Life Time Fitness Announces Second Quarter 2013 Financial Results

Revenue Grew 6.9%, Net Income Grew 9.6% and Diluted EPS was $0.80

CHANHASSEN, Minn.--(BUSINESS WIRE)-- Life Time Fitness, Inc. (NYSE: LTM), The Healthy Way of Life Company, today reported its financial results for the second quarter ended June 30, 2013.

Second quarter 2013 revenue grew 6.9% to $308.1 million from $288.3 million during the same period last year. Total revenue for the first six months of 2013 grew 7.6% to $598.9 million from $556.8 million during the same period last year.

Net income for the quarter was $33.2 million, or $0.80 per diluted share, compared to net income of $30.3 million, or $0.73 per diluted share, for 2Q 2012. Net income for the first six months of 2013 was $61.3 million, or $1.47 per diluted share, compared to net income of $56.0 million, or $1.34 per diluted share for the prior-year period.

“Our unrelenting focus on the member experience continues to differentiate the high quality of our centers and programs, and emphasizes our strong business model,” said Bahram Akradi, chairman, president and chief executive officer. “As our company has evolved so has the precision with which we operate our centers and serve our members. This has allowed us to deliver strong business results and created a solid platform for future growth through new center expansion and our portfolio of healthy way of life programs and services delivered both inside and outside of our destinations.”

During the quarter, the Company opened its first center in Alabama, located in Vestavia Hills (Birmingham market). Two additional centers are planned for opening in 2013, including Reston, Virginia (Washington D.C. market), in September, and Montvale, New Jersey (Greater New York area market), in November. These represent the Company’s fourth and third centers in Virginia and New Jersey, respectively. In 2014, plans call for six new center openings, led by locations in Harrison, New York (Greater New York area market) and Laguna Niguel, California (Orange County market) during the first quarter.

Three and Six Months Ended June 30, 2013, Financial Highlights:

Total revenue for the second quarter grew 6.9% to $308.1 million from $288.3 million in 2Q 2012. Total revenue for the first six months of 2013 grew 7.6% to $598.9 million from $556.8 million during the prior-year period.

(Period-over-period growth)		2Q 2013 vs. 2Q 2012 (in millions except revenue per membership data)
Membership dues		$194.8 vs. $184.9 (up 5.4%)
In-center revenue		$97.3 vs. $90.1 (up 7.9%)
Other revenue		$12.4 vs. $9.4 (up 32.9%)

Average center revenue per Access membership		$416 vs. $396 (up 5.2%)
Average in-center revenue per Access membership		$139 vs. $129 (up 7.2%)
Same-center revenue (open 13 months or longer)		Up 4.8%
Same-center revenue (open 37 months or longer)		Up 3.8%

(Period-over-period growth)		YTD 2013 vs. YTD 2012 (in millions except revenue per membership data)
Membership dues		$381.2 vs. $360.4 (up 5.8%)
In-center revenue		$189.2 vs. $174.7 (up 8.3%)
Other revenue		$21.5 vs. $13.8 (up 55.8%)

Average center revenue per Access membership		$821 vs. $778 (up 5.5%)
Average in-center revenue per Access membership		$272 vs. $253 (up 7.6%)
Same-center revenue (open 13 months or longer)		Up 4.2%
Same-center revenue (open 37 months or longer)		Up 3.4%

Total memberships grew 1.2% to 812,866 at June 30, 2013, from 802,889 at June 30, 2012.

Access memberships grew 0.6% to 713,138 at June 30, 2013, from 708,585 at June 30, 2012.
Non-Access memberships grew 5.8% to 99,728 at June 30, 2013, from 94,304 at June 30, 2012.
Attrition in 2Q 2013 was 8.2% compared to 7.6% in the prior-year period. Attrition for the trailing 12-month period ended June 30, 2013, was 34.5% compared to trailing 12-month attrition of 31.9% at June 30, 2012. The second quarter year-over-year attrition increase was driven primarily by Non-Access membership terminations. The trailing 12-month attrition increase was driven primarily by Non-Access membership terminations and the Lifestyle Family Fitness acquisition.

Total operating expenses during 2Q 2013 were $247.4 million compared to $231.7 million for 2Q 2012. Total operating expenses for the first six months of 2013 were $485.8 million compared to $451.8 million in 2012.

Income from operations margin was 19.8% for 2Q 2013, up from 19.6% for 2Q 2012.
Income from operations margin was 18.9% for the first six months of 2013 compared to 18.8% for 2012.


