Q2 2022 Life Time Group Holdings Inc Earnings Call
Good morning, and welcome to the Lifetime Group Holdings conference call to discuss financial results.
In fiscal quarter. Thank you. Thank you too.
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 group protection at the school in whole or in part is not permitted with oxygen localization 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 could 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.
Is that the company will discuss certain non-GAAP financial measures, including adjusted EBITDA and free cash flow before capital expenditures.
This information along with reconciliations to 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 all the basic relations section of lifetime Sweet spot.
On the call from management today, Oh, God, <unk>, founder Chairman and Chief Executive Officer.
Tom Burke.
President and Chief Financial Officer, I will now turn the call over to Mr. Al Qadi. Please go ahead Sir.
Good morning.
It is great to be on this call with you today.
We're happy to report that lifetime is growing back steadily.
In the second quarter their revenue grew 42, 7% to $461 3 million from $323 2 million.
Year over year and from $392 3 million in the first quarter there.
Adjusted EBITDA in the second quarter grew to $63 1 million from $4 2 million year over year and from 40.6 million in the first quarter there.
Clubs in the states that emerged from pandemic early and where we rolled out our strategic initiatives, such as Texas, Colorado.
North Carolina, and several others have recovered nicely and already surpassing 2019 monthly dues.
The revenue levels.
We expect to see many more of our clubs surpassed 2019 monthly dues revenue levels as we complete the nationwide rollout of our strategic initiatives and continue our relentless focus on executing these programs to refresh your memory, our first strategic pillar is investing.
In our athletic country clubs programs and performers to drive revenue and profitability to do that we're driving for major initiatives small group training Aurora community.
<unk> personal training transformation and pick up all the rollout first small group training.
We have increased from an average of 15 small group classes per club per week to approximately for the currently.
Over the next six months, we're driving participation and performers certification.
With the ultimate goal to get to around 100 classes per club per week in 2023.
So there is still tremendous opportunity for growth in membership and revenue here.
Aurora.
Alright Rural community did not exist a year ago. Since then we have created the brand around dedicated active aging programs and a growing community since creating these systematic branded programs at the beginning of the year our membership in the 55 plus age group.
Have increased by approximately 12000, and we expect to add an additional 13000 by the end of the year.
Third dynamic personal training.
Dynamically engaged personal training is.
A transformation in physical in person training and it's designed to be an experience that cannot be replicated digitally and remotely.
Since our last call the concept brand development and certification of our team has been largely completed.
And we have just launched D. P T on August 1st.
We see a tremendous opportunity to grow our personal training revenue with this transformation. We will report on our progress on V. P T. In.
In the quarter Theres still come.
Finally last but not least pickle ball lifetime is uniquely in a position to be the national Pickle ball brand leader.
In this incredibly fast growing sport.
We have the real estate and the space to accomplish this because a very large footprint over athletic clubs across the country.
We have already established more than 235 dedicated courts and expect to have nearly 450 by the end of the year and more than 600 by the end of 2023 will complete local regional and national programming using our lifetime App.
Participants can easily find and book courts, and getting involved in mixtures leagues and tournaments and we have seen monthly participation grow from approximately 10000 to more than 40000 in just the last six months.
Of these numbers 12000 are unique participants and growing.
As we invest in our business to drive revenue and profitability.
We're also actively monitoring the macroeconomic environment and managing.
Our business to minimize the impact of the recession.
And high inflation environment.
<unk> has had and we expect it to continue to have a short term impact on our margins and construction cost until prices have settled Tom will discuss this further.
The Great news is that we believe we have so much headroom.
An additional opportunity to gain membership and revenue as we accelerate the rollout of the four programs I just mentioned.
I believe our future performance is in our control and we can continue our growth and overcome the negative impact of macroeconomic environment, albeit not as fast as we would like.
On our last call. We also discussed our continued transformation to a more <unk>.
Asset light business.
Our first priority as I mentioned was maximizing the revenue and return opportunities in our existing clubs by investing in the programs I highlighted.
This is the most asset light investments we can make.
And we have been busy at work on implementation we're accelerating.
Our effort now that we have proof these initiatives are working.
Second.
We mentioned sale leaseback to make the entire enterprise more asset light, we have entered into a definitive agreement.
For the sale leaseback of five properties for.
The gross proceeds of approximately 200 million with cap rates similar to what we have achieved over the last several years.
And we have some more discussions underway to complete.
Another $300 million of sale lease back by the end of the year.
Third our brand equity and reputation with developers are bringing us more asset light growth opportunities than ever before.
Finally, I'm looking forward to the Q&A and the future opportunities to demonstrate but lifetime can accomplish as a healthy way of life company now I will turn it over to Tom.
Barometer and good morning, everyone I am pleased to share a few highlights from our second quarter results and then discuss our outlook for the remainder of the year before turning the call over for questions.
