Q4 2022 Life Time Group Holdings Inc Earnings Call
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Speaker 2: Good morning and welcome to the Lifetime Group Holdings 2022, 4th quarter and full year earnings conference call.
Speaker 2: Please be advised that reproduction of this call in whole or in part is not permitted without written authorization from the company.
Speaker 2: As a reminder, this conference is being recorded.
Speaker 2: I will now turn the call over to Ken Cooper with Investor Relations for Lifetime Group Holdings. Please go ahead.
Speaker 3: Good morning and thank you for joining us for the Lifetime 2022 fourth quarter and full year earnings conference call. With me today are Brian McCrady, founder, chairman and CEO and Bob Houghton, CFO . 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.
Speaker 3: from our forward looking statements made today. There is a comprehensive list of risk factors in the company's SEC filings which you are encouraged to review.
Speaker 3: Also, the company will discuss certain non-GAAP financial measures including adjusted EBITDA and pre-cash flow before growth capital expenditures. This information, along with reconciliations to the most directly comparable GAAP measures, where possible without unreasonable efforts, are included in the earnings release issued this morning and in the company's AK file.
Speaker 4: your results.
Speaker 4: The full details can be found in the earnings release we issued this morning.
Speaker 4: BRHOM will then outline our strategies and key initiatives, followed by updated guidance for 2023.
Speaker 4: Starting with our 2022 results, fourth quarter total revenue increased 31% to $473 million, driven by a 32% increase in membership dues and enrollment fees and a 28% increase in incentive revenue.
Speaker 4: For the full year, total revenue increased 38% to $1.8 billion.
Speaker 4: Center memberships increased 12% to end the year at more than 725,000 memberships.
Speaker 4: Fourth quarter average monthly dues were $162, up 20% from $135 in the fourth quarter last year.
Speaker 4: Fourth quarter revenue per center membership increased to $640.
Speaker 4: up 19% from $536 in the prior year period, as we continue to benefit from higher dues and increased in-center activity.
Speaker 4: We generated net income for the fourth quarter of $14 million, compared with the net loss of $305 million in the fourth quarter of 2021. Excluding the one-time expenses detailed in our earnings release in both periods, we have a total of $
Speaker 4: Net income improved by $51 million.
Speaker 4: Adjusted EBITDA increased 123% to $107 million, and Adjusted EBITDA margin of 22.6% increased 9.3 percentage points versus 13.3% in the fourth quarter of 2021.
Speaker 4: For the full year, our net loss improved to $2 million and our adjusted EBITDA was $282 million. We delivered another quarter of improving cash flow with net cash provided by operating activities of $76 million.
Speaker 4: versus a $5 million net use of cash in the prior year period.
Speaker 4: We reduced our net debt to adjusted EBITDA leverage in the quarter, and our year-end liquidity position remains strong, with cash-in-cash equivalents of $26 million and $423 million in total available borrowings on a revolving credit facility.
Speaker 4: As we turn to 2023, our business is in great shape and our strategies are working.
Speaker 4: We believe we are successfully using price to optimize our club performance and enhance our member experience, driving increased club usage across our strategic investments, opening new clubs, and expanding margins, helping to drive increased cash flow and reduce leverage on our balance sheet.
Speaker 4: I will now turn it over to Baram to outline our 2023 Strategic Initiatives and Financial Guidance.
Speaker 4: Thanks Bob, I am very proud of our more than 34,000 team members and our accomplishment in 2022. Our main priority in 2022 was to grow back our revenue and adjusted EBITDA margins.
Speaker 4: and prove that our business model is intact and healthy.
Speaker 4: In 2022 we successfully made adjustments to our pricing strategy and executed our strategic initiatives of Aurora,
Speaker 4: which is our active aging program DPT our dynamic personal training model SGT
Speaker 4: execution of our small group training, and of course, the rollout of pickleball.
Speaker 4: These initiatives were critical to increasing our traffic and revenue.
Speaker 4: Additionally, we rewired.
Speaker 4: our decision-making process to have significantly less layers to get things done, which helped our margin expansion effort.
Speaker 4: We took the past three years as a great challenge and made necessary adaptations to keep LifeTime in a leading position.
Speaker 4: As I have visited more than a third of our clubs over the last few months, I am happy to report that our clubs are both busy and vibrant. There are clubs that were open at the end of 2019.
Speaker 4: January of 2023 membership dues in aggregate were 103% of membership dues in January of 2020.
Speaker 4: and are still re-ramping.
