Life Time Fitness Announces Third Quarter 2014 Financial Results

Revenue Grew 6.6%, Net Income was $34.4 million and Diluted EPS was $0.91

CHANHASSEN, Minn.--(BUSINESS WIRE)-- Life Time Fitness, Inc. (NYSE:LTM), The Healthy Way of Life Company, today reported its financial results for the third quarter ended September 30, 2014.

Third quarter 2014 revenue grew 6.6% to $336.8 million from $316.0 million during the same period last year. Revenue for the first nine months of 2014 grew 6.6% to $975.4 million from $914.9 million during the same period last year.

Net income for the quarter was $34.4 million, or $0.91 per diluted share, compared to net income of $34.4 million, or $0.83 per diluted share, for 3Q 2013. Net income for the first nine months of 2014 was $92.5 million, or $2.35 per diluted share, compared to net income of $95.7 million, or $2.30 per diluted share for the prior-year period.

Included in the Company’s diluted earnings per share for the quarter is the impact of the following affecting comparability: a $0.10 positive impact related to the reduction of a contingent liability associated with a prior acquisition and a $0.07 negative impact related to the costs associated with the Company’s exploration of a conversion of its real estate assets into a Real Estate Investment Trust (REIT), as was announced on August 25, 2014. Excluding these two items, adjusted diluted earnings per share for the quarter was $0.88.

“We are pleased with our third quarter results,” said Bahram Akradi, Life Time chairman, president and chief executive officer. “Moving forward, our member retention initiatives continue to be a primary focus as we improve our portfolio of unique programs and services that help members achieve their health, fitness, recreation and entertainment goals and objectives. We also continue to explore a REIT conversion and will provide updates on this process as appropriate.”

Since the beginning of the year, the Company has opened five of the six planned new centers for 2014, the last of which will be in the Las Vegas market in November.

Three and Nine Months Ended September 30, 2014, Financial Highlights:

Total revenue for the third quarter grew 6.6% to $336.8 million from $316.0 million in 3Q 2013. Total revenue for the first nine months of 2014 grew 6.6% to $975.4 million from $914.9 million during the prior-year period.


		3Q 2014 vs. 3Q 2013
		(in millions except revenue per membership data)

Membership dues		$208.2 vs. $195.7 (up 6.4%)
In-center revenue		$107.9 vs. $97.2 (up 11.0%)
Other revenue		$17.6 vs. $19.5 (down 9.9%)

Average center revenue per Access membership		$452 vs. $421 (up 7.4%)
Average in-center revenue per Access membership		$155 vs. $140 (up 10.8%)
Same-center revenue (open 13 months or longer)		Down 0.5%
Same-center revenue (open 37 months or longer)		Down 0.9%

		YTD 2014 vs. YTD 2013
		(in millions except revenue per membership data)

Membership dues		$610.2 vs. $576.8 (up 5.8%)
In-center revenue		$310.7 vs. $286.5 (up 8.5%)
Other revenue		$45.2 vs. $41.0 (up 10.4%)

Average center revenue per Access membership		$1,325 vs. $1,243 (up 6.6%)
Average in-center revenue per Access membership		$449 vs. $412 (up 8.8%)
Same-center revenue (open 13 months or longer)		Up 0.1%
Same-center revenue (open 37 months or longer)		Down 0.3%

Total memberships grew 2.0% to 817,500 at September 30, 2014, from 801,851 at September 30, 2013.

Access memberships were 697,167 at September 30, 2014 compared to 695,923 at September 30, 2013.
Non-Access memberships were 120,333 at September 30, 2014 compared to 105,928 at September 30, 2013.
Attrition in 3Q 2014 was 9.4% compared to 9.5% in the prior-year period. Attrition for the 12-month period ended September 30, 2014, was 35.7% compared to attrition of 35.0% during the 12-month period ended September 30, 2013.

Total operating expenses during 3Q 2014 were $270.0 million compared to $253.2 million for 3Q 2013. Total operating expenses for the first nine months of 2014 were $797.0 million compared to $738.9 million for the first nine months of 2013.

Income from operations margin was 19.8% for 3Q 2014 compared to 19.9% in the prior-year period.
Income from operations margin was 18.3% for the first nine months of 2014 compared to 19.2% for the first nine months of 2013.


		3Q 2014 vs. 3Q 2013
		(expense as a percent of total revenue)

Center operations		57.3% vs. 57.1%
Advertising and marketing		2.9% vs. 3.1%
General and administrative		4.7% vs. 4.6%
Other operating		4.4% vs. 5.8%
Depreciation and amortization		10.9% vs. 9.5%

		YTD 2014 vs. YTD 2013
		(expense as a percent of total revenue)

Center operations		58.5% vs. 57.6%
Advertising and marketing		3.2% vs. 3.3%
General and administrative		4.7% vs. 5.0%
Other operating		4.7% vs. 5.1%
Depreciation and amortization		10.6% vs. 9.8%

Net income for 3Q 2014 was $34.4 million, or $0.91 per diluted share, compared to net income of $34.4 million, or $0.83 per diluted share, for 3Q 2013. Net income for the first nine months of 2014 was $92.5 million, or $2.35 per diluted share, compared to net income of $95.7 million, or $2.30 per diluted share, for the prior-year period.

