Annual report pursuant to Section 13 and 15(d)

Stockholders' Equity

v3.22.4
Stockholders' Equity
 12 Months Ended
Dec. 31, 2022
Equity [Abstract]  
Stockholders' Equity Stockholders’ Equity
Common Stock Issued in Connection with the IPO and Over-Allotment Exercise
In connection with the IPO, including the partial exercise by the underwriters of their over-allotment option, we received total net proceeds of $701.1 million from the issuance of 40.6 million shares of the Company’s common stock during the year ended December 31, 2021. For more information on these sales of the Company’s common stock, see Note 1, Nature of Business and Basis of Presentation.
Common Stock Issued in Connection with a Stock Purchase Agreement
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.
Series A Preferred Stock and Restricted Series A Preferred Stock Award
Conversion of Series A Preferred Stock to Common Stock
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 convertible participating preferred stock (“Series A Preferred Stock”) of Life Time Group Holdings, Inc. 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. For more information regarding the related party secured loan that was extinguished, including the loss that we recognized upon its extinguishment, see Note 8, Debt.
Conversion of Restricted Series A Preferred Stock Award to Restricted Common Stock
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. 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. 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, which then vested in April 2022.
Fair Value of Series A Preferred Stock and Restricted Series A Preferred Stock Award
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%.
Share-Based Compensation Expense Associated with Restricted Series A Preferred Stock Award and Restricted Common Stock
Restricted Series A Preferred Stock Award
Prior to the conversion of the restricted Series A Preferred Stock award to shares of the Company’s restricted common stock on October 12, 2021, as noted above in “—Conversion of Restricted Series A Preferred Stock Award to Restricted Common Stock,” we recognized $2.9 million of share-based compensation expense associated with the restricted Series A Preferred Stock award, all of which is included in General, administrative and marketing in our consolidated statement of operations for the year ended December 31, 2021.
Restricted Common Stock
Share-based compensation expense associated with the shares of restricted common stock that were issued upon the automatic conversion of the restricted Series A Preferred Stock award for the year ended December 31, 2022 was $5.0 million, all of which is included in General, administrative and marketing in our consolidated statement of operations. 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 statements of operations. These restricted common stock shares fully vested as of April 4, 2022, and there is no unrecognized share-based compensation expense related to these shares. The fair value of the restricted common stock shares that vested during the year ended December 31, 2022 was approximately $8.9 million, which represents the fair value of the underlying shares measured as of the vesting date. No restricted common stock shares vested during the years ended December 31, 2021 and 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. Effective with the IPO, no further grants have been or will be made 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; provided, however, no more than 14.5 million shares may be issued upon the exercise of incentive stock options. Effective January 1, 2022, the number of shares of our common stock available for issuance under the 2021 Equity Plan increased by approximately 7.7 million shares pursuant to the evergreen feature described in part (ii) of the immediately preceding sentence. Additionally, the number of shares of our common stock available for issuance under the 2021 Equity Plan may increase with respect to awards under the 2015 Equity Plan which are forfeited or lapse unexercised and which following
the effective date of the 2021 Equity Plan are not issued under such prior plan. 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 10-year term of the 2021 Equity Plan.
As of December 31, 2022, approximately 19.3 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 determined that no additional shares would become available under the ESPP as of January 1, 2022 pursuant to the evergreen feature described in part (ii) of the immediately preceding sentence. Our board of directors or the compensation committee will have authority to interpret the terms of the ESPP and determine eligibility of participants.
We launched the first offering period under the ESPP on December 1, 2022. The ESPP permits participants to purchase common stock through payroll deductions of up to 15% 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 is automatically granted an option to purchase shares of our common stock. The purchase option expires 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. We have consecutive offering periods of approximately six months in length commencing on each June 1 and December 1 during the term of the ESPP. The purchase price for a share of our common stock is 90% of the fair market value of a share on the enrollment date for such offering period or on the purchase date, whichever is lower, and subject to adjustment by our board of directors or compensation committee. Participants may voluntarily end their participation in the ESPP prior to the end of the applicable offering period and are paid their accrued payroll deductions that have not yet been used to purchase shares of common stock. Upon exercise, the participant purchases the number of whole shares that his or her accumulated payroll deductions will buy at the purchase option price, subject to the certain participation limitations. Participation ends automatically upon a participant’s termination of employment. No shares were issued under the ESPP as of December 31, 2022. We recognized $0.1 million of share-based compensation expense for the discount received by participants for the year ended December 31, 2022, all of which is included in General, administrative and marketing in our consolidated statement of operations for the year ended December 31, 2022. As of December 31, 2022, unrecognized share-based compensation expense related to the first offering period under the ESPP was approximately $0.4 million, which is expected to be recognized over a weighted average remaining period of 0.4 years.
Stock Options
Stock Option Activity
Activity associated with stock options during the year ended December 31, 2022 is as follows:
Stock Options
 Shares Weighted Average Exercise Price
Weighted Average
Remaining
Contractual Life
(in years)
Aggregate
Intrinsic
Value
Outstanding at December 31, 2021
 24,597  $ 12.16 
Granted
 989  13.55 
Exercised
 (363) 10.33 
Forfeited or cancelled
 (297) 18.40 
Outstanding at December 31, 2022
 24,926  $ 12.17  4.4 $ 33,481 
Exercisable as of December 31, 2022
 21,745  $ 11.41  3.7 $ 33,470 
Options Granted During the Year Ended December 31, 2022
During the year ended December 31, 2022, the Company granted approximately 1.0 million stock option awards under the 2021 Equity Plan. These options have a 10-year contractual term from the date of grant and 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. The exercise price associated with each of these awards is not less than the fair market value per share of our common stock at the time of grant.