For the quarter total revenue increased 43% to $461 million driven by strong increases in both center revenue and other revenue total center revenue increased 41% to $446 million and was driven by a 42% increase in membership dues.
And a 38% increase in in center revenue.
Average revenue per center membership for the quarter increased to $639 from $525 in the prior year period and $580 in the first quarter and.
And average monthly dues per center membership increased to approximately $157 in the second quarter compared to $132 in the same period last year and $145 in the first quarter of 2022 as we discussed on last quarter's earnings call We Act.
<unk> to see average monthly dues per center membership increased to the 150 to $160 range by the end of the second quarter and we were right in the middle to upper end of that range for the quarter.
The year over year and sequential increase in these metrics reflect increased member spending with our in center businesses and the continued execution of our pricing strategy.
On a same store basis comparable sensor sales increased 36%.
Center memberships increased approximately 10% to just under 725000 as of June 30th compared to just under 658000 at the end of June last year and approximately 674000 as of March 31 2022.
We expected to add around 50000 net center membership in the second quarter and slightly beat that with close to 51000 net center memberships.
Total operating expenses during the second quarter were $440 million. This included noncash share based compensation expense of $6 million and a one time gain of $21 million related to the sale leaseback of two properties in the quarter.
Excluding these items total operating expenses increased 29% to $455 million.
Center operations expense was $280 million and included just over $600000 of noncash share based compensation expense excluding share based compensation expense center operations expense increased 27, 3% due to increased staffing required.
By our strategic program investment and increased usage of our centers by members during the quarter as compared to the prior year period.
Our GAAP net loss for the second quarter with $2 $3 million compared with a net loss of $76 4 million in the prior year period.
Excluding share based compensation expense and other nonrecurring items, our adjusted net loss improved to $7 $7 million from $73 5 million last year.
Adjusted EBITDA increased to $63 $1 million for the second quarter from $4 $2 million in the prior year period, and approximately $41 million in the first quarter of this year showing strong year over year and sequential improvement.
Our liquidity position at the end of the second quarter remained strong with cash and cash equivalents of $61 $3 million and only $30 million in borrowings on our $475 million revolving credit facility.
With the addition of $500 million of sale leaseback gross proceeds that we are targeting for 2022 <unk>.
Including $200 million in October and an additional $300 million planned before the end of the year, we expect our liquidity and financial flexibility to continue to strengthen throughout the remainder of 2022.
We also showed nice improvement in cash flow during the second quarter with net cash provided by operating activities of $71 $3 million compared to $25 1 million during the same period last year.
Now turning to our outlook as.
As we highlighted last quarter and Brian mentioned again today in his remarks, we've made a number of investments in the first half of the year to drive membership and revenue growth. We remain focused on executing those investments across all of our clubs, while also driving center efficiencies and expense.
Control, while the macroeconomic headwinds around inflation and consumer spending caused us to be a little more cautious in our outlook for the second half of this year, we feel very good about the overall momentum, we're seeing with our business and our positioning as the definitive leader in healthy living and healthy aging.
Our outlook includes the following assumptions and components.
The opening of four new centers during the third quarter and six new centers during the fourth quarter, bringing our 2022, New club opening total to 12.
Given the timing of these openings and normal seasonality, we now expect center memberships to decline by a few thousand units during the third quarter and increased by a few thousand units during the fourth quarter, resulting in flattish center memberships in the second half of 2022.
Please keep in mind that we normally lose memberships in the back half of the year. So this will be a significant improvement compared to the second half of 2019 when center membership declined by more than 16000 unit.
We expect average monthly dues per center membership to remain in the 150 to $160 range for the remainder of 2022.
We anticipate pre opening expenses of approximately $12 million for the full year of which approximately $8 million will be incurred during the second half of the year compared to just $4 million of Preopening expenses during the first half of 2022.
The additional $500 million of sale leaseback transactions, we expect to close on during the fourth quarter will result in total 2022, GAAP rent expense of $245 million to $255 million. This.
This includes approximately $40 million of non cash rent expense for the full year of which approximately $23 million will be incurred during the third and fourth quarters.
Assuming the completion of $675 million of sale leasebacks in 2022, we will exit 2022 with an annual run rate for rent of approximately $290 million.
Given these assumptions the continued investments in the key initiatives, we discussed and expected macroeconomic headwinds we expect to.
Total revenue to be in the range of $490 million to $510 million for the third quarter and one 8 billion to 185 billion for the full year 2022.
Adjusted EBITDA to be in the range of $65 million to $75 million for the third quarter and continued sequential improvement in the fourth quarter, resulting in $250 million to $270 million for the full year of 2022.
As <unk> said since the start of the year. Our objective has been to continue to build momentum throughout 2022 in order to exit the year on a run rate that support the strong 2023 <unk>.