Speaker 4: As we have explained over the past several months, it takes three to four years to ramp or reramp one of our large athletic clubs.
Speaker 4: While we have already surpassed January 2020 membership dues across these clubs in aggregate,
Speaker 4: We're still in recovery period and expect to continue to improve results. In addition to the tailwind for our re-lamping clubs, we are also looking at the potential of the
Speaker 4: We feel we have significant pricing power and opportunity driven by strong value proposition.
Speaker 4: The average dues of our membership sold this year through February is $208.
Speaker 4: This compares to the total average dues of all memberships of HUBBOT of 164.
Speaker 4: Not only were adding new memberships at higher rates, each membership turn results in roughly $44 additional dues per month.
Speaker 4: In addition,
Speaker 4: There are over 510,000 memberships.
Speaker 4: that in aggregate are paying roughly $17 million less in dues per month than our current rates.
Speaker 4: Furthermore,
Speaker 4: The first couple months of the year have been very strong, and we're looking forward to the full year 2023 and beyond.
Speaker 4: I am proud to say that our brand and business model has never been in a better shape.
Speaker 4: With all that...
Speaker 4: We are setting the expectation for adjusted EBITDA.
Speaker 4: in the first quarter to 108 to 110 million.
Speaker 4: And we are raising our full year guidance to $440 million to $460 million from the $430 million to $450 million that we established on January 9th of this year.
Speaker 4: Our focus for 2023 will remain.
Speaker 4: on continuation of our recovery and margin expansion, growing or adjusted EBITDA to record levels and reduction of debt to adjusted EBITDA. We have already announced $123 million in sale lease-back transactions.
Speaker 4: So far this year we have closed on the first 33 million of that at the end of February
Speaker 4: We are well on track to accomplish our goal of 300 million of cell use backs for the year.
Speaker 4: Additionally, we're continuing to work on more growth coming from asset-like opportunities, where facilities are funded largely from landlords.
Speaker 4: Every move we make is focused on enhancing our brand.
Speaker 4: Customer experience.
Speaker 4: our balance sheet, and making lifetime stronger.
Speaker 4: Now, we're looking forward to answer your questions.
Speaker 5: Thank you.
Speaker 2: Ladies and Gentlemen, at this time we will be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue.
Speaker 2: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key.
Speaker 2: Ladies and Gentlemen we will wait for a moment while we poll for questions. Our first question comes from the line of Chris Carroll from RBC Capital Markets. Please go ahead.edded speech
Speaker 6: Hi, good morning. You previously disclosed that you expect 35 to 40% of your clubs will reach profitability maturity this year. That's up from about 15% in 2022. Can you update us on whether you still think that's the case here? I presume it still is just based on the EBITDA guidance that you...
Speaker 4: seeing the clubs continuing to pick up on their swipe, match catching up to the swipes of the past.
Speaker 4: Obviously, they are doing that at much higher average dues.
Speaker 4: The In-Center is catching up and improving, in some cases, moving ahead of the past performance as well.
Speaker 4: So I don't, I think that we still have more runway for the clubs.
Speaker 4: I think that we still have more runway for the clubs.
Speaker 4: gaining to the 2019, 2020, early 2020, prior to closure, revenues and margins, and then get beyond that as they are still, as I mentioned, they're still ramping. While our dollars have recovered,
Speaker 4: I think in terms of the opportunity to get more revenue and more memberships, more traffic, the majority of the clubs is still plenty abundant.
Speaker 4: So each month as we mentioned to you guys, you see more and more clubs, more states are getting past their past performance and then easily go beyond.
Speaker 4: And I don't know how to really reconcile your question mathematically right now, but I think it's just there's quite a bit, you know, when we said these clubs, you know.
Speaker 4: I don't, you know, I don't think the clubs when you call it mature, you know, you're talking about like they have ramped up to a level that they can't keep going. We have room.
Speaker 4: in most of the clubs that have recovered the dollar revenue, dollar margin, they still have room to gain more memberships and fill up more, if that helps you.
Speaker 6: Got it. Yep. Thank you. And then just as a follow-up on pricing, can you talk about maybe a recent reception to the pricing actions you've taken? Thanks again. Thank you.
Speaker 6: Got it. Yep. Thank you. And then just as a follow-up on pricing, can you talk about maybe a recent reception to the pricing actions you've taken? Thanks again. Yeah. You know, we've sold …
Speaker 4: tens of thousands of memberships in the first couple of months of the year, and not any resistance. It's interesting, our rejoins are still at a higher rate today than they were pre-pandemic.
