Life Time Group Holdings Inc

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except per share data)

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

1. Nature of Business and Basis of Presentation

Nature of Business

Life Time Group Holdings, Inc. (collectively with its direct and indirect subsidiaries, “Life Time,” “we,” “our,” or the “Company”) is a holding company incorporated in the state of Delaware. As a holding company, Life Time Group Holdings, Inc. does not have its own independent assets or business operations, and all of our assets and business operations are through Life Time, Inc. and its direct and indirect subsidiaries. We are primarily dedicated to providing premium health, fitness and wellness experiences at our athletic country club destinations and via our comprehensive digital platform and portfolio of iconic athletic events – all with the objective of inspiring healthier, happier lives. We design, build and operate our athletic country club destinations that are distinctive and large, multi-use sports and athletic, professional fitness, family recreation and spa centers in a resort-like environment. As of September 30, 2024, we operated 177 centers in 31 states andone Canadian province.

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial reporting and as required by rules and regulations of the Securities and Exchange Commission (the “SEC”). While these statements reflect normal recurring adjustments that are, in the opinion of management, necessary for a fair statement of the results of the interim period, they do not include all of the information and footnotes required by GAAP for complete financial statements. These unaudited condensed consolidated financial statements should be read in conjunction with our audited consolidated financial statements and the notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023 filed with the SEC.

The unaudited condensed consolidated financial statements have been prepared on the same basis as the audited consolidated financial statements. When preparing financial statements in conformity with GAAP, we are requiredto make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. All intercompany balances and transactions have been eliminated in consolidation. We haveone operating segment andone reportable segment.

Reclassification

A reclassification has been made on our December 31, 2023 condensed consolidated balance sheet in order to conform to the current period presentation. Specifically, our restricted cash and cash equivalents balance of $18.8 million at December 31, 2023 was reclassified out of Cash and cash equivalents and into a separate line item labeled Restricted cash and cash equivalents. This reclassification had no impact on our previously reported statements of operations or cash flows.

2. Summary of Significant Accounting Policies

New Accounting Pronouncements Not Yet Adopted

In November 2023, the Financial Accounting Standards Board (“FASB”) issued guidance to expand annual and interim disclosure requirements for reportable segments, primarily through additional disclosures on segment expenses. We expect to adopt the accounting guidance for our Annual Report on Form 10-K for the year ended December 31, 2024. We do not anticipate the updated standard will have a material impact on our financial statement disclosures.

In December 2023, the FASB issued guidance to enhance transparency of income tax disclosures. The updated guidance requires additional disclosures on income tax rate reconciliation and income taxes paid, among other things. We expect to adopt the accounting guidance for our Annual Report on Form 10-K for the year ended December 31, 2025. We are currently evaluating the impact that the updated standard will have on our financial statement disclosures.

Fair Value Measurements

The accounting guidance establishes a framework for measuring fair value and expanded disclosures about fair value measurements. The guidance applies to all assets and liabilities that are measured and reported on a fair value basis. This enables the reader of the financial statements to assess the inputs used to develop those measurements by establishing a hierarchy for ranking the quality and reliability of the information used to determine fair values. The guidance requires that each asset and liability carried at fair value be classified into one of the following categories:

Level 1: Quoted market prices in active markets for identical assets or liabilities.

Level 2: Observable market-based inputs or unobservable inputs that are corroborated by market data.

Level 3: Unobservable inputs that are not corroborated by market data.

The carrying amounts related to cash and cash equivalents, restricted cash and cash equivalents, accounts receivable, income tax receivable, accounts payable and accrued liabilities approximate fair value.

Fair Value Measurements on a Recurring Basis. We had no material remeasurements of such assets or liabilities to fair value during thethree and nine months ended September 30, 2024 and 2023.

Financial Assets and Liabilities. At September 30, 2024 and December 31, 2023, the carrying value and fair value of our outstanding long-term debt was as follows:

(1) Excludes unamortized debt discounts and issuance costs.

The fair value of our debt is based on the amount of future cash flows discounted using rates we would currently be able to realize for similar instruments of comparable maturity. If our long-term debt were recorded at fair value, it would be classified as Level 2 in the fair value hierarchy. For more information regarding our debt, see Note 5, Debt.

