Annual report pursuant to Section 13 and 15(d)

Stockholders' Equity

v3.22.0.1
Stockholders' Equity
 12 Months Ended
Dec. 31, 2021
Equity [Abstract]  
Stockholders' Equity Stockholders’ Equity
Authorization and Designation
On January 11, 2021, our board of directors adopted and approved an amendment to the Certificate of Incorporation for Life Time Group Holdings, Inc., which (i) increased the amount of authorized shares of common stock, $0.01 par value per share, from 170.0 million to 200.0 million; and (ii) authorized 25.0 million shares of preferred stock, $0.01 par value per share. Also on January 11, 2021, our board of directors authorized 12.0 million shares of Series A convertible participating preferred stock (“Series A Preferred Stock”) of Life Time Group Holdings, Inc., $0.01 par value per share. The rights, preferences, privileges, qualifications, restrictions and limitations relating to the Series A Preferred Stock were set forth in the Certificate of Designations (“COD”), which the Company filed with the Secretary of State of the State of Delaware on January 22, 2021.
On October 12, 2021, in connection with the consummation of the IPO, we adopted an amended and restated Certificate of Incorporation for Life Time Group Holdings, Inc. under which the Company’s authorized share total was increased to 500.0 million shares of common stock, par value $0.01 per share, and 10.0 million shares of preferred stock, par value $0.01 per share, and the Series A Preferred Stock became no longer authorized.
Series A Preferred Stock
Series A Preferred Stock Issuance
On January 11, 2021, Life Time Group Holdings, Inc. and certain of its subsidiaries and the investor group associated with our then existing related party secured loan (or their assignees) entered into an agreement to convert the total amount of outstanding principal and accrued interest (up though and including January 22, 2021) of approximately $108.6 million under the related party secured loan into 5.4 million shares of Series A Preferred Stock of Life Time Group Holdings, Inc. Accordingly, we recognized a $41.0 million debt extinguishment loss associated with this transaction during the year ended December 31, 2021, which is included in Interest expense, net of interest income in our consolidated statement of operations.
Restricted Series A Preferred Stock Award
During the second quarter of 2021, in lieu of the vast majority of cash compensation for our CEO for 2021, the Company granted an award of 0.5 million shares of restricted Series A Preferred Stock to our CEO. The total grant date fair value of this award was approximately $13.8 million. Effective as of the grant date, our CEO had all of the rights of a stockholder with respect to these shares of restricted Series A Preferred Stock, including the right to receive PIK share or cash dividends. Prior to the granting of this equity award, we had recognized an accrued compensation liability of approximately $1.6 million associated with the portion of our CEO’s 2021 compensation that had been earned as of the grant date. The settlement of this accrued compensation liability through issuance of the restricted Series A Preferred Stock award was recognized as a decrease in Accrued expenses and other current liabilities and an increase in Additional paid-in capital on our consolidated balance sheet.
Fair Value of Series A Preferred Stock and Restricted Series A Preferred Stock
The fair value of the Series A Preferred Stock and the restricted Series A Preferred Stock award was estimated using an as-converted value plus risky put option model. The put option value was estimated using the Black-Scholes option pricing model. Primary assumptions used in determining the estimated issuance date fair value of the Series A Preferred Stock include: the estimated equity value associated with the then outstanding common stock of Life Time Group Holdings, Inc., a strike price of $20.00 per share, PIK dividend yield rate of 15.0%, expected term of 1.0 year, volatility rate of 65.00% and a risk-free rate of 0.08%.
Conversion of Series A Preferred Stock to Common Stock and Conversion of Restricted Series A Preferred Stock to Restricted Common Stock
Upon the consummation of the IPO, the 5.4 million then outstanding shares of Series A Preferred Stock automatically converted into 6.7 million shares of the Company’s common stock. Upon the consummation of the IPO, the 0.5 million then outstanding shares of restricted Series A Preferred Stock automatically converted into 0.6 million shares of the Company’s restricted common stock.
Share-Based Compensation Expense Associated with Restricted Series A Preferred Stock and Restricted Common Stock
Restricted Series A Preferred Stock
Prior to the conversion of the shares of restricted Series A Preferred Stock to shares of the Company’s restricted common stock on October 12, 2021, we recognized $2.9 million of share-based compensation expense associated with the restricted Series A Preferred Stock award, which is included in General, administrative and marketing in our consolidated statement of operations for the year ended December 31, 2021.