Speaker 4: And there is zero resistance to the price point. The customer is finding the value proposition at lifetime. It's not the gym, it's not the, you know, it's really the variety of athletic things they do for their family, sports.
Speaker 4: So it's a social community. So actually we're getting zero price resistance and we're continuing to adjust the prices and we will see if they work, they don't. If they don't, we can easily just go back and change the price in the club for the next week.
Speaker 3: So far we haven't had to take any club backwards. Hey, Chris, this Bob just added a little more color to that. Not only are memberships up, membership churner, membership departures are actually down. The first two months are 23 relative to 22, and that's despite the fact that our average dues are up roughly $20 versus last year.
Speaker 5: Okay, great. Thanks for the detail.
Speaker 7: Okay.
Speaker 8: OK. Thank you.
Speaker 2: Our next question comes from the line of Brian Nagel from Oppenheimer. Please go ahead.
Speaker 9: Good morning, guys. Hi, Brian . Nice quarter. Thank you. Good.
Speaker 9: So the first question I have, just with respect to your cost controls and some of the repositioning of costs within the model, we've done a nice job over the last couple of quarters controlling costs. As soon as we look at the business and especially in light of improving top line from the dues perspective of membership.
Speaker 9: How should we think about the sustainability of these cost controls or another way to leverage the ability of them?
Speaker 4: Yeah, that's a great question. I don't expect us to continue to create more, more, more margin. I want to be clear. Now, as the club's revenue continues to go up in aggregate, many of the clubs are still going to grow.
Speaker 4: whose revenue, which is substantially, that's gonna add to our margins by the fact that the revenue percent is gonna grow. On the cost side, we completely rewired the company, as I mentioned. The decision-making process of lifetime.
Speaker 4: instead of going through five, six, seven different people to get an approval on something, it's now down to three. So we are basically making decisions much faster, we've eliminated layers, those are being eliminated. So that the cost isn't going to, and then we also have
Speaker 4: transition to a corporate office to a structure that as we grow additional clubs, the corporate office's majority of the office does not need to grow. So that actually allows us benefits from the scale of the company.
Speaker 4: So it should move. We're not intending to go back and cut more costs. I want to be clear. But what we have put in place should be here permanently. Yeah, Brian , just to emphasize one point that Brah made. Most of the cost efficiency actions were taken in the fourth quarter of last year.
Speaker 4: So we'll see the full annual benefit in 2023. There aren't a lot of additional cost-saving steps we need to take to see that full year benefit this year. But they're rolling through right now every month. Right.
Speaker 9: No, that's great. It's very helpful. And then my second, my follow-up question, obviously we're seeing the results track well here, but how would you, if you look at these new club, the new center openings.
Speaker 9: How are those, generally how you feel about this, how are those tracking versus your expectations versus historic levels, that sort of thing?
Speaker 4: They're fantastic. I mean, our new model, again, both in the way we're modeling the operations of the clubs, the programming. Inking,ordered, seconds, seconds, seconds, seconds and seconds, mean that the stars
Speaker 4: and the pricing of this system. We're generally opening up the clubs right now above the
Speaker 4: the business plan in our dues revenue and they're ramping beautifully so we have no issue. Generally we take a substantial loss the few months before a club opens and about three to four months
Speaker 4: that sort of a negative EBITDA from those, but within about four or five months from the time they open, they flip over and they start kind of giving back EBITDA. So we're pretty excited about where everything is going and continue to be able to fight as hard as we can.
Speaker 4: Again, as I mentioned on my remarks earlier,
Speaker 4: The business has never looked healthier, stronger than it is today.
Speaker 9: Thank you.
Speaker 2: Thank you. Our next question comes from the line of Robbie Owens from Bank of America. Please go ahead. Thank you.
Speaker 3: Oh, hey, Bob. Two questions. The center memberships fell less than we were expecting in the fourth quarter. Is that the departure rates just being a lot less, as Bob said? And based on that, was it...
Speaker 3: Can you kind of talk about the initiatives and if that played a role in that? Was it, you know, pickleball versus personal you know group training in Aurora? You know, and maybe it may be more color we would want to know like can you give us any examples like of clubs that don't have pickleball versus clubs that do is there significant difference in performance of
Speaker 4: and recovery for us under new programming DPT, and that obviously generates more customers. The revenue margins are up on that, and the number of people doing personal training is increased. Small group training is more than tripled since beginning of last year.
Speaker 4: So basically it's simple. In our business, in our company, in our particular business, on average about 10 swipes generates one membership. So we focused on what we called SSR, which basically creating swipes, giving people reasons to have to be in our large athletic facilities.
