Q1 2022 Life Time Group Holdings Inc Earnings Call
[music].
Good morning.
And welcome to the Lifetime Group Holdings Conference call to discuss financial results for the first fiscal quarter of 2022.
At this time, all participants are in 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 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 all forward looking statements.
This is a comprehensive list of risk factors in the company's SEC filings, which you are encouraged to review.
What was that the company will discuss certain non-GAAP financial measures, including adjusted EBITDA and free cash flow before growth capital expenditures.
This information along with reconciliations to the most directly comparable GAAP measures are included in the earnings release issued this morning, and the company's 8-K filed with the ACC and on the Investor Relations section of the last times website.
On the call from management today Opera, Ekati, founder Chairman and Chief Executive Officer.
And Tom Dedman, President and Chief Financial Officer.
I'll now turn the call over to Mr. <unk>. Please go ahead Sir.
Good morning, and thank you for joining our first quarter earnings call.
Our long term strategy has been and remains to build and uphold the most premium most loved and respected brand in the healthy way of life live work play ecosystem.
As a result of executing this strategy.
Life time was at an inflection point for very accelerated growth pre COVID-19.
Despite the impact of government mandated shutdowns unmasked vaccines and other restrictions.
We continued to build and strengthen our brand reputation systems and programs.
And we are seeing great results and rewards from the way we treated our team members members landlords vendors and communities.
This has put us in a great position not only to recover but to exceed our past performance.
Lifetime is once again at an inflection point with great outlook or.
Our fundamentals have not only been improving each month.
Also have been accelerating Tom will provide full color on this on this call.
Now I am going to breakdown, our short term strategy in three parts.
First our most capital investment light opportunity is to grow our existing athletic country clubs to their highest potential in revenue and profitability.
Profitability.
We're seeing approximately 4% month over month.
<unk> revenue growth.
In our athletic country clubs at which we have implemented numerous initiatives over the last 18 months.
These initiatives are paying off and we believe we will continue to improve throughout the rest of the year.
We believe it will bring the majority of our clubs to exceed our 2019 <unk> revenue by year end.
Second we continue to evaluate opportunities to make our company more asset light and strengthen our balance sheet. In this area. We are actively exploring additional sale leaseback transactions.
And other structures to achieve this objective.
Third.
We are leveraging our brand equity and reputation.
To capture additional asset light real estate locations for our athletic country clubs, along with potential health.
And wellbeing growth opportunities, where our membership base and trusted brand gives us a natural advantage to succeed.
For our first priority on growth.
Our first quarter results were right in line with our expectation.
And we're continuing to accelerate as we rapidly grow.
Our revenue and profitability at our existing Atlantic country club locations.
From mid February onward.
We have seen strong growth in visits revenue and membership recovery other athletic country clubs.
And we believe this will continue throughout the second quarter, Tom and I look forward to sharing those results with you next quarter there.
As I mentioned, we have invested.
In a range of initiatives that complements our premium athletic country clubs and provide fuel to accelerating our revenue and profitability recovery.
Our aggressive nationwide rollout of pickle ball active aging and small group training are just three of the many many initiatives we have underway.
Members are increasingly engaging in these programs and our membership base is both growing and becoming more levers.
This also has put us in a strong position to capture significant additional membership.
At substantially higher average dues.
Average membership dues were $145 in the first quarter there.
A sequential increase of $10 from the $1 35, we reported just in the fourth quarter of last year.
And we see these numbers growing.
To the 150 to $160 range by end of the year.
The new joined dues rate for memberships sold during the first quarter averaged to 166 compared to $1 35 in the first quarter of 2021 and $115 during the first quarter of 2019.
For the second priority to further strengthen our balance sheet.
We're evaluating alternatives for sale leaseback transactions involving a significant amount of owned real estate portfolio. As a reminder, we currently own approximately 60 country.
Country clubs as we mentioned on our fourth quarter 2021 call. We've closed on two sale leaseback transaction with proceeds of $80 million in the first quarter.
And expect to close another two transaction on or about May 13, with proceeds of $95 million, bringing the year to date year to date total to $175 million. We're currently evaluating sale leaseback and other opportunities to monetize up to an additional 500 million.
In dollars of owned real estate by the end of the third quarter. This year, we will provide you with.
Updates as we progress.
For our third priority.
We will continue to explore asset light growth opportunities that are natural extension to our brand.
We have built a healthy way of life ecosystem.
And our premium brand is extremely well positioned to grow and capture new growth opportunities.
As I turn it over to Tom I want to reinforce my confidence in the power of lifetime, our brand and the experiences we deliver.
We feel very good about the underlying trends in our business and the strategic initiatives, we have in place driving these trends.
Thank you for your time today.
And.
Your continuous support in lifetime looking forward to the Q&A Tom.
Alright, Thanks, <unk> I'll now provide some additional detail on our three priorities <unk> highlighted first quarter results and outlook for the full year to start with the first quarter total revenue increased 57% to $392 million driven mainly by center revenue grew.
<unk>.
Total center revenue increased 56% to $382 million and was driven by a 55% increase in membership dues and a 57% increase in in center revenue.
Average center revenue per center membership increased to $580 from $459 in the prior year period, reflecting increased member spending with our in center business says that continued execution of our pricing strategy and the opening of new athletic country.