(Expense as a percent of total revenue)	2Q 2013	vs.	2Q 2012	YTD 2013	vs.	YTD 2012
Center operations	57.4%	vs.	57.8%	57.9%	vs.	58.8%
Advertising and marketing	3.1%	vs.	3.4%	3.4%	vs.	3.6%
General and administrative	5.1%	vs.	4.8%	5.2%	vs.	4.9%
Other operating	4.9%	vs.	4.4%	4.7%	vs.	3.8%
Depreciation and amortization	9.7%	vs.	10.0%	9.9%	vs.	10.1%

Net income for 2Q 2013 was $33.2 million, or $0.80 per diluted share, compared to net income of $30.3 million, or $0.73 per diluted share, for 2Q 2012. Net income for the first six months of 2013 was $61.3 million, or $1.47 per diluted share, compared to net income of $56.0 million, or $1.34 per diluted share, for the prior-year period.

EBITDA for 2Q 2013 was $91.1 million compared to $85.8 million in 2Q 2012. For the first six months of 2013, EBITDA was $173.1 million compared with $161.5 million in the prior-year period.

As a percentage of total revenue, EBITDA in 2Q 2013 was 29.6% in 2Q 2013 and 29.8% in 2Q 2012.
For the first six months of 2013, EBITDA, as a percentage of total revenue, was 28.9% compared to 29.0% in the prior-year period.

Cash flows from operating activities for the first six months of 2013 totaled $124.5 million compared to $142.2 million in the prior-year period. This reduction is driven primarily by the timing of income and real estate tax payments, and lower growth in operating liabilities this year.

Weighted average fully diluted shares for 2Q 2013 totaled 41.7 million compared to 41.8 million in 2Q 2012. For the first six months of 2013, weighted average fully diluted shares totaled 41.6 million compared to 41.8 million for the prior-year period.

2013 Business Outlook:

The following statements are based on the Company’s current expectations for fiscal year 2013 and incorporate 2013 operating trends. These 2013 expectations are subject to the risks and uncertainties further described in the Company’s forward-looking statements:

Revenue is expected to be up 7-8%, or $1.205-1.220 billion, driven primarily by price and mix optimization, square foot expansion, and growth in in-center and ancillary business revenue.
Net income is expected to be up 8.5-11%, or $121.0-124.0 million, driven by revenue growth and cost efficiencies.
Diluted earnings per common share is expected to be $2.89-2.95 (updated from $2.87-2.95).

As announced on July 18, 2013, the Company will hold a conference call today at 10:00 a.m. ET to discuss its second quarter 2013 results. Bahram Akradi, Michael Robinson, executive vice president and chief financial officer, and John Heller, senior director, investor relations & treasurer, will host the conference call. The conference call will be webcast and may be accessed via the Company’s Investor Relations section of its website at lifetimefitness.com. A replay of the call will be available the same day via the Company’s website beginning at approximately 2:00 p.m. ET.

About Life Time Fitness, Inc.

As The Healthy Way of Life Company, Life Time Fitness (NYSE: LTM) helps organizations, communities and individuals achieve their total health objectives, athletic aspirations and fitness goals by engaging in their areas of interest - or discovering new passions - both inside and outside of Life Time’s distinctive and large sports, professional fitness, family recreation and spa destinations, most of which operate 24 hours a day, seven days a week. The Company’s Healthy Way of Life approach enables customers to achieve this by providing the best programs, people and places of uncompromising quality and value. As of July 25, 2013, the Company operated 106 centers under the LIFE TIME FITNESS® and LIFE TIME ATHLETIC® brands in the United States and Canada. Additional information about Life Time centers, programs and services is available at lifetimefitness.com.

Forward-Looking Statements

This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements can usually be identified by the use of terminology such as “anticipate,” “believe,” “continue,” “could,” “estimate,” “evolve,” “expect,” “forecast,” “intend,” “looking ahead,” “may,” “opinion,” “plan,” “possible,” “potential,” “project,” “should,” “will” and similar words or expressions. Forward-looking statements are subject to certain risks and uncertainties that could cause the Company’s actual results in the future to differ materially from its historical results and those presently anticipated or projected. Among these factors are attracting and retaining members, risks related to our debt levels and debt covenants, the ability to access our existing credit facility and obtain additional financing, strains on our business from continued and future growth, including potential acquisitions and other strategic initiatives, risks related to maintenance and security of our data, potential recognition of compensation expense related to performance-based stock grants, competition from other health and fitness centers, identifying and acquiring suitable sites for new centers, delays in opening new centers and other factors set forth in the risk factor section of the Company’s annual report on Form 10-K filed with the Securities and Exchange Commission.