Restricted Common Stock
During the period from October 12, 2021 through December 31, 2021, we recognized $4.3 million of share-based compensation expense associated with the restricted common stock award, which is included in General, administrative and marketing in our consolidated statement of operations for the year ended December 31, 2021. Share-based compensation expense associated with the restricted common stock award is being recognized over the remaining vesting period based on the grant date fair value of the original restricted Series A Preferred Stock award, reduced by the $1.6 million of compensation expense associated with the accrued compensation liability that had previously been recognized. As of December 31, 2021, unrecognized share-based compensation expense related to this restricted common stock award was approximately $5.0 million, which is expected to be recognized over a remaining period of 0.3 years.
Common Stock
Common Stock Issued in Connection with the IPO and Over-Allotment Exercise
During the year ended December 31, 2021, in connection with the IPO, including the partial exercise by the underwriters of their over-allotment option, we received total net proceeds of $701.4 million from the issuance of 40.6 million shares of the Company’s common stock. For more information on these sales of the Company’s common stock during the year ended December 31, 2021, see Note 1, Nature of Business and Basis of Presentation.
Common Stock Issued in Connection with Stock Purchase Agreements
During the year ended December 31, 2020, we received proceeds totaling $90.0 million from the sale of 3.6 million shares of the Company’s common stock, which consists of primary equity proceeds (i.e., proceeds associated with the sale of newly issued shares of our common stock) associated with a stock purchase agreement.
During the year ended December 31, 2019, we received net proceeds totaling $105.3 million from the sale of 4.3 million shares of the Company’s common stock, which consist of $108.7 million of primary equity proceeds associated with a stock purchase agreement, reduced by $3.2 million in costs associated with such issuance of primary (i.e., newly-issued) shares of our common stock and $0.2 million in costs associated with an issuance of primary shares of our common stock that was consummated during the year ended December 31, 2020.
Equity Incentive Plans
2015 Equity Plan
On October 6, 2015, our board of directors adopted the LTF Holdings, Inc. 2015 Equity Incentive Plan (as amended, the “2015 Equity Plan”). During the year ended December 31, 2021, our board of directors and stockholders approved an amendment to the 2015 Equity Plan to increase the number of shares of our common stock that are reserved for issuance under the 2015 Equity Plan to approximately 30.6 million shares of our common stock, plus an annual increase on the first day of each calendar year beginning on January 1, 2022 and ending on and including January 1, 2025; provided, that no annual increase shall occur on or after the Company (or its successor) becomes a publicly listed company. Effective with the IPO, no further grants have been or will be made, and no annual increase shall occur, under the 2015 Equity Plan. Approximately 1.0 million shares that were reserved and available for issuance under the 2015 Equity Plan are now available for issuance under the 2021 Equity Plan as detailed below.
2021 Equity Plan
In connection with the IPO and effective October 6, 2021, we adopted the 2021 Incentive Award Plan (the “2021 Equity Plan”), under which we may grant cash and equity-based incentive awards to our employees, consultants and directors. The maximum number of shares of our common stock available for issuance under the 2021 Equity Plan is equal to the sum of (i) approximately 14.5 million shares of our common stock, (ii) an annual increase on the first day of each year beginning in 2022 and ending in and including 2031, equal to the lesser of (A) 4% of the outstanding shares of our common stock on the last day of the immediately preceding fiscal year and (B) such lesser amount as determined by our board of directors, and (iii) the approximately 1.0 million shares of our common stock that were available for issuance under the 2015 Equity Plan as of October 6, 2021 or that are subject to awards under the 2015 Equity Plan and any other prior equity incentive plans of the Company or its predecessor which are forfeited or lapse unexercised and which following the effective date of the 2021 Equity Plan are not issued under such prior plan; provided, however, no more than 14.5 million shares may be issued upon the exercise of incentive stock options, or ISOs. The share reserve formula under the 2021 Equity Plan is intended to provide us with the continuing ability to grant equity awards to eligible employees, directors and consultants for the ten-year term of the 2021 Equity Plan.