Speaker 4: We expect to, it grew massively in the first quarter there. So far, we are growing small group training significantly. We have, again, steady growth in pickleball. We are continuing to convert.
Speaker 4: opportunities to pickleball and running the programs. So, MVPT, as I mentioned, is working. So, all the programs are working, and, you know, then, you know, we usually gain membership, substantial membership in the first quarter there.
Speaker 4: seasonally and we're doing better than our own expectation, this corridor. It's going fantastic and so we're very, very optimistic about the year as we're seeing the programs that we've been initiating.
Speaker 3: follow-up. The in-center revenue growth, you know, what is this sort of expectation on in-center revenue growth in the guidance for 2023 and is there a do you guys disclose sort of the frequency driver to in-center revenue growth versus spend per visit?
Speaker 4: Yeah, so let's go through this the in center is broken into number of things the personal training Which is the biggest factor and we reinvented our approach to training and Wiring from the corporate office down the clubs up and down back and forth and it's it's just It's really working. It's working significantly better than it's ever has
Speaker 4: And I expect that to continue to grow.
Speaker 4: The second one is, you know, kids and aquatics. Our programming is very strong right now. We are getting more signups for like summer camps, selling them much earlier, so we have full, you know, full capability of seeing where we have the opportunity to expand the capacity because we're gonna get sold out in many clubs.
Speaker 4: on that to the capacity we have. So we are just sort of laying that out. The café, we are making improvements on that. On aggregate, we are way ahead of the past revenue for our café business. In the same store, I think we are close, but we are making progress.
Speaker 4: on that and I expect that to get passed. So all of our Incentors are growing. In the past, it used to be, you know,
Speaker 4: one third in-center, two thirds revenue. Once we got into the pandemic period, that number shrank some and it was more like 70%.
Speaker 4: dues, but now we gradually, as we go back and we kind of readjust the programmings that we need, I expect that number to come back up as well. And we're seeing it that is happening.
Speaker 3: That sounds great. Thanks so much.
Speaker 3: Great, thanks so much.
Speaker 2: Thank you. Our next question comes from the line of John Baumgartner from Missoula Securities. Please go ahead. Hi.
Speaker 9: Good morning. Thanks for the question.
Speaker 9: Morning. I guess first off, I wanted to come back to pricing and I think conceptually, Ram, you've been clear about the lack of resistance to price increases on the part of your members thus far. But from your perspective, for the memberships that have seen pricing already increase, how consistent are these new prices with your objective relative to what you perceive the lifetime experience to be worth? I'm sort of more curious about how you think about price versus value.
Speaker 4: from an operator's perspective. Yeah. So the reality is that...
Speaker 4: I have repeatedly admitted my mistake when we started the business is that building these massive big athletic clubs and just pricing them extremely low.
Speaker 4: really was a challenge. We saw the problems with that was A, we couldn't run the clubs with a level of excellence that I want, just a four season, which called level of quality, a real athletic country club quality. We just couldn't do it. There's too many people.
Speaker 4: beating down on the club number one and number two we just were stuck there because of the system we have with the salespeople in the company they just could not they could not react to price changes and it was just really really quonky so
Speaker 4: The most critical piece we did was eliminate the middleman, the salesperson in here, and go to a system where the customer just goes...
Speaker 4: online, looks at the product or goes to the club, looks at the product, we have member concierge both.
Speaker 4: you know in the corporate office that they do this via chat room calls etc. or in the clubs that they can show people what the facilities and people would just choose to buy or not buy. Nobody will call you back and harass you to buy a membership. I mean it's really a different approach than I took.
Speaker 4: the first 30 some years I was in this business. And we really love what's happening because there's no fear that you're making a mistake on the price. Let's say we took a club from 179 to 199 and then...
Speaker 4: The management says, oh, that's not enough. We want to take it to $229. This just happened. We take the price of $229. Assume it didn't work. If it doesn't work, it takes us 24 hours to change that price on the computer back to $219 or $209.
Speaker 4: it's not one that anybody should get some sort of a...
Speaker 4: in a fear of God. You know, it's not a big mistake. It's just basically you test and you run, works, you keep it, it doesn't. So we have had zero, zero friction with this. What's happening though is we have clubs that they were saturated.
