Q2 2023 Life Time Group Holdings Inc Earnings Call
Good morning, and welcome to Lifetime Group Holdings second quarter of 2023 earnings conference call. Please be advised that reproduction of this call in whole or in part is not permitted without written authorization from the company. As a reminder, this conference call is being recorded I will now turn the call.
All over to Ken Cooper with Investor Relations for lifetime.
Good morning, and thank you for joining us for the lifetime second quarter of 2023 earnings Conference call with me today are Brahma Karate 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 from those forward looking statements made today.
There is a comprehensive discussion of risk factors in the company's SEC filings, which you are encouraged to review also the company will discuss certain non-GAAP financial measures, including adjusted EBITDA net debt to adjusted EBITDA or what we refer to as our net debt net debt leverage ratio and the free cash flow before growth <unk>.
Capital expenditures this information along with reconciliations to the most directly comparable GAAP measures are included in the company's earnings release issued this morning, our 8-K filed with the SEC and on the Investor Relations section of our website I'm now pleased to turn the call over to Bob Bob.
Thank you Ken and good morning, we appreciate you joining us for our business update.
I will briefly review our second quarter 2023 financial results, which include continued strong revenue and adjusted EBITDA growth.
Brian will then provide his thoughts on the quarter and our strategic initiatives, which are all working to grow our business improve profitability.
Increased cash flow and reduce leverage.
Our second quarter revenue increased 22% to $562 million driven by a 25% increase in membership dues that enrollment fees.
And a 13% increase in in center revenue.
Center memberships increased 26000 from the first quarter.
And we ended June with approximately 790000 memberships.
Total subscriptions, including digital on hold memberships are now at approximately 832006 hundred.
Second quarter average center revenue per membership increased to $701 up 10% from $639 in the prior year quarter.
We generated net income for the second quarter of $17 million compared with a net loss of $2 million in the prior year quarter.
Adjusted EBITDA increased 116% to $136 million or.
Our adjusted EBITDA margin increased by over 10 percentage points to 24, 2% versus 13, 7% in the second quarter of 2022.
Rent as a percentage of revenue was 12% in the second quarter of 2023 and 13% in the prior year quarter.
We delivered another quarter of improved cash flow with net cash provided by operating activities of $142 million versus $71 million in the prior year quarter.
Year to date, we have generated net cash provided by operating activities of $216 million versus $80 million in the prior year to date period.
We are incredibly pleased with our performance in the first half of this year.
Our strategic initiatives are successfully driving growth in revenue and adjusted EBITDA.
A sustainably higher profit margins, we are seeing a significant increase in the number of asset light opportunities to grow our business and we are rapidly deleveraging our balance sheet.
Looking forward, we remain confident in our ability to continue delivering growth in revenue and earnings while providing the unrivaled athletic country club member experience that is unique to lifetime.
I will now turn the call over to Bahram.
Thanks, Bob and good morning, everyone.
I am very pleased with our progress in the second quarter there towards our main objectives.
Our strategic initiatives are all paying off and our team is focused and excited we are.
Delivering the best quality programming.
And experiences to our members and at the same time.
We're delivering great operating margins.
We're continuing to see more asset light opportunities to grow the company.
And we are securing these opportunities.
Okay.
Net debt to adjusted EBITDA is dropping at a very fast pace.
And it has decreased four point.
It has decreased to four two times at the end of second quarter compared to nine times at the end of same period last year. We expect this rapid deleveraging to continue in the third quarter there.
We have included some potential recessionary headwinds in our guidance. However, we are not seeing that impact yet.
As we have mentioned before June .
First months without accretion.
Christian raise was below 2019.
We are seeing these trends now to July and August .
Which reflects.
Strong member sentiment.
The lifetime brand Nevertheless.
We will maintain our conservative perspective.
Based on our first half financial results and despite our conservatism.
We're still raising our full year adjusted EBITDA guidance to 510 to 520 million.
From $470 million to $490 million.
This reflects an adjusted EBITDA margin of 22 and a half.
223, 3%.
We are also narrowing our full year revenue guidance.
Two 2 billion.
$235 million to $2.265 billion for.
The year and maintaining the same midpoint despite shifts.