As with the last couple of years 'twenty 'twenty. Two has continued to throw a curve ball, but we have stayed the course and building elevated experience in executing our strategic priorities and we are confident in the continued growth of our business.
With that we will turn the call back over to the operator for Q&A.
Operator.
Thank you at this time well be conducting a question and answer session.
Good question.
And then one on the Tencent keypad.
A confirmation tone will indicate your line is in the question queue.
It might be starting to see with watchman is a question from the queue.
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Next question is from Brian Nagel Oppenheimer. Please go ahead.
Hi, good morning.
Good morning.
Thank you for all the detail on the call nice results.
Couple of questions.
First off don't look a lot of a lot of consumer companies now we're talking about macro pressures. So not surprised to hear you mentioned as well, but the question I have if you look at the business.
Particularly the recent trends and maybe even what's happening into Q3.
Where are the where are the macro question, where these macro pressures really.
They identify themselves and are you seeing something more anything geography geographically a more segmented within your business and then the second question I have belonged you laid out a number of you talk more about number of that being said our initiatives.
Could you talk more if you I know it's early in these programs through what Youre seeing as these are rolling out in terms of your membership growth or maybe a reduced churn.
It should tie directly to these programs you're implementing.
Absolutely I'm going to let Tom take the first question, Brian and I'll take the second one yes, Brian just quickly on the macro environment and the inflation that the.
The country is seeing that we're seeing in our business.
That's the biggest headwind we have seen as we still continue to experience labor inflation in our business like everybody else.
But you know.
It was 8% to 9% last year and year to date, I am running 4% to 5% labor inflation. So it's in the summer time, we hire a lot of seasonal employees and we saw some inflation in wages here throughout the summer season, and then we continue to see inflation in other parts of our business as well and our cost of good.
So that if you look at our food supply with chicken and avocado as good examples.
So you know we just continue to see that inflationary pressure on our business at the same time, we have.
Talked about on past calls we've taken a number of good cost reduction actions to offset that to the greatest extent, we can so by.
Dining our sales roll into our member concierge roles as well as passing on credit card surcharge fees, we're taking a lot of proactive actions as well to offset a bunch of those costs. So still continue to see it almost like every other every other business out there, but I think we're doing a lot of good things to try to.
And to add to that Brian as Tom and I have mentioned.
We literally had not focused on cost measures that much.
During 2022 first half our focus was really to get the.
Memberships to this critical point that we've gotten to at this point.
In the first half of the year and there are tremendous amount of opportunities.
In thinking about how.
We run the business sort of between the clubs and the corporate office there is still some opportunity to pickup to offset.
Additional pressures that may come.
From inflation et cetera. So again, we don't ever think the world will be always great.
We are always ahead of it and thinking about how we can mitigate these challenges as far as the programs you asked.
Uh huh.
Yeah.
Frankly, there's been a lot.
We have rolled out these programs we have two concept them we have to brand.
We have to create the expectation and then go out and try to roll them out.
And a couple of things you know some clubs.
Just more eagerly jumped a.
Jump forward then tried to.
Perform very well and some clubs and a little slower and some of it has to do as I mentioned on the call.
Very much to do with the.
The depth of the closures and restrictions is taken those clubs at a little longer time to just wake up.
Back to normal before they can roll things out.
So the great news is though is where we have these clubs.
Executing these.
Initiatives, even like at 50%, 60% not even a 100% yet.
The membership numbers dues revenue numbers in all of those clubs are beyond 2019 numbers.
We are very very confident.
That pressing on right now.
And rolling out those programs very consistently.
Across the country in the next four to six months is the most critical thing that we can do we already have clear proof that theyre all working the increased membership from pickle ball or our revenue growth right now in PT is just starting to launch.
From a DPT program, we've put in place.
And of course small group training has tremendous opportunity.
We can have two to three times the number of classes that we have right now.
Per club per week bye.
By this time next year, so and that is continued growth of subscription and revenue for the company. So we have a lot of our.
Cards in our hands to play yet and.
And I am excited them our team has focused their dedicated and I know that everybody wants to win here and we don't want to let.
Anybody down so that's we feel really really good about that.
Well I appreciate it thank you congrats again.
Thanks, Good luck for the balance of year.
Thank you.
The next question is from John <unk> of Guggenheim Securities. Please go ahead.
I wanted to start with.
How do you think in the with this backdrop.
The progression of your pricing initiatives.
Right do you go slower.
Take a little more time to look at the reaction have you seen any reaction.
And I guess sort of tied in with that I know you guys are obsessive about your NPS scores.
However, they looked and does NPS ever get impacted by pricing or it never does it's all about the experience.
No. The NPS is completely independent experienced than ours has been consistent.
We've got the improvements in it and it's right around that mid <unk>.
Right around 50 range point, it's very very consistent.
