or any other performance measures derived in accordance with GAAP or as
an alternative to net cash provided by (used in) operating activities as a
measure of our liquidity and may not be comparable to other similarly titled
measures of other businesses. Adjusted EBITDA and free cash flow before growth
capital expenditures 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 EBITDA and free cash flow before growth capital
expenditures only for supplemental purposes. See our condensed consolidated
financial statements included elsewhere in this report for our GAAP results.
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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 endedMarch 31, 2022 and 2021. The following information has been presented consistently for all periods presented. Three Months EndedMarch 31, 2022 2021 ($ in
thousands, except for Average
Center revenue per center membership
data)
Membership Data
Center memberships 673,983 544,216
Digital On-hold memberships 70,289 196,746
Total memberships 744,272 740,962
Revenue Data
Membership dues and enrollment fees 71.3% 71.5%
In-center revenue 28.7% 28.5%
Total Center revenue 100.0% 100.0%
Membership dues and enrollment fees $ 271,915 $ 175,307
In-center revenue 109,706 69,787
Total Center revenue $ 381,621 $ 245,094
Average Center revenue per center membership (1) $ 580 $ 459
Comparable center sales (2) 50.3% (39.4)%
Center Data
Net new center openings (3) 2 1
Total centers (end of period) (3) 153 150
Total center square footage (end of period) (4) 15,300,000 14,900,000
GAAP and Non-GAAP Financial Measures
Net loss $ (37,966) $ (152,801)
Net loss margin (5) (9.7) % (61.3) %
Adjusted EBITDA (6) $ 40,626 $ (18,947)
Adjusted EBITDA margin (6) 10.4 % (7.6) %
Center operations expense $ 239,573 $ 174,615
Pre-opening expenses (7) $ 1,387 $ 2,560
Rent $ 55,964 $ 50,517
Non-cash rent expense (open properties) (8) $ 1,068 $ 237
Non-cash rent expense (properties under development) (8) $ 4,941 $ 4,086
Net cash provided by (used in) operating activities $
9,062
(1) We define Average Center revenue per center membership as Center revenue
less Digital On-hold revenue, divided by the average number of Center
memberships for the period, where the average number of Center memberships for
the period is an average derived from dividing the sum of the total Center
memberships outstanding at the beginning of the period and at the end of each
month during the period by one plus the number of months in each period.
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(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 sales purposes, beginning on the first day of the 13th 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 are 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. As ofMarch 31, 2022 , all of our 153 centers were open. (4) Total center square footage (end of period) reflects the aggregate fitness square footage, which we use as a metric for evaluating the efficiencies of a center as of the end of the period. The square footage figures exclude areas used for tennis courts, outdoor swimming pools, outdoor play areas and stand-alone Work, Sport and Swim locations. These figures are approximations.
(5) Net loss margin is calculated as net loss divided by total revenue.
(6) We present Adjusted EBITDA as a supplemental measure of our performance. We define Adjusted EBITDA as net income (loss) before interest expense, net, provision for (benefit from) income taxes and depreciation and amortization, excluding the impact of share-based compensation expense, (gain) loss on sale-leaseback transactions, capital transaction costs, legal settlements, asset impairment, severance and other items that are not indicative of our ongoing operations, including incremental costs related to COVID-19.
Adjusted EBITDA margin is calculated as Adjusted EBITDA divided by total revenue.
The following table provides a reconciliation of net loss, the most directly comparable GAAP measure, to Adjusted EBITDA:
Three Months Ended
March 31,
($ in thousands) 2022 2021
Net loss $ (37,966) $ (152,801) Interest expense, net of interest income (a) 29,943 96,217 Benefit from income taxes
(2,867) (25,953)
Depreciation and amortization 58,107 61,206
Share-based compensation expense (b) 21,438 -
COVID-19 related expenses (c) 212 298
(Gain) loss on sale-leaseback transactions (d) (28,372) 798
Other (e) 131 1,288
Adjusted EBITDA $ 40,626 $ (18,947)
(a) For the three months ended March 31, 2021 , we incurred a non-cash expense
of $41.0 million related to the extinguishment of a related party secured loan
and $18.3 million related to the write-off of debt discounts and issuances costs
in connection with the extinguishment of senior secured notes and the related
party secured loan.