In some club openings to later later in the year.
For the third quarter, we expect revenue to be $585 million to $595 million and adjusted EBITDA to be $136 million $238 million.
I would like to finish my remarks by emphasizing the equity value in the lifetime brand.
With more than 120 billion impressions annually.
Our brand is providing an increasing number of opportunities to become bigger and stronger to asset light growth.
We expect.
That this will continue well into the future.
Before we start Q&A I would like to take a moment to thank our incredible team.
More than 74000 people.
Each of our enthusiastic and passionate team members.
Plays a vital role in helping our members live healthier happier lives.
Yes.
Has allowed us to extend the power of our brand.
Fueled the strong results we're seeing.
Now looking forward to your questions.
Thank you if he would like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue. You May press star two if he would like to remove your question from the queue and for participants using speaker equipment. It may be necessary to pick up your handset.
Before pressing the star keys.
Our first question is from Chris <unk> with RBC capital markets. Please proceed.
Hi.
So can you expand a bit more.
The membership growth that you saw on the <unk>, maybe how that came in relative to your own expectations and then how youre thinking about membership counts here going forward into the <unk> and the <unk> and how thats embedded in your guidance.
Guidance.
It's been growing exactly to our expectation, Chris we're very happy with the growth.
We're not seeing any weakness.
In any of the trends.
<unk>.
Memberships that theyre coming in.
As we have told you guys and do you understand there is zero.
Marketing zero promotions zero efforts to sell.
Our focus has been continuing to work on desirability in our clubs.
And.
It's working and we know our attrition rates are dropping and as attrition rates drop.
That makes the net increase in memberships much easier to obtain.
We're very happy with where we're at.
Got it and then.
I did want to ask about the development update this morning, and just specifically.
Whats driving that increase.
The openings guidance here I think from 10 previously to 12 openings.
For the full year and just driving on what's driving the confidence there. Thank you.
Great question, Chris we are.
Systematically looking to see whether the number of opportunities.
That are available out there for us and to our surprise that number is nearly almost 200.
Asset light opportunities. This is not building a big.
Battleships, which is another couple of hundred possible locations.
On the asset light ones, we have already done about <unk>.
10% of those are already done about 20 asset light deals.
And then there is another 20 in discussions so they are lead yet.
And I think we can continue to basically harvest this opportunity in the years to come next four or five years, which allows the company to grow revenue and EBITDA.
At a very very nice pace.
Without having to add significant amount of leverage.
Actually we should be able to continue to delever the company.
Okay, great. Thanks, so much.
Hmm.
Our next question is from John <unk> with Guggenheim Securities. Please proceed.
So guys. Let me follow on that last one right about sort of the expansion cadence from the capital light nature.
So Bob would you think one if I think about openings with the organization can handle do you think that's about one a month.
So we settle in kind of <unk> 12, a year.
And do you think the capital light piece ends up being maybe two or three of that 12.
Or is it more than that.
And then I guess the last piece the suburban battleships.
They too.
Bringing the cost of those down without harming the experience.
Yes.
Actually the cost roll.
Started coming down in the next we're starting to see already the construction.
Costs are starting to get leveled off.
The feet on the ground, but some of the contractors instead of being up in the Sky and so and what we are what we this is giving us the ability to do John .
John is to sort of pick and choose which way we're going to grow the business with the asset light opportunities.
We can grow the revenue EBITDA easily in the double digit level.
<unk>.
If we didn't launch.
Many of the big the big boxes.
We are continuing to purchase the land get the permits get the approval have the designs ready and then we'll just decide systematically when to deploy the construction on those with the with a huge focus on making sure.
That we are continuing to Delever the company as we go forward with growing the EBITDA and making sure we maintain the debt levels.
The levels that they are right now without it going up so that will continue to delever the business and then strategically will pick locations.
We feel like.
The market is so amazing and we have pent up demand I will just start construction on the bigger ones.
Okay great.
And then curious your assessment of the in center, the big incentive businesses today right.
Their recovery from Covid, obviously personal training you retool, but.
Where do you think we stand on that and.
I know you talked about trying to build in some macro headwinds is that where it will show up by dos will be fine, but may be engagement with.