We look at the end of the day, the customer that is coming to lifetime.
It is not the customer that goes to the low priced gyms. This customer is if they want it priced.
They would have gone there already there would have never been in our doors, what we can do to maintain our customers deliver deliver that high level four seasons Ritz Carlton exquisite service, what we can do to chase them away is not do that so.
The price really we've been very methodical. It's also not complicated it's not like you are making a mistake that you can correct.
And adjust our price Steve It works if it doesn't work you can take it back down five bucks or 10 Bucks. It hasnt been an issue at all we have as we told you we eliminated all promotions. If you guys noticed there has been none all this that since we told you a year and a half ago, we haven't ever done a promotion.
We're not selling we're just helping assisting people buy memberships and the membership units are literally as good as they've ever been so with the higher prices and no sales or no promotion. So so far we're seeing no indication that our strategy is not working well.
Just need to implement the programs I mentioned to you or you know more more decisively across all of the club consistently.
And then maybe number two right.
The revenue guidance change was not that substantial EBITDA was.
So.
I guess you can put it in two buckets right.
Costs are inflating at a faster pace than you thought versus have you pulled forward any investments right that you were thinking about for <unk>, let's just do them in 'twenty two if you put it in those two buckets.
And how would it break out.
In terms of the EBITDA reduction.
Yes, John .
The change in guidance and EBITDA for the year I think I think you are setting it up are characterizing it well as Brian said, we're making heavy investments in the strategic investments this year more than $25 million of additional operating expense from these strategic initiatives this year, which again we've been <unk>.
Focus on driving memberships and revenue and making these investments to set us up to leave 2022 to deliver a very strong 2023. So we're going to continue to make these investments heavily into the third quarter, but at the same time, we're going to start really focusing more on expense control and sand.
Our efficiency to drive some of these efficiencies to offset some of these investment. So yes. This was a big investment year for us, but I think it positions us extremely well to come out of 2022 in a great spot.
To drive 2023 through good resolved and now that we have the as I mentioned to you we have the clear indication programs are working as intended.
Now we are we have to go from 35 classes a week on average in the club for the classes all the way up to eight.
80 to 100 classes a week.
When you roll out all of that payroll to get the classes going on.
That that comes first and then comes the membership behind it.
The same thing with drilling programs for pickle ball or all the other things. We're doing there is an investment upfront that you got to get the program in place you have to build the schedule you have to cover all of that cost and then you get the membership revenue coming in but look.
We are clear ahead that we wanted we wanted based on the number of clubs that we have opened by end of the year I would like to have the membership count up another 10% from where we are now. This is the access membership in order to get that happening we have to execute all of these programs.
In <unk> <unk>.
Very consistent.
And robust fashion.
So that part of that.
Conservative approach on the EBITDA is that we are allowing the room for the investment for those programs. So that we can jump off of the December .
Run rate into the January in a position that gets us to the to where we want it to always be for 'twenty 2023 in revenue and EBITDA.
Thank you.
Yeah.
Our next question is from Matthew.
Bank of America. Please go ahead.
Hey, good morning, guys I just had a few follow ups on the first two questions.
The first one is just given it sounds like these initiatives.
Our working.
Great.
How should we think about the long term EBITDA margin say per center with all of these programs these new programs.
A higher incremental cost it sounds like they would continue into next year.
Beyond.
Do you need to cover all of these programs over time do you have a longer term expectation of either higher membership.
Or higher prices to get back to the kind of EBITDA margin profit targets per center that you would have normally had and then I have a follow up question.
Great question, Let me I'm glad you asked let me explain.
So when we add.
A.
We added robust class a class that is good enough.
Ads.
Just basically has the full participation with a wait list that class.
Is significantly higher margin revenue at the end it generates so many so many swipes <unk> generates subscription is mathematically run.
And we know some of the niche programs can have as much as a 60% 70%.
Sort of a margin once once they are rolled out.
Completely working so initially they cost more ultimately as I mentioned, Tom mentioned in the early part of our conversations. These investments are then the lowest.
Most asset light investments, we can make because what they actually do is they create.
<unk>.
They create a much higher revenue per cost initially is just cost deny pay 75 bucks or $100 for a class, but ultimately.
When you run the math is about a $35 40% margin on that so.
On cost on that 65% margin, so, but it's going to take time. This is all im saying to you and we are we are in a great position financially, particularly with the sale leasebacks, we will continue to manage our balance sheet. So that we have.
Our revolver to more or less unused so we have plenty of bullet to do the right things to continue to elevate and build the brand so theres virtually no.
But I have I have full confidence that these programs will generate a better margin for 2023, then a lower margin Tom yeah.
Yeah, Ravi I think I think.
Reiterate a couple of comments I think you have to think about the lag in membership growth. So this has been the year to make the investments. We know it was going to take time to market. These investments and grow the membership base, but remember next year. All of this will be a high high leverage of my fixed cost model and my flow through will.
