Q3 2021 Life Time Group Holdings Inc Earnings Call
[music].
Good afternoon, and welcome to Lifetime Group Holdings Conference call discuss the financial results for the third quarter fiscal 2021 at this time all participants are in a listen only mode. Later, we will conduct a question and answer session and instructions will follow at that time. Please be advised that reproduction of this call in whole or in part is not permitted without.
Written authorization from the company as a reminder, this call is being recorded.
During this call the company will make forward looking statements, which involve a number of risks and uncertainties that may cause actual results to differ materially from our forward looking statements. There is a comprehensive list of risk factors in the company's SEC filings, which you're encouraged to review also the company will discuss certain non-GAAP financial measures, including adjusted EBITDA and free cash flow before it.
Growth capital expenditures this information along with reconciliations to their most directly comparable GAAP measures are included in the earnings release issued this afternoon and the company's 8-K filed with the SEC and on the Investor Relations section of lifetime website.
On the call from management today are Perama, Grotty, founder Chairman and Chief Executive Officer, and Tom Bergmann, Chief Financial Officer, I will now turn the call over to Mr. Eric ready to get started please go ahead, Sir Thank you Jessie.
Good afternoon, and thank you for joining us on our first earnings call. Following the close of our IPO in early October it's great to speak with all of you as a public company once again.
I, especially want to thank and congratulate all lifetime team members for achieving this incredible milestone for a second time.
First I want to take the opportunity to reinforce the significant distinction that defines our business. So.
So hopefully we don't have to address them again and again in the future.
Then.
I will share a few highlights from the third quarter before turning it over to Tom to provide additional details on our results.
Time is a comprehensive highly differentiated high end aspirational healthy lifestyle brand.
We have been consistently delivering the best places programs experiences performers and now the best digital platform as well.
Our comprehensive athletic resort destinations are not gyms or fitness studios, we provide all aspects.
The healthy way of life.
Including entertainment nutrition weight loss Athletic training and sports for all ages from 90 days old.
Nine years old both physically and digitally when possible.
Ultimately, we aim to create a healthier happier lifestyle for our communities.
Members.
We're also committed to delivering long term shareholder value through the significant growth opportunities.
<unk> bye all aspects of our healthy way of life ecosystem life.
The lifetime is and isn't a very unique position with an incredibly trusted brand.
<unk> of customers.
And difficult to replicate athletic resorts across the country and amazing team and culture.
All of which we are leveraging to continue our growth, particularly with the opportunities that have emerged in the last 20 months.
Turning now to our financial results, we had a fantastic third quarter.
Total revenue grew 67 point 66, 7% from $231 million.
Two in the second quarter there two.
Two 385 million in the third quarter there.
This year. The total revenue also grew 19, 2% from $323 million in the second quarter of 2021 to 385 million in the third quarter adjusted EBITDA grew.
<unk> grew from $4 2 million in the second quarter 2000, $21 million to $47 million in the third quarter Center membership grew from 658000 in the second quarter there.
2021 to just over 668000 in the third quarter as we and as and we achieved this despite nearly 20% of our large clubs still being impacted by additional COVID-19, masking and other.
Related restriction during the quarter, there regardless of any additional turbulence from COVID-19.
And its variation we are in a great position to continue capturing market share. We expect to have a very robust recovery over senator memberships membership dues and adjusted EBITDA in the first half of 2022, resulting in much.
<unk> adjusted EBIT catching up to the 19.
In the summer and then exceeding 2019 months of your adjusted EBITDA by the end of 2022.
Our New center development pipeline continues to be very robust with significant opportunities to expand during the third quarter. We opened two new centers in Peabody, Massachusetts at Northshore mall in Coral Gables, Florida as of September 30.
2021, we have 12, new centers under construction and we have 10 or more plans new centers annually for the foreseeable future and an increasing Lee affluent markets lifetime digital is also in a great position for rapid growth.
In 2022 and beyond resulting from.
Our continued enhancement of this platform.
But we remain very focused on our core strategic goal.
Providing our growing community of members with the best.
Most comprehensive Omnichannel health and wellness experiences and programming via our physical spaces and the digital platform.
And.
And now I'll turn it over to Tom I want to emphasize that I have never been more excited about the future of lifetime Tom.
Great, Thanks, Bruce and Hello, everybody.
I'll provide some additional detail on our third quarter and year to date result, as well as our outlook for the remainder of the year.
In the third quarter total revenue increased 67% to $385 million driven by increases in both center and other revenue.
Total sensor revenue increased 63% to $372 million and was driven by increases in both membership dues and in center revenue.