As of December 31, 2021, approximately 13.8 million shares were available for future awards to employees and other eligible participants under the 2021 Equity Plan.
2021 Employee Stock Purchase Plan
In connection with the IPO and effective October 6, 2021, we adopted the 2021 Employee Stock Purchase Plan (the “ESPP”). The ESPP is designed to allow our eligible employees to purchase shares of our common stock, at periodic intervals, with their accumulated payroll deductions. The ESPP consists of two components: an Internal Revenue Service (“IRS”) Code section 423 (“Section 423”) component, which is intended to qualify under Section 423 of the IRS Code and a non-Section 423 component, which need not qualify under Section 423 of the IRS Code. The aggregate number of shares of our common stock that has initially been reserved for issuance under the ESPP is equal to (i) approximately 2.9 million shares of our common stock, and (ii) an annual increase on the first day of each year beginning in 2022 and ending in and including 2031, equal to the lesser of (A) 1% of the aggregate number of shares of our common stock outstanding on the final day of the immediately preceding calendar year and (B) such smaller number of our shares of common stock as determined by our board of directors; provided that in no event will more than 29.0 million shares of our common stock be available for issuance under the Section 423 component of the ESPP. Our board of directors or the compensation committee will have authority to interpret the terms of the ESPP and determine eligibility of participants.
The ESPP will permit participants to purchase common stock through payroll deductions of up to a percentage of their eligible compensation, which includes a participant’s gross base compensation for services to us. On the first trading day of each offering period, each participant will automatically be granted an option to purchase shares of our common stock. The option will expire at the end of the applicable offering period and will be exercised on each purchase date during such offering period to the extent of the payroll deductions accumulated during the offering period. The purchase price will be the lower of 85% of the fair market value of a share on the first day of an offering period in which a participant is enrolled or 85% of the fair market value of a share on the purchase date, which will occur on the last day of each purchase period. Participants may voluntarily end their participation in the ESPP prior to the end of the applicable offering period and will be paid their accrued payroll deductions that have not yet been used to purchase shares of common stock. Upon exercise, the participant will purchase the number of whole shares that his or her accumulated payroll deductions will buy at the option purchase price, subject to the certain participation limitations. Participation will end automatically upon a participant’s termination of employment. No offering periods commenced under the ESPP during the year ended December 31, 2021.
Stock Options
Summary of Stock Option Activity
Activity associated with stock options during the year ended December 31, 2021 is as follows:
Stock Options
 Shares Weighted Average Exercise Price
Weighted Average
Remaining
Contractual Life
(in years)
Aggregate
Intrinsic
Value
Outstanding at December 31, 2020
 21,119  $ 11.00 
Granted
 3,754  $ 19.12 
Forfeited
 (276) $ 18.08 
Outstanding at December 31, 2021
 24,597  $ 12.16  5.2 $ 137,220 
Exercisable as of December 31, 2021
 9,388  $ 10.00  3.8 $ 67,687 
Options Granted During the Year Ended December 31, 2021
During the year ended December 31, 2021, the Company granted approximately 3.8 million stock options, of which approximately 3.2 million were granted under the 2015 Equity Plan and approximately 0.6 million were granted under the 2021 Equity Plan. These options have a 10-year contractual term from the date of grant. The exercise prices and terms of these awards were determined and approved by our board of directors or a committee thereof. The exercise price associated with each of these awards is not less than the fair market value per share of our common stock, as determined by our board of directors or a committee thereof, at the time of grant.
Of the 3.8 million total stock options granted during the year ended December 31, 2021, approximately 3.3 million are time vesting options and approximately 0.5 million are performance vesting options. The time vesting options vest in four ratable annual installments on each of the first four anniversaries of the grant date, subject to continuous employment or service from the grant date through the applicable vesting date. All or a portion of the performance vesting options shall vest only upon the attainment of certain targets for the twelve-month period commencing on January 1, 2021 and ending on December 31, 2021, as defined in the underlying option agreements, subject to continuous employment from the grant date through the membership dues revenue determination date. Both the time vesting and performance vesting options become exercisable (but not vested) on April 4, 2022, which is the first date following the expiration of the 180-day lock-up period applicable to the optionee related to the IPO, or death or disability, all as defined and subject to the terms and conditions in the underlying option agreements.