Speaker 4: I give you like one example, South Austin, that club was saturated with membership, pre-pandemic, at dues levels were just maybe a million dollars a month or something. Now is a million, three million, four. So it really has
Speaker 4: took the lid off of the potential of our facilities. I mean, these clubs are, you know, not, as I've mentioned, they're not easy to replicate. They are, you know, 60, 70, 80 today, cost of new construction, 60, 70, $80 million facilities. You can't replicate these.
Speaker 9: digging a little bit around the phasing for 2023. The outlook for EBITDA Q1 was stronger than expected but it also implies sort of a sequential step down in EBITDA margin for the duration of the year. Are there any timing considerations whether it's new opening expenses rent or anything else that would drive that that margin moderation following Q1 or I guess is there anything
Speaker 4: Obviously, we all expect to have a bigger EBIT.com next to the Core There's.
Speaker 4: And then obviously we also have incremental cost with like the summer camps so we have big revenue also we have big you know big payroll with that. So the furthermore the reason we haven't taken the numbers up
Speaker 4: you know, more than we have for this, for the guidance increase, is obviously we are trying to be conservative in the sense that, you know, we still have kind of bogies in the world and we just want to make sure we have the ability to deliver...
Speaker 9: But that's already baked in. So no, we don't have any event to think that the margin should decrease throughout the year. Okay, thank you very much. Thank you. Our next question comes from the line of Simeon Siegel from BMO Capital Markets. Please go ahead. Thanks, morning everyone. I'll go ahead and do well. Could you guys break out the revenue lift you're expecting from pricing versus new units, new members for one Q and full year embedded within the revenue guide. And then sorry if I missed it, might just be silly. Spect timing. Did you say why rent came in 10 million last time the expected number from January and just is there any offset?
Speaker 9: Great. And then if I can quick follow up around, in terms of the seasonality comment, out of the members that tend to fall off in 4Q, what percent tend to come back? So just maybe talk about the reactivations within the term. Yeah, you know, Simeon, this is a really good question. And you are really great about, you know, kind of looking through.
Speaker 4: Now, in many times, these people are back within the 12 months and re-signing back up, right? So, a customer has a choice of going on hold for $15 a month, right? Or just dropping out and coming back four months later. Now, what they have is possibly they pay a little more in monthly dues, but that doesn't really stop them from giving up their membership and coming back. They're not reacting to that.
Speaker 4: Where we see the opportunity is for that is to actually gradually start introducing enrollment fees as we have the strength. We wanted to wait to get to where we are today, which basically, you know, in aggregates fully recovered and gone beyond. And once we have that strength coming through,
Speaker 4: enrollment fees in probably a hundred of our locations across the system. And that is the real, if there is a speed break for people just dropping out and coming back in, is that enrollment fee that will help that process. But just really, I mean, we are seeing no pattern that giving us a real concern. The customers generally love what they get a lifetime. If they can afford it, they go through a lifetime. If they can't, they go elsewhere. Great. Thanks a lot, guys. Best of luck to the year. Thank you so much.
Speaker 9: Our next question comes from the line of Dan Polizzo from Wells Fargo. Please go ahead. Hey, good morning, everyone, and thanks for taking my question. Hello, Dan. How are you? I'm well. I hope everybody is well over there, too. I want to follow up on the enrollment fees. I know you just mentioned that the enrollment fees are not going to be the same as the enrollment fees.
Speaker 4: That could be something you phase in over the course of the year at 100 plus locations. Is that included in the guide at all? Because I would think that that could be material. Yeah, it's not material because the numbers are, you know, we charge more of a pool pass.
Speaker 4: in the summer months because part of what we're trying to manage is people just joining for the pool season overcrowding the customer who has been paying all year long. So we charge a pool pass and that pool pass.
Speaker 4: basically goes into, I guess, averaged out over the several months of the pool open on the dues line. The memberships that we're selling now in the clubs that they have enrollment fee, that enrollment fee is basically gapped over the length of the membership.
Speaker 4: So, if we charge, call it $660, I'm just thinking that for a number, and the customer was a member for, I'm presenting the number, which is 33 months, we're only taking $20 of that in revenue per month for that 33 months. You know how that works.
Speaker 4: So it's really like a one, two percent number for right now. Again, it's my desire that the company gets really, really where I like it to do in terms of revenue and EBITDA generation. I would really like to have actual enrollment fee be the next.
Speaker 4: the next phase of introduction for our, that just makes the experience of a lifetime customer once again closer to a country club rather than a health club.
Speaker 4: of introduction for our, that just makes the experience of a lifetime customer once again closer to a country club rather than a health club. Interesting, that makes sense.
