Q3 2023 Life Time Group Holdings Inc Earnings Call

Greetings and welcome to the Lifetime Group Holdings third quarter 2023 earnings Conference call. At this time, all participants are in a listen only mode.

<unk> and answer session will follow the formal presentation, if anyone should require operator assistance during the call. Please press star zero on your telephone keypad. As a reminder, this conference is being recorded at this time I would like to hand, the call over to Ken Cooper of Investor Relations. Thank you you may begin.

Good morning, and thank you for joining us for the lifetime third quarter of 2023 earnings Conference call with me today are Brian Crotty, 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 the company will discuss certain non-GAAP financial measures, including adjusted net income adjusted EBITDA adjusted diluted EPS net debt to adjusted EBITDA or what we referred to as our net debt leverage ratio.

And free cash flow this.

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 Houghton Bob.

Thank you Ken and good morning, everyone.

Walk you through some of our third quarter key highlights and metrics.

Our revenue increased 18% to $585 million the.

The revenue in the quarter would've been approximately $2 million higher.

Not for the delay in opening our Tampa Harbor Island takeover location.

Also our third quarter results last year included approximately $3 million in revenue related to two nonprofit board triathlons that we sold earlier this year.

The combined impact of these two items is about $5 million of revenue.

Our adjusted EBITDA increased 101% to $143 million in the quarter compared to $71 million in the prior year quarter.

Adjusted EBITDA margin increased by 10, one percentage points to 24, 4% versus 14, 3% in the third quarter of 2022.

Year to date revenue increased 23% to $166 billion.

Year to date, adjusted EBITDA increased 128% to $399 million compared to $175 million in the prior year to date period.

Senator memberships ended the quarter at approximately 784000, an increase of roughly 56000 or 8% compared to the prior year quarter.

Total subscriptions ended the quarter at approximately 830000.

Average center revenue per membership increased to $722, an increase of 9% from $660 in the prior year quarter.

Adjusted net income was $26 7 million compared to an $11 5 million adjusted net loss in the prior year quarter.

Year to date, adjusted net income was $91 million compared to an adjusted net loss of $67 million in the prior year period.

Adjusted diluted EPS was <unk> 13.

Compared to a loss of <unk> <unk> per share in the prior year quarter.

Year to date adjusted diluted EPS was <unk> 45.

Versus a loss of <unk> 35 per share in the prior year period.

Importantly, our net cash provided by operating activities was $115 million.

Compared to $45 million in the prior year quarter and year to date net cash provided by operating activities was $331 million.

Impaired to $125 million in the prior year to date period.

We are very proud that we've been able to reduce our net debt to adjusted EBITDA to three seven times by the end of the quarter compared to four two times at the end of Q2 2023.

And seven six times at the end of Q3 2022.

I will now turn the call over to Barak.

Thank you Bob.

I am extremely proud of the entire team at.

Lifetime for working tirelessly and passionately.

To achieve all of the priorities that we have set for the last three years since returning from the interruption of Covid.

Our first priority was to restore the number of visits.

And dues revenue to our clubs.

We have accomplished both of these in 2023 or.

Our second priority was rebuilding.

Our adjusted EBITDA margin to pre COVID-19 levels and beyond.

Adjusted EBITDA margin.

<unk> of 23, 24% each quarter. This year, we feel excellent for having accomplished at priority.

Our third priority.

Has been to reduce net debt to adjusted EBITDA at a very rapid rate.

With $506 million of trailing 12 months EBITDA at the end of <unk>, we have now reduced our net debt to.

For adjusted EBITDA to three seven times, and we expect to be below three times by the end of 2024.

Another important objective was to increase our member engagement through enhanced programs and member experiences.

Our visits per memberships are up approximately 24%.

Through the first nine months of 2023 compared to the first nine months of 2019.

Increased visits or engagement per membership.

Has been a critical part of our strategy and it is delivering the exact outcome we would expect.

This creates stickier memberships and we are now seeing lower attrition rates than we did in 2019.

Clearly our team is executing diligently to achieve all the priorities we have established sequentially.

Get us to this point.

Now our next most important priority is to be cash flow positive after all capital expenditure without any proceeds from sale leasebacks.

The convergence of two things that I'm excited to share with you is helping us to achieve this very important priority.

Approximately two years ahead of what we saw as possible just a year ago.

One our strong outlook of adjusted EBITDA performance and to this.

This significant asset light opportunities our team has been working on will allow us to deliver a cash flow positive.

Position in the second quarter of 2024.

Getting to the position of self funding.

All of the capital required to deliver double digit growth.

Without any sale leaseback has been a long term long time goal of the company.

I couldnt be more excited.

To be working on delivering on this part particular priority.

By the end of.

Second quarter there of next year.

For the next quarter of this year, we expect to grow revenue between 17% to 20% comp.

Compared to the same quarter in 2022.

With an adjusted EBITDA margin of 23 to 24 pursuing three and half to 24%.

This was suggests revenue for the core there.

$555 million to $565 million, and adjusted EBITDA of $131 million to $135 million.

Important to highlight.

We had planned several revenue expanding initiatives to launch.

In early fourth core there and at this point, we expect to rollout in 2024.

While we're not providing any official guidance for 2024 at this time I would like to make it clear that we expect double digit growth.

Both for revenue and adjusted EBITDA in line.

With our earlier expectations.

All the while more of this growth will be coming from more asset light opportunities.

Finally, we're expecting a couple of LOI for additional sale leaseback transactions, however, with the outlook being able to deliberate cash flow positive.

After all capital expenditure by the second quarter of next year, we can be very patient and diligent in negotiating the most favorable sale leaseback terms and determining whether to execute any additional transactions at this time.

We now look forward to answering your questions.

Okay.

Thank you we will now be conducting a question and answer session I 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.

You May press Star two if you would like to remove your question from Mchugh for participants using speaker equipment. It may be necessary to pick up your handset before pressing the star keys, one moment. Please while we poll for your questions.

Our first questions come from the line of Megan Alexander with Morgan Stanley. Please proceed with your questions.

Hi, Thanks for taking my question first one maybe can you just talk a bit about your expectations embedded in the <unk> revenue outlook. It is a bit below where you implied previously so.

Is that driven by something Youre seeing in membership joins or attrition or just some additional conservatism.

No it's not in membership or attrition.

The impact.

And typically when we go from $585 million of EBIT revenue.

Revenue in the three Q2 <unk>.

For our size of company now there is at least 30 plus million $75 million of revenue that doesn't exist between.

Summer camps.

Other.

Activities summer activities.

So most of the revenue drop from US all from Dow. So we had initially intended to rollout a bunch of initiatives and there is still in the progress in the process.

To sort of mitigate this dropped I don't really like to have any seasonal drops. So we're trying to find ways to add additional.

All sales coming through programs and not not services into clubs, but like sales of apparel and nutritionals and stuffed dynamics nutrition.

And that rollout has been delayed now too early 'twenty four.

So we basically went back to the typical business business isn't really doing anything different than we expected the core business is in line.

Okay. Thank you and maybe a follow up on the sale leasebacks and some of these asset light opportunities forgive me if I missed this but I don't think you reiterated the 300 million proceeds expected. This year. So you are correct.

At this point, we are waiting for some sale leasebacks.

An LOI to come in.

And they have been delayed so the folks that have been.

We've been in discussion to Sandoz they are still planning to send something we're still waiting to get those.

However, as I mentioned to you.

Clearly at this point that the number one priority of the company is not sell leaseback, it's not anything else is to actually deliver free cash flow positive.

After all of the capital we need for maintenance Capex interest as well as all of our growth capital.

From internally generated cash flow.

And deliver double digit growth that's exact position we want to be in when the sale leaseback market is attractive we will do more sale leasebacks at this point, we don't need them. So we will treat them exactly.

<unk> as they should.

Within these are these are 20 to 25 year initial terms with 2025 year options. They are very very long term transactions.

And so we're not going to do a long term transaction because of short term blip on the interest rates.

Okay that makes sense.

Part of my question. There is no. It does seem it's just more of a short term shift given the macro and it's absolutely shortly.

Yes, we have we have so much we literally have.

500.

Some nice opportunities in the pipeline right now.

So we can continue to deliver beautiful locations great growth for the company.

Without having to spend substantial amount of capital.