Clubs and more affluent markets.
On a same store basis comparable center sales increased 53%.
Center memberships increased approximately 24% to just under 674000 as of March 31, compared to 544000 as of March 31 last year and approximately 649000 as of December 31 2021.
As we discussed on our last earnings call the timing of the Omicron surge early this year disrupted our typical seasonal membership patterns. While January would typically be the strongest membership month in the quarter. This pattern was reversed in the period because of omicron, while we do not.
Not intend to provide monthly memberships on a regular basis. The following breakdown will help provide some context to the progression of the quarter and momentum of the business.
By month, we added 3300 net center memberships in January .
4400 in February and 16900 in March.
To put this into context in 2019, we added 21400 net center memberships in January 3300 in February and seven in March.
Further the momentum we saw in March continued into April with US, adding 13800 net center memberships compared to just under 5000 back in April of 2019.
Given the momentum we are seeing in the business, we expect to add 50000 or more net center memberships during the second quarter.
Average monthly dues per membership was approximately $145 in the first quarter compared to $121 in the first quarter of last year and $135 in the fourth quarter of last year. This year over year and sequential increase was driven by the opening of new athletic country clubs increases.
In legacy pricing and a higher mix of family membership.
We continue to see average dues per member increasing to the targeted 150 to $160 range by the end of the second quarter and remaining in that range during the back half of the year.
Other revenue, which includes revenue generated from businesses outside of our centers more than doubled to approximately $10 6 million in the quarter and was primarily driven by our athletic events business.
Total operating expenses during the first quarter were $403 million. This included non cash share based compensation expense of $21 $4 million and a one time gain of $28 $4 million related to the sale leaseback of two properties in the quarter.
Excluding these items total operating expenses increased 24, 5% to $410 million.
Center operations expense was $240 million and included $1 2 million of noncash share based compensation expense, excluding share based compensation expense center operations expense increased 37% due to increased staffing requirements to support our.
<unk> in our programs services and centers and increased usage of our centers and services by our members during the quarter.
Rent expense increased 10, 8% to $56 million driven primarily by additional sale leasebacks compared to the prior year and additional non cash rent expense, where we've taken possession of a site to begin construction, but have not yet completed construction and opened for opera.
<unk> <unk>.
General administrative and marketing expenses were $66 6 million and included $19 9 million of noncash share based compensation expense.
Excluding nonoperating items from both periods general administrative and marketing expenses increased 24% to $46 $2 million. This was primarily due to the re staffing of our center support overhead functions as centers reopened and usage rates continue to increase along with additional.
Public company expenses.
Depreciation and amortization decreased five 1% to $58 $1 million.
And other operating income was $17 million.
Including $400000.
Of noncash share based compensation expense and a $28 $4 million, one time gain related to the sale leaseback of two properties in the quarter. Excluding these items other operating expenses increased $11 1 million from $6 1 million primarily related to the increased activity in our athletic.
Key events business.
Our GAAP reported loss from operations for the quarter was $10 $9 million compared with a loss of $82 2 million in the prior year period, excluding the $6 $6 million net impact from share based compensation expense and other onetime items the adjusted loss from operations.
With $17 5 million compared to an adjusted loss from operations of $79 9 million in last year's first quarter.
Net interest expense was $29 9 million or 68 nine.
9% decrease compared to the $96 2 million in the prior year period.
Excluding the onetime items impacting interest expense in the first quarter of 2021 interest expense declined $7 million or approximately 19% due to lower debt levels.
Our effective tax rate was 7% compared with 26% in the prior year period. This lower effective tax rate is primarily a result of an increase in the valuation allowance associated with certain of our deferred tax assets as well as deductibility limitations associated with executive.
Give compensation.
GAAP net loss was $38 million compared with a net loss of $152 8 million in the prior year period.
Excluding share based compensation expense and other non recurring items, our adjusted net loss improved to $44 1 million.
From $94 1 million last year.
Adjusted EBITDA increased to $40 6 million from a loss of $18 9 million in the prior year period.
Moving on to the balance sheet cash and cash equivalents as of March 31, 2022 was $41 1 million compared to $31 7 million at year end.
During the quarter as Brian mentioned, we closed on the sale leaseback of two properties for gross proceeds of approximately $80 million and we expect to close on two additional sale leaseback properties on or about may 13th for approximately an additional $95 million in gross proceeds.
Our year to date sale leaseback gross proceeds to $175 million as Brian discussed we continue to look at opportunities to further monetize our real estate portfolio and are currently evaluating opportunities to sale lease back up to an additional $500 million of real estate prior to the end of the third quarter.
Assuming the successful completion of an incremental $500 million of sale leaseback proceeds we would plan to use the proceeds to pay down our term loan and put cash on the balance sheet to fund future growth as a reminder, as we continue to execute sale leaseback transactions and incur in.
Mentor cash and noncash rent expense.
You look at adjusted EBITDA, plus the impact of rent expense as reported in our financial statements to better understand our underlying operating performance and trends.
Capital expenditures totaled $111 million during the quarter compared with $43 million in the first quarter of last year. The increase was primarily related to the higher number of athletic country club openings and properties currently under construction, we plan to open 12, new athletic country clubs.