<unk> very strong on the incremental memberships that I'd pick up next year, which will help start driving that margin expansion later this year and into 2023. So we're just in that lag between building the programs the scheduled the social events and so forth. So we need to make all these investments and then the membership will continue to be.
And that will get my flow through in my margin improvement spin.
Specifically as you think about long term I still see this being.
Around a 20% EBIT margin business and then you think about rent expense running in that 13% to 15% range. Yeah. We still look at the business and we run the business on an EBIT dollar plus rent base.
Basis. So we wanted to look at how the operations are performing absence of any financing decision of how we run the business. So when you think about around a 20% EBITDA margin plus the incremental rent expense, we still see the EBITDA plus rent margin getting into that low low to mid <unk> longer term.
<unk> for this business, where we've been historically I'm going to add to that too we have a pretty extensive.
Operation in our corporate office, and we are spending tremendous amount of money and we have been on the technology. This last several years and we're continuing to spend that however, as we scaled the company up there is absolutely no reason to have a proportional increase.
In our overhead.
When we have 50 60 more clubs clubs running we can do it with the same technology. We have today, we can do it with the same corporate office, we have today and in fact, we've been mitigating the cost of the corporate office.
But most of it is going back in the spending in the in the technology that we have been focused on but but all in all.
Think our margins should improve there. So there is no reason for them to to go backwards.
That's that's really helpful and just a quick follow up on the memberships I think on whole membership I think came down versus pre COVID-19 levels was that a bit.
And maybe any other color on.
But what the with with the kind of thought that the <unk> memberships, which normally wouldn't be up but I think you guys have one thought third quarter memberships could be up sequentially. This year is the what's the dynamic of retention.
Members.
Versus new members coming in on these programs you are doing and also did on hold membership to kind of help or not help the membership numbers this quarter or for <unk> do you think.
Yeah on hold memberships weren't werent, a big factor in the quarter.
I would call abnormal in summer, we get many people coming off of hold up for the summer season. So I wouldn't play that was a major factor during the quarter during the third quarter. Initially we thought we'd be slightly positive.
On last quarter's call now I'm, telling you where I think we'll be down a few thousand units in the quarter, which typically in 2019, we lost 16000 units in the back half of the year or so.
This year I think we'll be down just a few thousand a lot of that is due to some of these investments in the programming like if you think of Aurora, our active aging, we're seeing much lower attrition and nice gains in our older members at the clubs so I like what what I'm seeing there.
But we also had some club openings that I thought we were going to happen earlier in the third quarter that got delayed for various supply chain reasons, a few weeks or a couple of months. So I actually I'm opening clubs a little later in the third quarter and more in the fourth quarter in the third quarter. So that's what's also driving that a little.
A different perspective on the third quarter, but again the back half of the year with the 10, New club openings and the trends we're seeing in the business I think will be flattish on memberships, which would be which would be very successful for the back half of the year.
That's great. Thank you very much.
Ladies and gentlemen, just a reminder, if anyone would like to ask a question Youre welcome to the Star and then one on <unk>.
Question is from Brian <unk> of Morgan Stanley . Please go ahead.
Okay.
Hey, good morning, guys.
Just maybe a more basic question is is some of the investment in programming that you're doing is that to get you back to where you were kind of three years ago. Just on a number of class basis on kind of a range of class basis or is this really kind of above and beyond where you have been historically.
And how does that kind of drive your confidence that that will bring all these new members and as you think about 'twenty three.
Yeah, Let me let me explain the we we.
Have a completely different program than pre COVID-19.
On our small group training and so what we call. The S. G. T. S. G. T is different than our large group group fitness classes like the yoga strike, though those were always part of the dos et cetera than we used to sell small group packages.
8% to 12 people would be in Oh.
Alpha class or some sort of a group training program together it was part of our P. T program.
And it was two separate fees basically you buy the membership in the club and then you pay $150 $60 incremental.
Per month for doing that so many sessions of goes.
It was well it was cheaper than our personal training hour for a person who has like a fourth of that it was really a cumbersome system. So this company's strategy basically was to develop an easy easy way for the customer to engage in that.
Small group training, so that we basically have an answer to any kind of boutique near the clubs. So we invented the what we call the signature memberships some clubs.
$249 $200, a month $2 19, whether the clubs are more expensive locations. The signature membership basically is other magically included and cheaper to clubs where the membership is maybe 119. This signature membership was 169 or $1 79 are with that.
Fully insured membership they get to go to this small group training just like they would go into any boutique they can participate to all the classes. They use the app is super easy.
While we May have had like 14 15 small group classes in a week.
Our club right now we're between 35 to 40 and Thats. The number that I mentioned to you we will be going all the way up some clubs are at 70.