And generally the cash flow the company that EBITDA that we have this year the EBITDA for growing double digit for next year.

It generates substantial free cash flow after interest and maintenance capex is more than enough for us to deliver double digit top line and adjusted EBITDA growth without needing any external capital. This is exactly the ideal position for the company.

<unk>.

And last year.

Anticipated it would take to about 700 $750 million of EBITDA to get there with the plant and this is again not including sale leasebacks.

That would have required.

To build those big clubs.

Which from ground up not asset light, then going to asset light through the sale leaseback.

It would have postponed at this.

Situation to have probably a couple of years later, but now with the EBITDA growing faster.

Asset light opportunity is getting stronger.

We can deliver this asset and we can deliver this important milestone.

Early next year, which I'm Super excited about.

Okay. Thanks, I'll pass it on.

Thanks.

Thank you our next questions come from the line of Brian Nagel with Oppenheimer <unk> Company. Please proceed with your questions.

Hey, good morning.

Good morning, Ryan.

First off congratulations on another nice quarter.

Thank you folks very nicely here.

So my first question, Rob, it's probably could be a bit of a follow up just about prior question.

We've talked a bit about Wallabies these asset light opportunities.

Clearly this is key.

<unk> sort of say is key to getting cash flow positive much earlier than you initially thought.

Wifi households, as you look at the bit.

Is there any.

Unknown Executive: Greetings. Welcome to the Life Time Group Holdings 3rd quarter, 2023 earnings conference call. At this time, all participants are in a listen only mode.

Unknown Executive: A question and answer session will follow the formal presentation. If anyone should require operator assistance during the call, please press star zero on your telephone key. As a reminder, this conference is being recorded.

Compare the asset light opportunities too.

Traditional box.

Truthful finance model is there any other offset sort of say is there is there any is there any other thing we it's something we should consider with these asset light opportunities.

Spike despite them.

So maybe would imply using less capital.

Yes, there is a couple of different things with those Ryan first of all some.

Ken Cooper: At this time, I would like to hand the call over to Ken Cooper of investor relations. Thank you. You may begin.

Sometimes it will take a few more.

Ken Cooper: Good morning and thank you for joining us for the Life Time 3rd quarter of 2023 earnings conference call with me today are Brahm Akradi, founder, chairman, and CEO and Bob Houghton, CFO. During this call, the company will make forward looking statements, which involve a number of risk and uncertainties that may cause extra results to differ materially from those forward looking statements made today. There is a comprehensive discussion of risk factors in the company's SST filings, which you are encouraged to review. The company will discuss certain non gap financial measures, including adjusted net income, adjusted EBITDA, adjusted deluded EPS, net debt adjusted EBITDA, or what we refer to as our net debt leverage ratio and free cash flow.

<unk> to deliver the revenues of some of the other ones.

So we we will probably end up having more clubs opening some of them large than similar size that are big big clubs that we do ground up and some of them will be smaller we have some clubs there.

And the debate is pretty much brand new clubs and it's all funded by landlords.

Front.

And then but at the end we are also continuing to secure.

Our.

Ken Cooper: This information along with reconciliation to the most directly comparable gap measures are included in the company's earnings release issued this morning are 8K filed with the SEC and on the investor relations section of our website.

Locations that have been working on for a long time to do the ground ups. So as you sort of shift the growth in total beds.

You can see that in 2024.

We can deliver double digit growth, we can pay down some debt, particularly in the three Q4 Q just nice cash flow coming in just pure pure cash flow after growth capital everything included.

Robert Houghton: I'm now pleased to turn the call over to Bob Houghton Bob. Thank you, Ken and good morning everyone. I'll walk you through some of our 3rd quarter key highlights and metrics. Our revenue increased 18% to $585 million. The revenue in the quarter would have been approximately $2 million higher if not for the delay in opening our Tampa Harbor Island takeover location. Also, our 3rd quarter results last year included approximately $3 million in revenue related to two non profitable triathlons that we sold earlier this year.

And then as this EBITDA grows and then free cash flow grows we can even literally fund.

<unk>.

Fund some of the big boxes ground ups all from internally generated cash flow. However, I just wanted to be clear the company is committed to the sale leaseback.

Robert Houghton: The combined impact of these two items is about $5 million of revenue. Our adjusted EBITDA increased 101% to $143 million in the quarter compared to $71 million in the prior year quarter. Adjusted EBITDA margin increased by 10.1 percentage points to 24.4% versus 14.3% in the third quarter of 2022. Year-to-date revenue increased 23% to $1.66 billion. Year-to-date adjusted EBITDA increased 128% to $399 million compared to $175 million in the prior year-to-date. Center memberships ended the quarter at approximately $784,000.

So the proposition.

Proposition, it's we're not backing down from doing sale leaseback is just timing.

At this point, we just have to take a look and see if these LOI is coming.

<unk>. The fact that interest rates ultimately are going to go back down.

Or they're going to assume that we're going to have a great for 40 years 50 years locked up based on todays rates. That's just asinine to go ahead and do a deal based on that.

And particularly when the company has the ability to hold off and do those sale leasebacks.

At the same condition.

Adam and we're not going to pay the ransom for sale leaseback and we don't have to so thats sort of the.

Robert Houghton: An increase of roughly $56,000 or 8% compared to the prior year quarter. Total subscriptions ended the quarter at approximately $830,000. Average center revenue per membership increased to $722, an increase of 9% from $660 in the prior year quarter. Adjusted net income was $26.7 million compared to an $11.5 million adjusted net loss in the prior year quarter. Year-to-date adjusted net income was $91 million compared to an adjusted net loss of $67 million in the prior year period.

I really see the company being <unk>.

And in an amazing position.

It seems like every time we have.

Our earnings release, and we grow revenue as we grow EBITDA and we grow margins.

The focus goes on what people can pick on that would be negative. There is no. There is nothing negative about our business, where I'm proud of our team for.

Rocking and rolling with every objective that we put forward.

Regardless of what the Street thinks Brian The company has said sequential priorities.

And knocking them down one after another and that's what I'm most proud of with our company.

Robert Houghton: Adjusted Deluted EPS was 13 cents compared to a loss of 6 cents per share in the prior year quarter. Year-to-date adjusted deluded EPS was 45 cents versus a loss of 35 cents per share in the prior year period.

There is the fact that everybody is just executing what's right for the entity.

Yes.

That's very helpful. Brahma, Richard if I can just ask one.

A follow up so you've called out in your comments I guess I would say better member utilization of our facilities, which is obviously another huge positive here.

Bahram Akradi: Importantly, our net cash provided by operating activities was $115 million compared to $45 million in the prior year[inaudible] I will now turn the call over to Buram.

I mean are you see is that.

Is that across the chain or are there particular areas, where that's true and then I know you don't you want to talk specific about sure, but I guess, we got it. Thank you.

<unk> talked about for a long time that if you. If your members are utilized in the facilities more frequently they are far less likely to churn that so theres a big financial policy, that's correct right.

Most of those are first of all your first question it's universal.

We.

Came out of the Covid.

I expected attrition rate with having no promotions, having more programming, having more signature programs I expected.

Bahram Akradi: Thank you, Bob. I'm extremely proud of the entire team at Lifetime for working terrously and passionately to achieve all the priorities that we have set for the last three years since returning from the interruption of COVID. Our first priority was to restore the number of visits and dues revenue to our clubs.

Bahram Akradi: We have accomplished both of these in 2023. Our second priority was rebuilding or adjusted EBITDA margin to pre-COVID levels and beyond. At adjusted EBITDA margin, margins of 23-24 percent each quarter this year, we feel excellent for having accomplished that priority. Our third priority has been to reduce net debt to adjusted EBITDA at a very rapid rate. With 506 million of trailing 12 months EBITDA at the end of 3Q, we have now reduced the net debt to adjust EBITDA to 3.7 times and we expect to be below 3 times by the end of 2024.

The attrition rate would be lower.

2019.

To my.

Surprise it was consistently higher.

But it was coming down it was it was.

Then 2019.

It had a trend that showed it was getting better better better and then we started seeing.

Roughly about July August of this last year that the attrition rate is sort of a started it's kind of dropping below the 2019 levels.

Now 'twenty, two and 'twenty three we had a shift.

Student.

Memberships, where it would be used to put them on.