Some of the personal some of the in center business is that.
Is that what you think we see.
Softness if we see it anywhere.
I actually don't think it has anything to do with that is everything has to do with our execution.
We have tremendous opportunity within.
Our control with the execution of our in center programming, we have <unk>.
Significant.
<unk>.
<unk> in certain clubs and we have social performance in some others with similar demographics similar condition of similar size of the clubs similar offering. So this is just going to take time, it's an opportunity to gradually.
I'll take those places where there is significant opportunity to execute on the really positive news as we have.
Continue to work on innovation, creating new ways to grow.
The business.
I am really excited about what we are launching right now it will take a couple more months before we have at least 150 locations robustly executing as dynamic stretch.
Which will be another opportunity for our personal training to get yet another double digit growth.
Within within itself on a per month basis, So and then beyond that we have other things that we've been working on.
To basically increase.
The volume of revenue and the profitability in the four walls of each asset that we already own or anything that we will launch going forward. So look if you're standing still and if you are creating nothing and you're expecting the same business to continue to do well for you that's going to get tapped out at sea.
Point, but lifetime has never stood still we are constantly look to see what are the other opportunities to elevate the experience to a higher quality more extraordinary.
And events.
Introduce new programming that gives us more opportunity. So the last couple of years, we had to really work on all the different.
Innovation is all live for transformation to get the company to a level, where we are producing record levels of.
Our EBITDA margin from our business and at this point I think we're just now.
We're excited to rollout these new opportunities to continue our growth for 'twenty four and beyond.
Okay. Thank you.
Our next question is from Brian Nagel with Oppenheimer and company. Please proceed.
Hi, good morning.
Good morning, Brian .
Nice quarter congratulations thank you.
So the first quite a couple of questions, but the first question.
You talked a lot about the leverage ratios.
Rami you both mentioned leverage ratios in your prepared comments, but so I guess, maybe ask a couple of parts, but tell me if I'm doing the math correctly given that the guidance of the EBITDA guidance you outlet U line laid out for Q3.
That implies a leverage ratio in Q3 down to about 3637. So I just want make sure I did my math correctly, there because I guess the bigger question is no.
With that how close you are now getting to that target do you want to be at.
Yeah. So great question, Brian I mean, rough and tough and you. It's kind of has some nail the guidance for the <unk> plus what we have delivered first.
No.
The first couple and then the first and the last quarter of last year, the trailing 12 months.
EBITDA is rough and tough is looking right just about $500 million at the end of <unk>.
When you look at trailing 12 months EBITDA. So I'm very very proud of our team. We always have had the goal of doing a $500 million.
EBITDA this year that was the internal goals for the company and we steadily have executed that our team has done.
We executed on the goal.
And we've been able to raise beat and raise the guidance every quarter there.
Our expectation is that obviously, we're going to grow their revenue on EBITDA again on a trailing 12 months basis in every quarter there.
In the foreseeable future.
So.
One way or the other we're going to quickly very rapidly to get the company to under three times debt to EBITDA and I want to emphasize.
This is with at least.
Debt to EBITDA is.
It's a nice number but what's really not.
Being considered that lifetime owns well in excess of $3 billion of fee owned assets today.
That continues to support the strength of the balance sheet of the company.
And so we feel very very good about getting the company under three times.
We are clearly on our way to get there. Thanks for the question Brian .
That's very helpful.
And then the second question I wanted to ask just with regard to the.
Center of the club openings. So we talked some about the delays here. So maybe I guess the first question would be.
Particular, morally what's causing these delays.
But then on that one.
Currently.
You bought how Howard how is the performance of your new clubs been because looking through my model. These are delayed but I think they've been performing very well so that should actually bode well then for.
24, right I mean, recognizing you haven't given specific guidance for 'twenty.
Absolutely so we.
Have everything is within our control and then there are things outside of our control that wanted to be clear being able to get the initial building permit to get launched.
It's something that we work our team is professional group at that but sometimes is completely outside of our control and the municipalities will take their time to give you the plumbing permits or the electrical pyramid and we just can't get started so once we start then we can go.
And then when we get to the other end.