And the results are amazing when we're going to get to about 70 to 180 to 100 across all the clubs. This is incremental not in.
In the past and average club was doing about 100 classes of large group.
Per week that also includes that is that that's not that's unchanged and remains.
So the memberships associated.
The swipes that come from a small group.
Training all of those memberships.
Ultimately I think is four to 500 minimum membership per club.
The program is running it could be as much as eight 900 participants that are going into the club using this small group training.
And it will be an incremental way of getting memberships that you wouldn't have gotten otherwise. So ultimately we have re rigged the business.
To emerge out of the pandemic.
And basically have the membership the other part of the business that we have made up for so far and it's kind of hard for people to understand is prior to even though our business model to use model. We basically most we want our customer to use the club and then use the club they have lower attrition, whereas you.
Look at the <unk> model, that's a non use model they sell memberships to 125% of the people who use the club the rest of them are not using the club.
It's 10 or 15, 20 Bucks a month, they keep paying their dues.
Our focus is to get the people using but despite that prior to beginning a pandemic.
Almost 18 19, 20% of our members who were paying dues did not use the club in the past 30 days.
When pandemic came and it's lasted as long as it was on three weeks four weeks ended up for eternity more or less.
Most clubs like like like a high end clubs lost that member who was paying and not using <unk>.
When youre, bringing the business back you would have to invent everything you would do to make up for those.
Members, who would pay for the club and not use it we've done that and we have many many clubs right now that did dues are actually significantly.
Ahead of 2019 dues because of these programs are in running robustly, the market's open sooner or combination of those things but.
We are confident right now with Otis strategy that we have reiterated the business.
For today's environment, not pre COVID-19 environment.
And making up for all of those things and we can see a clear path.
To getting majority of our clubs.
Above 2019 revenues and margins.
Okay. Thank you for that yeah.
And if you think about the clubs that are not as far along on that path.
To recovery is that largely driven by what you were just talking about you are not as far along and in that new programming and those investments do you think that there's still more of a kind of a geographical explanation for some of those things I think we know that like work patterns. For example are still quite disrupted and there's kind of been slow to come back which.
As impacted other companies that are.
Operating in places like New York, or Chicago, or Boston for example, what do you. What do you think are kind of the main drivers in those clubs that have been slower to recover yes. Great question I think the markets, where you have dependent on workforce for your membership those are going to be.
Unbearably difficult and Luckily, we only have like three or four clubs that they are affected like that out of 160. So we actually have no excuse.
I mean again, it's just three or four of our clubs that you can see it's it's damn near impossible to get.
Get them back to where they used to be unless the workforce comes back into work force is just not there, but we again, we have only three or four it's no big deal.
And I look at our company and I just want to make sure. We're not the kind of organization that uses every excuse external excuse.
As I've mentioned repeatedly.
We have had markets where the.
The market basically we stayed close to long restrictions were too long.
And the clubs, we're more sleep and the organization in that area is just literally like the <unk> sleep it takes them longer to shake them, a week and then rollout the programs.
And part of it is our own execution I mean literally I can just tell you we were not perfect. We are working our butts off but the reality is in some of the markets. Some of our areas are just behind what would have been possible and right. Now if you were in the four walls of our company.
You would see that we are driving consistency in execution across the board as the number one topic every day every week and I believe the next three or four months is going to be an amazing opportunity for us.
To get everybody caught up to the same levels.
Thank you.
Okay.
Our next question is from Simeon Siegel of BMO capital.
Please go ahead.
Thanks, Good morning, everyone hope, you're all doing well and have a nice summer.
Well the pricing.
Well the pricing is going can you just speak to how youre going to make sure you're watching or listening to the members' willingness to absorb the price hikes should the environment get worse, it's just kind of help us understand.
What signals youll be looking for in either direction and then Tom just just a quick one I appreciate the full year rent guidance, what would that be on an annualized basis.
At 245, excuse me deposit gathering say I'll, let Tom, but Simeon I'll, let Tom answer that question is easy one Tom go ahead.
We're not <unk> this year, assuming we get the other the additional another $300 million of sale lease backs down to bring the year to date totaled $675 million I'll leave the year at an annual run rate of $290 million of rent expense. So that'll be that'll be my run rate, leaving the year.
Alright. Thank you on the pricing Brian mentioned the pricing Simeon is actually has not been an issue we have.
Largely what we're doing today is we look at the markets and as we have actually just like we can keep people out of the club.
So a club is at 199 right now in Edina and every time I go there I'm like this club needs to be more.
Just because we just it's getting overrun by people even at that price and it's the most expensive clubs expensive club in Minneapolis. So we are basically looking at the membership pattern. When people are coming in how fast are coming in if the memberships are so if the memberships are not growing as fast as we.
One we have to first examine are we running the programs the play correctly.