EBITDA for 3Q 2014 was $103.7 million compared to $93.2 million in 3Q 2013. For the first nine months of 2014, EBITDA was $282.5 million compared with $266.3 million in the prior-year period.

As a percentage of total revenue, EBITDA in 3Q 2014 was 30.8% and 29.5% in 3Q 2013.
For the first nine months of 2014, EBITDA, as a percentage of total revenue, was 29.0% compared to 29.1% in the prior-year period.

Cash flows from operating activities for the first nine months of 2014 totaled $189.3 million compared to $190.8 million in the prior-year period.

Weighted average fully diluted shares for 3Q 2014 totaled 37.9 million compared to 41.6 million in 3Q 2013. For the first nine months of 2014, weighted average fully diluted shares totaled 39.4 million compared to 41.6 million for the prior-year period.

Updated 2014 Business Outlook:

The following statements are based on the Company’s current expectations for fiscal year 2014. These 2014 expectations are subject to the risks and uncertainties further described in the Company’s forward-looking statements:

Revenue is expected to be $1.285-1.295 billion (revised from $1.290-1.310 billion).
Net income is expected to be $118.0-120.0 million (revised from $120.0-125.0 million).
Diluted earnings per share is expected to be $3.03-3.08 (revised from $3.00-3.10).

Expected net income and diluted earnings per share for 2014 exclude any expenses related to the Company’s exploration of a conversion of its real estate assets into a REIT that may be incurred in 4Q 2014, but include the two previously mentioned items affecting comparability.

As announced on October 16, 2014, the Company will hold a conference call today at 10:00 a.m. ET to discuss its third quarter 2014 results. Akradi, Eric Buss, executive vice president and chief financial officer, and John Heller, vice president, Finance and Investor Relations, 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 October 23, 2014, the Company operated 112 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, unanticipated expenses relating to regulatory matters or litigation, the ability to convert our real estate assets into a REIT, the potential advantages, benefits and impact of, and opportunities created by, converting our real estate assets into a REIT, including potential tax benefits, and other factors set forth in the risk factor section of the Company’s annual report on Form 10-K and quarterly report on Form 10-Q 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)

	September 30,			December 31,
	2014			2013
ASSETS
Current assets:
Cash and cash equivalents	$	9,622		$	8,334
Accounts receivable, net		10,103			8,298
Center operating supplies and inventories		36,703			32,778
Prepaid expenses and other current assets		27,804			25,802
Deferred membership origination costs		9,375			9,945
Deferred income taxes		6,069			6,881
Income tax receivable		88			6,698
Total current assets		99,764			98,736
Property and equipment, net		2,335,498			2,105,077
Restricted cash		890			850
Deferred membership origination costs		6,316			5,210
Goodwill		57,478			49,195
Intangible assets, net		43,868			29,299
Other assets		43,811			42,684
Total assets	$	2,587,625		$	2,331,051

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt	$	22,394		$	24,505
Accounts payable		35,709			28,645
Construction accounts payable		40,338			47,342
Accrued expenses		67,626			67,435
Deferred revenue		36,330			35,032
Total current liabilities		202,397			202,959
Long-term debt, net of current portion		1,152,567			824,093
Deferred rent liability		29,856			28,933
Deferred income taxes		92,258			100,504
Deferred revenue		6,369			5,246
Other liabilities		16,837			21,287
Total liabilities		1,500,284			1,183,022
Shareholders' equity:
Common stock		783			843
Additional paid-in capital		249,478			402,147
Retained earnings		843,174			750,654
Accumulated other comprehensive loss		(6,094	)		(5,615	)
Total shareholders' equity		1,087,341			1,148,029
Total liabilities and shareholders' equity	$	2,587,625		$	2,331,051

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

	For the Three Months Ended						For the Nine Months Ended
	September 30,						September 30,
	2014			2013			2014			2013
Revenue:
Membership dues	$	208,233		$	195,657		$	610,212		$	576,847
Enrollment fees		3,086			3,598			9,228			10,567
In-center revenue		107,936			97,234			310,700			286,480
Total center revenue		319,255			296,489			930,140			873,894
Other revenue		17,590			19,522			45,224			40,972
Total revenue		336,845			316,011			975,364			914,866
Operating expenses:
Center operations		193,032			180,431			570,155			527,191
Advertising and marketing		9,611			9,758			31,683			30,346
General and administrative		15,921			14,531			46,281			45,600
Other operating		14,804			18,479			45,603			46,538
Depreciation and amortization		36,654			29,956			103,252			89,235
Total operating expenses		270,022			253,155			796,974			738,910
Income from operations		66,823			62,856			178,390			175,956
Other income (expense):
Interest expense, net		(9,828	)		(6,436	)		(26,331	)		(18,999	)
Equity in earnings of affiliate		255			379			822			1,103
Total other income (expense)		(9,573	)		(6,057	)		(25,509	)		(17,896	)
Income before income taxes		57,250			56,799			152,881			158,060
Provision for income taxes		22,849			22,413			60,361			62,386
Net income	$	34,401		$	34,386		$	92,520		$	95,674