(b) Share-based compensation expense recognized during the three months ended
March 31, 2022 is associated with stock options, restricted stock and restricted
stock units. The majority of this expense was associated with awards that were
fully vested and became exercisable on April 4, 2022 . No share-based
compensation expense was recognized during the three months ended March 31,
2021 , because the vesting and exercisability of stock options granted by the
Company up through March 31, 2021 was contingent upon the occurrence of a change
of control or an initial public offering.
(c) Represents the incremental net expenses we recognized related to the
COVID-19 pandemic. We adjust for these costs as they do not represent costs
associated with our normal ongoing operations. We believe that adjusting for
these costs provides a more accurate and consistent representation of our actual
operating performance from period to period. For the three months ended
March 31, 2022 and 2021, COVID-19 related expenses primarily consisted of legal
related costs.
(d) We adjust for the impact of gains or losses on the sale-leaseback of our
properties as they do not reflect costs associated with our ongoing operations.
For detail on the gain on sale-leaseback transactions in the three months ended
March 31, 2022 , see "Sale-Leaseback Transactions" within Note 7, Leases, to our
condensed consolidated financial statements in this report.
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(e) Includes costs associated with incremental expenses related to a winter
storm that resulted in historical freezing temperatures affecting our
(7) Represents non-capital expenditures associated with opening new centers
which 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.
(8) 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.
(9) Free cash flow before growth capital expenditures, a non-GAAP financial
measure, is calculated as net cash provided by (used in) operating activities
less center maintenance capital expenditures and corporate capital expenditures.
The following table provides a reconciliation from net cash provided by (used
in) operating activities to free cash flow before growth capital expenditures:
Three Months Ended
March 31,
($ in thousands) 2022 2021
Net cash provided by (used in) operating activities
(16,396) (7,692)
Corporate capital expenditures (27,922)
(8,067)
Free cash flow before growth capital expenditures
Factors Affecting the Comparability of our Results of Operations
Impact of COVID-19 on our Business
Overview
InMarch 2020 , theWorld 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," 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 onMay 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. The performance of our centers after we were able to re-open them has varied depending on various factors, including how early we were able to re-open them in 2020, whether we were required to close them again, their geographic location and applicable governmental restrictions. The performance of our centers was also impacted in 2021 as a result of the Delta variant and then again later in 2021 and into 2022 with the Omicron variant. We have experienced a slightly faster recovery in our membership dues revenue compared to our in-center revenue as our centers have re-opened. We expect membership dues revenue to remain a higher percentage of our total revenue in the near term and return to more historical levels over time. While we are encouraged by the trends of increased vaccination rates, reduced COVID-19 infections and hospitalizations and reduced operating restrictions, the full extent of the impact of COVID-19, including any new variants, remains uncertain and is dependent on future developments that cannot be accurately predicted at this time. There may also be developments outside of our control requiring us to adjust our operating plan, including additional required center closures or operating restrictions. Considering this uncertainty, the extent of the impact of COVID-19 on our financial position, results of operations, liquidity and cash flows is uncertain at this time. 26
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Operations
As ofMarch 31, 2022 , all of our 153 centers were open and our total memberships were 744,272, an increase of 0.4% compared to 740,962 atMarch 31, 2021 . Center memberships were 673,983, an increase of 23.8% compared to 544,216 atMarch 31, 2021 . Digital On-hold memberships were 70,289, a decrease of 64.3% compared to 196,746 atMarch 31, 2021 . Prior to the COVID-19 pandemic, Center memberships and Digital On-hold memberships were 853,748 and 90,299, respectively, atDecember 31, 2019 . As the first three months of 2022 have progressed, we have experienced a significant decrease in the COVID-19 related restrictions on our operations. While we are still utilizing certain of the processes we implemented to provide a healthy and clean environment for our members and team members, we are no longer subject to the stricter requirements such as face