Profits at Life Time Group Holdings, Inc. rose 43.1 percent on an adjusted basis in the third quarter ended September 30 on a 17.9 percent revenue gain. The high-end fitness club’s sales were at the low end of guidance but earnings topped expectations.

Life Time slightly lowered its sales outlook for the year while raising its earnings guidance.

Sales of $585.2 million in the quarter compared to company guidance in the range of $585 million to $595 million. Adjusted EBITDA of $143.0 million was ahead of guidance of $136.0 million.

Bahram Akradi, founder, chairman and CEO, stated: “I am very appreciative of our team and the milestones we achieved this quarter. We generated record levels of revenue and Adjusted EBITDA, and our trailing 12-month Adjusted EBITDA surpassed $500 million for the first time in our history. Our investments in programming are working to increase member engagement at our clubs with average member visits up 24 percent versus 2019. As we look to next year, we expect to be free cash flow positive after all capital investment including new club growth by the middle of 2024, two years earlier than originally anticipated. With expectations for continued Adjusted EBITDA growth and significant asset-light opportunities, we expect to fund our targeted growth in 2024 and beyond with internally generated cash flow. We are well positioned for continued success.”

Third Quarter 2023 Information

  • Revenue increased 17.9 percent to $585.2 million due to continued strong growth in membership dues and in-center revenue.
  • Center memberships increased by 55,602, or 7.6 percent, when compared to the prior year third quarter, and decreased consistently with seasonality expectations by approximately 5,900 from the second quarter to 784,331.
  • Total subscriptions, which include center memberships and our digital on-hold memberships, increased 7.0 percent from the prior year third quarter to 830,039.
  • Center operations expenses increased 8.2 percent to $319.4 million primarily due to increased operating costs related to our new and ramping centers as well as growth in memberships and in-center business revenue.
  • General, administrative and marketing expenses decreased 9.5 percent to $51.7 million primarily due to reduced center support overhead, advertising and marketing and cash incentive compensation expenses, partially offset by higher share-based compensation expense.
  • Net income declined $16.8 million to $7.9 million, primarily due to gain from sale-leasebacks of $48.6 million in the prior year period and a loss from a sale-leaseback transaction in the current year period of $12.7 million, partially offset by improved business performance in the current year period.
  • Adjusted net income increased $38.2 million to $26.7 million.
  • Adjusted net income and Adjusted EBITDA improved significantly as we experienced greater flow-through of increased revenue and benefited from the structural improvements to its business that have improved margins.

Nine-Month 2023 Information

  • Revenue increased 22.8 percent to $1,657.8 million due to continued growth in membership dues and in-center revenue.
  • Center operations expenses increased 10.0 percent to $896.1 million primarily due to increased operating costs related to its new and ramping centers as well as growth in memberships and in-center business revenue.
  • General, administrative and marketing expenses decreased 16.3 percent to $147.0 million primarily due to lower cash incentive compensation expense and reduced center support overhead and advertising and marketing expenses.
  • Net income increased $67.9 million to $52.4 million, primarily due to improved business performance in the current year period.
  • Adjusted net income increased $157.9 million to $91.1 million.
  • Adjusted net income and Adjusted EBITDA improved significantly for the same reasons identified for the quarter.

New Center Openings

  • The company opened six new centers in the third quarter of 2023 and 10 new centers through the first nine months of 2023.
  • As of September 30, 2023, Life Time operated a total of 170 centers.
  • The company plans to open a total of 12 new centers in 2023, with the remaining two expected to open in the fourth quarter.

Liquidity and Capital Resources

  • As the company moves toward positive free cash flow after all capital expenditures, including growth capital, the company will report total capital expenditures going forward and will not be providing guidance on the company’s capital expenditures for the balance of 2023.
  • The company continues to explore sale-leaseback transactions but is being selective on whether to execute additional sale-leasebacks in the current macroeconomic environment given the company’s ability to add new centers through asset-light opportunities and its expectation to be free cash flow positive after capital expenditures by the end of the second quarter in 2024.
  • As of September 30, 2023, the company had total cash and cash equivalents of $25.4 million, and $45.0 million in outstanding borrowings under its $475 million revolving credit facility.

2023 Outlook

Fourth quarter guidance

  • Sales are expected in the range of $555 million to $565 million against $472.7 million, representing a gain of 18.5 percent at the midpoint.
  • Adjusted EBITDA is expected in the range of $131 million to $135 million versus $107.0 million a year ago, representing a gain of 24.3 percent at the midpoint.

Full-Year 2023 Guidance

  • Revenue is expected in the range of $2,213 million to $2,223 million versus $1,822.6 million a year ago, representing a gain at the midpoint of 21.7 percent. Previous guidance called for revenue between $2,235 million to $2,265 million.
  • Adjusted EBITDA is expected in the range of $530 million to $534 million against $281.7 million a year ago, representing a gain at the midpoint of 88.9 percent. Previous guidance had been in the range of $510 million to $520 million.

Photo courtesy Life Time