Speaker 9: I think earlier on the call you mentioned that memberships, the 2019 center commentary, I think you said 3% is where they're above at this point. Let me make that really accurate. So it's actually a little bit higher.
Speaker 4: relative to the same clubs
Speaker 4: relative to the same clubs are like 104%.
Speaker 4: over the 2019 January dues, then the clubs that open all the way through 2020 are 103% of the January of 2020. Now, if you remember, January of 2020, we had a robust January and February , and then the shutdown came in.
Speaker 4: March. So we have very strong January , very very strong. The best January we've ever had was January of 2020 and we were able to beat the similar clubs that were open, be able to hit that number at 103%. That's what that number is.
Speaker 9: Okay got it. Well I guess my question over around that was you know as we sit here today and you're you know your pricing is over $160 you know you know system-wide and getting those those those centers fully back I mean is that membership is that pricing is a combination of both and
Speaker 9: and what's the receptivity to those prior customers to come back at higher prices and possibly enrollment fees.
Speaker 4: Well, that's the really what we it's a business is about supply and demand, right? And we have so many spots that we can deliver in anything in pickleball in a small group, in the swimming deck, we basically have to manage that supply and demand.
Speaker 4: so that the experience becomes, this lifetime is a highly experiential company. And so we wanna make sure the experience is what we wanted and we have to adjust the pricing. As I mentioned again, we are now, if I go back, the aggregate clubs in that early part of the, that early part of the, that early part of the,
Speaker 4: 2020 before the shutdown would have been maybe 122, 124, 125 is for the new membership sold at that time. All membership sold at that price.
Speaker 4: Now, you know, it's 208 for the period we told you, you know, we've made some additional price increases. Now it's actually above 210 this month so far for the membership sold. And we are just again, you know, we can...
Speaker 4: The fear is, oh, what if it doesn't work? We can adjust them. I mean, it's not an issue. It is working. And we are seeing, as I mentioned to you,
Speaker 4: The highest percent, I mean we are getting 30 some percent of our memberships are rejoined.
Speaker 4: Prior to pandemic was 26% of a membership being rejoined. So the answer is...
Speaker 4: The customer is not even making a comment. They just go online and they sign up, they come to Club. Happy as they can be and they go about doing their business. So we are very comfortable with the strategy, the way it's working. And so go to the view, you keep asking what portion is pricing. So some clubs,
Speaker 4: So now add
Speaker 4: You know 6500 memberships when we get to that we will have higher dues
Speaker 4: higher margins, and much better experience. So some of the clubs, we basically don't ever wanna get back to the old numbers, and some we had the room to go beyond because they weren't really at that threshold of giving uncomfortable experience.
Speaker 4: So now the opportunity for them is a higher number, but also at a higher dose. So we are still...
Speaker 4: In a membership count in aggregate below the membership count that we were pre-pandemic, but again, I emphasize that's by design, by choice of change of the business model that I mentioned, all the tweaks we have made to our adaptations we've made to our business, that's one of them.
Speaker 4: every club, all the large clubs, to 11 and a half thousand memberships at maturity. The last thing I ever want right now is to get to, in most of those clubs, 7,500, 8,000 memberships is the max we would ever want the club to get to.
Speaker 4: But they're doing that today almost more than 200 plus percent of the dues revenue. The personal training sessions are more money. So it's just really the cost structure and the position of the company has changed dramatically.
Speaker 9: Thanks. I appreciate all the color. If I just sneak in one last housekeeping one for Bob. Just as we think about the rent and progressing throughout the year, is there a 4-2 exit rate for the rent expense and then on the leverage? I know you guys said four times at year end. Is there a long-term target on a traditional or at least a dose of basis we should think about?
Speaker 4: And that's all for me. Thanks. The long-term leverage, I want to have it below three. We're going to continue working on crusade of improving the balance sheet until the leverage gets under three. Since everybody is under call.
Speaker 4: That is not a leverage I would like three times that two-year-old for a company that would not have all the real estate assets we still own. The change in that, where I think under three is a very healthy number, is that at all times we are carrying roughly about three billion dollars worth of.
Speaker 4: the revenue and EBITDA to grow the margins and that will halt that number rapidly come down. And then I think Bob will get you that by the time you just can run the math, go ahead. Yeah, so Dan, on the rent piece, we've got it to...
Speaker 4: 270 to 280 million for the full year. Obviously, we'd exit the fourth quarter. It's slightly higher than that run rate since that's the guide for the full year. So something just north of that 70 million would be great. Now, but you just take our rant. We only did $33 million that we just closed in the February . We got one more schedule to close here in the next.