We have to have the health inspectors to coming through the auction through the health inspection on the building payments you get the occupancy permit.
And some of those frankly are just completely outside of your control.
A little bit of a delay on the construction.
It's the it's really a non event situation in here our revenue in the clubs in the first few months two to three months is either a negative EBITDA revenue or.
Slightly positive after two to three months contribution margin positive. So it really doesn't move the needle on the EBITDA if anything it's just a little bit of a negative, but that's already baked into our numbers.
But on the other hand, you'll look back we're going to open like literally five or six seven clubs here in the next 90 days.
And we're going to get those all opened up and then all of that will start generating revenue in the fourth quarter, there, but it's going to generate really nice EBITDA.
In the 2024 and <unk>.
Years after that so.
We're not seeing anything in here that would concern us.
Oh.
Everything is moving very satisfactory to us as a management and a management group.
I'm looking forward to continuing to deliver the growth that we have been delevering.
The increase in EBITDA.
Got it I appreciate all the color thanks, Brian .
You.
Our next question is from Brian <unk> with Morgan Stanley . Please proceed.
Yes. Thanks, Good morning, guys I wanted to follow up just on that question about in center revenue as well.
You mentioned, it's kind of.
And you guys just to execute but what is what is that.
Specifically is it just like more training is required or it just takes time to launch some of these programs do you think that you have to hire more to actually.
You know rollout some of those initiatives to better harvest. Some of that revenue is there any sort of capital costs thats going to be required or what specifically is it that will drive that revenue.
Great question, Brian and its actually.
When we went through before we run through Covid, we have clubs that they performed really well in spa in personal training and the Cafe and then we had equivalent in clubs should weren't performing as well, but they were doing okay.
And COVID-19 with dish.
<unk> down stuff, we basically had almost everything go backwards and then as we came back with the reintroduction of the way we're running the business is much more focused on high casting the real leaders in the <unk> in each category and getting those going and where we have been able to.
It's not just hiring.
During just personal trainers isn't going to work you have to cast the absolute highest quality professional trainers. So we're able to get those.
Secure then placed and then support them from the all of the initiatives from the office will seeing that it's a work in progress and it all is growing it's not going to all happen at once it's just going to take time to roll. It in and then we are like I told you in the next piece of innovation is like that.
Dynamic stretch that's going to have a significant impact on the opportunity of each trainer at lifetime to make more money instruments are sure of is to make more money as we create a better opportunity for our team members to have a really nice.
Living in a good income with good benefits and we're continually.
Grab those best talents in the in the in the community to come to work with lifetime that is continuing on Theres nothing has stopped nothing.
Nothing has slowed down from that is just the continued progress.
We're not seeing it.
Again, I'm not unsatisfied overall with the growth in our in center is just going to take time, but it is a steadily growing.
Okay.
That makes sense.
Some of the asset light opportunities here you've called out is this is this a shift at all in the sense that do you think you may in fact grow faster, but what's kind of like the same quantum of Capex or do you think capex could even be more restrained going forward, if youre going to kind of a.
Lean into these I don't you know I don't know if this is just if youre thinking about this differently or if it's largely status quo.
That's a great question again, and I want to just give it to you in a different form my as I've stated repeatedly my personal goal.
The next two to three years, we can continue to grow the EBITDA significantly.
And basically with being able to do locations where there are.
Five to 10 million upfront.
It's just timing for right now we can lean heavier on these.
To sort of get the EBITDA to $500 million into $600 million.
And then as we get to the $6 million to $700 million of EBITDA. We're also going to be able to kind of build the big battleships again dose looks fantastic.
Once you go through the sell leaseback with them Theyre, just sort of a front heavy.
And so we are just balancing all of this the great news is we have.
Absolutely completely under our control opportunity to grow this narrative, we can grow the revenue we can grow the EBITDA.
Reduce leverage.
And then when the revenue and EBITDA has grown significantly more we'll take that excess cash flow and we do more of the big battleships as well. We also are going to continue to do our sale leasebacks I just wanted to be clear, we have no intention of ever changing the strategy of the company.
Asset light.
<unk> strategy, but it's just we have so much opportunity right now that based on the macroeconomics the company.