Compared with just fixed in 2021.
Turning to our outlook.
Last quarter, we focused our guidance around the first quarter and provided some commentary on how we were thinking about the full year. Our first quarter results were right in line with our expectations and we are seeing the type of acceleration that we anticipated moving through the second quarter as a result, we.
We feel very good about the progress of the business and our total revenue outlook for the full year of one eight to $1 $9 billion has not changed.
Assuming we close on the $500 million of additional sale leaseback transactions at the end of the third quarter, we expect total cash and noncash rent expense for the year will increase from our previous range of $235 to $245 million or approximately 13% of projected total revenue for the year.
Two 245 million to $255 million or approximately 13, 5% of projected full year revenue.
Even with this higher rent expense, we still expect our adjusted EBITDA margin to steadily improve into the 18% to 20% range in the back half of the year as we continued to gain momentum in our business and operating leverage on our fixed cost base.
Finally, a couple of items to note as you think about our performance for the full year.
First as I mentioned earlier, we expect average monthly dues to be in the $1 50 to 160 range by the end of the second quarter and remain in that range. During the second half of the year as our mix of family memberships begins to seasonally decline when our pools close and the kids go back to school second unlike previous years.
Where we typically lose net members in the back half of the year, we expect to gain net new center memberships in the third and fourth quarters of this year due to the opening of 10, new athletic country clubs during that period and improved member engagement and retention.
There is a lot to be optimistic about as we move away from the pandemic look forward to our summer outdoor season and see the momentum building in many of the new initiatives. We have been investing in with that we will turn the call back over to the operator for Q&A.
<unk>.
Thank you we will now be.
Conducting a question and answer session.
If you would like to ask a question Youre welcome to pay Star and then one.
Allison keypad a.
A confirmation tone will indicate your line is in the question queue.
You May press Star and then.
I'd like to remove your question from the queue.
For participants using speaker equipment it may be missing.
Pick up your handset before pressing the star keys, one moment, please while we poll for questions.
Our first question is from John <unk> of Guggenheim. Please go ahead.
Hey, I wanted to start with real estate.
Can you give us a sense of the pipeline for 'twenty, three because I think right now, including Brooklyn Tower.
You might have.
Right.
You can clearly see.
That's part one and then maybe for Tom If you think about the current rate environment.
I don't think that would have much impact on your per property.
Valuation write normally get about $40 million.
For property I don't I don't think this rate environment would impact that.
Can you comment on that.
Alright, so John how are you first of all Dave.
Great No complains.
Your question is.
Total clubs opening in 'twenty three.
Yes no.
So with the pipeline you said 11, plus I'm just curious right.
Really.
The part of the part of it is just I think everybody needs to remain fluids, we have incredible pipeline of deals we're working on.
At the same time, we are not going to.
Commit to like as an EBIT 10 clubs or 12 clubs are 14 clubs the pipeline is massive.
Activity is nonstop power.
However, deliberately we are taking the time to sometimes rebid.
Some of the constructions.
Construction costs are high right now some of it will remain.
I won't go back and some of it is purely.
Sort of.
Timing issue.
<unk> there has been too much demand.
Not enough supply of just not just to sell.
Subcontractors, so they sort of give you whatever number.
Without doing any work on it. So you just have to take the time to go back and re bid.
So those are just logistical issues, we have to deal with but in the macro picture.
Growth opportunity has never been any better so literally never been any better. We are we are in so much discussions.
Of all the time that I have no concern about do we have amazing opportunities to grow the brand.
And of course, the new clubs opening up if you guys have a chance to see.
And the order take clubs and opening of Chicago or what's just happening in fiscal <unk>.
They just performed amazingly. So we're looking we're looking forward to the growth there but.
I'm less concerned about if it's 11 or 12 or 13.
More more focused on hey can we have do we have 100 deals in the pipeline for the next five six years and the answer is yes.
Yes, John and on your second question on the rate environment that we're currently and Youre right. Its all have very minor impact on our proceeds are on our sale leaseback environment. So obviously, it's a volatile rate environment, but we're extremely confident in.
And the attractiveness of our properties and the changing interest rate environment again, it's pretty minor.
One more thing this is important for everyone I have to continue to explain the.
There are different types of investors when we're talking to numerous different kinds.
Normal beggary private Reits.
And also there was some of some of these people are.
Investing strictly from <unk> that they have big big massive corporate revolvers and they don't do project by project financing interest rates are going to go up theyre going to come down. These guys know that so they are looking for great assets.
Tenants that actually have paid their rent.
Throughout the whole time.
There arent that many of those so obviously.
They do come to us this is when I say.
Treating people right. We're building brand over 30 years will pay off.
We treat every one with.
With total respect.
And as a result landlords everywhere wanting to work with us wanting more lifetime assets.
And then.
Got it.
It varied effects. It is the people who buy specific assets.
And have specific financing to that asset theyre buying three clubs, there, putting 40% John I do want to get financing.
That group is going to have a harder time to compete with the other folks who are giving us the kind of cap rates, we're looking for and we're not worried about it I have zero concern about.
Lack of ability to getting sell leaseback done.
Alright, and then one quick follow up.
Where are you in rebuilding.
<unk>.
The personal training.
Staff.