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 of the performance vesting options vested upon the attainment of certain targets for the twelve-month period that commenced on January 1, 2021 and ended on December 31, 2021. Both the time vesting and performance vesting options became 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.
Options Granted Prior to 2021
As it relates to stock options granted prior to 2021, all were fully vested as of April 4, 2022 and there is no unrecognized share-based compensation expense related to these options.
Intrinsic Value and Income Tax Benefits Associated with Option Exercises
The total intrinsic value of stock options exercised during the year ended December 31, 2022 was approximately $1.5 million. In connection with these stock option exercises, we recognized an aggregate income tax benefit of approximately $0.3 million during the year ended December 31, 2022. No stock options were exercised during the years ended December 31, 2021 and 2020.
Fair Value of Stock Option Awards Granted
The fair value of the options granted during the years ended December 31, 2022, 2021 and 2020 was 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,
2022 2021 2020
Dividend yield
 0.00  % 0.00  % 0.00  %
Risk-free interest rate (1)
2.24  % 0.97  % 1.58  %
Expected volatility (2)
55.00  % 58.50  % 27.60  %
Expected term of options (in years) (3)
6.3 6.1 6.1
Fair Value
 $ 7.34 $ 10.42 $ 7.58
(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.
Share-Based Compensation Expense Associated with Stock Options
Share-based compensation expense associated with stock options for the year ended December 31, 2022 was $19.8 million, of which $1.4 million, $17.8 million and $0.5 million is included in Center operations, General, administrative and marketing and Other operating (income) expenses, respectively, in our consolidated statement of operations. Share-based compensation expense associated with 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 (income) expenses, respectively, in our consolidated statement of operations. No share-based compensation expense associated with 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 became exercisable either immediately or on April 4, 2022, subject to continued service through such date. Accordingly, during the period from the effective date of the IPO through April 4, 2022, we recognized share-based compensation expense associated with these stock options in an amount equal to the proportion of the total service period that passed from the respective grant dates associated with each of these stock option awards through April 4, 2022. Because the 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, 2022, unrecognized share-based compensation expense related to stock options was approximately $17.1 million, which is expected to be recognized over a weighted average remaining period of 2.5 years.
Restricted Stock Units
Restricted Stock Unit Activity
Activity associated with restricted stock units during the year ended December 31, 2022 is as follows:
Restricted Stock Units
 Shares
Weighted Average Grant Date Fair Value
Nonvested at December 31, 2021
 1,854  $ 18.01 
Granted
 1,696  14.26 
Vested
 (905) 18.73 
Forfeited
 (159) 16.42 
Nonvested at December 31, 2022
 2,486  $ 15.30 
Restricted Stock Units Granted
During the year ended December 31, 2022, the Company granted approximately 1.7 million restricted stock unit awards under the 2021 Equity Plan, of which approximately 1.4 million are time vesting awards and approximately 0.3 million are time vesting awards with a performance qualifier. Of the 1.7 million restricted stock unit awards that were granted during the year ended December 31, 2022, approximately 1.6 million vest in four ratable annual installments, approximately 0.1 million vest in two ratable annual installments and less than 0.1 million vest in approximately one annual installment, in each case subject to continuous employment or service from the grant date through the applicable vesting date. The majority of the awards that vest in two ratable annual installments were granted to certain executives and non-executives as part of their incentive compensation for 2021, which had been recognized as an accrued compensation liability at December 31, 2021. The fair value of these restricted stock unit awards was approximately $0.6 million. Accordingly, effective with the grant date associated with these restricted stock units, we recognized a $0.6 million decrease in Accrued expenses and other current liabilities and a $0.6 million increase in Additional paid-in capital on our condensed consolidated balance sheets. 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.
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. The weighted average grant date fair value associated with the approximately 1.9 million restricted stock unit awards granted during the year ended December 31, 2021 was $18.01.
We did not grant any restricted stock unit awards during the year ended December 31, 2020.
Restricted Stock Unit Awards Granted During the Year Ended December 31, 2021 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 was to 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 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 was to occur 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 100% vested on April 4, 2022.
Restricted Stock Unit Awards Granted During the Year Ended December 31, 2021 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 vested on April 4, 2022.
Fair Value of Vested Restricted Stock Units
The total fair value of restricted stock units that vested during the year ended December 31, 2022 was approximately $12.2 million, which represents the aggregate of the fair value of the each of the underlying shares measured as of the vesting date. No restricted stock units vested during the years ended December 31, 2021 and 2020.
Share-Based Compensation Expense Associated with Restricted Stock Units
Share-based compensation expense associated with restricted stock units for the year ended December 31, 2022 was $12.4 million, of which $1.4 million, $10.6 million and $0.4 million is included in Center operations, General, administrative and marketing and Other operating (income) expenses, respectively, in our consolidated statement of operations. Share-based compensation expense associated with restricted stock units for the year ended December 31, 2021 was $6.6 million, of which $0.2 million, $6.3 million and $0.1 million is included in Center operations, General, administrative and marketing and Other operating (income) expenses, respectively, in our consolidated statement of operations. No share-based compensation expense associated with restricted stock units was recognized during the year ended December 31, 2020.
As of December 31, 2022, unrecognized share-based compensation expense related to restricted stock units was approximately $27.8 million, which is expected to be recognized over a weighted average remaining period of 3.0 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.
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.