Company Overview

Life Time Group Holdings, Inc. (LTH) has emerged as a dominant force in the fitness and wellness industry, revolutionizing the way people approach their health and well-being. With a rich history spanning over three decades, the company has continuously reinvented itself, adapting to the evolving needs of its ever-growing member base.

History and Growth

Founded in 1990 by Bahram Akradi, Life Time started as a single athletic club in Brooklyn Park, Minnesota. The company's first athletic country club destination opened in 1992, marking the beginning of its journey to provide premium health, fitness, and wellness experiences to its members. Over the next two decades, Life Time continued expanding its footprint, opening centers across the United States.

In 2015, the company made a strategic shift in its business model, moving from primarily owning its real estate to a more asset-light approach. This change involved leveraging operating leases and sale-leaseback transactions to fund its growth, allowing Life Time to rapidly expand its portfolio of premium centers in desirable markets.

COVID-19 Impact and Response

The COVID-19 pandemic presented significant challenges for Life Time in 2020. In March of that year, the company was forced to close all of its centers based on orders and advisories from governmental authorities. As restrictions were lifted, Life Time worked diligently to reopen its centers, implementing new operating processes and protocols to ensure member safety. The company's performance continued to be impacted by the pandemic through 2021 due to varying governmental restrictions.

Despite these challenges, Life Time demonstrated its resilience and adaptability by expanding its digital platform to provide a true omni-channel experience for members. This innovation allowed the company to continue serving its members even during periods of center closures or reduced operations.

Current Operations

As of September 30, 2024, Life Time has expanded its footprint to 177 centers across 31 states and one Canadian province, with a total square footage of 17.4 million. The company's financial performance has been impressive, showcasing its ability to navigate various macroeconomic environments. In the most recent fiscal year, the company reported total revenue of $2.22 billion, a 22% increase from the prior year. Net income for the same period stood at $76.06 million, a significant turnaround from the previous year's net loss of $1.79 million. This strong financial performance has been driven by the company's focus on providing premium health, fitness, and wellness experiences to its growing member base.

Membership and Revenue

As of September 30, 2024, Life Time boasted a total membership of 876,510, including 826,500 center memberships and 50,010 digital on-hold memberships. The company's average revenue per center membership has steadily increased, reaching $2,360 for the nine months ended September 30, 2024, up from $2,100 in the same period of the prior year. This growth has been fueled by the company's ability to attract and retain high-value members, as well as its successful implementation of strategic initiatives, such as the expansion of its Dynamic Personal Training (DPT) and other premium offerings.

Financials and Liquidity

Life Time's financial position has also strengthened, with the company actively managing its debt levels. As of September 30, 2024, the company's net debt-to-Adjusted EBITDA ratio stood at 2.4x, a significant improvement from 3.7x in the prior year period. This deleveraging has been achieved through a combination of strategic actions, including the recent registered offering of 6 million shares of common stock, which generated net proceeds of $124.4 million, and the refinancing of the company's credit facilities.

The company's financial performance for the most recent quarter (Q3 2024) has been particularly strong. Revenue reached $693.23 million, an 18% increase year-over-year. Net income rose significantly to $41.35 million, up from $7.92 million in Q3 2023. Operating Cash Flow (OCF) increased by 32% to $151.15 million, while Free Cash Flow (FCF) saw a substantial increase to $138.33 million, up from $30.27 million in Q3 2023. This improvement in FCF was driven by higher profitability and sale-leaseback transactions.

Life Time's liquidity position remains robust, with $120.95 million in cash and cash equivalents as of September 30, 2024. The company also has access to $408.80 million under its $650 million Revolving Credit Facility. The current ratio stands at 0.59, while the quick ratio is 0.46, indicating the company's ability to meet its short-term obligations.

Business Segments

Life Time operates in two main business segments:

1. Center Revenue: This segment, which includes revenue from membership dues, enrollment fees, and in-center services, accounted for 97.1% of total revenue for the nine months ended September 30, 2024. Center revenue grew by 18.6% year-over-year, reaching $1.90 billion. This growth was driven by a 19.5% increase in membership dues and enrollment fees, as well as a 15% increase in in-center revenue.

2. Other Revenue: This segment includes revenue from Life Time Work co-working spaces, Life Time Living residential properties, media and events, and other sources. Other revenue grew by 16.1% year-over-year, reaching $57.45 million for the nine months ended September 30, 2024. The increase was primarily driven by improved performance of the Life Time Work locations.

Future Outlook

Looking ahead, Life Time remains focused on expanding its footprint and enhancing its member experiences. The company has a robust pipeline of 100 potential deals, with plans to open 10 to 12 new locations on average per year. Additionally, the company is exploring opportunities to further diversify its revenue streams, such as the launch of its MIORA health optimization and longevity services, as well as the introduction of its LTH branded supplement and wellness product line.

Life Time has recently raised its guidance for the full year 2024. The company now expects revenue to be in the range of $2.595 billion to $2.605 billion, and adjusted EBITDA to be between $658 million and $662 million. Going forward, Life Time is targeting double-digit revenue and adjusted EBITDA growth. The company is also focused on continuing to deliver strong free cash flow and maintaining its net debt to adjusted EBITDA leverage ratio under 2.25x by the end of 2024.

The health, fitness, and wellness industry is experiencing strong tailwinds, with the U.S. gym, health & fitness clubs market expected to grow at a CAGR of 5.6% from 2023 to 2028. Life Time is well-positioned to capitalize on this growth trend with its comprehensive ecosystem of athletic country clubs, digital offerings, and innovative product lines.

Conclusion

Despite the challenges posed by the COVID-19 pandemic, Life Time has demonstrated its resilience and adaptability. The company's ability to navigate through the crisis and emerge stronger has earned it the trust and loyalty of its members, as evidenced by its industry-leading retention rates.

In conclusion, Life Time Group Holdings, Inc. (LTH) has established itself as a premier destination for health, fitness, and wellness. With its comprehensive ecosystem of athletic country clubs, digital offerings, and innovative product lines, the company is well-positioned to continue its growth trajectory and solidify its position as a leader in the industry.