Fair Value Measurements on a Nonrecurring Basis. Assets and liabilities that are measured at fair value on a nonrecurring basis primarily relate to our goodwill, intangible assets and other long-lived assets, which are remeasured when the derived fair value is below carrying value on our condensed consolidated balance sheets. For these assets, we do not periodically adjust carrying value to fair value except in the event of impairment. If we determine that impairment has occurred, the carrying value of the asset would be reduced to fair value and the difference would be recorded as a loss within operating income in our condensed consolidated statements of operations. We had no material remeasurements of such assets or liabilities to fair value during thethree and nine months ended September 30, 2024 and 2023.

3. Supplemental Balance Sheet and Cash Flow Information

Prepaid Expenses and Other Current Assets

Prepaid expenses and other current assets consisted of the following:

Accrued Expenses and Other Current Liabilities

Accrued expenses and other current liabilities consisted of the following:

Supplemental Cash Flow Information

(Increases) decreases in operating assets and increases (decreases) in operating liabilities are as follows:

Additional supplemental cash flow informationis as follows:

4. Revenue

Revenue associated with our membership dues, enrollment fees, and certain services from our in-center businesses is recognized over time as earned. Revenue associated with products and services offered in our cafes and spas, as well as through e-commerce, is recognized at a point in time. The following is a summary of revenue, by major revenue stream, that we recognized during the three and nine months ended September 30, 2024 and 2023:

The timing associated with the revenue we recognized during the three months ended September 30, 2024 and 2023 is as follows:

The timing associated with the revenue we recognized during the nine months ended September 30, 2024 and 2023 is as follows:

Contract liabilities represent payments or consideration received in advance for goods or services that the Company has not yet transferred to the customer. Contract liabilities consist primarily of deferred revenue for fees collected in advance for Dynamic Personal Training, media and athletic events, enrollment fees, other in-center services offerings and membership dues. Contract liabilities at September 30, 2024 and December 31, 2023 were $48.9 million and $49.9 million, respectively.

Contract liabilities that will be recognized within one year are classified as deferred revenue in our condensed consolidated balance sheets. Deferred revenue at September 30, 2024 and December 31, 2023 was $48.8 million and $49.3 million, respectively, and consists primarily of prepaid Dynamic Personal Training, media and athletic events, enrollment fees, other in-center services and membership dues.

Contract liabilities that will be recognized in a future period greater than one year are classified as a component of Other liabilities in our condensed consolidated balance sheets. Long-term contract liabilities at September 30, 2024 and December 31, 2023 were $0.1 million and $0.6 million, respectively, and consist primarily of deferred enrollment fees.

5. Debt

Debt consisted of the following:

Refinancing Transaction

On September 20, 2024, Life Time, Inc. and certain of our other wholly-owned subsidiaries entered into a thirteenth amendment to the credit agreement governing our senior secured credit agreement (the “Amended Credit Agreement”). The Amended Credit Agreement provided for, among other things, (i) an increase in the commitments under the revolving credit facility to$650.0 million, (ii) a reduction in the floating interest rate per annum of, at our option, Term Secured Overnight Financing Rate (“SOFR”) plus an applicable margin of 2.50% or a base rate plus 1.50%, and a reduction in the undrawn commitment fee rate from 50 basis points to 25 basis points, and (iii) an extension of the maturity of the revolving credit facility to September 20, 2029, except that the maturity will be (a) October 16, 2025 if at least $100 million remains outstanding on the Senior Secured Notes on such date and (b) January 14, 2026 if at least $100 million remains outstanding on the Senior Unsecured Notes on such date. The applicable margins will (i) decrease 25 basis points upon achieving a certain first lien net leverage ratio and/or (ii) decrease 25 basis points upon achieving public corporate family ratings of Ba3 or BB- from any two of Moody’s, S&P and Fitch, as provided in the Amended Credit Agreement.

Term Loan Facility

On August 19, 2024, we used a portion of the net proceeds we received from an equity offering to pay down an aggregate principal amount of $110.0 million of our Term Loan Facility. For more information regarding our equity offering, see Note 7, Stockholders’ Equity. On September 20, 2024, we paid the remaining aggregate principal amount of $200.0 million of our Term Loan Facility andno borrowings remained outstanding under our Term Loan Facility as of September 30, 2024.