Automatically put them on hold for them and not counting the attrition in 'twenty two we basically did it.

Did away with that policy.

And.

Just to let them.

Decided to either keep their own membership or dropout, and then come back and join the net effect of that was half a million to a $1 million a month of incremental news positive, but on paper shows a higher attrition comparing apples and apples when you.

Bahram Akradi: Another important objective was to increase our member engagement through enhanced programs and member experiences. Our visits per memberships are up approximately 24 percent through the first nine months of 2023 compared to the first nine months of 2019. Increased visits or engagement per membership has been a critical part of our strategy and it is delivering the exact outcome we would expect. This creates stickier memberships and we are now seeing lower attrition rates than we did in 2019.

When you take that anomaly out compared to 2019.

Attrition has been lower almost every every month.

The last three four months and what we're forecasting for the next two to three months as well and.

So it's really a the outcome that we're looking for but we are seeing consistently.

Significantly more.

<unk> per membership as I mentioned, 24% through the first nine months and that's dramatic that's a huge shift.

A lot of engagement of the customer is so much higher.

Bahram Akradi: Clearly, our team is executing diligently to achieve all the priorities we have established sequentially to get us to this point. Now our next most important priority is to be cash flow positive after all capital expenditure without any proceeds from Southeast back. The convergence of two things that I'm excited to share with you is helping us to achieve this very important priority and approximately two years ahead of what we thought is possible just a year ago. One, our strong outlook of adjusted EBITDA performance and two, the significant asset like opportunities our team has been working on will allow us to deliver a cashflow positive position in the second quarter of 2024.

We should expect to see lower attrition and then finally, we're seeing it.

That's very helpful. Again, congratulations nice work. Thank you. Thank.

Thank you Bryan Bryan.

Thank you our next questions come from the line of John <unk> with Guggenheim Securities. Please proceed with your questions.

Hey, Brian Let me I want to start with.

How is dynamic stretch progressing right is that do you think thats still a $50 million opportunity next year or something like that and then is there anything else I know nothing may be that big.

Any other services or topline initiatives other than the retail stuff you talked about.

<unk>.

Dynamic dynamic stretch I think is a $50 million opportunity next year. The answer is yes.

It said, it's part and parcel with.

The rollout of that is actually helps our trainers.

Engagements with the customers.

It helps the pickle ball customers I mean, it's just it's just it's really it's a great program.

Bahram Akradi: Getting to the position of self-funding, all of the capital required to deliver double digit growth without any studies back has been a long time goal of the company I couldn't be more excited to be working on delivering on this particular priority by the end of second quarter of next year. For the next quarter of this year, we expect to grow revenue between 17 to 20% compared to the same quarter in 2022. With an adjusted EBITDA margin of 23 to 24% this will suggest revenue for the quarter of 555 to 565 million and adjusted EBITDA of 131 to 135 million.

I am I am pleased.

With the progress, we're making with it.

However, I think the bigger or the big impact is going to show up in 2024, and then look we we have been very sequential in our priorities.

And right now the clubs.

Core business is solid thus has been caught up obviously.

And are there like I said the membership.

Our swipes people visiting the clubs.

<unk>.

Month of August we basically almost in a mature clubs pretty much caught up with the number of visits in those mature clubs. This is not pure membership is just total visits.

In 2019. This is these are all great sequential progress as we've made.

Part of the other thing that we've done during this shift by three or four years.

Bahram Akradi: Important to highlight, we had planned several revenue expanding initiatives to launch in early fourth quarter and at this point we expect to roll out in 2024. While we are not providing any official guidance for 2024 at this time, I would like to make it clear that we expect double digit growth both for revenue and adjusted EBITDA in line with our earlier expectations. All the while, more of this growth will be coming from more asset-light opportunities. Finally, we are expecting a couple of yellow eyes for additional cell lease back transactions.

We have shifted more of our personal training revenue, which was a small group Inc.

Into subscription business, which is all coming in dues with all the signature program. So when you start looking at the overall picture.

Clubs are.

Hitting same number of visits or more they are having lower attrition rates. The dues revenues are significantly higher than had been margins are better than they have been so I feel like all of those things are working and now with about 150 plus billion impressions a year.

Bahram Akradi: However, with the outlook of being able to deliver a cashflow positive, after all capital expenditure by the second quarter of next year, we can be very patient and diligent in negotiating the most favorable cell lease back terms. And determining whether to execute any additional transactions at this time.

It's now opportunity for a lifetime.

To start expanding on alright, how do we use our brand our network and eyeballs, what other product product and services customers can buy from us. So it's just now timeframe vendee inventing and rolling out new initiatives to continue to grow the topline and bottom line for the company out of this.

<unk> square footage.

Bahram Akradi: We now look forward to answering your questions. Thank you.

Okay, Great and then on the back too.

The whole path to free cash flow.

Unknown Executive: We will now be conducting a question and answer session. If you 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 you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key. One moment, please, while we poll for your questions.

So.

What do you think is an acceptable cap rate Mike.

I guess it was probably in the mid sixes.

What's the what's the price.

Spec for adjustable cap rate. So I think that was something you guys were considering.

And then lastly to sort of get too.

Free cash flow positivity next year.

It looks like Capex has to be down around $400 million give or take.

Megan Alexander: Our first questions come from the line of Megan Alexander with Morgan Stanley. Please proceed with your... Hi, thanks for taking our question.

My math is that way off.

When you talk Capex Youre talking maintain.

Bahram Akradi: First one, you know, maybe can you just talk a bit about your expectations embedded in the 4Q revenue outlook? It is a bit below where you implied previously. So, you know, is that driven by something you're seeing in membership joins or attrition or just some additional conservatism? Nope, it's not in membership or attrition. The impact is typically when we go from 585 million of EBITDA revenue into 3Q to the 4Q, for our size of company now there is at least 30 plus million, 35 million dollars of revenue that doesn't exist between summer camps and other activities, summer activities.

Maintenance Capex and growth Capex combined total total yeah.

We can fund more than that and it will be.

Probably $4 50, plus.

Is that weekend.

And.

More than $300 million of that will be for.

Growth capital of these building clubs remodeling facilities that we take over or <unk>.

Finishing our portion of the leasehold improvements with the clubs the location as a landlord is building.

Building out then handing over to US are we taking over the space. So.

There's plenty of capital to be cash flow positive.

After all growth capital.

Okay. Thank you.

Thanks.

Bahram Akradi: So, most of the revenue drop is all from those. So, we had initially intended to roll out a bunch of initiatives that are still in the process to sort of mitigate this drop. I don't really like to have any seasonal drops. So, we're trying to find ways to add additional sales coming through programs and not not services in the clubs, but like sales of apparel and nutritionals and stuff dynamic nutrition. And that rollout has been delayed now to early 24. So, we basically went back to the typical business. Business isn't really doing anything different than we expected. The core business is in line. Okay, thank you.

Thank you. Our next question comes from the line of Chris Carroll with RBC capital markets. Please proceed with your questions.

Hi, good morning, So Rob you've talked a lot about just the rewiring of the business and the cost structure.

As you are about to lap some of the step up in margins that you saw.

In the <unk> of last year can you expand a bit more on how you're thinking about the next opportunities for potential margin expansion and EBITDA growth here going forward.

So as I've mentioned in my remarks, I think the.

23.5% to 24% EBITDA margin.

Is sort of what I think the numbers that can we do better.

Possible I just don't want to.

I don't want to get anybody ahead of their skis with that.

I think the key now is just to continue to grow their business.

Bahram Akradi: And maybe a follow-up on the sale these facts and some of these asset light opportunities.

We get.

Bahram Akradi: Forgive me if I missed this, but I don't think you reiterated the 300 million proceeds expected this year. You are correct. At this point, we're waiting for some selling facts of an L.O.I.s to come in. And they have been delayed. So, the folks that have been, we've been in discussion to send those. They are still planning to send something. We're still waiting to get those.

And we have.

Quite a few clubs that they are now just going to be ramping.

The.

Newer clubs as we've opened.

Overall, the business is growing too.

Grow more.

More like it's recovered from Covid in 'twenty four and then just the natural growth of same store.

Bahram Akradi: However, as I mentioned to you clearly, at this point, the number one priority the company is not selling back. It's not anything else is to actually deliver free cash flow positive after all of the capital we need for maintenance, capex, interest as well as all of our growth capital from internally generated cash flow and deliver double digit growth. That's exact position we want to be in. When the selling back market is attractive, we will do more selling facts.