Average center revenue per center membership also rebounded nicely to $555 from $349 in the same prior year period, reflecting increased spending with our in center businesses. The continued execution of our pricing strategy and the opening of new centers.
And more affluent markets.
On a same store basis comparable center sales increased 15, 9%.
Sensor memberships increased approximately 17% to just over 668000 as of September 32021, compared to approximately 573000 as of September 32020, our third quarter ending center membership balance also reflects a sequential.
The increase of just over 10000 memberships compared to the end of the second quarter of 2021.
During the third quarter as <unk> stated nearly 20% of our clubs in various jurisdictions across the country, including some of our large markets such as Chicago, and North Carolina had masked mandates and other COVID-19 related restrictions imposed on them during the quarter.
In light of these restrictions and the typical seasonality in our business. During this quarter, we are particularly pleased with the sequential quarterly growth in memberships.
As <unk> shared we have continued our relentless focus on delivering the very best premium experiences to our members as we have delivered these premium experiences we have.
Strategically increased our new joint membership prices across most of our centers in early 2021, we believe we can continually refine our pricing as we deliver exceptional experiences and find the optimal balance among the number of memberships per center.
The member experience and maximizing our return for each center.
Third quarter average monthly dues per membership of $134.
Approximately 10% higher than the average monthly dues per membership of $122 in the third quarter of 2019, and approximately 20% higher than the average monthly dues for membership of $112 in the third quarter of 2020.
Important to highlight is that this increase in average monthly dues per membership shows our strategy is working by being able to charge higher new joint membership rates and opening new centers and more affluent markets.
We believe we also have the opportunity over time to increase legacy member pricing, we are using our experience and data analytics to look at member data and pricing across the portfolio of our clubs and we expect to continue to raise prices thoughtfully and analytically, while minimizing any member.
Attrition, we expect average revenue per membership.
And average monthly dues per membership to continue to increase as we acquire more new members increased legacy member pricing and open new centers and increasingly affluent markets.
Other revenue, which includes revenue generated from businesses outside of our centers increased more than fourfold to $13 million in the quarter and was primarily driven by our athletics event business as we were able to produce several of our iconic events during the third quarter of 2021 compared to.
The third quarter of 2020, when COVID-19 restrictions forced the cancellation of most of our events.
Moving on to operating expenses in the third quarter total operating expenses increased 25, 1% to $402 $6 million versus the prior year period and included $4 1 million of share based compensation expense and $2 5 million of nonrecurring.
Items.
Center operations expense increased 40% to $232 million and was primarily driven by the reopening of our existing centers and the addition of seven new centers, partially offset by staffing productivity and other cost efficiency initiatives at our centers.
Rent increased 10, 5% to $52 5 million driven primarily by the sale leaseback of five centers occurring since Q3 of 2020.
And are taking possession of six sites for future centers, where we started incurring GAAP rent expense.
First of which is noncash.
General administrative and marketing expenses increased 47% to $45 3 million, which included $4 1 million of share based compensation expense and zero point $6 million of nonrecurring expenses.
This increase is primarily due to the return of corporate team members, who remain furloughed during the third quarter of 2020, and an increase in marketing spend with more clubs opened during the third quarter of 2021 compared to the third quarter of 2020.
Depreciation and amortization decreased five 5% to $58 million and other operating expenses decreased to <unk> decreased two 3% to $14 8 million.
As a result of our continuing recovery, our operating loss improved 81% to $17 5 million from $98 million in the prior year period.
Net interest expense increased to $39 8 million from $31 million in the third quarter last year. This is due to a higher average net debt balance during this year's third quarter.
Our third quarter effective tax rate was 28% compared with 22, 8% in the prior year period. The lower effective tax rate is primarily a result of valuation allowances against our state net operating loss carryforwards.
Net loss was $45 $4 million this quarter compared with a net loss of $93 6 million last year, which included tax affected expenses of $3 $2 million related to share based compensation and 2 million primarily related to a nonrecurring loss on a sale leaseback of one of our properties.
Finally, as Brian mentioned, adjusted EBITDA improved significantly to $47 million from a loss of $12 $4 million in the third quarter of last year.
Moving on to the balance sheet.
Cash and cash equivalents as of September 32021 was $44 $8 million compared to $33 2 million as of December 31, 2020.
As you all know we completed our IPO earlier, this month, which generated proceeds of approximately $670 million after offering related underwriting discounts and other cost.
We used the proceeds to repay $576 million of our senior secured term loan facility, which included a $5 $7 million prepayment penalty and added cash to the balance sheet for general corporate purposes.