And when you think about getting back to 2019 incentive revenue per member I think that was always a maybe mid to late 'twenty three.
Timetables that still.
Fair.
So no doubt now you are starting to ask trade secrets, and if I tell you I have to come back and make sure you can tell anybody about it.
Look.
I have always been pessimistic about the personal training business.
For the last 10 or 15 years, so without getting in details I am personally working on it to creating a products can only be delivered.
Physically and add lifetime.
Super excited about it we're involved daily.
And my.
My plan is to beat.
Surpass the past personal training performances.
And I'm pretty confident we're going to get there.
Right now.
We are in the high two thousands.
In terms of number of trainers.
And then that number will increase but it's more important to have the educated well trained personal trainers, who are truly the type of approach that.
Earning their keep their most personal training business really is fluff I don't think that has been.
Much of our.
Much of a difference that I've seen in the years, but we are transforming into a place where I am confident we stand alone.
The quality of what we deliver and then type of trainers, we attract and so its been our highest the highest.
The focus right now for the company.
Dos or as you guys will see are building exactly as we wanted other incentive revenues are coming following the swipes of the clubs.
And growing and I think the personal training we will have it.
We will have it to the same.
Areas that we need to like 2019 and beyond.
As of the end of the year for sure.
Okay. Thank you.
Okay.
Our next question is from Brian <unk>.
Please go ahead.
Hi, good morning.
Good morning, Brian how are you doing well congrats on the at.
The momentum here.
Thank you.
So the first question Tom.
Tom I appreciate all of the.
The month to month breakdown, you gave us in your commentary.
My question, just with regard to that that membership growth I mean anything you could say.
Looking at the build here regionally.
And then also that as far as the members now joining what portion of those where you were.
Digital on hold now converting back to normal versus really new to to lifetime.
Yes, Brian Thanks for the question. Good question, Yes, we're really happy with the momentum we saw in the quarter and what continued into April and it's getting broader and broader across the country as the omicron restrictions got reduced and as you would expect we saw really great strain.
And across the Heartland and into the mountain region, and especially down into Texas into the south.
Largely our strongest performers and.
We're seeing the areas that had more severe mandates and that came off later starting to rebuild and that's what gives us the confidence that we see all of these other markets where the restrictions were allow us that we know these other markets are following the same trajectory and are starting to rebuild.
We're continuing to see in those markets again, where we're near or at a 100% of pre pandemic levels beyond hold balances are back to a normalized level or lower and another reason for optimism on areas such as the northeast or the mid Atlantic is we're starting now to see somewhat.
Those on hold balances start to convert back to active access memberships as well so feeling really good about the momentum coming through and as you would expect again those states with less restrictions that came up earlier coming back and are in the upper 90 days are already 100% of where they were pre pandemic levels.
We are we are.
Seeing.
The market.
Minimum each month more clubs each month more clubs are achieving 2019 dues.
With a couple more tweaks with the programming that we're pushing.
That also will surpass 2019 revenues then.
You can see those patterns again, just like Tom said, the more the government interfered they're more they put all of these restrictions in place, which obviously today the data clearly demonstrates none of them were having any.
Detectable effect versus the places, we did or didn't versus didn't do it it doesn't matter, it's walid over to them.
But now we see that trend coming back and we don't have.
Much doubt that majority I mean, I think all but maybe a handful of clubs that uniquely.
Sort of the idiosyncrasies, we will get everything back to the 2019 profitability.
<unk> revenues of course there.
There has been gives and takes on cost increases.
We've implemented many great initiatives.
Changing of the sales structure to the member <unk> and few other things that have given us quite a bit of incredible margin to make up for all of the.
For all the <unk>.
Increase in costs and utilities and stuff. So we are really really well positioned.
To get our clubs.
The exact same level of productivity revenues and profits that we used to have it. The question is just is it going to be a couple of months sooner or a couple of months later, we have enough trends we have enough data we have enough.
Examples of what it takes no clubs.
Had severe restrictions for very very long time.
And they were shut down for a longer period of time. They have had a deeper drop and this is really important for all the analysts to understand some of you guys run technology someone where you guys run.
Hardline retail some of you guys are in restaurant.
Our business is not like any of those businesses, whereas subscription business. It takes it takes forever to build a subscription each month, we basically sell somewhere between 2% and 4%.
Of the total memberships of a mature club. So it takes time to build that that and that gives you that protection. So.
It also takes time for it to go down except when the government steps in and does the ridiculous things that they did with shutting things business is down.
And the way they did this so now it's at this point we have come.
Company turned the corner, we have positive EBITDA, we never stopped investing.
In our.
Growth rebuild strategy not not in December not in January we contribute plowed through.
And continue to spend their money put all the programs in place get the people get everything going and now we're seeing the fruit of that in bi.
We obviously will have a pretty robust.
Core they're here second quarter with all our pool path.
The Athletic Beach clubs that we have.
Families joining and then typically we have a seasonal drop coming.
End of August September October we have a seasonal drop in people gold memberships back on hold or drop out.
So we have been implementing so many different programs to make sure Tom and I are on it Jeff is with us and everybody else to make sure come August September we actually do not have the seasonal dropping the membership. We go back we are confident.
On our strategy on our execution.
And the trends are supporting it.