Before we paid off the Term Loan Facility in full on September 20, 2024, loans under the Term Loan Facility were at a floating interest rate per annum of, at our option, SOFR plus an applicable credit adjustment spread ranging from 0.11448% to 0.42826% depending on the duration of borrowing plus the continued applicable margin of 4.00% or a base rate plus 3.00%. We were not required to make principal payments on the Term Loan Facility prior to its maturity.

Revolving Credit Facility

At September 30, 2024, there were $210.0 million of outstanding borrowings under the $650.0 million Revolving Credit Facility, as amended pursuant to the Amended Credit Agreement, and there were $31.2 million of outstanding letters of credit, resulting in total revolver availability of $408.8 million, which was available at intervals ranging from 30 to 180 days at interest rates of SOFR plus an applicable margin of 2.50% or a base rate plus 1.50%. During the second quarter of 2024, we amended the credit agreement governing the Revolving Credit Facility to replace the Canadian Dollar Offered Rate (CDOR), which ceased at the end of June 2024, with the Canadian Overnight Repo Rate Average (CORRA). We donot have any outstanding borrowings in Canadian dollars under the Revolving Credit Facility.

The weighted average interest rate and debt outstanding under the Revolving Credit Facility for the nine months ended September 30, 2024 was 9.36% and$140.6 million, respectively. The highest balance during that same period was $285.0 million.

Construction Loan

On August 15, 2024, we fully paid the remaining principal balance and accrued interest associated with our Construction Loan totaling $28.2 million.

Mortgage Notes

During the nine months ended September 30, 2024, we fully paid at maturity the principal balance and remaining accrued interest associated with two of our Mortgage Notes totaling $62.9 million.

Debt Discounts and Issuance Costs

During the three months ended September 30, 2024, in connection with the Refinancing Transaction, we incurred debt discounts and issuance costs totaling $1.9 million, which are included in Other assets on our condensed consolidated balance sheet at September 30, 2024.

During the three months ended September 30, 2024, in connection with the pay down in full of each of our Term Loan Facility and Construction Loan, we recognized $3.5 million of debt discounts and issuance cost write-offs, which are included in Interest expense, net of interest income in our condensed consolidated statement of operations.

Debt Covenants

We are required to comply with certain affirmative and restrictive covenants under our Credit Facilities, Secured Notes, Unsecured Notes and Mortgage Notes. We are also required to comply with a first lien net leverage ratio covenant under the Revolving Credit Facility, which requires us to maintain a first lien net leverage ratio, if 30.00% or more of the Revolving Credit Facility commitments are outstanding shortly after the end of any fiscal quarter (excluding all cash collateralized undrawn letters of credit and other undrawn letters of credit up to $90.0 million).

As of September 30, 2024, we were either in compliance in all material respects with the covenants or the covenants were not applicable.

Future Maturities of Long-Term Debt

Aggregate annual future maturities of long-term debt, excluding unamortized discounts, issuance costs and fair value adjustments, at September 30, 2024 were as follows:

6. Leases

Sale-Leaseback Transactions with Unrelated Third Parties

During thenine months ended September 30, 2024, we entered into and consummated sale-leaseback transactions with three unrelated third parties. Under these transactions, we sold five properties for gross proceeds of$173.2 million, which was reduced by transaction costs of$1.0 million, for net cash proceeds of$172.2 million. The estimated fair value of the properties sold was$182.2 million. Accordingly, the aggregate cash sales price associated with these arrangements was increased by a $9.0 million aggregate off-market adjustment to$181.2 million. Of the aggregate off-market adjustment,$13.3 millionwas associated with a property sale in which the sales price was less than the fair value of the property sold, which was recognized as an increase in the aggregate sales price associated with this property and an increase in the related operating lease right-of-use asset, and$4.3 million was associated with property sales in which the sales price was greater than the fair value of the properties sold, which was recognized as a reduction to the aggregate sales price associated with these properties and as financing obligations separate from the related operating lease liabilities. Proceeds from the financing obligations are reported within financing activities on our condensed consolidated statement of cash flows. During thenine months ended September 30, 2024, we recognized a net gain of $19.8 million on sale-leaseback transactions with unrelated third parties, which isincluded in Other operating expense in our condensed consolidated statement of operations.