Additionally, the underwriters and the IPO notified the company yesterday that they were exercising their option to purchase nearly one 6 million additional shares of common stock at the $18 per share IPO price, which.
Which will result in additional net proceeds to the company of approximately $27 2 million after deducting underwriting discounts and commissions.
We intend to use the net proceeds for general corporate purposes.
Net capital expenditures totaled $79 8 million during the third quarter compared with $45 6 million in the prior year. The increase is primarily due to a higher number of active new club construction projects and an increase in maintenance capital expenditures compared to last year's third quarter when many of our club.
We're just reopened or partially opened during the quarter.
Turning now to our outlook for Q4 2021.
Revenue is expected to be in the range of 350 million to $360 million.
And adjusted EBITDA is expected to be in the range of $48 million to $52 million.
<unk> in this guidance is the closure of four smaller non premium non brand right centers, where the company has elected to allow the leases to expire.
Also underlying this guidance is the assumption that current COVID-19 mass mandates and other related restrictions remain in place for the clubs that are currently under restrictions and do not impact more clubs and are effective today.
With this guidance.
We expect our fourth quarter adjusted EBITDA margin to improve compared to the third quarter of 2021, as we continue to see the benefit of staffing and other cost efficiency initiatives lower insurance and team member benefit costs and lower real estate tax expense.
So before closing I want to join <unk> and sharing how pleased I am with how well positioned the company is to continue to gain market share as demand for experience experiences and healthy living continues to grow with the lifetime brand are attractive member demographic.
And our asset light real estate development model I believe we are poised for rapid expansion for the foreseeable future and the opportunity to serve and bring healthy living healthy aging to more and more consumers across North America.
To wrap it up I want to reiterate <unk> comment on how proud we are of the extraordinary lifetime team members, who continue to deliver an unparalleled healthy way of life experience for our members and advance our strategic priorities.
And with that I'll turn it back to you Jesse to open the call up for questions.
Thank you at this time, we will be conducting our question and answer session.
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Our first question comes from the line of Brian Harper with Morgan Stanley. Please proceed with your question.
Yes, hi, there guys congrats on.
Completing the IPO.
Hey, Brian.
Yeah. Thanks, So maybe just a first question on some of the membership sign up trends.
Did you see you know kind of significant differences.
That had restrictions in place.
What happened if some of those restrictions were lifted at all during the quarter have you been maybe any comments on October just curious, how how that trended throughout the quarter and perhaps into it.
Yes, Brian this is a great question, so those dose clubs.
Basically the moment the mask mandate.
Showed up.
The club's sort of stopped their membership a recovery they sort of didn't go back down but they didn't really continue to grow the membership. So the masked mandate is sort of like a break if you think about it.
But now the positive news on that is and when we had.
Mask mandates get lifted.
Prior to that we saw the clubs that Linda Massman RVO mandates that gets lifted its immediate surge of memberships coming back from hold and new people coming signing up so Tom Yes, I mean, I would just add Brian Yeah, we definitely see a difference in performance once the mass mandates come into play it's about.
5% to 6% difference and induce performance that we saw with those Cogs with mandates imposed during the third quarter versus those that did it so pretty pretty substantial change. It's a very fluid environment. As you know just yesterday, we found out that three of our clubs in different jurisdictions of mass mandates being.
<unk> saw some positive signs there, but as you know is still too early and that's why we expect it to be fluid here for the next quarter or two.
But as I mentioned before this is really important.
Are all of our insight to everything that we're picking up on a monthly basis looking to see where the people are coming from.
Regardless all of these as I mentioned in my earlier remarks.
All of these additional turbulence is continuing to work to our advantage.
We are in a situation, where we're looking at where the members coming back.
Some of them obviously are members, but many are coming from other places and just the way we've handled team members and members for the last year and a half is paying huge dividends right now.
Okay great.
And the second one on the pricing strategy, which you provided some good detail on that certainly in terms of.
Taking up pricing on some of the legacy members has been actually started to happen yet or is that still ahead of you.
How fast do you think you can kind of do that and what would what would the magnitude would be and you know if you have done any of that yet.
What are some of it was kind of your early observations about that.
Let us try to tell them and I'll give you the best color. We can give you. So you can work your numbers so.
When you look at the current prices that we are selling.
Versus the members who are not paying that price.
We have roughly.
In the gross amount.
Some are about 102, the $35 million of annual dues revenue.
That's a huge number and it's not all attainable at one time, we would never do it but our plan is to sort of take care of about a third of that per year.
<unk> Tau and laid out very very intelligently and from a customer friendly standpoint, having said that.
When you look at the price increases across everything else.
