Total revenue increased 42.7 percent to $461.3 million in second quarter 2022 for Life Time Group Holdings, Inc., Chanhassen, Minnesota – leading to an upbeat albeit realistic tone in its earnings conference call on Aug. 10.
“While we are seeing current macroeconomic headwinds that may slow our near-term recovery, we remain confident in the growth of our business as we accelerate the rollout of our strategic initiatives," said Bahram Akradi, founder, chairman and CEO of Life Time.
Those strategic initiatives include: Signature Group Training (small group training with a boutique fitness feel), the ARORA community for older adults, and pickleball. Akradi said the second quarter 2022 results show that the initiatives are working – and will continue to pay off.
This is especially true as all businesses continue to weather the effects of the recession, high-inflation environments, changes in consumer spending and rising construction costs, Tom Bergmann, Life Time president and CFO, said in the call.
“2022 has continued to throw us curveballs, but we have stayed the course and are confident in the growth of our business,” Tom Bergmann, Life Time president and CFO said in the call. “We are cautious in our outlook for the rest of the year, but optimistic.”
While Akradi said that the depth of closures and restrictions due to COVID since 2019 have resulted in some clubs taking a while to “wake up,” he said that the new programming is the most critical thing the company can do – and, that there are clear signs that they’re already working as more members are participating in them and joining because of them, even if it’ll take some time.
Center memberships increased 10.2 percent from 657,737 on June 30, 2021, to 724,778 on June 30, 2022. The company went public in Oct. 2021, so official pre-COVID 2019 numbers aren’t available for comparison.
In addition to the new initiatives, Life Time has 12 planned openings this year and have 11 on tap for 2023, along with a definitive agreement for the sale-leaseback of approximately $200 million of owned real estate, which is expected to close in early October. The company, which went public in Oct. 2021, is also in discussions for additional sale-leaseback transactions of up to $300 million in gross proceeds by the end of the year, Akradi said in a press release.
“We have a lot of good cards in our hands to play yet,” he said. “We feel really, really good about that.”
More Second Quarter Results
Net loss was $2.3 million and included a tax-effected one-time net benefit of $5.4 million, which included a $7.7 million gain on sale-leasebacks, partially offset by $2.2 million in non-cash share-based compensation expense.
Adjusted EBITDA increased to $63.1 million from $4.2 million from the previous year.
Life Time operated 153 centers as of June 30, 2022 – no new centers were added this quarter. (Last quarter, the company opened one in Frisco, Texas, and another in Chicago.)
As of June 30, 2022, Life Time had total cash and cash equivalents of $61.3 million and $30 million in borrowings under its $475-million revolving credit facility.
Net cash provided by operating activities for the three-month and six-month periods ended June 30, 2022, was $71.3 million and $80.3 million, respectively, compared to $25.1 million and $(13.0) million in the same prior-year periods, respectively.
Free cash flow before growth capital expenditures for the three-month and six-month periods ended June 30, 2022, was $32.4 million and $(1.9) million, respectively, compared to $(6.9) million and $(60.8) million in the same prior-year periods, respectively.
Sale-Leasebacks Stats
During the second quarter, Life Time completed sale-leaseback transactions on two properties for gross proceeds of approximately $95 million, bringing the year-to-date sale-leaseback transaction total to $175 million.
In August 2022, Life Time entered into a definitive agreement for the sale-leaseback of five properties for gross proceeds of approximately $200 million. The transaction is expected to close in early October.
Additionally, Life Time is in discussions for sale-leaseback transactions of additional properties for gross proceeds of up to $300 million by the end of the year. Once closed, these transactions would bring the total gross proceeds for sale-leasebacks in 2022 to $675 million. Life Time expects to use the net proceeds both to pay down debt and maintain cash on the balance sheet to fund future growth. Assuming the successful closure of these sale-leaseback transactions on the timeline set forth, full-year rent expense is expected to be $245 to $255 million, the company stated in a press release.
Looking Ahead to Q3 and Q4 2022
For the third quarter, Life Time is projecting revenue, net loss, and adjusted EBITDA to be in the ranges of $490 to $510 million, $(24) to $(15) million, and $65 to $75 million, respectively. For year end, Life Time is projecting revenue, net loss, and adjusted EBITDA to be in the ranges of $1.80 to $1.85 billion, $(73.6) to $(55.6) million, and $250 to $270 million, respectively.