Thus the new stores and that's what we've always talked about doing a double digit.

Topline and bottom line growth.

But yes, I think the we're not going to have a 101%.

EBITDA growth quarter over quarter over of over $107 million, we posted last fourth quarter, there, but it'll be a nice growth I mean, it would be.

It's very substantial growth.

As you know, we've kind of market of 131 to $1 85.

So I'm proud of that I mean that is significantly higher.

Bahram Akradi: At this point, we don't need them. So, we will treat them exactly as they should. If they are within, these are 20 to 25 year initial terms with 20 to 25 year options. They are very, very long term transactions. And so we're not going to do a long-term transaction because a short-term blip on the interest rates.

Then what the numbers had been just before coming in today for all for the fourth quarter EBITDA. So the team is continuing to perform I mean, just a business is performing team is performing.

Alright.

<unk> not.

Not having any major concerns about anything here, yes, Chris it's Bob just to add a couple of points to that will open eight clubs in the back half of this year. So we'll get a nice ramping benefit from all eight of those clubs next year and then because we've rewired the corporate office that won't grow nearly as fast as revenue growth next year. So those will be a couple of contributors to our EBITDA dollar.

Bahram Akradi: Okay, that makes sense. That was kind of my question there. So it does seem it's just a more of a short-term shift given the macro and rate. Oh, it's absolutely short.

Bahram Akradi: Yes, we have, we have so much we literally have a hundred asset life opportunities in the pipeline right now. So we can continue to deliver beautiful locations great growth for the company without having to spend substantial amount of capital. And the cash flow, the company that EBITDA that we have this year, the EBITDA for growing double digit for next year, it generates substantial free cash flow after interest and maintenance capex. It's more than enough for us to deliver double digit top line and adjusted EBITDA growth without needing any external capital. This is exactly the ideal position for the company.

Growth in 2024.

Got it okay. Thanks for all that detail.

And then I guess for my follow up can you maybe talk a little bit about what youre seeing from your more recent club openings in terms of demand levels pricing observations any detail around what youre seeing in those recent openings will be great. Thank you.

So most of the clubs.

Have been opening.

Ahead of our projections.

And our dues revenue substantially more frankly.

<unk>.

Okay.

Just very quickly.

Cash flow positive.

Contribution margin positive at the club level.

Bahram Akradi: You know, last year, you know, I anticipated it would take about 700, 750 million of EBITDA to get there with the plant. And this is, again, not including Southeast backs. That would have required to build those big clubs, which from ground up, not asset life, then going to asset life with the Southeast back. It would have postponed that this situation to a probably couple of years later.

<unk>.

Significantly faster than our previous models I mean, when we look when we look back into 2019 and back.

This is what how we are opening clubs right now.

They are sometimes contribution margin positive and just literally second or third month, which is pretty nice I mean, they are doing.

They are.

Consistently beating the business plan for us.

Great. Thank you.

Bahram Akradi: But now with the EBITDA growing faster and asset life opportunities getting stronger, we can deliver this asset, we can deliver this important milestone early next year, which I'm super excited about. Okay.

Yeah.

Thank you our next questions come from the line of Kate Mcshane with Goldman Sachs. Please proceed with your questions.

Thanks for taking our questions. This morning.

Just as a follow up to one of the previous questions. Some of the initiatives that you had planned for the end of fiscal year 'twenty. Three for revenue is that then rolled into Q1 or is it later into 'twenty four.

Bahram Akradi: Thanks, Ram.

Bahram Akradi: I'll pass it on. Thanks.

Bahram Akradi: Thank you.

Brian Eagle: Our next questions come from the line of Brian Eagle with Oppenheimer and Company. Please proceed with your questions.

Bahram Akradi: Good morning. Good morning, Ron. First off, congratulations on another nice quarter. The business. Thank you. You know, we've talked a bit about a while of these asset light opportunities. You know, and clearly this is key. You'll explore in these sort of say is key to you getting castle positive much earlier than you initially thought, but. So the question I have is you look at the business you step back. Is there any in you think you compare the asset light opportunities to more your more traditional model, you know, the material finance model.

And then our second question is just around.

Membership fees can.

Can you talk a little bit more about what youre seeing with response to higher membership prices and as we look into 'twenty for how you're thinking about additional rate increases on your legacy memberships.

Bahram Akradi: Is there any other offset sort of say is there is there any is there any other, you know, thing we something we should consider with these asset light opportunities. They're just despite despite them just as enable apply using less capital. Yeah, there's a couple of different things with those Ryan. First of all, you know, sometimes it will take a few more clubs to deliver the revenues of some of the other ones.

So great.

Great questions Kate first.

I expect to roll these things out.

Early now there are a number.

Of.

Things that we have to tie in and Thats why the delay is we are reworking our.

Digital offering and then <unk>.

Creating the online business, which is the products apparel nutritional products dynamic nutrition.

All in our athletic events or add links business all tie into one.

Seamless engine to make it super easy for our customer what we are not doing great right now Kate.

Bahram Akradi: And so we we will probably end up having more clubs opening some of them large, the similar size that are big, big, big clubs that we do ground up. And some of them will be smaller. We have some clubs where, you know, they're pretty much brand new clubs. It's all funded by landlords, you know, upfront. And then, but at the end, we are also continuing to secure. Our locations have been working on for a long time to do the ground ups.

As we are in taking advantage of all the different connections we have on all different.

Programs, we have and we make actually purchasing.

Things.

Almost difficult for our customers. So there is a essential work being done to systematize.

All of that so once you're in the App you can make.

Easy transactions with your joint if you go to one of our athletic events and you wanted by the T shirt associated with that would be a lot easier than it is happening right now so there's kind of a work being built.

Bahram Akradi: So as you sort of shift the growth a little bit, you can see that in 2024 we can deliver double digit growth, we can pay down some debt, particularly in the 3Q, 4Q, which is nice cash flow coming in, just pure pure cash flow after growth cash flow. Everything included, and then as this EBITDA grows and then free cash flow grows, we can even literally fund some of the big boxes, ground ups, all from internally generated cash flow.

And as I talked about being sequential.

Priorities that we had to get us to the point of 500 plus million of EBITDA.

<unk> all of these these types of work that was the number one priority now that we are there we are working on these things.

No.

It will continue.

I hope it to be in first quarter, there, but at the latest soon with the second quarter of 2024 that we would have those machines all tied up together and then pressing the opportunity for the customers we are not.

Bahram Akradi: However, I just want to be clear, the company is committed to the sell lease back sort of a proposition. It's we're not backing down from doing sell lease back, it's just timing. You know, at this point, you know, we just have to take a look and see if these L.O.I.s coming, considering the fact that interest rates ultimately are going to go back down, or, you know, they're going to assume that, you know, we're going to have a great for 40 years, 50 years locked up based on today's rates.

Focused on doing anything different with that any product that we put out there has to be absolutely the best.

It has to be having the right right Y and then as far as your second question.

The the way the prices were established for the company was a function as I've said repeatedly.

It was a function of delivering the right experiences in the clubs.

And Covid.

While it had many.

Pain points for our company also allowed us.

Bahram Akradi: That's just as a night to go ahead and do a deal based on that. You just in particular when the company has the ability to hold off and do those sell lease back in the same condition. I have been adamant we're not going to pay ransom for sell lease back and we don't have to. So that's sort of the, you know, I really see the company being in an amazing position. You know that it seems like every time we have an airing release and we grow revenue, we grow EBITDA and we grow margins, the focus goes on what people can pick on that would be negative.

To sort of a clean slate and really make some wholesale changes.

That was much tougher to make.

And adjusting the price positioning of the clubs.

Was one of those major things for the most part.

Most of the clubs.

In the right.

Price points in my opinion.

Zinc maybe.

20%, 25% of our clubs.

We will have.

Are there opportunities to have the rack rate after a little bit.

In the next six to 12 months.

Bahram Akradi: There is no, there is nothing negative about our business. We're I'm proud of our team for, you know, rocking and rolling with every objective that we put forward. And regardless of what the street thinks, Brian, the company has said sequential priorities and knocked them down one after another. And that's what I'm most proud of with our company is the fact that everybody is just executing what's right for the entity. That's very helpful, Brian, I'm pretty sure of that.