We haven't passed on any price increases to anyone for 24 months now so our plan is for the first group of people getting some price increase in early December.
And then another.
Batch will get it in January and then as we mentioned before deploying very very sophisticated.
AI and our own analytics to kind of regrouped at the biggest biggest.
The opportunity at lifetime is pricing and let me just elaborate on that a little bit.
When you look at our clubs today.
After the price increases we put in place.
Beginning of last year.
More than 50% of our clubs even today.
Our offering over 120 30.
<unk> types of classes per week.
A week of different types of group fitness yoga spinning other types.
And the pools and the whole facility everything all the sports and the prices for the whole thing right now still significantly below.
What the single modality fitness studios for yoga for cycling for this or that would offer per month.
So we as I have mentioned on the past calls with all of you guys. We had priced the company.
Significantly too low at the get go.
And we had been sort of a very very cautious and methodical as we had raised the price.
But when you're considering what has happened to all prices. The last few years to all other businesses were still significantly behind so we feel incredibly confident that we can.
No I'd only add legacy pricing to where the rack rates are now we also have room to continue to adjusted net rack rate again and.
And its still be substantially below those tiny little studios offering just one thing so hopefully that helps you.
We have significant opportunity there to kind of deliver the numbers, we need to in the foreseeable future Tom Yeah, I think Bryan covered most of it.
Obviously, we have a lot of experience in the company of doing this so we will continue to do it thoughtfully and in a member friendly way and then layer on the artificial intelligence and data analytics that keeps getting better and better within the company, but to <unk> point, we still have significant pricing power ahead of us and for our legacy members I think it's important to note.
Our new joined rates are well over 20% higher than our average legacy member price. So we have a lot of room to move our legacy members up again, very thoughtfully and analytically. In these legacy members also have not had a price increase for over two years, so that gives us.
Spent a lot of time, so and we're now 910 months entered these higher prices and we still see very strong acquisition performance overall across the portfolio. So yeah.
I think Brian and I feel really confident that we've got a fair amount of pricing power ahead of us still.
Sounds good thank you guys.
Hmm.
Thank you. Our next question is coming from Robby <unk> with Bank of America Securities. Please proceed with your question.
Oh, Hey, Bob and Tom.
I had two questions. One was I was wondering if I know, it's early but could you speak to how you.
Coral gables opening is gone and the recent new.
New York location, how those are performing versus.
Expectations and maybe on coral gables again, I know, it's very early but is there anything that.
You've learned that applies to maybe other future vertical residential developments.
That you can highlight to US and then my other question just as you guys are commenting on the staffing cost efficiencies can you maybe speak to how.
Contrast that with providing great member experiences as you are.
Sort of gaining efficiencies with staffing et cetera. Thanks, that's great great questions I'll take it and give it to Tom so.
As it relates to let me take it in reverse or is it linked to the staffing.
We are spend.
Spending more money.
On making sure the clubs are pristine.
The services are at the highest level.
Not less money, there, where we use where we had efficiencies in our system substantial is between it was in the corporate number one then between the corporate and the clubs to the what we call the middle of the field.
Which we consolidate those roles and have less layers.
Then finally, it was aimed consolidation of three positions into one we took the front desk.
Member services and sales into a member concierge program.
That eliminated needs for about 150 Department heads because we either took the sales department had to the member concierge role or we took the member services Department head into that.
Total experience is substantially superior to what it used to be because as we mentioned to you guys. We are running these things like the four seasons Ritz Carlton, we're not driving promotional sales at all.
And two other questions as you asked the memberships are working so the right now.
Every.
Club.
Every month, we are actually hitting our internal expectation, we're going to beat that with no promotion no salespeople, we're going to beat our internal.
Goal that we have for sales this month and this is really promising because all of this happening organically is not forced is not pushed through some promotion trying to get those numbers in so it's working with the savings or is there. The other places savings was on the credit card charges.
Which will when it's all worked out Thats a couple of percent one 5%, 2% on the credit card charge.
It will be almost about the same amount from the the member consolidation of those three positions into one so we really have done this very intelligently with the mindset that we actually want to invest more in the clubs being more forces in more Ritz Carlton.
Sort of a delivery. So they are cleaner, we have better staff, we are very comfortable paying more to our frontline employees. So that they're so they're taken care off.
Ravi I would just add on your call gave us question.
Extremely well so some really good learnings.
That is.
Village that branded lifetime living the landlord there has been ramping up with new units faster than they ever have at premium brands to what is in the coral gable market. So the landlord is extremely pleased with the ramp there. The club is also ramping extremely well.
Well so early signs and again, it's early we opened it in mid August but.
