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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
"We are pleased with our third quarter results"

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
For further information: 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