Unless otherwise determined by the administrator of the 2015 Equity Plan and the 2021 Equity Plan, with respect to the stock options granted during the year ended December 31, 2021: (i) upon an option holder’s termination of services for any reason, any portion of an option that has not become vested on or prior to the termination date shall be forfeited on such date and shall not thereafter become vested or exercisable, and (ii) upon an involuntary termination by the Company for cause (as defined in the underlying option agreement), any portion of an option that has become vested on or prior to the termination date shall be forfeited on such date and shall not thereafter become exercisable.
At December 31, 2021, as it relates to options granted during 2021, options to purchase approximately 3.7 million shares of our common stock were outstanding and none were exercisable.
Options Granted Prior to 2021
At December 31, 2021, as it relates to options granted prior to 2021, options to purchase approximately 20.9 million shares of our common stock were outstanding, of which approximately 9.4 million were held by our CEO. At December 31, 2021, the 9.4 million outstanding options held by our CEO were fully vested and exercisable. As it relates to the other 11.5 million outstanding options at December 31, 2021, all of the options were fully vested; however, none of the options were exercisable as the 180-day lock-up period applicable to the each optionee related to the IPO had yet to expire.
Prior to July 3, 2019, the vesting and exercisability of outstanding options for our CEO and the exercisability of outstanding options for non-CEO option holders were subject to our principal stockholders’ achievement of certain internal rates of return (“IRR”) on investment or a multiple of invested capital. On May 23, 2019, in connection with transactions that were
consummated pursuant to a stock purchase agreement, our board of directors approved that 100% of all stock options outstanding as of July 3, 2019 (the date the transactions under the stock agreement were consummated) or granted thereafter would become exercisable on the first measurement date, which is generally defined to include a change in control, an expiration of a lock-up associated with an initial public offering (or the effectiveness of an initial public offering with respect to the options held by our CEO), or the death or disability of our CEO (herein referred to as a “Measurement Date”) without continued measurement of the performance metrics.
In accordance with ASC 718, the approval by our board of directors represented, for accounting purposes, a modification of the original market conditions associated with each of the approximately 21.2 million outstanding options that were held by continuing employees and continuing service providers as of July 3, 2019. Accordingly, we were required to determine the estimated fair value of these options as of July 3, 2019. Since the occurrence of a Measurement Date was deemed at that time, for accounting purposes, improbable of occurring both before and after the modification, no incremental share-based compensation expense was required to be recognized on the modification date. For further information on the weighted average assumptions used to estimate the fair value, see “—Fair Value of Stock Option Awards” within this footnote.
Stock Option Purchase Offer
On June 6, 2019, we launched a voluntary stock option purchase offer (the “Offer”) whereby, subject to certain conditions and limitations, we offered eligible holders (not including our CEO) of qualifying stock options under the 2015 Equity Plan (“Covered Options”) the right to sell up to a certain number of vested Covered Options back to us. In connection with the Offer, approximately 1.6 million Covered Options were purchased for an aggregate price of $23.2 million. Of the aggregate purchase price, $22.4 million was paid to purchase approximately 1.5 million Covered Options from continuing employees and continuing service providers and $0.8 million was paid to purchase approximately 0.1 million Covered Options from former employees and former service providers. Effective with the purchase date associated with each underlying Covered Option, the $23.2 million aggregate stock option purchase payments we made, which are recognized as a decrease in Additional paid-in capital on our consolidated balance sheet, are reported in Purchases of stock options within the financing section in our consolidated statement of cash flows for the year ended December 31, 2019.
As it relates to the approximately 1.5 million Covered Options associated with continuing employees and continuing service providers, no share-based compensation expense had been recognized prior to them being purchased, since the occurrence of a Measurement Date was deemed, for accounting purposes, improbable of occurring. Therefore, effective with the purchase date associated with each of these Covered Options, we recognized $22.4 million of incremental share-based compensation expense, which is included in General, administrative and marketing in our consolidated statement of operations for the year ended December 31, 2019. The offset to this incremental share-based compensation expense amount was recognized as an increase in Additional paid-in capital on our consolidated balance sheet.