<unk> has chosen to take advantage of more of the asset light ones.
Early on and then later on we layer in the bigger boxes as well.
Thank you.
No.
Our next question is from Robby <unk> with Bank of America. Please proceed.
Hey, good morning, Hey.
Hey, Brian I wanted to.
Sort of see if you could give us an update on how youre thinking about the.
The continued pricing benefit youre getting.
I think it was I think the average monthly dues.
<unk> are running around 163, now and we're up about 15% versus last year can you can you how long can you keep growing.
Where do you think the membership is going to end up and how much of a tailwind is that going to continue to be for the back half of this year and next year.
As of cover that we have.
Adjusted the prices for the new customers coming in and.
Entirely to manage the experience we want.
So we have had so many clubs doing so well that currently we have about seven or eight clubs that theyre actually on a wait list and we are still taking memberships with these but we're able to go through the wait list call people in and basically take these people then is.
Using the clubs and in the forms of the ways that.
We will continue to help the.
Delivering the experience that we want.
At the same time.
This has allowed again the price changes has been a function of completely and entirely controlling the experience we want to deliver as we are an experiential company. So.
No.
The benefit is that when you look at where the price changes for the new member rack rate versus the people who have joined earlier with a lower dues.
There is about $17 million to $18 million a month difference between.
If everybody who was at that.
Rack rates right.
In February the Windsor rack rate would be $17 million to $18 million a month.
And I'm glad to cover this on this call because there is no way at any given time that we will ever to do such a thing.
Because that would be like a brand suicide. However.
What we do have is we have a very very big supply massive opportunity to continually pay.
On a slight amount of dues increase very systematically complete sophisticated use of AI.
We know that it doesn't bump up the satisfaction.
<unk> or the attrition rate.
And so we can continue to see some increase in the dues revenue.
And on top of that as the even though with attrition rates dropping below 2019 numbers were good.
To keep seeing that people as they dropout and we get new customers coming in that also the newest revenue of the clubs we have more clubs significantly more clubs doing over $1 million of news a month now.
Than we had before we went through the Covid. So it's really I mean.
I I wish I could sit here and report something bad.
[laughter] to try to balance things out, but we are we are extremely happy with the way everything is working out right now.
That's great. That's really helpful. And then just a follow up maybe for Bob.
The center ops expense was lower than we were expecting this quarter I think it I think it was like $18 million.
Is that.
That seems lower than we would've thought.
Does that stay lower or how are you guys doing that and then also the Conversely, the center maintenance Capex I think it was like double year over year was that a timing thing or is there something going on there yes.
Second part for Robbie that's just timing I mean remember.
We will always invest to protect that member experience and that's something we'll do year in and Youre out. So that's just timing as it relates to center up that's a function of the rewiring of the company that problem and I have talked about previously and that that's sustainable that's not a one quarter and it's done.
Sustainable change that we've made and how our clubs operate so you should expect to see that benefit going forward.
That's great. Thank you.
Our next question is from Chris <unk> with Deutsche Bank. Please proceed.
Hey, good morning, guys.
Wanted to go back to the I guess the asset light.
Question, one more time and come at it from maybe a slightly different way, which is what's most important when you're evaluating these sites I mean.
You don't want to obviously, you don't want to cannibalize our existing clubs. There is a lot of markets where that wouldn't be an issue.
But what what's the how do you rank order prioritize in terms of.
A number of memberships you can get pricing you can get a margin just trying to understand like what drives that decision too.
Ill take the old Department store here, but not not over here.
Great. Great question first we studied the market demographics and the locations we want to be and then we decide exactly what type of product, we want to deliver and what's the best way.
What is the best strategy to deliver those products and services in that community.
And so.
We.
When you do the big clubs with all things in one.
That's fantastic.
Tastic, but sometimes based on the more urban markets.
The geographical situation does not allow you to go buy 12 acres of 14 acres of 20 acres of land.
And build your big Big boxes.
With everything under one roof.
So then we deliver the product.
In some form of assortment and in some locations that maybe 40 or 50 or 60000 square feet and we delivered the some of the components of our total product.
But we deliver what.
Best in class in those services that we do offer we have clubs.