coverings, vaccine mandates or negative test results. We will continue to monitor governmental orders regarding the operations of our centers, as well as our center operating processes and protocols. Our centers and in-center businesses have been impacted differently based upon considerations such as their geographic location, vaccination rates, impacts of variants, applicable government restrictions and guidance, and team member and member sentiment with respect to our center operating processes and protocols and working in and/or using our centers. While this uneven performance may continue, we are hopeful that as we continue to emerge from the COVID-19 pandemic and more time passes since the restrictive operating requirements have been lifted, our performance will begin to improve across the country and we will continue to see an increase in Center memberships and center utilization. Given the increased demand for online engagement with consumers, we have increased our focus on delivering a digitized in-center experience through our omni-channel ecosystem. We continue to expand our Digital membership offering, bringing our "Healthy Way of Life" programs, services and content to consumers virtually. This omni-channel experience is designed to deliver health, fitness and wellness where, when and how members want it by offering online reservations registrations, virtual training, live streaming and on-demand classes, virtual events and more. Cash Flows and Liquidity
In response to the impact of COVID-19 on our business, we took swift cash management actions to reduce our operating costs and preserve liquidity, including with respect to our employees, corporate and capital structures, capital expenditures, rent obligations, tax benefits and sale-leaseback transactions.
Although there is uncertainty related to the full impact of COVID-19 on our financial position, results of operations, liquidity and cash flows, we believe that the combination of our current cash position, our availability under the Revolving Credit Facility, the recent actions we have taken with respect to our debt and equity and strengthening our balance sheet, as well as the actions we have taken to reduce our cash outflows, leave us well-positioned to manage our business. If our available liquidity were not sufficient to meet our operating and debt service obligations as they come due, we would need to pursue alternative arrangements through additional debt or equity financing to meet our cash requirements. There can be no assurance that any such financing would be available on commercially acceptable terms, or at all. We also intend to continue to explore sale-leaseback transactions. During the three months endedMarch 31, 2022 , we completed sale-leaseback transactions associated with two properties and we have an agreement for the sale-leaseback of two additional properties that is expected to close on or aboutMay 13, 2022 . In addition, we are exploring the potential sale-leaseback of a number of our properties with targeted gross proceeds of approximately$500 million by the end of the third quarter of 2022. For more information regarding the sale-leaseback transactions that were consummated during the three months endedMarch 31, 2022 , see Note 7, Leases, to our condensed consolidated financial statements included elsewhere in this report. Investment in Business As we recover from the impacts of the COVID-19 pandemic, we are investing in our business to elevate and broaden our member experiences and drive additional revenue per center membership, including introducing new types of memberships, providing concierge-type member services, expanding our omni-channel offerings and improving our in-center services and products. Elevating our member experiences requires investment in our team members, programs, products, services and centers. These investments may impact our short-term results of operations and cash flows as our investments in our business may be made more quickly than we achieve additional revenue per center membership. 27
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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. Approximately 59% of our centers are now leased, including approximately 92% of our new centers opened within the last five years, 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 and terms of the leases for the new centers or sale-leaseback transactions.
Share-Based Compensation
During the three months endedMarch 31, 2022 , we recognized share-based compensation expense associated with stock options, restricted stock and restricted stock units totaling approximately$21.4 million . The majority of this expense was associated with awards that were fully vested and became exercisable onApril 4, 2022 . No share-based compensation expense was recognized during the three months endedMarch 31, 2021 , because the vesting and exercisability of stock options granted by the Company up throughMarch 31, 2021 was contingent upon the occurrence of a change of control or an initial public offering.
