Life Time Group (LTH) Aims For US IPO To Pay Down Debt

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Quick Take

LifeTime Group Holdings (NYSE:LTH) has filed to raise $100 million in an IPO of its common stock, according to an S-1 registration statement.

The firm operates athletic facilities throughout the United States and in Canada.

LTH looks to be rebounding from a contracting 2020 pandemic period but still has a significant way to go to equal its 2019 results.

When we learn management’s assumptions about pricing and valuation, I’ll provide a final opinion.

company

Chanhassen, Minnesota-based Life Time was founded to develop, acquire and operate premium athletic health and wellness locations via a recurring membership subscription business model.

Management is headed by founder, Chairman and CEO Bahram Akradi, who has been with the firm since inception and was previously co-founder and EVP of US Swim & Fitness Corporation.

The company was taken private in 2015 by private equity firms Leonard Green & Partners and TPG.

Life Time has received at least $1.48 billion in equity investment from investors including Leonard Green & Partners, TPG, LNK Investors, MSD Investors (Michael Dell), LifeCo LLC.

Customer Acquisition

The firm seeks customers via an omnichannel approach, involving both online and offline media.

LTH says it is also focusing on delivering ‘live streaming fitness classes, remote goal-based personal training, nutrition and weight loss support and curated award-winning health content and wellness data monitoring on the go.’

G&A and Marketing expenses as a percentage of total revenue have risen as revenues have fluctuated, as the figures below indicate:

G&A and Marketing

Expenses vs. revenue

period

percentage

Six Moss. Ended June 30, 2021

14.3%

2020

15.8%

2019

12.0%

(Source)

The G&A and Marketing efficiency rate, defined as many dollars of additional new revenue are generated by each dollar of G&A and Marketing spend, swung to a positive 1.0x in the most recent reporting period, as shown in the table below:

G&A and Marketing

Efficiency Rate

period

multiple

Six Moss. Ended June 30, 2021

1.0

2020

-6.4

(Source)

Market & Competition

According to a 2021 market research report by Mordor Intelligence, the global health and fitness club market was an estimated $81 billion in 2020 and is forecast to grow at a CAGR (Compound Annual Growth Rate) of 7.21% from 2021 to 2026.

The main drivers for this expected growth are a continued rise in the benefit of health awareness and increasing incidence of obesity leading medical caregivers and governments to encourage exercise as a regular feature of individual habits.

Also, the North American region will continue to dominate the health and fitness center market in the coming years.

Major competitive or other industry participants include:

  • equinox

  • The Bay Club Company and Club Corp

  • LA Fitness International

  • 24 Hour Fitness Worldwide

  • YMCA

  • Anytime Fitness

  • Snap Fitness

  • Planet Fitness

  • Orange Theory

  • Barre3

  • Others & Independents

Financial Performance

Life Time’s recent financial results can be summarized as follows:

  • Rebounding top line revenue after a sharp pandemic-driven contraction in 2020

  • Increasing gross profit in 2021

  • lowered gross margin

  • reduced operating loss

  • Lowered cash used in operations

Below are relevant financial results derived from the firm’s registration statement:

Total Revenue

period

Total Revenue

% Variance vs. Prior

Six Moss. Ended June 30, 2021

$572,485,000

17.1%

2020

$948,379,000

-50.1%

2019

$1,900,371,000

Gross Profit (Loss)

period

Gross Profit (Loss)

% Variance vs. Prior

Six Moss. Ended June 30, 2021

$179,159,000

28.8%

2020

$288,333,000

-66.4%

2019

$859,238,000

gross margin

period

gross margin

Six Moss. Ended June 30, 2021

31.29%

2020

30.40%

2019

45.21%

Operating Profit (Loss)

period

Operating Profit (Loss)

Operating Margin

Six Moss. Ended June 30, 2021

$ (139,364,000)

-24.3%

2020

$ (359,149,000)

-37.9%

2019

$168,279,000

8.9%

Net Income (Loss)

period

Net Income (Loss)

Six Moss. Ended June 30, 2021

$ (229,157,000)

2020

$ (360,192,000)

2019

$30,025,000

Cash Flow From Operations

period

Cash Flow From Operations

Six Moss. Ended June 30, 2021

$ (13,039,000)

2020

$ (95,981,000)

2019

$358,718,000

(Glossary Of Terms)

(Source)

As of June 30, 2021, Life Time had $104 million in cash and $4.7 million in total liabilities.

Free cash flow during the twelve months ended June 30, 2021, was negative ($284 million).

IPO Details

Life Time intends to raise $100 million in gross proceeds from an IPO of its common stock, although the final figure may be higher.

No existing shareholders have indicated an interest to purchase shares at the IPO price.

Management says it will use the net proceeds from the IPO as follows:

We intend to use the net proceeds from this offering [i] to repay [an as-yet-undisclosed amount] of borrowings under our Term Loan Facility, including the 1% prepayment penalty, [ii] to pay offering fees and expenses and [iii] for working capital and general corporate purposes.

(Source)

Management’s presentation of the company roadshow is not available.

Regarding outstanding legal proceedings, the firm filed a claim against Zurich American Insurance Company in 2020 related to its assertion that Zurich did not pay claims related to mandatory closures of facilities due to government mandates. The outcome of the proceeding is not predictable by management. Management says the company is not a party to any other litigation that would have a material impact on its financial condition or operations.

Listed bookrunners of the IPO are Goldman Sachs, Morgan Stanley, BofA Securities and numerous other investment banks.

Commentary

Life Time is seeking to go public to reduce its debt and for its general corporate purposes.

The firm’s financials have shown the sharply negative effects of the global pandemic on its operations as many locations were forced to close by government direction during 2020 and early 2021.

Free cash flow for the twelve months ended June 30, 2021, was negative ($284 million).

G&A and Marketing expenses as a percentage of total revenue have increased as revenue has varied greatly over the past two years; its G&A and Marketing efficiency rate swing back into positive territory in the first half of 2021.

The market opportunity for fitness individuals is large and likely to result in providing the households with material change as a fitness service as a likely pushing more likely to push seek exercise options in their fitness and reducing their exposure to club locations, at least short term.

Goldman Sachs is the lead left underwriter and IPOs led by the firm over the last 12-month period have generated an average return of 34.8% since their IPO. This is a mid-tier performance for all major underwriters during the period.

The primary risk to the company’s outlook is the continuing effects of the pandemic and its variant strains and tepid interest by consumers to re-enter fitness center facilities.

To that end, the company has made efforts to enhance its virtual/remote offerings as a diversification and response to changing consumer habits.

LTH looks to be rebounding from a contracting 2020 pandemic period but still has a significant way to go to equal its 2019 results.

When we learn management’s assumptions about pricing and valuation, I’ll provide a final opinion.

Expected IPO Pricing Date: To be announced.

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