That's very helpful. Rob just one follow up to that on that with regard to all the investments you've made and you've talked a lot about the big push into to pickle ball and other programming or you've seen I know, it's early but are you seeing a.
Better than normal uptake on these programs from your from your members other new or existing that could suggest a stickier membership going forward.
Absolutely I mean, we are.
We are taking the unique.
<unk>.
The unique customer that is using the different programs.
Our pickle ball.
Literally is like almost 40000.
And then as growing explosively, but.
But understand that we are in a position.
To be.
Like the Amazon.
Online sales for Pickle ball, we the number of assets, we have with basketball courts outdoor space.
Space.
The tenants of course that we have we are we're going to finish having almost 200 dedicated courts. These are not going on in the basketball court on our wood floor with some pains on there were some tape. This is absolutely professionally executed like everything else, we do dedicated court.
Programming nobody will have the same opportunity that they would have with lifetime you can go from Phoenix, Arizona, California, Florida, Minnesota, Chicago, Texas doesn't matter what other markets. You are in you can go to your lifetime Athletic Country Club you can use your App reserve.
And play enjoying the programs. So we can be literally 10 X.
The largest provider of pickle ball United States within the next 18 months and we are taking that we're doing it. So that's that small group training.
We are.
Relentless on providing enough programs, we used to teach roughly goal of 100.
100 small.
A big group classes, just normal group fitness programs yoga this that spend.
Per club and right now we are focused on getting to some number similar to that with a small group training. Obviously, it's a lot of programming setting up the places hiring the people putting the schedule together, making it convenient for the customer to join it and then all of those classes have to ramp up.
So we are not focused on.
Two months today.
EBITDA is just to be clear, we're focused on getting the top line revenue the swipe send the subscriptions.
To a level that we will be making more money in each club than we did in 2019.
And all of the programs obviously are put in place.
And as an engineer and all the other brilliant people what we have in this company we run a program we test it we see how it works we make adaptations we run it we adjusted we tested so yes, we are trending with looking at those all those trends and then we make adaptations that we need to.
Everything is working extremely well.
Well congrats again, thank you thanks.
Thanks, a lot bye bye.
Our next question is from Chris Campbell of RBC capital. Please go ahead.
Hi, good morning, and great to hear from you all.
So you discussed healthy quarter over quarter growth in the average membership dues with a line of sight on that 150 to $160 level.
Maybe could you expand a little bit more on the contribution from those different tailwind to that growth that you talked about including legacy increases and the new center contribution.
So let's go through that I'm going to walk you guys through the pricing.
The lifetime, we have always.
Again. This is I have always taken the blame for myself and it's not nobody else Spud me, we built big large athletic clubs and we sold them way too cheap we.
We literally were working around the clock for 10 years to try to mitral adjust those prices where the small adjustments.
So that we wouldn't upset the membership in the past we took.
A bolder approach reality is business. This business is really breaks down to two you guys compare.
Some of you guys compare planet fitness results are cruncher et cetera, with our business in these two could not be.
Any more different as a business model, we as an athletic country club our business as a use model, we expect the customer to use the club theyre paying a high amount of dues to use the facility, but even in a use model, maybe 2018% to 20% of the customers that.
That you have signed up over 10 or 15 years, they start using the club light Lewis.
No more lightly or sometimes are not therefore, a month at a time, but they keep paying their dues.
In a non use model.
75% of Americans.
The 10th to the <unk> model that 75% of the customer isn't using the club, but paying the 10 or $15 a month because it's too.
Two easy that's their business model there.
So with US we are focused on creating an experience that cannot be duplicated.
So we we told you guys during the roadshow that at 88%, 89% of our membership count we are planning to get to 100, 100% to 103% of our dues.
This wasn't a mystery this was as clear as whether we will or not going to immediately and quickly and it will take years to build back that debt that tank of people who are paying in light using so the strategic execution.
Now, we're getting to the 100% plus of news at 90%.
Ish of our membership count not 90% membership count based on the type of users who is paying the doosan back you have heavier users. So you basically have swipes that matches the 2019 swipes with albeit the club membership is about 10% lower.
No.
We have had the ability to change the prices.
We're not promoting we're not selling we're not pushing that customer who is coming in based on lifetime brand is excellent.
Experience is they are just simply buying and we assist them with that buying is a smoother. It's more it's much more easy to navigate the momentum or lack thereof, because we're not we're not skewing it by any gimmicks.
And so we see that trend is improving we see that the clubs are going to get to.
100% swipe like if you look at Texas market.
Reaching the 100% swipe, which then also says theyre, 100%.
Dues and then the other stuff are following through with it so.
Our pricing is pretty straightforward and we should be able to get the higher end of that 150 to 160 by December on the total membership bank as.
New customers comes and joins the new customers are coming and joining us, but 170 ish.
<unk>.
And the price our current membership just Tom said look last quarter, there $1 45.
Is creeping up each month and then each each time a customer of past drops the average dues is 145.
The new person joining us average dues is 175. So this continued transaction. This rotation of membership plus this strategically going back to a person who is paying.
$30, a month less than the rack rate in saying, we're going to take your dues up 15 Bucks youre still going to pay $15 less in the rack rate because <unk> been old member. So we have lots of opportunity in our pricing the rack rate that is working versus the.