Basic earnings per common share	$	0.91		$	0.83		$	2.36		$	2.31
Diluted earnings per common share	$	0.91		$	0.83		$	2.35		$	2.30

Weighted average number of common shares outstanding - basic		37,755			41,307			39,165			41,353
Weighted average number of common shares outstanding - diluted		37,913			41,613			39,415			41,606

LIFE TIME FITNESS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
	For the Nine Months Ended
	September 30,
	2014			2013
Cash flows from operating activities:
Net income	$	92,520		$	95,674
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization		103,252			89,235
Deferred income taxes		(7,804	)		(583	)
Gain on disposal of property and equipment, net		(563	)		(100	)
Gain on sale of land held for sale		(17	)		-
Amortization of deferred financing costs		1,918			1,635
Share-based compensation		9,879			9,410
Excess tax benefit related to share-based compensation		(1,073	)		(6,575	)
Changes in operating assets and liabilities		(4,058	)		2,726
Other		(4,744	)		(659	)
Net cash provided by operating activities		189,310			190,763

Cash flows from investing activities:
Purchases of property and equipment		(338,365	)		(224,542	)
Acquisitions, net of cash acquired		(12,400	)		(13,102	)
Proceeds from sale of property and equipment		1,146			1,116
Proceeds from sale of land held for sale		785			-
Proceeds from property insurance settlements		-			177
Decrease (increase) in other assets		1,906			(1,022	)
(Increase) decrease in restricted cash		(40	)		1,353
Net cash used in investing activities		(346,968	)		(236,020	)

Cash flows from financing activities:
Proceeds from long-term borrowings		161,750			125,000
Repayments of long-term borrowings		(26,192	)		(31,773	)
Proceeds from (repayments of) revolving credit facility, net		191,500			(7,150	)
Increase in deferred financing costs		(4,684	)		(4,213	)
Excess tax benefit related to share-based compensation		1,073			6,575
Proceeds from stock option exercises		2,713			1,563
Proceeds from employee stock purchase plan		1,278			1,074
Stock purchased for employee stock purchase plan		(1,531	)		(1,309	)
Repurchases of common stock		(166,878	)		(40,272	)
Net cash provided by financing activities		159,029			49,495

Effect of exchange rates on cash and cash equivalents		(83	)		(1,018	)

Increase in cash and cash equivalents		1,288			3,220
Cash and cash equivalents - beginning of period		8,334			16,499
Cash and cash equivalents - end of period	$	9,622		$	19,719

Non-GAAP Financial Measures

This release and the related conference call disclose EBITDA and Adjusted Diluted EPS, 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 Nine Months Ended
	September 30,				September 30,
	2014		2013		2014		2013
Net income	$	34,401	$	34,386	$	92,520	$	95,674
Interest expense, net		9,828		6,436		26,331		18,999
Provision for income taxes		22,849		22,413		60,361		62,386
Depreciation and amortization		36,654		29,956		103,252		89,235
EBITDA	$	103,732	$	93,191	$	282,464	$	266,294

ADJUSTED DILUTED EPS. Adjusted Diluted Earnings Per Share (Adjusted Diluted EPS) is a non-GAAP measure consisting of diluted earnings per share (Diluted EPS), plus the Diluted EPS impact of costs associated with the exploration of a conversion of its real estate assets into a REIT, less the Diluted EPS impact of the adjustment of a contingent liability associated with a prior acquisition. Additional details related to Adjusted Diluted EPS 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 Diluted EPS, the most directly comparable GAAP measure, to Adjusted Diluted EPS:


RECONCILIATION OF DILUTED EARNINGS PER SHARE
TO ADJUSTED DILUTED EARNINGS PER SHARE
(Unaudited)

	For the Three Months Ended
	September 30,
	2014			2013
Diluted earnings per share	$	0.91		$	0.83
Impact of contingent liability reduction (A)		(0.10	)		-
Impact of REIT exploration costs (B)		0.07			-
Adjusted diluted earnings per share	$	0.88		$	0.83

(A) $4.1 million reduction of a contingent liability associated with a prior acquisition, the impact of which is reflected as a decrease in other operating expenses and provision for income taxes on the Consolidated Statements of Operations

(B) $1.9 million of costs associated with the Company's exploration of a potential conversion of its real estate assets into a REIT, the impact of which is reflected as an increase in general and administrative expenses and the provision for income taxes on the Consolidated Statements of Operations

Life Time Fitness, Inc.
Investor Relations:
John Heller, 952-229-7427
ir@lifetimefitness.com
or
Media Relations:
Jason Thunstrom, 952-229-7435
pr@lifetimefitness.com

Source: Life Time Fitness, Inc.

Released October 23, 2014