Shares of Life Time Group Holdings, Inc. were down about 15 percent in late-afternoon trading Tuesday after reporting adjusted EBITDA exceeded analyst targets, with revenue and membership growth coming in below target.
Bahram Akradi, founder, chairman and CEO of Life Time remained bullish on the luxury athletic country club’s prospects, telling analysts that membership growth was in line with plans.
“It’s been growing exactly to our expectation,” said Akradi.” We are very happy with the growth. We’re not seeing any weakness in any of the trends. The memberships they’re coming in…there is zero marketing, zero promotions, zero effort to sell. Our focus has been continuing to work on desirability in our clubs, and it’s working every night. Our attrition rates are dropping, and as attrition rates drop, that makes the net increase in memberships much easier to attain. We’re very happy with where we’re at.”
Akradi also noted that despite “potential recessionary headwinds” reflected in guidance, Life Time raised its adjusted EBITDA outlook for the full year.
In the second quarter ended June 30, revenue increased 21.8 percent to $561.7 million. Revenue came in at the low end of company guidance in the range of $560 million to $570 million and was below analysts’ consensus estimate of $566.9 million. Revenue gains were driven by a 25 percent increase in membership dues and enrollment fees and a 13 percent increase in in-center revenue. Average center revenue per membership increased to $701, up 10 percent from $639 in the prior-year quarter. Center operations expenses increased 8.2 percent to $302.6 million.
As of the end of the second quarter, LTH had 790,000 memberships, up 3.4 percent quarter over quarter and 9 percent year-over-year. Wall Street’s consensus target had been 794,000.
As expected in the first-quarter analyst call, June was the first month that LTF’s attrition rate was below pre-pandemic 2019 levels. Added Akradi, “We are seeing these trends now through July and August, which reflects strong member sentiment to the Life Time brand.”
Total subscriptions, including digital on-hold memberships, are now at 832,600.
General, administrative and marketing expenses inched up 1.5 percent to $52.8 million due to higher share-based compensation expenses, partially offset by reduced center support overhead, advertising and marketing, public company, and cash incentive compensation expenses.
Net income totaled $17.0 million against a net loss of $2.3 million in the second quarter of 2022. Excluding non-cash share-based compensation expenses, losses on sale-leaseback transactions and tax-effected net benefits, net income improved by $45.7 million year-over-year.
Adjusted EBITDA surged 115.5 percent to $136.0 million from $63.1 million in the second quarter of 2022. Guidance called for adjusted EBITDA in the range of $124 million to $126 million.
Adjusted EBITDA margin increased by over ten percentage points to 24.2 percent versus 13.7 percent in the second quarter of 2022. Rent as a percentage of revenue was 12 percent in the second quarter of 2023, down from 13 percent in the prior-year quarter.
The earnings improvement reflects a greater flow-through of its increased revenue and benefited from the structural improvements to its business that improved margins.
“I am very pleased with our progress in the second quarter towards our main objectives,” said Akradi. “Our strategic initiatives are all paying off, and our team is focused and excited. We are delivering the best quality programming and experiences to our members, and, at the same time, we’re delivering great operating margins.”
Akradi also noted that Life Time continues to be more asset-light and is increasing its expansion targets for the year.
Life Time plans to open 12 centers in 2023, eight of which will be in the second half. When it reported first-quarter results on April 25, Life Time had expected to open 10 new centers and as of June 30, Life Time operates 164 centers.
“We are systematically looking to see what are the number of opportunities that are available out there for us and to our surprise that number is nearly almost 200 asset-light opportunities,” said Akradi. “This is not building our big battleships, which is another couple of 100 possible locations.”
Akradi said Life Time has made about 20 asset-light deals, with another 20 under discussion. He added, “They are legit, and I think we can continue to basically harvest this opportunity in the years to come over the next four or five years, which allows the company to grow revenue and EBITDA at a very, very nice pace without having to add significant amounts of leverage. Actually, we should be able to continue to deleverage the company.”
Net debt to adjusted EBITDA decreased to 4.2 times at the end of the second quarter compared to nine times at the end of the same period last year. Akradi added, “We expect this rapid deleveraging to continue in the third quarter.”
Looking forward, Life Time said it expects revenues in the range of $585 million to $595 million against $496.4 million a year ago, representing a gain at the midpoint of 18.9 percent. Guidance was below the Street’s consensus target of $601.8 million.
Adjusted EBITDA in the third quarter is expected in the range of $136 million to $138 million against $71.0 million a year ago, representing a gain at the midpoint of 93.0 percent. Guidance was above the Street’s consensus target of $128.4 million.
For the full year, revenue is expected in the range of $2.24 billion to $2.27 billion versus $1.82 billion a year ago, representing a gain at the midpoint of 23.4 percent. Previous guidance called for revenue between $2.2 billion and $2.3 billion. Wall Street’s previous consensus guidance had been $2.247 billion.
Adjusted EBITDA is expected in the range of $510 million to $520 million against $282 million the prior year, representing a gain at the midpoint of 82.6 percent. Previous guidance called for adjusted EBITDA between $470 million and $490 million. Wall Street’s previous consensus guidance had been $490 million.
Photo courtesy Life Time