But the bulk of the price changes have been made.

And we really like the the way the balance of.

Revenues coming from that the engagement of the membership from that we really like the.

The experience that the club can provide based on which really Curating alright. At this club should have 6500 memberships not 9500 memberships, but at 6500 memberships will have.

Brian Eagle: And if I can assess one follow up. So you called out in your comments, the I guess I would say better member utilization of the facilities, which is obviously another huge positive here.

More engaged customers. So all of those have been balanced out I would say probably 80% of their work is complete 85% complete.

It'll be it'll be going to the markets.

Bahram Akradi: The question is, you see, is that across is that across the chain or there are particular areas where that's truer. And then, and I know you know, you want to talk about sure, but I guess we've got to think that we talked about it for a long time that if your, if your members are utilized the facilities more frequently, they're far less likely to turn them. So there's a big financial positive. That's correct, right.

We have been behind.

In executing our own play with excellent so.

We have to deliver the experience that customer.

Is super thrilled with and then you have the price opportunity to adjust the price.

Bahram Akradi: That both of those are, first of all, your first question is universal. When we, when we came out of COVID, I expected the tuition rate with it, having no promotions, having more programming, having more signature programs. I expected that tuition rates would be lower than 2019. To my, you know, surprise, it was consistently higher, but it was coming down. It was, you know, it was higher than 2019 and it had a trend that showed it was getting better, better, better, and then we started seeing roughly about July, August of this last year.

Because that's become secondary but bulk of the bulk of the price adjustments have been made the difference is now.

So we still have a significant amount of members who are paying below that rack rate, which we have repeatedly also explained we would not be taking them up to the full rack rate all at once.

Just a little bit over over years and that creates loyalty with them.

Lower attrition rates also provide revenue growth opportunities through the club.

Thank you.

Mhm.

Thank you. Our next question comes from the line of Dan <unk> with Wells Fargo. Please proceed with your questions.

Hey, good morning, everyone.

Bahram Akradi: There, the attrition rate, sort of a star that's kind of dropping below the 2019 levels. Now, 22 and 23, we had a shift in student memberships where it would be used to put them on, you know, automatically put them on hold for them, and not counting the attrition and 22, we basically did, you know, it did, did away with that policy. And just to let them decide to either keep their membership or drop out and then come back and join that effective that was half a million to a million dollars a month of incremental dues, positive, but on paper shows a higher attrition comparing apples and apples when you, when you take that anomaly out compared 2019.

Right.

Hey.

I wanted to talk a.

A little bit of a center opex.

Fixed out to us and just that had been the biggest driver I think to your earnings beat the last several quarters.

This is an environment, we keep hearing about rising costs across our companies that we cover so I guess, how are you thinking about opex and managing costs into 2024.

Either on a dollar basis versus 2023 or on a per center basis, but I know this could be a little bit noisy given your evolving evolving mix of new centers ramping and asset light conversion, so any kind of high level thoughts in 2024.

More on the cost side.

<unk>.

That I think what Youre, saying is are we expecting the cost of <unk>.

Operations increase right is that what youre asking.

Yes, whether it's labor whether.

Bahram Akradi: Our attrition has been lower almost every, every month, the last three, four months and what we're forecasting for the next two, three months as well. And, and so it's really a, the outcome that we're looking for, but we are seeing consistently significantly more visits per membership, as I mentioned, 24% through the first nine months. And that's dramatic. That's a, that's a huge shift. The level of engagement of the customer is so much higher that we should expect to see lower attrition when finally we're seeing it.

Insurance.

Marketing any any other in terms of your center Opex rate because that's just that's driven a lot of the upside at least relative to where we value. So as we think about going forward, maybe the puts and takes.

As you think about how that.

How the cost environment has been pretty much a challenge across the board here.

I don't I don't I don't really see that.

Any any specific unusual thing I think.

Traditionally you.

Expect.

Labor go up 1% to three something like that and that's part of it was just the inflation inflationary factors normal inflationary factors.

Brian Eagle: That's very helpful. Again, congratulations. Nice work. Thank you. Thank you, Brian. Thank you.

But right now we're not seeing we're not seeing.

Any major challenges or problems. There is no employee challenges there is no shortage of employees.

John Heinbockel: Our next questions come from the line of John Heinbuckle with Guggenheim Securities. Please proceed with your questions.

There is more and more people applying to get the get work than they have in the past couple of two to three years.

John Heinbockel: Hey, Baram, let me, I want to start with how is dynamic stretch progressing, right? Is that, is that, is that, do you think that's still a $50 million opportunity next year or something like that? And then is there anything else? I know nothing, maybe that big, any, any other services or a top line initiative, other than the retail stuff you talked about coming next year. We dynamic, dynamic stretch, I think, is a $50 million opportunity next year.

The number of people applying for personal training jobs have doubled.

So we.

We really have no excuses for that.

At least we don't.

Okay, Great and then.

Other kind of follow up question on just the conversions.

As you think about next year I don't know if you've given a number specifically in terms of new units I think we usually penciling 10 to 12.

John Heinbockel: The answer is yes. It's, it's a, it's a part and parcel with, you know, the, the role of that is actually helps our trainers, engagements with the customers. It helps the pickleball customers. I mean, it's just, it's just, it's really, it's a great program. I am, I am pleased with the progress we're making with it.

We look on the website I think maybe maybe two of those are asset light and seven are the big asset heavy type type build so one wanted to see if you have an expectation for number of new units next year and maybe the mix and then similarly, how we should think about the evolving change in whether its dues per membership our mix.

In center revenues versus <unk>.

Bahram Akradi: However, I think the big role, you know, the big, you know, impact is going to show up in 2024. And then look, we, we have been very sequential in our priorities. And right now, the club's core business is solid. That's has been caught up, obviously. Like I said, our swipes, people visiting the clubs. In month of August, we're basically almost in a mature club, pretty much caught up with a number of visits in those mature clubs.

Versus the other ancillary services as you shift to more of these asset light conversions yeah no.

Talk to you about the asset light.

It's not these are not a different business model than I appreciate your asking and giving us the chance to clarify this.

We're not planning to deliver a different experience or a different product a different price point with the asset life. It's just that they're just asset light, where we're taking over other assets marine modeling them to deliver the lifetime experience.

The landlords are bringing us assets and given it to us and Theyre, giving us.

Bahram Akradi: This is not per membership, this is just total visits. In 2019, these are all great sequential progress as we've made. Part of the other thing that we've done during this shift last three, four years, we have shifted more of our personal training revenue, which was a small group into subscription business, which is all coming indoors with all the signature programs. So when you start looking at the overall picture, clubs are in a bidding, same number of visits or more, they are having lower attrition rates.

Significant <unk> to take.

Take those assets, we think with the pressure on the real estate market.

There's going to be a lot more of those coming up rather than a lot less.

And with that we are not intending to deliver a different price point or a different experience and I'm again I'm. So glad you are asking so that there's no confusion here.

It is just going to be cell lifetime is still the same price point.

Still the same.

Margins everything is the same it's just we don't have to.

Bahram Akradi: The dues revenues are significantly higher. They've been margins are better than they've been. So I feel like all of those things are working. And now, with about 150 plus billion impressions a year. It's now opportunity for lifetime, sort of to start expanding on, all right, how do we use our brand, our network and our eyeballs, what other product and services customers can buy from us.

Plop, a huge amount of money upfront.

On our own and look again I look at this company, obviously super long term.

Three or four years from now.

Our EBITDA will be such that will allow us to build all of our ground ups.

Internally generated cash flow as well.

Bahram Akradi: So it's just now time for inventing inventing and rolling out new initiatives to continue to grow the top line and the bottom line for the company out of the same score footage. Okay, great.

So.

So.

And we still are committed to sell leaseback.

When the interest rates.

Subside start going the other direction I think we will have the opportunity and we immediately will take into that is that point.

Bahram Akradi: And then on the back to the whole path to free cash flow, right? So what do you think is an acceptable cap rate? My guess is probably in the mid six is, what's the prospect for adjustable cap rates? I think that that was something you guys were considering.

If we take the sale leaseback proceeds plus our internally generated cash flow.

Going to be way more cash flow.

Then the company needs to us either.