Speaker 4: couple of months, another one in June , July , and then we are working on the other deals that we would announce in the future. But if you assume $300 million of cell leaseback in the mid-sixes range for the cap rate,
Speaker 4: for the year and add that to where we exit it so that would give you the exit coming out of now the timing of these will be depends on lifetime the ability to deliver the product and or the you know landlord's abilities with the time they want that to go under.
Speaker 4: Call the $20 million of incremental rent annually added to our exiting rent on the fourth quarter of 2022. Thanks so much, Julie, helpful. You're welcome.
Speaker 10: Thank you. Our next question comes from the line of Brian Hobboh from Walgons County. Hey guys, this is Matt Morosan from Brian . Thanks for taking the question. Just to follow up on that conversation around membership dues versus 2019 levels.
Speaker 10: A couple months back you gave it broken down by state. You're obviously performing very well in quite a few of those states, but a couple of the core markets in the Midwest like Minnesota, Illinois are still running kind of below those levels or at least were when you last disclosed. Has that gap kind of closed? And is that mostly just due to kind of the timing of restrictions rolling off a bit later in those states or is there anything else to call out?
meet beneath investors, we file those before we go to investor conference, and then we look at every single month, more states are turning green for more inch, and the other ones are keep coming up. Our expectation is every single state will recover.
two full numbers and we'll be on. So it's just timing and really there hasn't been a situation saying, oh the world is going to be different in Michigan or Minnesota. It is not.
So the only other thing in Minnesota that's always been a little bit off is that we have one large, large, super mega club that opened in town, and that, depending on where you draw the line, that club takes
And so there's always going to a little bit off is that we have one large, large, super mega club that opens in town. And that, depending on where you draw the line, that club takes.
a lot of members from the other ones. So dilutes the message. It's very close and I think by this summer, I think we will hardly have any state that is left behind.
Yeah, so Matt, just to give context to what happened in the fourth quarter from November to December and Q4, two states, two additional states, both recovered and six additional clubs. We're seeing similar, if not accelerated progress as we've rolled into 2020. So, yeah, every month you'll see that progress happening.
Have you seen any noticeable shift given gyms are likely less crowded versus pre-COVID? But you also have some additional programming around whatever may be pickle ball, small group training, revamped personal training, etc. Thanks. Yeah, no significant change to our NPS. What's happening is we're getting a little better.
The most potent one is when the members get a letter saying their dues is going to go up 10 bucks or 15 bucks. So the legacy dues increases usually is an impact. It's just a one month impact. And finally, yes, the January ...
traffic in the clubs basically can make the experience a little pinched. And so those are just the seasonal but apples and apples are MPS because it's good to to at the up necessarily.
Thank you. Thank you. Thank you. Thank you. Our next question comes from the line of Chris Warranka from Don't Shipank. Please go ahead. Yeah, good morning guys. Thanks for all the dollars so far. Thank you.
Just just that follow up on the kind of the least facts You know the question we get a lot from investors is how do we get comfortable that the You know given that the interest rate environment and such that the buyers which I know include some reads You know that the economics don't don't change materially maybe any thoughts you can
you can provide around that. So go ahead. Yeah, so on sale leaseback. So yeah, we, from a caprate perspective, Chris, we're seeing caprate's consistent little mythics. Yeah, consistent with what we've done historically, we still see strong demand from the REITs to participate in our properties. As you know, we paid every nickel of rent during the pandemic.
and we have multiple options, five year options after that. It's a very, very long term. You think of it, it should be more like the 30 year mortgage rather than the... So our partners who are doing these deals with us obviously, they're under pressure for...
you know, their investors tying it into a, you know, current rate, but we all know the current rates will change if they don't change this year or they'll change soon enough relative to a 20-30 year. So while the rates are volatile for a two-year or five-year, even ten-year, they don't really have as
big of a pull. It's not it's not it's not percent for percent on a 30 20s plus 30 at 25 year lease. So there is virtually no concern that we can get them done. The difference is just a quarter percentage point one way or the other on the Chap
Okay, very helpful. Appreciate that. And then, you've talked in the past about the potential M&A in the space and being an active participant. And that has anything changed versus a year ago, six months ago in terms of...