The legacy rate that the customer is still has room to grow up and still be treated as a legacy customers. So we have a lot of levers left.
To execute with doing it slowly methodically on a monthly basis or small groups get it.
My expectation is we will hit the membership counts and the average dues we need.
By the very end of the year setting us poised to go into 2023.
Got it got it thanks for all that detail.
And then on maybe performance by club type.
There is anything else you can add here in terms of demand levels youre seeing at the newer urban locations versus those legacy suburban locations.
They're all they're all the same distributor, whether if his frisco or Chicago.
It's really you guys again, I just can't emphasize enough.
You get the opportunity to go to see.
Are any of any one of the new clubs urban or suburban.
We will see these are not gyms that are not consistent.
If not their athletic country clubs of the highest level of experience for the customer it's not one that can get duplex experienced simply cannot be duplicated digitally.
Digital is only a incremental small incremental add that we have added for the customers. So if they can make at the club. They have the best digital option from classes to meditation everything are you guys going to check the app as it continues to improve but.
Our business strategy has always been to build a business that has incredible barrier to entry and create the only odd.
<unk> is the only national Athletic country club with Beach clubs with tennis with swim lessons with best workout classes best in classes. We address every detail for every customer we have no national or international or regional compare.
We just have to take the damage that was inflected to us by the governments across the country. We have to take that damage. We've taken the hard part of it. We're at that we've turned around we are now just got to bring in the remainder of the revenue in these clubs, which the bulk of the remainder of the <unk>.
New goes into our profitability.
We feel fantastic about how we have dealt with it.
Lifetime team has been absolutely nothing short of amazing.
All of my team members.
Nominal in how they have put their back into it and along the way we get the members we get landlords, we get vendors everybody all the time.
Is an appreciation of how we have handled this incredibly difficult blow to our company, but it's built on our reputation and our brand and it's all paying off right now.
Okay.
Great. Thanks again.
Thanks, Chris.
Our next question is from <unk> <unk> of Bank of America. Please go ahead.
Hi, This is Alex Perry on for Robbie Thanks for taking our questions and congrats on the strong momentum here.
So just first on the guidance could you maybe walk us through some of the embedded assumptions for the Q2 guide I guess, maybe talk through more on a per club basis. When we should expect the profitability to return to pre pandemic levels and then if you could maybe layer and how much strategic investments such as pickup all small group training. The addition.
Our <unk> programs are sort of may be pressuring the adjusted EBITDA guide versus your original expectations.
Maybe when we should start to expect flow through from these initiatives and then just.
As a part of that how much of that Q sort of SG&A pressures more sort of one time investments versus.
Structurally higher center operations expense versus pre pandemic may be due to things like wage inflation. Thank you.
Yeah, Hey, Alex it's Tom I'll start.
Talking about the second quarter and how we're looking at it. So as you heard in my comments, yes, great momentum coming out of April and as you know very well we have our summer season ahead of us to take advantage of all our wonderful outdoor spaces. So with that with the continued momentum if you look at building it we see more than 50.
<unk> thousand new joins are happening in the second quarter at that 150 to $160 average dues rates name joined net joined yes. So if you see that.
Yes, you start to build out the continued dues momentum in our business.
The you're right as Bryan talked about were making really margin good investments into these programs such as pickup ball and active aging and small group training. Yes, we're really pleased with the early indicators, we're seeing in the growth of those business and the member feedback has just been tremendous so we'll continue.
To make those investments here through the second quarter and then as we grow the membership base, it's really in the third and fourth quarter that we start to get the leverage on our club fixed cost investments and you start to see a much higher flow through of margin and Thats why the full year guidance is to have an exit rate in that 18% to <unk>.
8% EBIT margin.
As we gain the leverage on our fixed cost base and if we can exit the year, then at 18% to 20% that sets us up for a really strong.
2023.
Clearly, we're seeing some wage pressure and supply chain pressure in certain areas as well I always remind people people come to lifetime, we have a great culture and a culture of respect.
And we don't feel as much wage pressure as maybe some other industries do but we do have wage pressure I would call. It in the upper single digits. If you go back from the beginning of 2021.
Through today, however, we've taken a lot of steps such as introducing a credit card surcharge fees as we've talked about introducing our member concierge and consolidating our member services and sales functions that have cost savings as well as well as other cost saving initiatives in order to offset all of that wave.
Inflation and supply chain inflation, we've had so I think we're doing a really nice job of coming up with ways that don't impact the member experience and will help us get that margin expansion in the back half of the year and I'm going to add to that just so that you know what I'm driving here and Tom is helping me drive through the <unk>.
<unk> task.
Is to get the programs and the experiences in such a level.
The <unk> the club's swipes will surpass the past swipes once the swipes past our dues has recovered.
And gone beyond the past dues, the gives and takes that Tom mentioned.
Couple of savings that we have in.
Transformation to a member concierge from sales.
And from the credit card was initially intended to potentially cover some of the PT.
Margin.
Erosion.
But.
With the all the supply chain again, some increased cost increased cost of programming and our own strategy with adding pick.
<unk> coordinators, and pickle ball pros and additional hourly.
Hi, Hi, priced instructors teaching the small group stuff.