One of the two things reducing debt substantially more.

Robert Houghton: And then lastly, you know, to sort of get to, you know, free cash flow positivity next year, it looks like CapEx has to be down around 400 million give or take by my math. Is that way off? When you talk CapEx, you're talking maintenance, maintenance CapEx and growth CapEx combined total, yeah, total. Yeah, we can fund more than that. It will be probably for 50 plus is that we can and and more than 300 million of that will be for growth capitals is building clubs, remodeling facilities.

And that makes sense to a point and then I will go to the board and ask for.

Share buyback plan.

Together and we have the ability to do that as well when it makes sense right now I just want to be clear. The next important priority for me and the rest of the company.

Put lifetime.

In control of its own destiny and that is what we have in our fore sight for the second quarter of next year.

To be cash flow positive after we pay for all of our growth.

I really appreciate the questions I really.

One I think the questions you guys ask.

Robert Houghton: That we take over or the finishing our portion of the lease hold improvements with the clubs, the locations that landlord is building. The building out and handing over to us are we taking over the space? So this plenty of capital to be cash flow positive after all growth capital.

<unk> more clarity. It helps you guys build your models, but for me and lifetime.

We are just being sequentially getting done what's important for the company in.

We're in a really great position right now.

Got it and then just.

Sorry, just to clarify was there a number of units for next year, we should be penciling in at about 10 to 12 still good number yes, 10 to 12 is good.

Robert Houghton: Okay, thank you. Thanks. Thank you.

As I've mentioned before.

Chris Carril: Our next questions come from the line of Chris Carril with RBC Capital Markets. Please proceed with your questions. Hi, good morning. So, yeah, Brahm, you talked a lot about just the rewiring of the business and the cost structure.

It may I wouldn't change your model because we need to provide more color for you guys Dan.

It may take.

Few more of these clubs to generate.

The same revenue growth it may take 14 of them.

Bahram Akradi: But as you're about to lap some of the step up in margins that you saw in the 4K last year, can you expand a bit more on how you're thinking about the next opportunities for potential margin expansion in EBITDA growth here going forward? Yeah, so as I mentioned in my remarks, I think the 23 and a half to 24% EBITDA margin is sort of what I think the numbers, can we do better?

But what.

But we are we are.

I was very clear on my remarks, we're not in a position to provide guidance for 2024 at this point, but there will be there will be.

Time being you can plan at these 10 to 12 and there might be more but I wouldn't say that those if we did 14. It doesn't mean you will ramp up your revenue or your EBITDA. It just means some of these are going to be 60000 square feet assets are 80000 square feet assets.

Bahram Akradi: I, you know, possible. I just don't want to, you know, I don't want to get anybody ahead of their skis with that. I think the key now is just to continue to grow the business, you know, we, we get, we have quite a few clubs that they are now just going to be ramping, you know, through the, you know, the newer clubs that we have opened the overall, the business is going to, you know, grow more.

So they have taken more of them to accomplish what 100 Twenty's do so.

It's just it's just a more flexible way of growing our top line our bottom line.

Understood I appreciate all the color. Thanks, guys. Thank you thanks, Dan.

Thank you our next questions come from the line of Simeon Siegel with BMO capital markets. Please proceed with your questions.

Thanks, Hey, guys good morning.

Good morning Simeon.

Bahram Akradi: More like it's recovered from COVID in 24 and then just the natural growth of same store plus the new stores and that's what is what we've always talked about doing a double digit top line and bottom line growth. But yes, I think the, you know, we're not going to have a hundred and one percent EBITDA growth quarter over a quarter, there, you know, over over a hundred and seven million that we, we posted vast fourth quarter, but it will be a nice growth.

This is the last question is I think this might be helpful. Could you help differentiate from asset light models, where you plan to partner with a third party who might be doing more of the heavy lifting and you collect a very high margin flow through versus what I think sounds like might be really just getting opportunities to run the same existing approach to clubs you do but getting lower cost because you get the benefit from other underperforming.

<unk> locations does that does that makes sense.

Yes.

Wanted to ask that one more time.

Couldnt quite hear you.

Can you differentiate the last one it sounds like perhaps you're getting really good terms from underperforming assets from others. So the asset light is.

Bahram Akradi: I mean, it will be just very substantial growth as we've kind of marked up one, 31 to one, 35. So, you know, I'm proud of that. I mean, that is significantly higher than what the numbers had been just before coming in today for all for the fourth quarter, their EBITDA. So the team is continuing to perform. I mean, I just do businesses performing. Team is performing. Not, not, not having any major concerns about anything here.

The same model, we know you for but coming at it with a good basis as opposed to maybe when we had talked about living in work and other models, where you could from an asset perspective partner with someone and.

It actually might be a little bit of a different model. So is that all right appreciate it in there.

Right. So that's a great question Simeon so the asset light.

Discussion will lifetime work or lifetime living is that we are basically using our brand.

Robert Houghton: Yeah, Chris, it's Bob just add a couple points to that. You know, we'll open eight clubs in the back half of this year. So we'll get a nice ramping benefit from all eight of those clubs next year.

Our 150 billion impressions, our IP, our management system more like Marriott or Hilton model.

Chris Carril: And then because we've rewired the corporate office, that won't grow nearly as fast as revenue grows next year. So those will be a couple of contributors to our EBITDA dollar growth in 2024. Got it. Okay, thanks for all that detail.

And it's just more of a license fee management fee.

That's that's the asset light version of that.

For the clubs the asset light right now.

Chris Carril: And then I guess for my follow up, can you maybe talk a little bit about what you're seeing from your more recent club openings in terms of demand levels, pricing observations, any detail around what you're seeing in those recent openings will be great. Thank you. So most of the clubs have been opening ahead of our projections. Yes, in our dues revenue, substantially more, and frankly, the, you know, just very quickly, cash flow positive, a contribution margin positive at the club level, you know, significantly faster than our previous models.

Breakdowns of two categories, and we have discussions and we have nothing worth anybody modeling anything west.

If we do we do anything internationally and I'm not talking Canada, but outside of the two to three hour flight time.

We more likely would do those similar to the lifetime, leading lifetime work Hilton Marriott model asset light.

As our use of our IP.

For U S. Our contribution margin our business model is so powerful.

That we want to we want to run these im not suggesting we would never do.

<unk> management deal.

Chris Carril: I mean, when we look, when we look back in the 2019 and back, versus what, how we are open. In clubs right now, they are sometimes contribution margin positive in just literally second or third month, which is pretty nice. I mean, they're doing, they're, they are consistently beating the business plan for us. Great. Thank you.

If it makes sense, we do it but for the most part lifetimes locations are actually owned and operated lifetime, whether it's through a lease or owning the facility. So your question on how this asset lives coming in it we're buying stuff.

Four.

We're buying buildings today for less than the cost of just land.

These are older clubs and then we put their money into remodeling them.

Kate Mcshane: Our next questions come from the line of Kate McShane with Goldman Sachs. Please proceed with your questions. Thanks for taking our questions this morning. This is a follow up to one of the previous questions. Some of the initiatives that you had planned for the end of fiscal year 23 for revenue. Is that then rolled into Q1, or is it later into 24? And then our second question is just around membership fees. Can you talk a little bit more about what you're seeing with response to higher membership prices? And as we look into 24, how are you thinking about additional rate increases on your legacy memberships? Yeah.

They're going to be 100000 square feet facility for significantly less capital.

Then we would have done if we had gone from ground up so.

And or sometimes landlords, who have had other tenants who have not performed they're taking those assets away and they are coming to us.

The fact that we treated all the landlords and I've been saying this repeatedly.

Absolutely.

Separately during the time that people were not paying rent we paid all their rent.

And that Lifetime's brand and reputation is allowing landlords come to us and make deals with us.

Bahram Akradi: So great, great questions, Kate. First, I expect to roll these things out early. Now, there are a number of things that we have to tie in and that's why the delay is we are reworking our digital offering and then creating the online business. Which is the products apparel nutritional products dynamic nutrition. All and our athletic events are athletes business all tying to one seamless engine to make it super easy for our customer.

That theyre completely asset light for us, but we it's no different than we had the rest of our clubs does that does that answer your question Simeon.

Perfect great.

Explanation so thank you.

And then just quickly Bob one quick one around the change in Capex reporting is that is that just the 23.