What you're seeing relative to again, network, it's being tough for some of the maybe, you know, weaker capitalized players. Is there anything that changes your view on what might happen over the next year or so? Yeah, I think strategically at some point, those opportunities will become very attractive for lifetime.
for the last 12 months, the current six months, the first six months of the year, in our heads down, focusing on fundamentals. We needed to make the adaptations that I have talked about to make sure our business model.
over has overcome all the inflationary issues that everybody is dealt with and recovered from the pandemic, you know, ups and downs and overcome all the inflationary stuff as construction, supplies, payroll.
And I am so excited because we have accomplished that I think as we look into the breakdown of the business unit, you know, I tried to do it and give you guys some examples on this call. Unfortunately, it gets convoluted. You know, because we have to, we can't talk about.
the EBITDAV and you exclude the impact of rent. So I just took it out so I can do it in a much more detailed approach, but we have the healthiest business model.
to end up with a business that is better. Now, once we get that done, and then we are kind of building our normal course of clubs, and we can also look at opportunities hopefully by the next call, or two or three, we can start sharing with you guys the opportunities are popping up and how we're dealing with them.
with a business that is better. Now, once we get that done, and then we are kind of building our normal course of clubs, and we can also look at opportunities, hopefully by the next call, or two or three, we can start sharing with you guys the opportunities that poppin' up and how we're dealing with them. Okay, very good, thanks guys.
Thanks. Thank you. We have time for one. Thanks for getting me
Go ahead guys.
Thank you. Our next question comes on the line of John Heinbuckle from Google Heinbartners. Please go ahead.
Hey, brum. Hey, John . How are you? Good. Good. Two quick. Well, one will be quick. The
Hey, Barham. Hey, John . How are you? Good, good. So I do quick, well, one will be quick. Can you talk about your philosophy right on...
There's a virtual flywheel here, right? You take in more dues, you invest in the business, the experience gets better, and you can further raise pricing. Talk about that so philosophically, right? And what would you like to, when you think about raising the experience further, what would you like to invest in, whether it's new services or upgrades that you're not doing today, right? That would elevate the experience. And what would you like to invest in, whether it's new services or upgrades that you're not doing today, right?
there's some kind of a sprint training, couple of functional training for perception. It says, completely of a workout somebody would want to have. Okay, we have to build the, you know, pop up studios for people to be able to do those and we've been busy working our tests off non-stop.
to converting the floor plans to get this done, we are now done with maybe more than two-thirds of the clubs, and we're still kind of doing that remodeling the others going forward. That takes time to implement that idea. And then once you have that, now you have to get the talent that can actually coach that class that has the people wanting to follow. So, just those, these things that we want to do, it's not like writing a new…
And any of the, any CEO of a multi unit, you know, you can get excited about the few stores that is closer to you, that you see everything running perfectly. The question is, is that happening consistently across all the system and how fast can you roll out new programs consistently across the whole system? So we're doing that. We have lots and lots and lots of runway right now to in continuation of implementation of the programs we have just talked about. There's plenty of runway there. I see our
average dues for the new membership sold by this summer, well in excess of 220, 225. And then that's almost country club like in terms of what you're charging. So then I feel like we got to make sure that sense of belonging for the customer where they just deeply believe you're going to the best brand.
The other thing we're doing for the customer, nobody else can do, no country club can give, access to nearly 40 million square feet of facilities across the country. More and more, here from the customer saying, I travel by love time, we look for a home near life time, I mean, it's happening constantly. So, my desire has been to build one of the most
and a well-covid-ed brands in the country and we've been working at it for 30 years And I think today is in the best place this ever been
And then just real quick, the quick one was going to be, if you look at the underpriced membership thread that you talked about before. So that's about 200 million of annual revenues.
I mean, how do you think about maybe not all of that is available? But you think about staging that over a one year or two year, three year periods. Yeah, that's too aggressive. You really have to run your business from the customer point of view. You don't want to make the customer who's been with you for
six, seven, eight years, feel like 10 years, 15 years, feel like you have no appreciation for that. So we have been doing this steadily. We didn't do it as smoothly as we're doing it now. We used to do a price increase every November for everybody at one time.
two harsh. Now we go through a use of AI, utilization, studies, everything and we may take a half a million dollars worth of dues increase this month. We may take another half a million next month. So it's small number of people and then that allows it's a small number of people per club.
that allows an individual conversation between that particular member and the lead general of the club. So we're going to bleed that in methodically slowly but we have lots of dry powder. Just that that's really opportunity for the company to kind of improve the dues revenue.
throughout the year. Okay, thank you. Thank you. Thank you. Ladies and gentlemen, we have reached the end of the question and answer session.
And the conference of Lifetime Group Holdings has now concluded. Thank you for your participation. Now disconnect your lines.
I and.