Yes, I think it shows a lot of confidence in even the landlord there said theyre not doing another project that real estate developer without lifetime brands' uninvolved on it. So yes really really good learnings I think it reinforces our growth opportunities in those residential vertical developments and Brahma and I could talk a long time about the number of active projects that are.
<unk> that are under discussion so early signs are really positive.
Very helpful. Thank you.
Thank you. Our next question is coming from the line of John Heimbach <unk> with Guggenheim. Please proceed with your question.
So guys, let me start with.
Where do you think your share gains are going to are coming from and are going to come from.
As part of that right. There is a little over $20 million upper income households out there I'm curious where you think ultimately.
Thinking out maybe 10 years or more.
Where your share could be of that cohort.
How're you doing John.
So the as we look at these on a regular basis.
About a third of the people joining our past lifetime members. So that's really it's just coming back to lifetime about a third are coming from.
All other larger fitness providers, you know again, we emphasize there isn't a lot of other full service athletic resource like lifetime. So they are coming from that type of stuff and a lot are coming from our studios and quite a bet interestingly enough.
Quite a bit is coming back from home fitness.
We hear from this is what we talked about Omnichannel Omnichannel Omnichannel, we here right now on a constant basis, what we see.
Analytically and anecdotally is that the customer is really using the using health and wellbeing Omnichannel way. So some of our own employees are doing some of the workouts in the club and Theyre doing some on our stream classes early in the morning before they come to work so I think as in.
Interesting observation that we have basically been able to watch for the last several months and our confidence level that the answer is not digital or physical it's actually omni is what we're 100% on that.
His ability and.
John I would just add onto it to your comment of $20 million high income households, today, we always sit with 155 locations and I think this is why Gram says these more excited than has ever been about life time is that when we look at the real estate pipeline and the opportunity in our white space now between our traditional suburban model.
All the success, we're seeing in coral gables and vertical residential helping.
Helping re imagine and transform the malls as well as potential urban locations as we get to 300 400 500 locations over the next five to 10 years, that's going to give us that ability to physically reach all of those members and then on top of that we've got the digital.
Experience that we can grow as well side by side with it. So I think well continue to gain in the short term where the dislocation in the industry, but long term I think would be exciting part of it is we know that over half of the people who will leave lifetime leave because they are moving away from our close proximity to a lifetime as we grow more location.
That's going to give more people the opportunity to become a lifetime member.
And then just secondly.
And it's early I know, but what's the experience been with the signature membership.
And how do you think about touring generally.
Maybe even something beyond signature, which would have other amenities. Yeah. It's an interesting question again, great question. John we are working literally on a daily basis on sort of our assortment of this and what products and services will go into a signature.
How do we create a second tier that has another bucket of <unk>.
Services embedded in that and then maybe have a basic but.
What I can tell you from a modeling standpoint is my expectation is that by end of next year.
Our average dues you know our goal is to try to get it to roughly about 160 plus dollars what Tom mentioned was $1 30, some right now.
I I I see virtually no difficulty of resistance achieving that.
By the end of next year. So then it really allows us to and it could be higher than that.
Some of the.
Where we're not opening any club that the single rack is much less than 150, but sometimes to $2 50 for a single person.
The family memberships on those clubs are coming up in the 200 to $250 60, 80 dollar rates and maybe $300 for a single.
For a membership number.
And so we have just a significant opportunity to sort this out.
So it's sort of a opportunity honestly created from our earlier mistakes and we made the mistake in the past of pricing these too low but today, we have these assets that you can't literally.
Place for 60 or $70 million.
And we have been just charging way too little for them. So they know methodically and with consciousness for our for our customers, we have huge opportunity to keep adjusting those and and continue to keep going with the with the rate in delivering the experience that we talk about in a consistent.
Fashion.
Thank you and I can just add John for 2022, when I look at our New club openings and you look at some of the affluent markets like Buckhead in Atlanta, where we're going into one wall Street 85, Jack when you look at the pipeline next year, our average dues are well over $200.
For almost every opening next year, except for one. So this is where as we continue to move into these more premium for a market price plus the existing pricing power, we have in our existing core clubs lots of opportunity here to continue to drive our average dues up.
Thank you very much.
Thanks, John.
Thank you. Our next question is coming from Brian Nagel with Oppenheimer. Please proceed with your question.
Hi, Good Hello, Brian welcome.
Welcome back to the public markets I am excited.
[laughter] grabbed the first question I have just looking at the the really impressive.
Year on year gain in average Shepherd Center revenue per center membership I know you talked in your prepared comments and in response some other questions about the pricing, but the question I would ask is you're seeing members membership members come back now.