Has that changed how you're approaching capex spend or just how you're reporting it given the comments you've made around waiting to see how the environment shifts in this year.

No I want to be clear.

I want to have full flexibility of how we shift capital.

Bahram Akradi: What we are not doing great right now, Kate is we aren't taking advantage of all the different connections we have on all different programs we have. And we make actually purchasing things almost difficult for our customers. So there is an essential work being done to systematize all of that. So once you're in the app, you can make easy transactions with your joint. If you go to one of our athletic events and you want to buy the t-shirt associated with that would be a lot easier than it's happening right now.

To take advantage of all the opportunities ahead properly and still deliver.

The the lifetimes standard.

Making sure everything is like Neil whether if there are 10 years old 20 years old 25 years old.

But the and that flexibility is what I don't want to create confusion for you guys and if I want to take.

<unk> million dollars from one bucket into the other back and forth. It's just not it's not worth getting people confused over so we're just going to report the total capital.

On growth and maintenance Capex as one going forward. So Simeon just a reporting change not a change in how we deploy.

Bahram Akradi: So there's kind of a work being built. And as I talked about being sequential. I mean, the priorities that we had to give us to the point of 500 plus million of EBITDA trumped all of these types of work. That was the number of on priority. Now that we are there, we're working on these things. So it will continue to I hope it's the first quarter but that the latest will be second quarter of 2024 that we would have those machines all tied up together and then pressing the opportunity for the customers we're not focused on doing anything different.

Perfect well to make sure of that Alright, that's great guys. Thank you and best of luck for the rest of the year.

Thank you so much.

Thank you. Our next question is comes from the line of Ravi owns with Bank of America. Please proceed with your questions.

Good morning.

A couple of questions. The first is can you.

Can you give any commentary on kind of how <unk> membership.

Our trends are versus expectations have you seen any.

The changes are hesitancy related to student loan repayments or anything like that.

Bahram Akradi: And then we've got any product that we put out there has to be absolutely the best that you know, it has to be having the right right why and then as far as your second question. The way the prices were established for the company was a function as I've said repeatedly was a function of delivering the right experiences in the clubs. And COVID, while had many pain points for our company also allowed us to sort of have a clean slate and really make some wholesale changes that was much tougher to make and adjusting the price positioning of the clubs was one of those major things for the most part.

How do I see any.

Membership is growing so look we are.

We don't have a huge change of expectation from our membership.

And that's due to the fact that.

New membership sales in our company are really don't change the outcome.

Of.

The net membership is what youre looking for.

You have a little lower attrition you could sell a few thousand thus memberships in a month, but then lower attrition will said the it's really a net membership.

And right now we feel we feel like.

We have been just right on forecast on our targeted reduce revenue for the quarter there.

Bahram Akradi: Most of the clubs are in the right price point in my opinion. I think maybe 20% 25% of our clubs will have further opportunity to have the rack rate up a little bit in the next six to 12 months. But the bulk of the price changes have been made. And we really like the way the balance of revenues coming from that the engagement of the membership from that we really like the experience that the club can provide based on really curating or at this club should have 6,500 memberships not 9,500 memberships.

To be clear it isn't like people are pouring in to sign up so I don't know what you guys are seeing from your other.

Other services or businesses.

This moderate it's not it's not horrible its not great. Its just steady but the beauty of our business is that this is a strong subscription base.

Bahram Akradi: But at 6,500 memberships will have more engaged customers. So all of those have been balanced out. I would say probably 80% of the work is complete 85% is complete. We're going to the markets that we have been behind in executing our own play with excellence. So we have to deliver the experience the customer is super thrilled with. And then you have the price opportunity to adjust the price because that's become secondary.

In every given month.

Sales new sales is 136 131 for the year of the total impact.

On our total revenue or EBITDA. So it's.

It's really less important the net the net membership is.

And is the key and we're doing well with that.

Got you Thats helpful.

Then one of my other questions was just the center operations costs are running.

Sort of flattish this quarter.

How are you kind of holding the center ops operation cost per per.

Per average center kind of flattish with the swipes going up.

That's a great question so.

The.

Our.

Our center cost.

Fluctuates.

Bahram Akradi: But bulk of the bulk of the price adjustments have been made. The difference is now so we still have a significant amount of members who are paying below that rack rate, which we have repeatedly also explained we would not be taking them up to the full rack rate all at once. It will be just a little bit over over years. And that creates loyalty with them lower attrition rates also provide revenue growth opportunities to the club. Thank you.

Because of this.

Type of revenue that comes in.

So in the summer months, we have.

Great revenue and a great margin of the summer camp, we have great revenue.

But not a great margin.

<unk> increased.

Activity on the on the pool deck. So you basically have a lot more customers coming in but we have massive amounts of lifeguards and so.

I think if you try to dissect it.

Month by month, it's not even the same.

The three months of a particular quarter if thats helpful. At all for you like <unk>.

Dan Politzer: Our next questions come from the line of Dan Pollitzer with Wells Fargo. Please proceed with your questions. Hey, good morning, everyone. Hi, Dan. Hey, I wanted to talk on a little bit of the center op-ax. That's fixed up to us and just that it's been the biggest driver, I think, to your earning speed to the last several quarters. You know, this is an environment we keep hearing about rising costs across our companies that we cover.

Third quarter.

July and August are more of the same in September is totally different.

When you look at it in a three months basis.

We are delivering.

The team is delivering better than the budget.

In terms of what I can tell you is that.

The numbers are.

Bahram Akradi: So I guess how are you thinking about op-ax and managing costs? in the 2024, either on a dollar basis versus 2023 or a first-center basis, but I know this could be a little bit noisy giving your evolving mix of new centers ramping and asset-like conversion. So any kind of high-level thoughts is 2024 and more on the cost side. Now I think what you're saying is, are we expecting the cost of operations increase, right?

On the topline and bottom line on.

On the topline is as good as what we had expected on the bottom line slightly brother as you can see in the results but.

But they're really like a fourth core there.

The revenue mix shifts.

We have about naturally.

2000 $30 million less revenue.

As our summer revenue that doesn't exist in the fourth core there and so what we are balancing is to try to give you guys.

Bahram Akradi: Is that what you're asking? Yeah, whether it's labor, whether you know insurance, you know, marketing, any any in terms of your center off-act, right? Because that's just that's driven a lot of the off-site at least relative to where we value. So as we think about going forward, maybe the puts in takes as you think about how the cost environment's been pretty much a challenge across the board here. Yeah, I don't really see that any specific unusual thing, I think.

With all the different moves we make that.

That steady 23, 24% EBITDA margin.

But thats all comes in different forms of shapes.

Got it that's very helpful. Thanks, so much.

Thanks Ravi.

Thank you our final question will come from the line of Chris <unk> with Deutsche Bank. Please proceed with your questions.

Hey, good morning, guys.

Bahram Akradi: Traditionally, you expect, you know, labor to go up a percent, two, three, something like that. And that's part of just the inflation, inflationary factors, normal inflationary factors. But right now we're not seeing, you know, we're not seeing any major challenges or problems. There's no employee challenges. There's no shortage of employees. There is more people applying to get work than they have in the past couple to three years. The number of people applying for personal training jobs have doubled. So we really have no excuses for that. At least we don't. Okay, great.

Thanks for squeezing me in a lot of ground covered already but really wanted to.

I guess revisit.

The conversion angle.

Different way, which is you talked a lot about why it makes sense strategically and financially but is there any way to.

I think there is confusion in the market about about what this really means for you guys. I mean is there any way to.

Ring fencing in terms of this is what a what a.

Conversion club or Hawaii, or payback period, I mean, I think we can conceptually get it directionally, but is there any way to put numbers around it.

Show folks how.

How powerful it is.

Yeah I mean.

This is kind of taken a little work for us to create a dozen example for you guys of clubs.

Dan Politzer: And then another kind of follow-up question on just the conversions. As you think about next year, I don't know if you've given a number, you know, specifically in terms of new units, I think we'd usually potentially tend to 12. So I think as we look in the website, I think maybe two of those are asset-like and seven are, you know, the big asset-heavy type field.