As it relates to the approximately 0.1 million Covered Options associated with former employees and former service providers, $0.1 million of share-based compensation expense had been recognized prior to them being purchased. Therefore, effective with the purchase date associated with each of these Covered Options, we recognized $0.7 million of incremental share-based compensation expense, which is included in General, administrative and marketing in our consolidated statement of operations for the year ended December 31, 2019. The offset to this incremental share-based compensation expense amount was recognized as an increase in Additional paid-in capital on our consolidated balance sheet.
Fair Value of Stock Option Awards Granted
The fair value of the options granted during the years ended December 31, 2021 and 2020 was calculated using the Black-Scholes option pricing model. The fair value of the 21.2 million stock options that were deemed, for accounting purposes, to have been modified as of July 3, 2019, as well as the approximately 0.6 million stock option awards that were granted during
the period from July 3, 2019 through December 31, 2019, was also calculated using the Black-Scholes option pricing model. The following weighted average assumptions were used in determining the fair value of stock options granted:
Year Ended December 31,
Period from
July 3
through
December 31, 2019
2021 2020
Dividend yield
 0.00  % 0.00  % 0.00  %
Risk-free interest rate (1)
0.97  % 1.58  % 1.73  %
Expected volatility (2)
58.50  % 27.60  % 28.76  %
Expected term of options (in years) (3)
6.1 6.1 4.7
Fair Value
 $ 10.42 $ 7.58 $ 15.40
(1)The risk-free rate is based on the U.S. treasury yields, in effect at the time of grant or modification, corresponding with the expected term of the options.
(2)Expected volatility is based on historical volatilities for a time period similar to that of the expected term of the options.
(3)Expected term of the options is based on probability and expected timing of market events leading to option exercise.
For more information on the options that were modified during the year ended December 31, 2019, see “—Options Granted Prior to 2021” within this footnote.
Share-Based Compensation Expense Associated with Stock Options
Share-based compensation expense related to stock options for the year ended December 31, 2021 was $320.5 million, of which $12.7 million, $303.3 million and $4.5 million is included in Center operations, General, administrative and marketing and Other operating, respectively, in our consolidated statement of operations. Share-based compensation expense related to stock options for the year ended December 31, 2019 was $24.2 million, all of which is included in General, administrative and marketing in our consolidated statement of operations. No share-based compensation expense related to stock options was recognized during the year ended December 31, 2020. A significant portion of the share-based compensation expense that we recognized during the year ended December 31, 2021 is associated with stock options that were granted prior to 2021. As of the effective date of the IPO, these stock options became fully vested, and they either became immediately exercisable or they will become exercisable no later than April 4, 2022, subject to continued service through such date. Accordingly, during the period from the effective date of the IPO through December 31, 2021, we have recognized share-based compensation expense associated with these stock options in an amount equal to the proportion of the total service period that has passed from the respective grant date associated with each of these stock option awards through December 31, 2021. Because the vesting and exercisability of these stock options was contingent upon the occurrence of a change of control or an initial public offering, no share-based compensation expense associated with these stock options was recognized prior to the IPO.
As of December 31, 2021, unrecognized share-based compensation expense related to stock options was approximately $31.3 million, which is expected to be recognized over a weighted average remaining period of 2.6 years.
Restricted Stock Units
Summary of Restricted Stock Unit Activity
Activity associated with restricted stock units during the year ended December 31, 2021 is as follows:
Restricted Stock Units
 Shares
Weighted Average Grant Date Fair Value
Nonvested at January 1, 2021
 —  $ — 
Granted
 1,863  $ 18.01 
Forfeited
 (9) $ 17.27 
Nonvested at December 31, 2021
 1,854  $ 18.01 
During the year ended December 31, 2021, the Company granted approximately 1.9 million restricted stock unit awards, of which approximately 0.6 million were granted under the 2015 Equity Plan and approximately 1.3 million were granted under the 2021 Equity Plan. Of the 0.6 million restricted stock unit awards granted under the 2015 Equity Plan during the year end December 31, 2021, approximately 0.5 million were granted to our CEO and approximately 0.1 million were granted to non-CEO executives and a director. All of the 1.3 million restricted stock units granted under the 2021 Equity Plan during the year ended December 31, 2021 were granted to non-CEO holders. We did not grant any restricted stock unit awards during the year ended December 31, 2020.