And if we're running the play correctly, if you're doing everything right in the memberships not coming in then is the price and then you bring the price down 10, or 15 Bucks, but we're watching it every day. So it's not something that is not an annual decision is another decade decision. This is day by day decision.
What we've done over the last couple of years, we've made everything easy. So it's easy for you to sign up you go online and you sign up you show up the club some of the assist you.
And we've made it easier as well for the customer to go on hold come off hold who made it easy for people to cancel so basically everything is designed from a customer point of view.
And really I don't see any disturbing pattern.
In our in our execution is just.
We have clubs are there further ahead.
And there were clubs.
Interesting like in Boston, who is particular club is way ahead of 2019 and a few other ones are behind 2019. So you can you can't blame everything on the on the geographical market decisions.
In terms of the closures and stuff, it's really execution in the teams. Our teams are doing a great job working on the overall the organization is pushing on that execution, but I don't see the price affecting us and we can make we can make super rapid corrections if necessary.
Let me just wrap it up yes, we have a lot of great data. So as Brian said, it's day to day looking at acquisition attrition trends looking at NPS feedback looking at exit interviews when members do leave the reasons are leaving looking at our web traffic and our lead traffic and what's flowing in so yeah. We look at all of those different data points to also help us <unk>.
<unk> what trends we're seeing in.
In the overall business and how our pricing strategy and how our execution is working.
Excellent. Thanks, a lot guys best of luck for the rest of the year.
Thank you.
Okay.
Our next question is from Christopher <unk> of Deutsche Bank. Please go ahead.
Hey, good morning, guys. Thanks for all the details so far.
<unk>.
I had a question on kind of the rollout of some of these programs, especially the small group classes and some of that dynamic Peter you talked about I guess as it pertains to the full year EBITDA guidance you still have a lot of rollout of these to go how confident are you that.
Youre not going to have another step up in some of the labor costs beyond what you currently envision I mean, most of these costs for the rest of the year locked and loaded even where youre still.
Building.
The classes.
Yeah, Chris I'll start I think I feel very good that I've taken a conservative approach here for the rest of the year to build then all the cost inflation and the investment that we're making in all of these different programs.
For the third quarter and the fourth quarter. So yeah, I've taken a conservative view to make sure I've built the cost down and then as <unk> said as we really push hard on DPP small group Aurora Pickle ball, yes, we will see the membership growth come through so if we can get a faster membership growth, we'll see really.
Nice flow through and have the opportunity to beat in the back half of the year given that I've already elk all the expenses.
So that's that.
The story there.
Okay, great. Thanks, Tom and then as a follow up.
Given the cost of some of the <unk>.
Rising costs to develop the new clubs, so you've talked about.
Is there any thinking on changing the cadence or scope of stuff that's going to on.
The radar to open in 2023 or 'twenty four.
Yeah go ahead, let me start so short term.
We're still committed and on schedule for the 12 clubs this year and the 11 clubs next year a lot of the more recent inflation youre seeing on the construction side really doesn't impact those projects as we had bought them out and we're already a bit out on those so really not an impact that we'll see in 'twenty two 'twenty three as we look at <unk>.
'twenty four 'twenty five and beyond we are being very smart about how we go about starting these projects, we're bidding them out slowing down projects. So at this point in time it would be too early to say what any potential impact would be on 'twenty four 'twenty five and beyond other than to say, yes, we've done a lot of.
Good thing that really slowed down if we're seeing high inflation in third in construction markets around the year, yes, we're probably going to delay a project in that market and look at other markets or other projects, where we can do it more cost effectively where labor may be more available et cetera.
Okay very helpful. Thanks, guys.
Okay.
Yeah.
Our next question is from <unk> <unk> of RBC.
RBC capital markets. Please go ahead.
Hi, good morning.
Maybe as a follow up to some.
The prior question, but I know the development pipeline and timing is planned well in advance here, but could you maybe talk about just kind of latest thoughts on long term strategy around location types, maybe specifically around geography or urban versus suburban footprint. It's clearly it's still evolving environment in terms of cost returned to <unk>.
Office.
Haters across different regions, but curious if your thinking has shifted at all around long term development focus and opportunities.
Great question again this is Brian .
<unk>.
We what it is really not appreciated.
Is the brand equity of lifetime, and what we are able to do when we opened one hour athletic resource as part of the ecosystem of our apartment building or a residential area.
So there is a substantial amount of opportunity.
To mitigate increased costs by the fact that we have a unique advantage that we bring to the table for these developers where they can get more.
They can get a significantly more rent and.
And they can get a faster ramp into their buildings.
So the lots and lots of work is being done on with different developers on.
I am doing.
Sort of a kind of an ecosystem.
Potentially brand of lifetime living which has dramatically changes the ramp and the rate of the apartment business. So.
So I think as time goes on in the blended.
Execution, which means there is some.