Downtown Austin is at 58% contribution margin, so and it's only 35000 square feet. So it just as a network of our clubs and as part of the lifetime brands. So we have alpha we have ultra fit we have strike, we I mean I can go on and on and we have all these amid.
<unk> brands.
That we can choose from.
What we each of the all of which are all the brands that we provide.
We will properly.
It can be represented in a market and then if we feel like we've got the.
And the opportunity to to assemble enough of those brands and deliver a profitable.
Our business model.
And service. The community then we'll just go ahead and deliver that so and sometimes they become the opportunity where you have a couple of big clubs maybe.
Maybe 12 miles apart and then you have the opportunity to put the smaller one in between and that's sort of the so is the whole thing together so.
Okay.
We've been my team and I hear at lifetime, we've been doing this for about 32 years prior to that I think that for another 10 years prior to that time so.
We've been selecting sites.
And de levering, but different types of boxes sizes, and all with similar profitability, we're always targeting.
Hi, <unk> low for these.
There are after you know after the sell leaseback or.
If we just go into a lease or theyre, all depending on the situation and the development strategy can change.
Okay.
I appreciate that.
So I know, we're not going to we're not talking about 2024, yet but I.
I wanted to ask a directional question, which is just to sanity check.
I mean.
If we think we know roughly the number of units you might add next year and we layer in a little bit of pricing and in center growth I mean.
I know you're not we're not economists and forecasting in depth, but is there any reason to think if we just add all those variables up that we're not going to still have some.
<unk>, However, you want to define that.
Revenue growth next year and is there any reason that wouldn't flow through to positive margin expansion just trying to get a sense. Thanks, yes.
So look as we well, let's talk about the last piece of your question on margin so as we put out.
And as of 'twenty, two to 'twenty, three 'twenty 23, 5% EBIT.
EBITDA margin right now is really.
What I see.
Can that grow the answer is yes, but can you just go ahead and it couldnt get little.
On the low end of that or the high end of that it depends on the.
How many clubs will open all at the same time in a quarter or five months and that can put a little bit of a negative pressure.
Put that in the lower end of that 20 to 22, 5%.
And so then as those clubs ramp and go from contribution margin negative contribution margin positive. It can push you so just rough and tough.
We're pretty confidently believe we can deliver those margins.
Going forward.
And then as far as the growth in my expectation has been we will grow the company.
Double digit top and bottom line and that's our goal.
At this point I don't want to get into delivering any sort of.
<unk> for 2024.
But with a number of opportunities ahead of us and I just.
Just gone I don't have a lot of concern making.
Making a commitment that we are committed to growing the company in double digit range.
Okay very good thanks, guys.
Yes.
Our next question is from Dan Pulitzer with Wells Fargo. Please proceed.
Hey, good morning, everyone and thanks for all the color thus far.
Thank you I wanted to yeah.
Yeah, I wanted to I wanted to follow up on the $300 million of sale leasebacks that you guys reiterated that you would get done this year I mean in terms of in terms of the timing obviously, we're in the back half of the year at this point I just wanted to make sure one.
The $300 million as proceeds that youll receive total this year, if theres any update in terms of the tone of conversations how far along you are and maybe how you think about that.
Risk reward to the extent that rates are a lot higher now and how these conversations have progressed, even versus three or six months ago now.
Great question, Dan I'm still fully expecting too.
<unk>.
Going forward with what we have set forward as a goal.
We have been working very methodically.
My goal has been to get the company into this 500 million of trailing 12 months EBITDA range, and then kind of attack that market as I've mentioned to you guys repeatedly.
<unk> been working that market for years and years and years I have no concerns about us getting sale leasebacks done.
There were still getting inbound calls.
To go through with those it's just a matter of getting that right.
And I will give you guys an update on that.
In the next 60 days in terms of how we're going to get those done, but we are planning to get them done.
Got it and then just for my.
Follow up in terms of the fourth quarter I think the implied opex and I think you've touched on a little bit, but I just wanted to make sure I was clear.
It sounds like that's going to take higher just as you open a bunch of new centers in the third quarter right, but I guess were there any other variables in that guidance.