Covid debating.
Yes.
Let's let's let's walk through the rest of it Theres no ambiguity.
We typically gain memberships through June.
And then between July August.
July August is sort of flat and we lose significant memberships typically every year that last 10 15 years.
<unk>.
In <unk>, which basically in.
September netting our <unk> net membership down.
Typically where this year, we were actually able to gain membership in <unk>.
<unk> same thing, we typically lose membership.
Every every year and this year, we may have membership go down slightly but it will be significantly less drop then.
In the other years now if if those.
Those masks mandates, where all lifted tomorrow.
Our next week there is a possibility we would actually not have that happen because we will get a surge as I've mentioned to you know when we normally gain all of our membership throughout the year for the year every year is in the first and second quarter, there, which we.
Expect it to be an absolute robust.
Six months, and we will significantly gain.
Membership count as I mentioned my plan Tom's plan is we want to give all of you guys.
Run run rate EBITDA.
Four per month by summer that matches or beats 2019 per month EBITDA. When we have a very good plan on how we very good projection on how we can get there.
And then right at the end of the 2022, we expect to have that EBITDA be exceeding the 2019 monthly EBITDA. So that's what we see that's what we sort of expect to happen and that's what we're working to deliver.
Bruce could you also just talk a bit about your you mentioned just the digital offering.
From a consumer standpoint did you are you are integrating the digital offering into what has been the kind of the physical experience of the centers.
Right. So our every every customer that we have right now a $1 four plus million customers of $1 1 million of them are regularly using our app. We are studying every day to see what they like what they are using <unk>.
More robust.
We are streaming out of our 10000 plus classes that we teach.
To our clubs to our members and open clubs were screaming about 500 of dose I just want everybody to be clear that if we decide we want to stream.
A thousand or 500, the dose a week, it's just matter of a decision it will take about a week to schedule them and get them going. So we are we've been working we have for the engineers working on a brand new platform. So that we will transfer whats you already experiencing which.
Great.
A much much more robust platform, allowing us to have 10 X 20 X more people using the the the programs without any sort of a glitch.
Glitch or something once that happens we expect it to be next six seven months.
Then we will sort of decide on two things a.
How much we put marketing power behind promoting that individually b does it need to be $15. It doesn't need to be $9. So we will basically make those determination as we get there, but meanwhile, we see that our customer really is happy.
To be able to use that.
<unk>.
When they are not able to come to a club or whatever and now they can do with nutrition. They can do weight loss. They can do meditation is it content. They can get one on one training. So it's a very very comprehensive robust and we're continuing to add features and every month, we launched a new version. This very next few.
Weeks, we launched the next version with health talks in it which is podcast version of our hurts outsource delivering content that people really need to listen to it does that help you Bryan no. That's great. That's very helpful well, congratulations and best of luck here. Thank you.
Thank you as a reminder, if you would like to ask a question at this time. Please press star one on your telephone keypad. Our next question is coming from the line of Simeon Siegel with BMO capital markets. Please proceed with your question.
Great. Thanks, Hey, guys and also congrats on the first quarter public markets selling stuff.
Thank you Simeon.
So Bob I don't know if you just said it but could you just let US know so what were the total members in the quarter within the 668000 memberships and then Tom maybe how much of the digital on the whole decline came from the conversions back to center my perception of how you're thinking about that rate of recapture going forward. Thanks guys.
668000 memberships come out to just over $1 3 million members as of September 30th as you get a mix change between singles couples and families. As you transition from the June 30 quarter to the September 30, So we're just over $1 3 million members.
Have the exact numbers of on hold of what came back to full center versus what moved out typically.
Oh, 80% plus come back.
So.
As we look at that yes.
Probably an opportunity for you guys to convert back yeah.
Yeah.
Go ahead again.
Yes. It did all on hold is one of our best opportunities because we stay in touch with those members while they're on hold we keep engaging with them, we keep inviting them on a personalized basis to come back and enjoy their club and their favorite activities her favorite instructors.
Obviously, he has a virtually no cost of acquisition to bring those members back so.
It's really it's one.
One of our short term levers that we can use to really pull memberships back to full access or full center memberships that to also be clear for you guys. There is a six months window with this so if you go on hold.
You decide when.
You are coming back you would give us that date or at the maximum you can be on hold for six months. So these these people automatically rotate back in.
And those members who have sort of gone to hold right now roughly 80 90000 memberships on hold at this moment.
These are the pros. These are the ones who are really don't want to give up their lifetime membership and they go on hold.
The period that they can or if they need to but then they really have the intention of coming back. So they don't require a lot of arm twisting for them to come back.