The Company cautions investors not to place undue reliance on any such forward-looking statements, which speak only as of the date on which such statements were made. The Company undertakes no obligation to update such statements to reflect events or circumstances arising after such date. All remarks made during the Company’s preliminary financial results webcast will be current at the time of the webcast and the Company is under no obligation to update the recording.


LIFE TIME FITNESS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)

	June 30,			December 31,
	2013			2012
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	13,126		$	16,499
Accounts receivable, net		8,151			9,272
Center operating supplies and inventories		30,195			27,240
Prepaid expenses and other current assets		28,881			26,826
Deferred membership origination costs		11,438			11,664
Deferred income taxes		2,912			8,813
Income tax receivable		1,813			-
Total current assets		96,516			100,314
PROPERTY AND EQUIPMENT, net		1,952,894			1,858,666
RESTRICTED CASH		447			2,087
DEFERRED MEMBERSHIP ORIGINATION COSTS		6,740			6,820
GOODWILL		40,198			37,176
OTHER ASSETS		66,134			67,111
TOTAL ASSETS	$	2,162,929		$	2,072,174

LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt	$	12,288		$	12,603
Accounts payable		24,243			32,140
Construction accounts payable		40,163			25,208
Accrued expenses		64,191			63,333
Deferred revenue		42,555			34,753
Total current liabilities		183,440			168,037
LONG-TERM DEBT, net of current portion		723,133			691,867
DEFERRED RENT LIABILITY		23,810			22,490
DEFERRED INCOME TAXES		91,204			95,509
DEFERRED REVENUE		6,783			6,840
OTHER LIABILITIES		20,830			14,514
Total liabilities		1,049,200			999,257
SHAREHOLDERS' EQUITY:
Common stock		858			864
Additional paid-in capital		427,761			447,912
Retained earnings		690,230			628,942
Accumulated other comprehensive loss		(5,120	)		(4,801	)
Total equity		1,113,729			1,072,917
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY	$	2,162,929		$	2,072,174


LIFE TIME FITNESS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands except per share data)
(Unaudited)

	For the Three Months Ended						For the Six Months Ended
	June 30,						June 30,
		2013			2012			2013			2012
REVENUE:
Membership dues	$	194,816		$	184,895		$	381,190		$	360,365
Enrollment fees		3,573			3,929			6,969			7,883
In-center revenue		97,275			90,118			189,246			174,734
Total center revenue		295,664			278,942			577,405			542,982
Other revenue		12,444			9,362			21,450			13,769
Total revenue		308,108			288,304			598,855			556,751
OPERATING EXPENSES:
Center operations		176,798			166,554			346,760			327,269
Advertising and marketing		9,629			9,689			20,588			20,045
General and administrative		15,713			13,856			31,069			27,559
Other operating		15,225			12,761			28,059			21,152
Depreciation and amortization		30,017			28,861			59,279			55,821
Total operating expenses		247,382			231,721			485,755			451,846
Income from operations		60,726			56,583			113,100			104,905
OTHER INCOME (EXPENSE):
Interest expense, net		(6,434	)		(6,545	)		(12,563	)		(12,822	)
Equity in earnings of affiliate		378			395			724			768
Total other income (expense)		(6,056	)		(6,150	)		(11,839	)		(12,054	)
INCOME BEFORE INCOME TAXES		54,670			50,433			101,261			92,851
PROVISION FOR INCOME TAXES		21,483			20,141			39,973			36,887
NET INCOME	$	33,187		$	30,292		$	61,288		$	55,964

BASIC EARNINGS PER COMMON SHARE	$	0.80		$	0.73		$	1.48		$	1.35
DILUTED EARNINGS PER COMMON SHARE	$	0.80		$	0.73		$	1.47		$	1.34
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING - BASIC		41,456			41,462			41,376			41,313
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING - DILUTED		41,659			41,750			41,644			41,777


LIFE TIME FITNESS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
	For the Six Months Ended
	June 30,
		2013			2012
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	61,288		$	55,964
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		59,279			55,821
Deferred income taxes		671			(1,073	)
(Gain) loss on disposal of property and equipment, net		(216	)		579
Amortization of deferred financing costs		1,100			1,006
Share-based compensation		6,286			7,312
Excess tax benefit related to share-based compensation		(4,564	)		(8,365	)
Changes in operating assets and liabilities		1,726			31,450
Other		(1,116	)		(504	)
Net cash provided by operating activities		124,454			142,190