We are covering all of that cost with the measures we have put in place before and now we have a game plan to get the PBT margin back. So what you should be thinking about.
I am directing the company.
Way more focused.
On revenue growth and capturing the market share and being the best experiences that theres not duplicable for the next two quarters in <unk>. We start planning 2023 by then we have captured the bulk of the revenue recovery.
And then we will work on efficiencies that they are not going to impact the customer experience.
But where we have opportunistically chances to do similar things that we did with the merging of the sales and the member services into one division and a club or other things in the corporate office to get rid of layers and.
What I always call it the more layers, the more red tape and streamlining the decision making process to create more efficiencies. So this year.
Our focus totally is to get the revenue recovery and beyond.
Obviously some of that naturally will through the EBITDA.
We want to be we need to be by December of this year.
Added jumping off point to <unk> 23, based on our revenue across the system and the EBITDA that gives us a kick <expletive> 2003, and Thats. The goal and we will have the more focus on hey, now I want to squeeze all the margins I want out of this thing will come heavily in the fourth.
They're planning for the 'twenty.
<unk>.
'twenty three to be the banner EBITDA year for the company.
That's incredibly helpful. Thank you for that and then I guess my follow up question is for the full year guide.
Tom I think you sort of mentioned there is some more sort of optimistic member retention assumptions for <unk> versus historical patterns. What what are you sort of see driving that.
Are you seeing different sort of data signals in terms of usage sort of driving.
What does it seem to be better member retention and sort of those in those time periods. Thank you.
Yes, Alex good question. So it's several at several items that we see as we look at the business one of our member NPS score continues to improve and be very strong and we're getting a lot of great feedback again to how we treated people during the pandemic and then the experience that they're walking back into in the club.
The programming initiatives that we're investing in and have been investing in and all the new members coming to lifetime to participate in pickle ball and small group training. Yes. There are new members that are engaged in these activities. So we expect expect the average membership of those members to continue so it's real.
The overall club experience and the new investments that we're driving to engage people into all the different communities and social aspects that lifetime provide so.
We feel pretty good about where we're.
Where we're heading on the attrition and engagement front with our members right now.
Perfect. That's incredibly helpful best of luck going forward.
Thanks, Alex.
Our next question is from Simeon Siegel of BMO.
Please go ahead.
Thanks, Good morning, everyone hope, you're all doing well.
Good morning, good all the color. So I appreciate all the color and nice to see the acceleration Tom's view nuance if I can just given the moving pieces any help quantifying how do you expect center op expense to look over the next several quarters, maybe the same question on rent given the potential lift in sale leasebacks and then you add color on G&A and marketing as well just that.
Was a little higher with the share based comp and non operating so any help on those three line items given the moving pieces over the next several quarters. If you are willing to.
Thank you.
Yes, so yes.
Center Ops perspective, Youll continue to see.
Continued improvement in our center ops margin.
Starting in the third quarter and fourth quarter again, as we've talked about the investments, we're making here. So I expect to see incremental improvement in second quarter, and then more improvement in the third and fourth quarters as we grow that membership base base back and get the leverage on our fixed cost base on the rent piece of it.
I expected us to be around 13% of revenue.
When we if and when we close on the additional $500 million of sale leaseback. If you assume we do that towards the end of the third quarter that moves rent expense for the full year up to about 13 and a half.
<unk> and adds about an incremental $10 million of rent expense for the fourth quarter and then on the SG&A front same thing as we continue to get into the back half of the year and as Bryan talked about we will continue to get more leverage on our SG&A base. We're at the point, where we do not need to add.
Any more.
G&A costs into the business that we can leverage our fixed cost our SG&A base that we have and on the marketing front really pleased with how we're dialing in.
Our marketing spend we've really become more efficient and it we reduced certain areas of marketing spend that we didn't see as effective and we're investing in those areas of the experience of the clause band on social media marketing to make sure we're getting the message out there to prospective members about what lifetime is about <unk>.
Providing.
One of the tailwind of our execution is that.
Based on the heavy heavy.
Eight times a month promotional.
<unk>, we used to do pre COVID-19.
Believe that approximately 10% of the memberships sold then was based on just the intensity of the.
Sure.
Promotions marketing and.
Selling process that was basically very very non sticky customer they were sort of being.
<unk>.
Hustle to come and join membership.
Where I hated that when we had the opportunity to take it out during the Covid period, we took it out.
My anticipation is once all dust settles as I've told you guys. This during the roadshow as well consistently when all.
Settled.
We expect our all time retention.
Be about a 10% better than what it had been before.
Theres just a natural.
Hmm.
Byproduct of what we are not doing.
And so the customer who is joining lifetime today.
All the literally 28 30000 people joining every month.
We are just coming in and joining because they want to engage in lifetime Athletic country club in the programming that we're offering in the classes into summer camp in all the different things that we're doing.
So it's all being done naturally nothing is being there is no gimmick, we're not spending $300 million a year in advertising by some other folks.
<unk> bullshit sales and then have a dropdown it is 100% natural and authentic.
So our expectation directly answered one of your questions is that we believe the retention should be about a 10% better and as we have the bulk of it is what Tom is basically keep explaining the bulk of our heavy.
Cost infrastructure is already in place. This next.
This next $100 million $120 million of.
Revenue that comes in on a quarterly basis.