Perfect. Thanks, and then if I could just one more how are you guys thinking about the breakdown of membership dues versus in center revenues going forward. Thanks.
Thanks.
Yes, well historically, we've run about 63% to 65% of dues too.
The total center revenue in the future.
I think it is going to run into the upper 60, so call it that.
68% to 70% range, given the dues price increases that we've taken.
And the rebound of the in center business revenue at a slightly slower pace than our dues recovery. So I still think we're looking at the upper <unk> for dos as a percentage of total center revenue.
Perfect. Thanks, a lot guys best of luck for the rest of the year and congrats again.
Thank you. Our next question is coming from Dan <unk> with Wells Fargo. Please proceed with your question.
Hey, Thanks for taking my questions and congratulation on the offering.
Brian I just wanted to circle back.
Make sure I understood it right on your commentary on the fourth quarter and the membership it seems like there's a bunch of different dynamics, taking place in terms of mass mandate and then the typical seasonality in the fourth quarter versus the third quarter and you against the backdrop of an improving recovery kind of getting back out so.
Just how should we frame the recovery trajectory over the next couple of quarters in terms of your memberships yeah. So I think that's probably the most.
The most important piece of the whole equation.
For Q it typically is a L.
Every year for Q is a membership dropped for lifetime, it's just the normal seasonality people drop back out of this pool season.
Sort of on September and October some come to November and then in December we have sort of a flat.
We don't really gain or lose membership this is not a typical year.
And then we robustly and I mean, massively 10, 12000, net memberships or more a month.
It goes through.
The first quarter and second quarter. This a normal year this year.
Our massive amount of people sitting on the sidelines still from Covid and all of the club closures. So there is an abundance of what I would say customers to be grabbed they are going to look for the best programs and services across with it.
Their interest.
We expect to get enough additional access membership count.
By the mid summer.
Early early summer and but the mix of dues, we expect to basically get to the point, where we can beat the 19th 2019 due as numbers and EBIT numbers on a monthly run rate EBITDA basis. So it's just really all is going to happen maybe typically right. After.
Right. After Christmas is when we start seeing a massive demand coming into the membership sign up and this will be more robust adds like <unk>.
Our May June July.
May June was more robust than the past years. This this year from December to June will be way more robust than other years, because there is more people who are just waiting on the sidelines.
We see it everyday with confidence of this people are tired of doing stuff at home alone. We don't think they will give up not everybody will give up.
Their homework out, but they definitely we will do some home.
Those people and some they go back to their clubs to get some of that community and some of the differentiation that they can get only in the and the largest led to clubs. So that's what we expect to have a really really strong bust.
Seven eight months ahead of us.
I would summarize the same thing they say in the fourth quarter, it's going to be choppy with all the COVID-19 restrictions and mass mandates coming and going where clothing. Those four small off brand clubs I mentioned that takeaway 9000 memberships. So we will adjust for those when we when we look at the quarter to make sure were on an apples to apples.
So short term I think it's choppy, but I think what's important is we understand the business. So while we have teams really aggressively working on marketing campaigns. Now so we can really position ourselves well going into the black Friday and the holiday season in December and really making sure that with the marketing.
Indians are running on all fronts as we hit the first of the year next year when consumers are really focused on fitness and their wellness I'm going to find out I work being done really now really really right now.
Got it and then just for my follow up in terms of the real estate supply demand dynamic I mean, what are your conversations like with real estate partners in terms of cap rates.
Appetite for sale leasebacks for some of your developments.
That's really robust from that standpoint, I mean, we are we are definitely looking for record low.
Sale leaseback cap rates right.
But there is no no shortage of ability.
To get as much of this is we want to get done in that five.
Cap rates range five five in a quarter or a five and a half I think we can get as much as we want to get done if we want to get it done at Fiverr, maybe touch less we just got to work a little more slow with its kind of more methodical.
The plan is to continue to look at that market.
Rates are attractive and demand is high on the new fronts, we have as I've mentioned to you we have more.
Robust we are really the only capable company today.
To deliver what the landlords needs, whether it's <unk> or mall with a high end custom.
Customer experience that lifetime delivers so we.
We're in more of a discussion than any period I remember in the history of the company.
I think it's a good reminder, Danielle Brahma and I are committed to reducing leverage in this company and we have over $2 $5 million of owned real estate sales.
Sale leaseback rates become more attractive we will continue to.
Martin.
Tom is not looking at those construction numbers like I am.
I would say that number is more of a market you know he's talking about what we have on the books about gross book value today that real estate is worth well in excess of $3 5 billion you can replace it.