Right-of-use assets and lease liabilities recognized in connection with sale-leaseback transactions with unrelated third parties were$123.0 million and$108.5 million, respectively.

Sale-Leaseback Transaction with Related Parties

During thethree months ended September 30, 2024, we entered into and consummated a sale-leaseback transaction with an entity in which our chief executive officer and a member of our board of directors own a minority interest. Under this transaction, we soldone propertyfor gross proceeds of $40.0 million, which was reduced by transaction costs of $0.2 million, for net cash proceeds of $39.8 million. The estimated fair value of the property sold was$40.3 million. During thethree months ended September 30, 2024, we recognized a loss of $17.2 million on this sale-leaseback transaction, which is included in Other operating expense in our condensed consolidated statement of operations.

The right-of-use asset and lease liability recognized in connection with this sale-leaseback transaction was $25.1 million and $24.9 million, respectively.

7. Stockholders’ Equity

Equity Offering

On August 14, 2024, we consummated the registered offering, issuance and sale of 6.0 million shares of our common stock by the Company (the “Primary Shares”) and 7.8 million shares of our common stock by certain of our stockholders (the “Secondary Shares”) at an offering price of $21.75 per share, less underwriting discounts and commissions (collectively, the “Offering”). We received total gross proceeds from the Primary Shares of$130.5 million, which was reduced by underwriting discounts and commissions and other expenses of$6.1 million, for net proceeds of$124.4 million. We didnot receive any proceeds from the sale of the Secondary Shares. We used a portion of the net proceeds we received from the Offering to pay down $110.0 million of our Term Loan Facility on August 19, 2024. For more information regarding our debt, see Note 5, Debt.

Share-Based Compensation Expense

Share-based compensation expense for the three months ended September 30, 2024 was $11.8 million, of which $9.3 million and$2.5 million was associated with equity-classified awards and liability-classified awards, respectively. Share-based compensation expense for thenine months ended September 30, 2024 was $30.5 million, of which $27.2 million and$3.3 million was associated with equity-classified awards and liability-classified awards, respectively.

Share-based compensation expense for the three months ended September 30, 2023 was $14.9 million, of which $8.9 million and$6.0 million was associated with equity-classified awards and liability-classified awards, respectively. Share-based compensation expense for thenine months ended September 30, 2023 was $37.0 million, of which $22.8 million and$14.2 million was associated with equity-classified awards and liability-classified awards, respectively.

Restricted Stock Units

During thenine months ended September 30, 2024, the Company granted approximately 1.8 million restricted stock unit awards under the 2021 Incentive Award Plan, of which approximately 1.3 million were time-based vesting awards and approximately 0.5 million were performance-based vesting awards granted to our executives in connection with our short-term incentive compensation program. We determine the grant date fair value of restricted stock unit awards by multiplying the number of restricted stock unit awards by the closing trading price of our common stock on the grant date.

Performance Stock Units

During thenine months ended September 30, 2024, the Company granted approximately 0.5 million three-year performance stock unit awards under the 2021 Incentive Award Plan, all of which were granted to our executives in connection with our long-term incentive compensation program. Approximately 0.3 million of the performance stock unit awards are based on our Adjusted EBITDA with performance determined each year for one-third of such award but the entire award does not vest until the end of thethree-year period and approximately 0.2 million of the performance stock unit awards are based on our leverage ratio at the end of each year with one-third vesting each year dependent on achieving the leverage ratio target for such year. We determine the grant date fair value of performance stock unit awards by multiplying the number of performance stock unit awards by the closing trading price of our common stock on the grant date.

Other Share-Based Payment Awards

In the event specified performance metrics are met under our 2024 incentive compensation program for team members who are not executive officers, awards thereunder will be paid out in cash or through the issuance of fully-vested shares of the Company’s common stock or a combination thereof at the time of such performance determination in 2025. As of September 30, 2024, we expect that these awards will be settled in a combination of cash and shares of the Company’s common stock. Because the portion of incentive compensation that we currently expect to pay through the issuance of shares of the Company’s common stock represents a fixed dollar that, if payable, will be settled in a variable number of shares of the Company’s common stock, we are currently accounting for this portion of these awards as liability-classified share-based payment awards. Accordingly, the offset to the share-based compensation expense we have recognized in connection with these awards during thenine months ended September 30, 2024 is included in Accrued expenses and other current liabilities on our September 30, 2024 condensed consolidated balance sheet.