Not that you're reflecting that recessionary conservatism or a ramp up of in center revenues in the fourth quarter. As you have these new centers come on or is it just that contribution market margins going to be a little bit pressured as you open these new centers at the onset.
Everything you everything you mentioned is it youre exactly correct then so the new club openings. There is quite a few as I mentioned some have been delayed a little bit here. So they are opening now they're opening next month to month App. There. We've got a lot of openings and again all of those clubs are going to open.
With the contribution margin negative.
And early on and then it's going to take depending on the location of month or two or three before today flip contribution margin positive.
So we have taken that into consideration we have as we have mentioned baked in some conservatism for the macroeconomics right.
And finally as we continue to.
Executing our strategy to get more locations.
Executing to our standards.
On the in center and those many of the in centers are going to a spa cafe. They all come at a lower margin than.
And then R 22% to 23%.
So we still want to grow those because that's the that's the differentiator.
<unk> of lifetime Athletic country club, providing those services for the customer, but they do come they generate more revenue and more EBITDA, but they'll come at lower margins. So all of those.
Sure.
Exactly what you just cover all of those are taken into consideration for that guidance, we are giving you.
Got it thanks, so much I appreciate the detail. Thank you Dan Thanks, Dan.
Our next question is from Simeon Siegel with BMO capital markets. Please proceed.
Thanks, Hey, guys. Good morning, hope, you're all having a nice summer.
Thank you recognized so recognizing you centers a little different just any update how youre thinking about like the average the rate remember of memberships per center and then Brian just could you speak to some of the learnings you have from the growing presence in maybe the higher traffic areas like Manhattan, you and I am talking about other cities.
Bob just could you speak to price versus new members, that's embedded within the third quarter and the full year revenue guidance. Thanks, guys.
Okay, Let's go through those questions. One at a time first question again, yes, just memberships per center, okay. So we see.
Simeon we have clubs.
Columbus from literally.
Now with some of the urban ones.
<unk> 5000, 30000 square feet to 300000 square feet. So I don't know that I.
I can offer a membership per center.
I don't know that I can offer a membership per center that basically you can just take the number of memberships. We have divided up by a number of clubs and tried to get an average, but it's not going to help anybody with anything and as we are opening a variety of different clubs I think we just need to sort of.
Help you guys with maybe giving you a perspective of what we think is the right number of memberships.
And mature the what number of membership.
What we're looking for based on the pricing in the market.
So I don't know how to answer that without creating more confusion frankly.
Frankly, because there is nothing to average out the vastness of the variety of the products that we offer the second question learning from high traffic areas like opening clubs in Manhattan.
Yeah, So right now what we are all.
Seeing as the brand is allowing lifetime.
To get really lift in terms of how we are processing things were getting.
Weightiness established before the clubs opened up our team and we will approach is that.
Group and we're getting good.
Our pre sells are sure there they are only about 90 days.
Because we have a bigger pool of weakness.
So much more efficient.
And pretty steadily right now Simeon we are able to hit.
The desired.
<unk> goal that we have for our club opening.
Z that so more clubs are reaching.
Contribution margin faster than ever before.
With your margin positive faster than ever before so.
The learning is to continuing to do what we're doing.
Keep pressing on and keep looking for opportunistic places to.
Grow the lifetime brand and deliver the products and services to people.
I'll take the last one on price versus membership growth. If you look at the second quarter. We saw membership growth in clubs that were opened prior to the pandemic. We saw clubs opened from 2020 to 'twenty two 'twenty three or 'twenty, two and we saw a membership growth in clubs operating this year. So we've got very broad based membership growth across all our cloud sort of regardless of when they were first opened any price.
Benefit that we see that is due to pricing that we've already taken pricing actions already complete.
Any additional pricing we would take its what Brian mentioned earlier really done to protect that member experience.
Great. Thanks, a lot guys best of luck for the rest of the year.
Thanks, Andrew.
Our next question is from John Baumgartner with Mizuho Securities. Please proceed.
Good morning. Thanks for the question, Brian just wanted to follow up on Finian's question. When you. When you look at the experience you're gaining with these new rack rates sort of addressing the overcrowded facilities and applying the AI. When you think about these new learnings youre picking up whether it's pricing sensitivities demographics singles couples families.