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. Given the additional effects from the COVID-19 pandemic, these estimates can be more challenging, and actual results could differ materially from our estimates. More information on all of our significant accounting policies can be found in Note 2, "Summary of Significant Accounting Policies" to our audited consolidated financial statements included in the Company's Annual Report on Form 10-K for the year endedDecember 31, 2021 filed with theSEC . 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. 28
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Results of Operations
Three Months Ended
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
Three Months Ended
As a Percentage of Total Revenue
2022 2021 2022 2021
Revenue:
Center revenue $ 381,621 $ 245,094 97.3 % 98.3 %
Other revenue 10,633 4,204 2.7 % 1.7 %
Total revenue 392,254 249,298 100.0 % 100.0 %
Operating expenses:
Center operations 239,573 174,615 61.1 % 70.0 %
Rent 55,964 50,517 14.2 % 20.3 %
General, administrative and marketing 66,561 38,270 17.0 % 15.4 %
Depreciation and amortization 58,107 61,206 14.8 % 24.6 %
Other operating (income) expense (17,035) 6,934 (4.3) % 2.8 %
Total operating expenses 403,170 331,542 102.8 % 133.1 %
Loss from operations (10,916) (82,244) (2.8) % (33.1) %
Other (expense) income:
Interest expense, net of interest income (29,943) (96,217) (7.6) % (38.6) %
Equity in earnings (loss) of affiliate 26 (293) - % (0.1) %
Total other expense (29,917) (96,510) (7.6) % (38.7) %
Loss before income taxes (40,833) (178,754) (10.4) % (71.8) %
Benefit from income taxes (2,867) (25,953) (0.7) % (10.4) %
Net loss $ (37,966) $ (152,801) (9.7) % (61.4) %
Total revenue. The $142.9 million increase in Total revenue for the three months
ended March 31, 2022 compared to the three months ended March 31, 2021 reflects
the continued improvement of our operations as we emerge from the adverse
impacts of COVID-19, as well as pricing initiatives we implemented at the
majority of our centers during the second half of 2021, which have resulted in
higher average Center membership dues being charged during the three months
ended March 31, 2022 as compared to the three months ended March 31, 2021 .
With respect to the
•70.8% was from membership dues and enrollment fees, which increased$96.6 million for the three months endedMarch 31, 2022 as compared to the three months endedMarch 31, 2021 . This increase reflects the improvement in our Center memberships, which increased from 544,216 as ofMarch 31, 2021 to 673,983 as ofMarch 31, 2022 , as we emerge from the adverse impacts of COVID-19, as well as pricing initiatives we implemented at the majority of our centers during the second half of 2021, which have resulted in higher average Center membership dues being charged during the three months endedMarch 31, 2022 as compared to the three months endedMarch 31, 2021 ; and •29.2% was from in-center revenue, which increased$39.9 million for the three months endedMarch 31, 2022 as compared to the three months endedMarch 31, 2021 . This increase was recognized across all of our primary in-center businesses and reflects the higher utilization of our services by our members as we emerge from the adverse impacts of COVID-19. The$6.4 million increase in Other revenue for the three months endedMarch 31, 2022 as compared to the three months endedMarch 31, 2021 was primarily driven by our athletic events business, as we were able to produce more of our iconic events during the three months endedMarch 31, 2022 compared to the three months endedMarch 31, 2021 when COVID-19 restrictions forced the cancellation of some of our events. 29
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Center operations expenses. The$65.0 million increase in Center operations expenses for the three months endedMarch 31, 2022 as compared to the three months endedMarch 31, 2021 was driven by increased staffing requirements resulting from our investment in our programs, services and centers and from the increased usage of our centers and services by our members during the three months endedMarch 31, 2022 as compared to the three months endedMarch 31, 2021 , as well as the addition of two new centers during the three months endedMarch 31, 2022 . Rent expense. The$5.4 million increase in Rent expense for the three months endedMarch 31, 2022 as compared to the three months endedMarch 31, 2021 was primarily driven by our taking possession of seven properties