Life Time Group Holdings, Inc. (NYSE:LTH) has delivered an exceptional performance in the first quarter of 2024, showcasing the strength and resilience of its premium health, fitness, and wellness offerings. The company reported revenues of $596.7 million, up 16.8% year-over-year, surpassing analyst expectations. This impressive growth was driven by a 19% increase in membership dues and enrollment fees, as well as a 10.5% rise in in-center revenue.

The company's net income for the quarter stood at $24.9 million, down 9.5% from the prior-year period, which had benefited from one-time gains related to sale-leaseback transactions and the sale of two triathlon events. However, the company's adjusted net income, which excludes the impact of these one-time items, increased by $7.3 million to $30.5 million, highlighting the underlying profitability of the business.

Adjusted EBITDA, a key metric for the company, grew by 21.6% to $146 million, with the adjusted EBITDA margin expanding by 100 basis points to 24.5%. This strong financial performance was driven by the company's continued focus on delivering exceptional member experiences, which has resulted in improved member engagement, retention, and increased average revenue per center membership.

In the full year 2023, Life Time Group Holdings reported annual net income of $76.1 million, annual revenue of $2.22 billion, annual operating cash flow of $463 million, and annual free cash flow of -$230.9 million. The company's strong performance in the first quarter of 2024 has led it to raise its full-year revenue guidance to $2.5 billion to $2.53 billion, and its adjusted EBITDA guidance to $603 million to $618 million.

Business Overview

Life Time, the "Healthy Way of Life Company," is a leading lifestyle and leisure brand offering premium health, fitness, and wellness experiences to a community of more than 1.5 million individual members, who together comprise more than 853,000 memberships as of March 31, 2024. The company's distinctive, resort-like athletic country club destinations, totaling approximately 17 million square feet, are located in affluent suburban and urban locations across 31 states in the United States and one province in Canada.

Life Time's centers offer expansive fitness floors with top-of-the-line equipment, spacious locker rooms, group fitness studios, indoor and outdoor pools, tennis courts, pickleball courts, basketball courts, LifeSpa, LifeCafe, and childcare and Kids Academy learning spaces. The company's premium service offerings are delivered by over 39,000 team members, including more than 10,200 certified fitness professionals.

The company's members are highly engaged, drawing inspiration from the experiences and community Life Time has created. This is reflected in the continued strength and growth of the company's average revenue per center membership, center usage, and visits to its athletic country clubs. Total visits to Life Time's clubs reached 28 million for the three months ended March 31, 2024, up from 26 million in the prior-year period, with average visits per membership remaining strong at 36.

Expansion and Growth Strategies

Life Time is expanding its portfolio of premium centers using an asset-light model that targets increasingly affluent markets with higher-income members, higher average annual revenue per center membership, and higher returns on invested capital. As of March 31, 2024, the company had 27 centers open for less than three years and seven new centers under construction, with $204 million of growth capital expenditures already invested into these new centers that have yet to open.

The company plans to continue expanding its footprint, with a target of 9 to 10 new centers in 2024. These new centers are expected to ramp to expected performance within three to four years, contributing to the company's goal of delivering 10% or more revenue and EBITDA growth annually.

In addition to its core athletic country club business, Life Time has also expanded its "Healthy Way of Life" ecosystem, launching initiatives such as Life Time Work, an asset-light branded co-working model, and Life Time Living, which offers luxury wellness-oriented residences. As of March 31, 2024, the company had 15 Life Time Work and four Life Time Living locations open and operating.

Financial Performance and Liquidity

Life Time's strong financial performance has been driven by its focus on delivering exceptional member experiences, which has resulted in improved member engagement, retention, and increased average revenue per center membership. The company's total Center revenue increased by 16.8% to $580.5 million in the first quarter of 2024, compared to $497.8 million in the prior-year period.

The company's adjusted EBITDA margin of 24.5% in the first quarter of 2024 represents a 100-basis-point improvement over the prior-year period, reflecting the company's ability to effectively manage its costs and leverage its operational efficiencies.

Life Time's liquidity position remains strong, with total cash and availability under its Revolving Credit Facility of $242.7 million as of March 31, 2024. The company has taken steps to strengthen its balance sheet, including the refinancing of its Term Loan Facility in May 2023 and the completion of several sale-leaseback transactions during 2023. These actions have contributed to a reduction in the company's net debt to adjusted EBITDA leverage ratio to 3.6x as of the end of the first quarter of 2024, down from 5.2x in the prior-year period.

Risks and Challenges

While Life Time has demonstrated impressive growth and resilience, the company faces several risks and challenges that investors should be aware of. These include the potential impact of macroeconomic conditions, such as inflation and rising interest rates, on the company's costs and capital expenditures. Additionally, the company's expansion strategy, which relies heavily on new center openings, carries inherent risks related to construction delays, cost overruns, and the ability to ramp new centers to expected performance levels.

Furthermore, the highly competitive nature of the leisure facilities industry, with the potential for new entrants or changing consumer preferences, could pose a threat to Life Time's market share and profitability. The company's reliance on its premium brand and ability to deliver exceptional member experiences will be crucial in maintaining its competitive edge.

Conclusion

Life Time Group Holdings has delivered an impressive performance in the first quarter of 2024, showcasing the strength and resilience of its premium health, fitness, and wellness offerings. The company's focus on delivering exceptional member experiences has resulted in improved engagement, retention, and increased average revenue per center membership, driving strong financial results.

With a robust expansion strategy, a growing "Healthy Way of Life" ecosystem, and a strengthened balance sheet, Life Time is well-positioned to continue its growth trajectory. However, investors should be mindful of the risks and challenges the company faces, including macroeconomic conditions and the competitive landscape. Overall, Life Time's Q1 2024 results and raised guidance demonstrate the company's ability to navigate the evolving industry landscape and capitalize on the growing demand for premium wellness experiences.