It should be largely.
Two thirds of it.
Should be translating into incremental.
EBITDA because the fixed cost is already covered.
The total cost of that incremental revenue should be about 30, 35%. So we are going to have we're going to we should see a natural margin improvement as the next layer of our revenue was coming in is that helpful.
Yes, that's great. Thank you and then what I was hoping to get your perspective on sorry, if I missed it I don't think I did but obviously, we have connected fitness in a different situation maybe than what we had spoken last year. So any thoughts are you seeing any survey work people are coming back.
Trends across the Guestroom. So you guys don't listen.
I've told you this before the connected fitness.
Got a little boost from Covid.
And the transformation is the customer.
Some customers are in the habit of not giving up on home and getting under Biochar treadmill.
And they get their affluence enough they get their social connection and all of this stuff our business model is radically different.
It's everything is everything that you need to have from social standpoint programming leagues clubs groups.
That business never goes away if it's done executed correctly now some customers are doing.
Some of their work out at home and some may be just have gotten in the habit of just doing it at home, but that is done and over from here going forward youre going to see the natural tendencies of human being play out again.
We are creatures of habit.
But for those people.
Who.
Have a home piece of equipment or two or three in.
All of this is going to take us come in and join.
One of our pickle ball programs getting that social community. They may still do their stuff at home, but they also joined the club we never saw.
Connected fitness pre COVID-19 as a threat and we had no no.
Data no facts supporting that that was actually affecting our business negatively it wasn't.
<unk>, just basically shut us down so pushed everybody there everybody who would want to be back into the social environment has come back so and what I tried to explain is the only thing sometimes I worry about you.
As the analyst is that you expect all corporate period is over all of the members should come back.
It doesn't work that way in subscription business. It takes two to three 4%.
Of your total bank will rejoin doesn't matter how good of a months you have it just takes time, but the trends are supporting so we we.
Feel however that the.
If you look at we will launch our new platform next month, which should basically largely the digital lifetime experience that you see today, but on a completely new chassis allows us to increase the subscription.
10 X 20 X hundred acts without having any glitches in our program.
We see gradually more people with small number for the year 50 people in a day signed.
Signing up for our digital program, who we look at that these are people who know the lifetime brand. These are the people who will pass members now they're a little further away they want to stay connected.
And then we see some in other markets naturally.
At some point as I've told you guys, we will press on on our digital.
Membership as well.
But it's mostly subscription and branding.
Not going to be meaningful revenue structure eventually all of that can be given digitally.
It will be given for free because some company like us.
We have we're going to be able to stream to 3000 classes of all kinds.
That week and it's simply the byproduct of what we are executing in our clubs. So we are in a perfect position with that never been threatened by it never will be.
Perfect. Thanks, a lot guys best of luck of the year.
Thanks.
Our next question is from Chris <unk> of Deutsche Bank. Please go ahead.
Hey, guys good morning.
It's been a lot of focus right over time on getting legacy members up to.
To a new price point, but I actually wanted to ask about the new join rate and it seems like you are having pretty good success there.
Do you think you can do more on that new join rate do you think you need to do more year from now whether that's to offset some of the inflation or just an opportunity to.
Continue to price up how do you think about about the new members and pricing elasticity.
We have significant room.
Right now.
We changed.
35 clubs prices yesterday.
10, Bucks 15 Bucks for the new joins and we saw zero impact in how many people signed up yesterday.
So we don't have we have as I've mentioned before for the experience. We offer many clubs are still wild fully under priced for what the potential is for that we are continuing to test.
Execute Washington results and make adjustments as necessary, but the short answer is plenty of powder left for making those adjustments for the future year.
To your other point about cost increases in our expectation the bulk of that.
Increases already.
In our numbers, we have a much bigger utility.
Cost this year as it costs due to the energy cost and we are we've already plugged into our numbers.
We already have.
Plug being significantly more dollars for the classes that we will teach incrementally all of that stuff is in there.
I don't think I think the upside is way more robust than the incremental <unk>.
Cost.
Headwinds.
So.
Again, we are we are in the sweet spot right now.
We're seeing the revenue grow nicely, but the EBITDA grow significantly steeper than than that because of all that we've just mentioned to you. So <unk>.
Second quarter, there wed love to just get to the point, where we can be back at this call with you guys in telling you guys, what we've been able to learn.
Communicate that with you during this next quarter, there, but I think results will be great.
And then.
And then the real lead time, where I feel like we need to see the leap stage of our.
All the hard work all of the different initiatives programming that we put in place. It's really is designed to make sure as I mentioned before.
Just in time for for that is that by July August we have enough are there reasons for people to be in our facilities to make sure. Our membership membership counts continue to grow so.
All things are all hands on deck all the team is working extremely diligently and in alignment.
Customer response is fantastic.
Sure.
So we just have to.
Let it play itself out.
And just see hopefully every month the company generate more revenue and more EBITDA.
Four four.
The foreseeable future.
Yeah.
Ladies and gentlemen that concludes the Q&A session I would like to hand back to management for any closing remarks.
Great. Thank you Irene. Thank you everybody for joining us today, and Brahma and I look forward to speaking with you soon have a great day.
That concludes today's conference. Thank you for joining US you may now disconnect your lines.