sinceMarch 31, 2021 for future centers where we started incurring GAAP rent expense, most of which is non-cash, the timing of the sale-leaseback of two centers that occurred during 2021 and the sale-leaseback of two centers occurring during the three months endedMarch 31, 2022 . General, administrative and marketing expenses. The$28.3 million increase in General, administrative and marketing expenses for the three months endedMarch 31, 2022 as compared to the three months endedMarch 31, 2021 was primarily driven by a$19.9 million increase in share-based compensation expense, a$4.6 million increase in overhead costs that were primarily labor-related to enhance and broaden our member services in support of the recovery of our business, a$1.8 million increase in public company-related expenses, a$1.1 million increase in information technology costs and a$0.9 million increase in marketing expenses. No share-based compensation expense was recognized during the three months endedMarch 31, 2021 , because the vesting and exercisability of stock options granted by the Company up throughMarch 31, 2021 was contingent upon the occurrence of a change of control or an initial public offering. Depreciation and amortization. The$3.1 million decrease in Depreciation and amortization for the three months endedMarch 31, 2022 as compared to the three months endedMarch 31, 2021 consists of$3.4 million lower depreciation, driven by the timing of sale-leaseback transactions, partially offset by$0.3 million higher amortization, driven by a facility license associated with an outdoor enthusiast and bicycling event that we acquired during the third quarter of 2021. Other operating (income) expenses. Other operating income for the three months endedMarch 31, 2022 was$17.0 million , compared to Other operating expenses of$6.9 million for the three months endedMarch 31, 2021 . The$24.0 million change was primarily attributable to the recognition of a gain of$28.4 million on a sale-leaseback transaction associated with two properties that was completed during the three months endedMarch 31, 2022 , partially offset by higher costs associated with our athletic events business as we were able to produce more of our iconic events during the three months endedMarch 31, 2022 as compared to the three months endedMarch 31, 2021 . Interest expense, net of interest income. The$66.3 million decrease in Interest expense, net of interest income for the three months endedMarch 31, 2022 as compared to the three months endedMarch 31, 2021 was driven by$41.0 million of non-cash expense that was recognized during the three months endedMarch 31, 2021 in connection with the conversion of a related party secured loan into Series A Preferred Stock, write-offs of debt issuance costs and original issuance discount costs totaling$18.3 million that were recognized during the three months endedMarch 31, 2021 in connection with extinguished debt instruments, as well as a lower average level of outstanding borrowings during the three months endedMarch 31, 2022 as compared to the three months endedMarch 31, 2021 . Benefit from income taxes. The benefit from income taxes was$2.9 million for the three months endedMarch 31, 2022 compared to$26.0 million for the three months endedMarch 31, 2021 . The effective tax rate was 7.0% and 14.5% for those same periods, respectively. The change in benefit from income taxes was primarily attributable to the decrease in our loss before income taxes and the decrease in the effective tax rate for the three months endedMarch 31, 2022 as compared to the three months endedMarch 31, 2021 . The effective tax rate applied to our pre-tax loss for the three months endedMarch 31, 2022 is lower than our statutory rate of 21% and reflects a$4.6 million increase in the valuation allowance associated with certain of our deferred tax assets as well as deductibility limitations associated with executive compensation.
Net loss. As a result of the factors described above, net loss decreased by
Liquidity and Capital Resources
Liquidity
Our principal liquidity needs include the development of new centers, debt
service and lease requirements, investments in our business and technology and
expenditures necessary to maintain and update or enhance our centers and
associated fitness equipment and member experiences. We have primarily satisfied
our historical liquidity needs with cash flow from operations, drawing on the
Revolving Credit Facility and through sale-leaseback transactions.