Willingness to pay services or amenities, you're offering that sort of seals the deal and get you that new member that new sign up I guess, what's the most surprising to you in terms of the new learning as you've been getting over the past I don't know 12 or 18 months as you dig into the data.
Well, what we are seeing that the customer is interested in the experience.
They are.
Insensitive.
Two the price being 229% or $2 49, or $2 69, just there is zero.
And we can't we cannot see any effect that's still learning.
It doesn't impact.
The membership units the growth.
You either have to be 100% committed.
Two metrics.
Or you need to be 100% committed to deliver the brand experience that you want and desperate lifetime has done.
Our learning is that this is what's working and the customer is appreciative and I see.
People are so passionate about lifetime I was just talking to one member of last night.
My daughter, basically refuses to live somewhere that this is not close to a lifetime. So they move from one state to another one when they go back they are buying a house close to the brand new lifetime opening up so that they can so we are going to continue.
To focus on what has worked.
Control the narrative around our brand to offer our customer experience and that's given us all the leverage all the power of the muscle we need right now.
Getting more amazing locations.
More opportunities than we've ever had.
So we're going to continue to execute on that but that's the learning we are learning is.
You can't be Wishy Washy, you can't.
Try to control the cost conscious.
An experienced conscious at the same time and I emphasize you know theres a lot of.
Just a tremendous amount of narrative and loss cost.
I read this stuff coming back people cost efficiencies cost efficiencies cost efficiencies.
I have been like a broken record, we we have not focused on cost control. We rewire. The company. So we can make faster better decisions to serve our customers more robustly with more ease and being more and more.
<unk> two our lead general so they can make decisions and instead efficiency coming from the re wiring business that is a structural for long term there is zero a focus on cost control.
Literally zero, our focus is 100% on delivering the maximum experience for the customer.
That's the instruction to every club every lead general that's the expectation all the all the.
Inspections are.
Inspections on obviously delivering the right brand quality for what we want and the company has never been more sustained and aligned.
Homogeneous be working well and we see the results of that.
Thanks for that and then just I wanted to ask a big picture about these new weight loss drugs that are hitting the market. Your membership base skews towards active individuals at a different target market and for pharma.
The extent you've thought about it how do you think about the pharma complementing your business and it does unlock new opportunities for outreach for some of these folks who may be more active for the first time, you can integrate them with membership bases like youre doing with Aurora for some of the older folks that are out there I think some of the programs. Your personal training stretching you mentioned this morning that could apply.
I'm curious how you think about the potential macro impact on the business front from the pharma side. Thank you.
That's a great question I've been I think if we were purely a fitness company.
It would impact us maybe because people are taking.
Pills to lose weight.
The reality of that particular and I won't mention any names is that whenever you take it.
Bill that will suppresses your appetite and you don't eat it as eventual lose of muscle and then eventual loser bone density.
For someone to take a jumpstart.
To lose a bunch of wait and get off of it.
Okay for someone to get on those things.
And.
To stay on them is absolutely the long term detriment to their health. This will become like everything else will come and go people learned their lesson with that but it doesn't impact our business I mean again I emphasize our clubs are focused on a very very very broad.
You'll aspect country Club <unk> Beach club.
If the social gathering of people that is all the amazing small and large group classes that is people actually network of social community to get together.
The way we have fewer people join.
Joining us for weight loss.
Then they have they are joining for these other reasons, it's always been the case, but we're not seeing a difference in our sign up because people are doing this.
These stuff it just it's not really a factor so hopefully I answered that correctly for you, but we are not.
Second about ignore we're seeing Oh my God. This person didn't join us because theyre taking this.
Particular drug to lose weight, so not coming to a lifetime, that's definitely not the case.
Thanks, Rob.
You.
We have reached the end of our question and answer session I would like to turn the conference back over to Brian for closing comments.
No. We're just appreciative of everybody and all the great questions looking forward to continue in <unk>.
So you guys hopefully.
In between or.
Next quarter there.
Thank you. This will conclude today's conference you may disconnect. Your lines at this time and thank you for your participation.
Okay.
Yeah.
Yeah.
Yes.
Yes.
[music].
Yeah.