Restricted Stock Unit Awards Granted under the 2015 Equity Plan
Beginning on March 15, 2020, our CEO decided to forego 100% of his base salary for the remainder of 2020. During the second quarter of 2021, our compensation committee, in consultation with our CEO and our board of directors, established a new compensation program for our CEO. Under the new program, in light of the foregone salary and bonuses in 2020, the compensation committee determined to grant our CEO an equity award of approximately 0.5 million restricted stock units under the 2015 Equity Plan, 50% of which vest on each anniversary of the grant date with 100% full vesting on the date that is 180 days after the effective date associated with an underwritten IPO. Accordingly, this award will be 100% vested on April 4, 2022. At December 31, 2020, we had recognized an accrued compensation liability of approximately $2.2 million associated with our CEO’s 2020 compensation. For accounting purposes, the settlement of this $2.2 million accrued compensation liability through the issuance of the restricted stock units was recognized as a decrease in Accrued expenses and other current liabilities and an increase in Additional paid-in capital on our consolidated balance sheet.
Also during the second quarter of 2021, our compensation committee granted approximately 0.1 million restricted stock units under the 2015 Equity Plan to certain of our non-CEO executives and a new director, 50% of which vests on each anniversary of the grant date and, for the grants to our non-CEO executives, 100% full vesting occurs effective on the date that is 180 days after an initial underwritten public offering. Accordingly, the portion of these awards that were granted to our non-CEO executives will be 100% vested on April 4, 2022.
Restricted Stock Unit Awards Granted under the 2021 Equity Plan
With respect to the restricted stock units totaling approximately 1.3 million that were granted under the 2021 Equity Plan during the year ended December 31, 2021, nearly all will vest in four ratable annual installments on each of the first four anniversaries of the grant date, subject to continued service through the applicable vesting dates. Less than 0.1 million of these restricted stock units will vest on April 4, 2022.
Share-Based Compensation Expense Associated with Restricted Stock Units
Share-based compensation expense related to restricted stock units for the year ended December 31, 2021 was $6.6 million. No share-based compensation expense related to restricted stock units was recognized during the years ended December 31, 2020 and 2019. Of the $6.6 million total share-based compensation expense related to restricted stock units for the year ended December 31, 2021, $0.2 million, $6.3 million and $0.1 million is included in Center operations, General, administrative and marketing and Other operating, respectively, in our consolidated statement of operations. As of December 31, 2021,
unrecognized share-based compensation expense related to restricted stock units was approximately $24.5 million, which is expected to be recognized over a weighted average remaining period of 3.2 years.
Stockholder Note Receivable
On August 27, 2018, Life Time, Inc. entered into a loan agreement with our CEO, who is also one of our stockholders, pursuant to which we loaned him $20.0 million. As security for repayment of the loan, our CEO granted to Life Time, Inc. a security interest in 5.0 million shares of our common stock which are held by our CEO. The loan bore interest equal to the highest interest rate associated with the revolving portion of our senior secured credit facility or, if there were no outstanding revolving borrowings, the highest interest rate associated with outstanding borrowings under the term loans portion of our senior secured credit facility. The loan was scheduled to mature at the earlier of August 2023 or upon the occurrence of certain events, including in connection with an initial public offering or a change of control, as well as the period immediately following the officer’s termination of employment.
On July 3, 2019, we amended the loan agreement to reflect our forgiveness of an aggregate principal amount of $5.0 million. All other terms and conditions associated with the initial loan agreement remained unchanged. The principal forgiveness was accounted for as an equity transaction, whereby the Stockholder note receivable and Additional paid-in capital balances recognized on our consolidated balance sheet were each reduced by $5.0 million. The income tax benefit of approximately $1.3 million associated with the principal forgiveness was recognized as an increase in both Income tax receivable and Additional paid-in capital on our consolidated balance sheet. At December 31, 2020 the outstanding stockholder loan balance was $15.0 million, which was recognized as a reduction of stockholders’ equity on our December 31, 2020 consolidated balance sheet.
In August 2021, we entered into an agreement pursuant to which the outstanding balance owed under the stockholder note receivable was cancelled. The cancellation of the $15.0 million outstanding principal balance associated with the loan was accounted for as an equity transaction, and the Stockholder note receivable and Additional paid-in capital balances recognized on our consolidated balance sheet were each reduced by $15.0 million.