Got it I appreciate all the color. Thanks, so much guys. Thanks guys.
Thank you. Our next question is coming from Chris Carroll with RBC capital markets. Please proceed with your question.
Hi, Brian Hi, Tom Thanks for taking the question so.
So maybe just following up on <unk> question earlier about in center revenue just curious about how those sales and demand for those services trended during the <unk> and perhaps what youre seeing in October and just how you're thinking about near term opportunities for the incentive revenue growth yeah over.
Over here.
Opportunity. We are we are fine tuning menu items.
On the cafe.
We're working on transformations in the personal training.
Lots of great activities moving on the.
Our expectation is all of those are going to grow.
Systematically with memberships.
Growing back to the much higher level than they are right now as the clubs get closer to their full.
Traffic goes revenue grows so what I want to emphasize to you guys is that we have markets, where the traffic membership count.
And utilization all of these things are pretty much right up back up to what they used to.
<unk> is one that drags.
Little bit compared to others, we have expected that from a year and a half ago, we think that the P. T.
It has to be reinvented interest in PT to kind of get to the point that it would do the similar revenues and margins as you.
They didn't used to have in the past therefore, we have come up with other ways as I mentioned earlier in the call that we make up for that EBITDA that the P. T is not going to generate from the other programs that we have implemented the consolidation of some of the roles.
Some of the other savings so we expect to achieve those are similar EBIT does from the clubs at this point with the lower maybe about a third of the 35% lower PT revenue than it was if we can figure out the path too.
Reverse that and have the PT go back up then that would be all incremental marginal.
Revenue and margin for the company, but everything else is going to get back to where it was and beyond in terms of revenue and margin both cafe, a spa kids all of those and we have implemented a lot of really really interesting programs we have.
Twin programs for the for the kids between sort of a nine year old to 13 year old, which we didn't have before we're seeing great traction for those classes and so we've been reinventing nonstop for the last 12 months as we have been had the chance to get reopened and we have some.
Really really good.
Sort of our findings in the things that they're working and we're just rolling those out more robustly.
Got it thanks for all the detail here. Thank you.
Thank you.
Our next question is coming from the line of Brent <unk> with J P. Morgan. Please proceed with your question.
Hello, Brad Your line is <unk> you May proceed with your questions.
Hi can you guys hear me, yes, how are you.
Good good and thanks for taking my questions guys and I also want to echo congratulations on the on the on the offering most of my questions have been answered I have one question and a spirit of this sort of repositioning of the brand to the higher end and you talked a lot about pricing I know the pricing will be one of the major levers there, but we.
Didn't really talk about the waitlist at your clubs and I know, it's come up in the past and I know, it's not a big thing, but is that something that that is.
Prevalent at most of your clubs is it is there are there is still a lot of situations, where waitlist are growing is that a lever for you in terms of.
Repositioning that sort of the brand and exclusivity of the brand.
So the what we what we had launched very robustly as have a waitlist program for opening of a new clubs.
And we have significant visibility to how those clubs are going to how are they going to perform.
When we would open them up we're still doing exactly the same approach same method.
The clubs.
I'll get to begin with this new strategy, we're going to have.
Clubs that theyre going to get to that point, where we have to figure out how to create a waitlist for them.
The challenge with having a 150.
$50 $60 70 of these is that you have to manage and then you have that sort of a high end membership where people buy the top tier membership. So they can go to any club.
You got to kind of figure out how to not let them go to a certain club. So that's always a challenge so the way we try to manage that adjust the price. So much as an example, we opened built more at like 159, we went to 179% to 199 and I'm just.
Moving it up to $219 a month. This is in Arizona. So we can basically keep adjusting the rack rate up until we can balance the membership in the club precisely where we want to does that help you.
That's exactly what I, what I was looking for and that's it for me and congrats again.
Thank you.
Thank you ladies and gentlemen, we have reached the end of our question and answer session. So I'd like to pass the floor back over to management for any additional closing comments.
So thank you Jesse I want to thank all of you guys. Once again I want to thank all the new shareholders. The stepped in and helped us achieve.
This transaction I want to thank our existing shareholders and partners, who have been with us for quite some time and they stepped up and bought even more they have great confidence in the company.
We are committed as we always have been to deliver to our customers to our shareholders and to our team members and we will do all we can to.
To make sure you guys have a fantastic investment with us so with that I want to thank you guys Tom.
Thank you for joining us today really appreciate everybody talk to you soon bye.
Thank you Jesse my pleasure, ladies and gentlemen, this does conclude today's teleconference and webcast. Once again, we thank you for your participation and you may disconnect your lines at this time.
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Yeah.