In February 2024, our board of directors determined that our 2023 performance exceeded the maximum performance metric under our 2023 short-term incentive program and issued corresponding shares of common stock to our employees. As a result, the$18.1 million liability we had recognized in connection with liability-classified share-based payment awards, which was included in Accrued expenses and other current liabilities on our December 31, 2023 condensed consolidated balance sheet, was reclassified out of Accrued expenses and other current liabilities and into Common stock and Additional paid-in capital on our condensed consolidated balance sheet during thenine months ended September 30, 2024.

8. Income Per Share

For thethree and nine months ended September 30, 2024 and 2023, our potentially dilutive securities included stock options, restricted stock units and shares to be issued under our employee stock purchase plan. Our potentially dilutive securities for the three and nine months ended September 30, 2024 also included performance stock units.

The following table sets forth the calculation of basic and diluted income per share for the three and nine months ended September 30, 2024 and 2023:

The following is a summary of potential shares of common stock that were antidilutive and excluded from the weighted average share computations for the three and nine months ended September 30, 2024 and 2023:

9. Commitments and Contingencies

Life Time, Inc. et al. v. Zurich American Insurance Company

On August 19, 2020, Life Time, Inc., several of its subsidiaries, and a joint venture entity, Bloomingdale Life Time Fitness LLC (collectively, the “Life Time Parties”) filed a complaint against Zurich American Insurance Company (“Zurich”) in the Fourth Judicial District of the State of Minnesota, County of Hennepin (Case No. 27-CV-20-10599) (the “Action”) seeking declaratory relief and damages with respect to Zurich’s failure under a property/business interruption insurance policy to provide certain coverage to the Life Time Parties related to the closure or suspension by governmental authorities of their business activities due to the spread or threat of the spread of COVID-19. On March 15, 2021, certain of the Life Time Parties filed a First Amended Complaint in the Action adding claims against Zurich under a Builders’ Risk policy related to the suspension of multiple construction projects. The Court granted Zurich’s dispositive motions on July 25, 2024, dismissing Life Time’s claims with prejudice, and entered judgment on July 26, 2024. Life Time has appealed from that judgment to the Minnesota Court of Appeals. The Action is subject to many uncertainties, and the outcome of the matter is not predictable with any assurance.

Other

We are also engaged in other proceedings incidental to the normal course of business. Due to their nature, such legal proceedings involve inherent uncertainties, including but not limited to court rulings, negotiations between affected parties and governmental intervention. We establish reserves for matters that are probable and estimable in amounts we believe are adequate to cover reasonable adverse judgments. Based upon the information available to us and discussions with legal counsel, it is our opinion that the outcome of the various legal actions and claims that are incidental to our business will not have a material adverse impact on our consolidated financial position, results of operations or cash flows. Such matters are subject to many uncertainties, and the outcomes of individual matters are not predictable with assurance.

10. Subsequent Events

On October 22, 2024, Life Time, Inc., an indirect subsidiary of Life Time Group Holdings, Inc., priced $500 million in aggregate principal amount of 6.000% senior secured notes due 2031. The offering is expected to close on November 5, 2024, subject to customary closing conditions. Concurrently with the closing of the offering, we intend to amend the Amended Credit Agreement to, among other things, incur new term loans in an aggregate principal amount of $1,000 million that will mature in 2031 and bear interest at a rate per annum of SOFR plus an applicable margin of 2.50% (subject to a certain ratings-based step-down). We intend to use the net proceeds from the senior secured notes and new term loans and cash from our balance sheet to fund the satisfaction and discharge of the Senior Secured Notes due 2026 and Senior Unsecured Notes due 2026.

In preparing the accompanying condensed consolidated financial statements, we have evaluated the period from September 30, 2024 through the date the condensed consolidated financial statements were issued for material subsequent events. There have been no other events or transactions during this time which would have a material effect on the condensed consolidated financial statements and therefore would require recognition or disclosure.