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We have taken significant actions to improve our liquidity. During 2021, we refinanced a significant portion of our outstanding debt and completed the IPO. Additionally, we completed the sale-leaseback of two properties. For information regarding the refinancing actions we took during 2021, see Note 6, Debt, to our condensed consolidated financial statements in this report. During the three months endedMarch 31, 2022 , we completed a sale-leaseback transaction associated with two properties and we have an agreement for the sale-leaseback of two additional properties that is expected to close on or aboutMay 13, 2022 . In addition, we are exploring the potential sale-leaseback of a number of our properties with targeted gross proceeds of approximately$500 million by the end of the third quarter of 2022. For more information regarding the sale-leaseback transactions that were consummated during the three months endedMarch 31, 2022 , see Note 7, Leases, to our condensed consolidated financial statements included in this report. We believe the steps we have taken to strengthen our balance sheet and to reduce our cash outflows leave us well-positioned to manage our business including as we emerge from the pandemic. As the opportunity arises or as our business needs require, we may seek to raise capital through additional debt financing or through equity financing. There can be no assurance that any such financing would be available on commercially acceptable terms, or at all. To date, we have not experienced difficulty accessing the credit and capital markets; however, volatility in these markets, particularly in light of the impacts of COVID-19 and the potential for rising interest rates, 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 ofMarch 31, 2022 , there were$30.0 million of outstanding borrowings under our Revolving Credit Facility and there were$33.5 million of outstanding letters of credit. As ofMarch 31, 2022 , total cash and revolver availability was$452.6 million , consisting of total cash and cash equivalents of$41.1 million and total revolver availability of$411.5 million . The following table sets forth our condensed consolidated statements of cash flows data (in thousands): Three Months EndedMarch 31, 2022 2021
Net cash provided by (used in) operating activities
Net cash used in investing activities (26,283) (11,073)
Net cash provided by financing activities 26,619 184,182
Effect of exchange rates on cash and cash equivalents 61
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Increase in cash and cash equivalents $ 9,459 $ 134,971
Operating Activities
The
Investing Activities
Investing activities consist primarily of purchasing real property, constructing new centers, acquisitions and purchasing new fitness equipment. In addition, we invest in capital expenditures to maintain and update our existing centers. We finance the purchase of our property and equipment through operating cash flows, proceeds from sale-leaseback transactions, construction reimbursements and draws on our Revolving Credit Facility. The$15.2 million increase in cash used in investing activities for the three months endedMarch 31, 2022 as compared to the three months endedMarch 31, 2021 was primarily driven by a relatively higher level of new center construction activity during the three months endedMarch 31, 2022 , partially offset by a higher amount of proceeds that we received from a sale-leaseback transaction during the three months endedMarch 31, 2022 . 31
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The following schedule reflects capital expenditures by type of expenditure (in
thousands):
Three Months Ended
March 31,
2022 2021Growth capital expenditures (new center land and construction, growth initiatives, major remodels of acquired centers and the purchase of previously leased centers), net of construction reimbursements
$ 66,436 $ 27,570 Center maintenance capital expenditures 16,396 7,692 Corporate capital expenditures 27,922 8,067 Total capital expenditures $
110,754
The$67.4 million increase in total capital expenditures for the three months endedMarch 31, 2022 as compared to the three months endedMarch 31, 2021 was primarily driven by higher growth capital expenditures for new centers and corporate capital expenditures related to Life Time Work and continued investments in technology.
Financing Activities
The$157.6 million decrease in cash provided by financing activities for the three months endedMarch 31, 2022 as compared to the three months endedMarch 31, 2021 was primarily driven by net proceeds we received from borrowings under our Term Loan Facility, Secured Notes and Unsecured Notes during the three months endedMarch 31, 2021 . We expect to satisfy our short-term and long-term obligations through a combination of cash on hand, funds generated from operations, sale-leaseback transactions and the borrowing capacity available under our Revolving Credit Facility.
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