Assets that looks like a typical.
Development on our suburban area and then you have these other.
Tom.
But theres not going to be as much focus do we never have been never been a fan of being in a strictly office market.
So that's not that's never been our strategy. So there's no exchange.
<unk>.
In the urban markets.
Where you have.
Lots of <unk>, then that is working to our advantage as well. So we expect to continue to be able to grow.
And have.
Good margins.
From the from the better better situation from an occupancy expense because of the brand equity and wed lifetime brings to the lifetime to the table.
Got it thanks for that.
And then I.
Just for my follow up I wanted to ask about.
Staff hiring and retention I think recently, you've talked about rebuilding staff across.
Training and Spa services.
How much progress did you see there in the <unk> and any thoughts going forward here would be helpful. Thank you again.
It's working really really well, we really have to take a look and see.
How we can create a culture where.
The best talent, whether it is spa or personal training they virtually would talk amongst themselves and want to be the number one place choice for them would be lifetime, we have made significant adjustments to tiny little things that we've done in the past that may have been a pain point for these folks.
We have eliminated everything.
Typically when we go to a market and people say well how are you going to staff something we all kind of clubs and Theres still tremendous number of people who want to work in lifetime. They wouldn't work anywhere else. They want to work at lifetime from young to old. So we virtually have no excuse for that talent is not been an issue for a lifetime.
Jim.
And because of the quality of our brand and our culture I don't see it being any issue or any excuse for the future.
Yeah, Chris I'll, just I'll just add we continue to make really nice progress on rebuilding and some of these key areas. So personnel training now year to date, we've added over 400 personal trainers, including over 220 here in the second quarter and will continue to add need to add several hundred here in the back half of the year to continue to be.
Build that business back up.
Same with Bob we still need to hire a few hundred more.
Body and hair technicians to continue to build up that business as well and even things like swim instructors I have a waitlist of over 200 members right. Now we are waiting for swim lessons that were working extremely diligently to higher swim instructors as well. So I'd just point that out because it just shows we've got great demand from our members for all of these services.
And we're doing everything we can to cast as effectively and quickly as possible.
Great. Thanks, so much for the detail there.
Okay.
Our next question is from Dan.
Please go ahead.
Hey, good morning, everyone and thanks for taking my question.
Just wanted to confirm you guys have given a lot of detail already but as we think about 2023. It sounds like revenue margins do you guys think you should be able to exceed 2019 levels, but in terms of memberships. How should we think about the kind of ramp back up is that just youre, losing that 18% to 20% of members that just didn't come within the last <unk>.
30 days or how should we kind of think about that cadence over the next couple of years.
That's a great question, Dan good to hear your voice I think we.
We just laid out this strategy we are we're not.
Our strategy is not dependent now for non users to come back that business will take.
Years and years to build 18% of people paying you in and not using the club for a month.
It will take five years 10 years to do that so we basically built the strategy to make sure. We can achieve membership counts dues revenues and margins without that.
And then gradually that will come so that'll be just becomes very slow residual build outs.
But it's not part of our plan.
The programs we have.
And laid out and clearly over and over those programs executed at the inn at the levels that we intended.
I'm confident we're going to hit the membership counts. So we need for 2023, the revenues and the and the margins. So I feel very very bullish about 2023.
Okay. Thanks, and then just for my follow up I guess, it's probably for Tom but in terms of do you have one two part one do you have a target EBITDAR to rent coverage ratio or threshold that you wouldn't want to exceed in the second part I think we had penciled in maybe 300 million plus of sale leasebacks.
In 2023, so just given given the macro and also your conversations with your real estate partners, how should we think about that number. Thanks.
Yeah, Dan we can take offline the discussion on the coverage ratios and then you know as we talked about for the remainder of 2022 again, we're very pleased with having just completed the incremental $200 million and we have great discussions underway on the remaining $300 million that we're planning.
Got great relationships and great discussions with our partners for 2023 sale leasebacks.
I think it will be somewhere in that range of I would say $150 million to $300 million, depending on what we decide to do what interest rates do and so far so little early to give you any firm guidance on 2023 sale leaseback, but we will have several properties that will be opening next year that will.
Have the opportunity to take to the sale leaseback market. So we'll continue to see.
How that market develops and how our business develops over the next 18 months here.
Yes.
Got it thanks, Thanks for everything best of luck.
Thank you.
Ladies and gentlemen, we have reached the end of the question and answer session I would like to turn the call back to management for any closing remarks.
Oh, great. Thank you everybody for joining and thanks for your time and we'll look forward to updating you next quarter on the continued progress.
That we're making in all of these strategic initiatives as well as improving our balance sheet and keeping our liquidity strong over over the near term here. So thanks again for joining us today, and we look forward to next quarter.
This concludes today's conference. Thank you for joining US you may now disconnect your lines.
Yeah.