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment		(137,433	)		(106,102	)
Acquisitions, net of cash acquired		(437	)		(26,415	)
Proceeds from sale of property and equipment		763			362
Proceeds from property insurance settlements		175			790
Increase in other assets		(736	)		(250	)
Decrease in restricted cash		1,640			651
Net cash used in investing activities		(136,028	)		(130,964	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term borrowings		75,000			-
Repayments of long-term borrowings		(28,272	)		(3,521	)
Repayments of revolving credit facility, net		(13,500	)		(10,000	)
Increase in deferred financing costs		(976	)		(256	)
Excess tax benefit related to share-based compensation		4,564			8,365
Proceeds from stock option exercises		1,108			1,982
Proceeds from employee stock purchase plan		607			590
Stock purchased for employee stock purchase plan		(569	)		(649	)
Repurchases of common stock		(28,157	)		-
Net cash provided by (used in) financing activities		9,805			(3,489	)

Effect of exchange rates on cash and cash equivalents		(1,604	)		275

(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS		(3,373	)		8,012
CASH AND CASH EQUIVALENTS - Beginning of period		16,499			7,487
CASH AND CASH EQUIVALENTS - End of period	$	13,126		$	15,499

Non-GAAP Financial Measures

This release and the related conference call disclose certain non-GAAP financial measures.

EBITDA. Earnings Before Interest, Income Taxes and Depreciation and Amortization (EBITDA) is a non-GAAP measure consisting of net income plus interest expense, net, provision for income taxes and depreciation and amortization. This term, as the Company defines it, may not be comparable to a similarly titled measure used by other companies and is not a measure of performance presented in accordance with GAAP. The Company uses EBITDA as a measure of operating performance. The funds depicted by EBITDA are not necessarily available for discretionary use if they are reserved for particular capital purposes, to maintain compliance with debt covenants, to service debt or to pay taxes. EBITDA should not be considered as a substitute for net income, net cash provided by operating activities or other income or cash flow data prepared in accordance with GAAP. Additional details related to EBITDA are provided in the Form 8-K that the Company filed with the Securities and Exchange Commission on the date of this press release. The following table provides a reconciliation of net income, the most directly comparable GAAP measure, to EBITDA:


RECONCILIATION OF NET INCOME TO EBITDA
(In thousands)
(Unaudited)

	For the Three Months Ended				For the Six Months Ended
	June 30,				June 30,
	2013		2012		2013		2012
Net income	$	33,187	$	30,292	$	61,288	$	55,964
Interest expense, net		6,434		6,545		12,563		12,822
Provision for income taxes		21,483		20,141		39,973		36,887
Depreciation and amortization		30,017		28,861		59,279		55,821
EBITDA	$	91,121	$	85,839	$	173,103	$	161,494

Free Cash Flow. Free cash flow is a non-GAAP measure consisting of net cash provided by operating activities, less purchases of property and equipment, excluding acquisitions. This term, as the Company defines it, may not be comparable to a similarly titled measure used by other companies and does not represent the total increase or decrease in the cash balance presented in accordance with GAAP. The Company uses free cash flow as a measure of cash generated after spending on property and equipment. Free cash flow should not be considered as a substitute for net cash provided by operating activities prepared in accordance with GAAP. Additional details related to free cash flow are provided in the Form 8-K that the Company filed with the Securities and Exchange Commission on the date of this press release. The following table provides a reconciliation of net cash provided by operating activities, the most directly comparable GAAP measure, to free cash flow:


RECONCILIATION OF NET CASH PROVIDED BY OPERATING ACTIVITIES TO FREE CASH FLOW
(In thousands)
(Unaudited)

	For the Three Months Ended						For the Six Months Ended
	June 30,						June 30,
	2013			2012			2013			2012
Net cash provided by operating activities	$	48,223		$	68,287		$	124,454		$	142,190
Less: Purchases of property and equipment		(78,288	)		(67,625	)		(137,433	)		(106,102	)
Free cash flow	$	(30,065	)	$	662		$	(12,979	)	$	36,088

Life Time Fitness, Inc.
John Heller, 952-229-7427 (Investors)
ir@lifetimefitness.com
Jason Thunstrom, 952-229-7435 (Media)
pr@lifetimefitness.com

Source: Life Time Fitness, Inc.

Released July 25, 2013