Bahram Akradi: So one one to say if you have an expectation for a number of new units next year, maybe the mix. And then similarly, how we should think about, you know, the evolving change in, you know, whether it's dues per membership or mix of incentive revenues versus the other anti-layer services, as you shift to more of these asset-like conversions. Yeah, no, when we talk about asset-like, you know, it's not, these are not a different business model that I appreciate you asking and giving us the chance to clarify this.

I mean, there are clubs that we have built.

Of two conversion that they have better returns than some of our best.

Ground ups and then we have ground ups.

You know that they are better than some of the conversions, but if you look at them in aggregate. If you take a look at all the clubs if you look at lifetime.

Today.

Their disease or these are people think these are new stories Theres just no new stores is just it's just the pace of it.

And in 2006.

The company had INR 2030 clubs and I took over.

609 clubs at one time massive change to our.

Bahram Akradi: We're not, we're not planning to deliver a different experience or a different product or different price point with the asset-like. It's just that they're just asset-like. We're, we're taking over other assets, remodeling them to deliver the lifetime experience. The landlords are bringing us assets and giving it to us and they're giving us significant TIs to take those assets. We think with the pressure on the real estate market, there's going to be a lot more of those coming up rather than a lot less.

The size of company. These are much bigger clubs.

And they sometimes they take a little longer sometimes they take sure there.

But today when you look at it in a long term view every one of those clubs.

Our amazing assets and everybody will think of them today.

One of our ground ups, they don't think of them as something new.

So you're just going to think about the fact that we open a club.

X amount of square footage.

The programs that we have a strike and ultra fit in Gtx and alpha and all the same programs.

Bahram Akradi: And we are not intending to deliver a different price point or a different experience and I'm so glad you're asking so that there's no confusion here. It's just going to be still lifetime, it's still the same price point, it's still the same margins, everything's the same, it's just we don't have to plop a huge amount of money upfront on our own.

Whether or not that box was this box or that box or how.

How how the outside the us the insight programming is all the same.

And then as to cost of Okay. How much money do you have to spend.

And how long in advance.

And before you get the first dollar of revenue and these types of takeover. They just have a quicker turnaround.

Bahram Akradi: And look again, I look at this company, obviously super long term, three, four years from now, our EBITDA will be such that will allow us to build all of our ground ups out of internally generated cash flow as well. So, and we still are committed to sell these back, when the interest rates, you know, to subside, start going the other direction, I think we'll have the opportunity and we immediately will take into that, if that point, if we take the sell these back proceeds plus our internal energy cash flow, it's going to be way more cash flow than the company needs.

Get to revenue and EBITDA from them faster than you do when you go buy a piece of land.

It takes you three to four years before you have revenue coming from all of those dollars that you spent over that period of time.

So the right way to think about lifetime honestly as a portfolio, we're big enough today at 170 locations.

Bahram Akradi: So, it's either one of the two things reducing debt substantially more and that makes sense to a point and then I will go to the board and ask for a share by back plan put together and we have the ability to do that as well, when it makes sense.

To look at this company as a portfolio, we manage a portfolio of assets.

And.

It's the job of the entity and the executive team and the management of the company to sort of deliver a steady growth of revenue and EBITDA and memberships.

And while we uphold.

The quality of our brands. So it can gives us the opportunity for other ways using our brand to grow revenue and have expansion there.

Frankly.

I think.

The results will speak for themselves and when.

And we have.

Bahram Akradi: Right now, I just want to be clear, the next important priority for me and the rest of the company, it put lifetime in control of this own destiny and that is what we have in our foresight for the second quarter of next year to be cash flow positive after we pay for all of our growth. You know, I really appreciate the questions, I really want to think that the questions you guys ask creates more clarity, it'll help you guys build your models. But for me and lifetime, we are just being sequentially getting done what's important for the company and we're in a really great position right now.

I am proud of what the team has delivered the last three years.

And we expect to continue to grow revenue and EBITDA.

At a very very nice pace.

Despite whatever soft landing or hard landing that the market offers so.

What I would have thought is the most important thing.

Based on our assessment of the higher interest rates and the impact on different sides of it.

The economy and as I've mentioned to you guys. The difficulties with I think the real estate market is going to see.

We wanted to get to this cash flow positive.

After all of the capital we need for the growth.

Ah sooner sooner time than later and I'm, just really really happy where we're at with that.

Dan Politzer: Sorry, just to clarify, was there a number of units for next year, we should be penciling in it that 10 to 12 still good number. Yeah, 10 to 12 is good, just as I mentioned before, it may I wouldn't change your model because we need to provide more color for you guys then. You know, it may take a few more of these clubs to generate, you know, the same revenue growth, it may take 14 of them, but we are, we are.

Okay. Thanks.

Thanks, Bob and if I can just a super quick follow up you've talked in the past about potentially.

I guess the right word is franchising some of your concepts or licensing some of your concepts not locations, but dynamic.

Stretch or something like that or is that still on the table in terms of generating some some 100% fee based income.

Hi.

Well just tell you that.

Bahram Akradi: I was very clear on my remarks were not in a position to provide guidance for 2024 at this point, but there will be, there will be for time being you can plan at least 10 to 20. 12 and there might be more, but I wouldn't say that those if we did 14, it doesn't mean you will ramp up your revenue or your EBITDA, it just means some of these are going to be 60,000 square feet assets or 80,000 square feet assets so they take more of them to accomplish what 120's do. So it's just, it's just a more flexible way of growing our top line our bottom line. I'm just good.

Lifetime is completely open minded.

To benefit from.

The programming and the power of our brand.

But we are always going to protect the brand. So we're not going to jump into what sounds great.

And have some by the Bastardize, but.

Dynamic stretch ultra fit many of the programs we have.

Could become a franchise of old model.

At any given time, we decided to do it they are amazing programs with great success.

And there is no way, we couldnt do those as good as anybody else.

Dan Politzer: I appreciate all the color. Thanks, guys. Thank you. Thanks, Dan.

So that's a possibility, but it's not a straight line in the in the game plan of the company at this moment.

Simeon Siegel: Thank you. Our next questions come from the line of Simeon Siegel with BMO Capital Markets. Please proceed with your questions. Thanks, hey guys, good morning. Good morning, Simeon, Brian. For the last question, I think this might be helpful. Could you help differentiate from asset light models where you plan to partner with a third party who might be doing more of the heavy lifting and you collect a very high margin flow through versus what I think sounds like might be really just getting opportunities to run the same existing approach to clubs you do but getting lower costs because you get to benefit from other underperforming locations.

Simeon Siegel: Does that make sense? I wanted to ask that one more time. I couldn't quite hear you. Can you differentiate? So the last one sounds like perhaps you're getting really good terms from underperforming assets from others. So the asset light is the same model we know you for but coming at it with a good basis as opposed to maybe when we talked about living and work and other models where you could from an asset light perspective partner with someone. And it's it's not it actually might be a little bit different model.

Okay, great. Thanks.

Thank you so much.

Okay.

Thank you we have reached the end of our question and answer session I would now like to turn the floor back over to Brian Mariotti for closing comments.

No I appreciate everyone great questions hopefully we provided the right color for you guys.

Looking forward to.

With you guys again in three months.

Have a good day. Thank you. Thank you. This does conclude today's teleconference. We appreciate your participation you may disconnect. Your lines at this time enjoy the rest of your day.

Yes.

Okay.

Simeon Siegel: So that's a great question Simeon. So the asset light discussion and the lifetime work or lifetime living is that we are basically using our brand. Our 150 billion impressions are IP our management system more like a myriad or Hilton model. And it's just more of a license fee management fee. That's that's the asset light version of that for the clubs the asset light right now. It's going to break down to two categories and we have discussions and we have nothing worth anybody modeling anything with.

Yes.

[music].

Yes.

Okay.

Simeon Siegel: If we do we do anything internationally and I'm not talking Canada but outside of the two, three hour flight time. We more likely would do those similar to the lifetime living, lifetime work, Hilton, Marriott model, asset light user, user IP for us, our contribution margin, our business model is so powerful that we want to we want to run these I'm not suggesting we would never do a management deal. So if it makes sense, we do it, but for the most part, lifetimes locations are actually owned and operated lifetime with it is through a lease or owning the facility.

Simeon Siegel: So your question, how does asset lights coming and we're buying stuff for we're buying buildings today for less than the cost of just land. These are older clubs and then we put the money into remodeling them. They're going to be a hundred thousand square feet facility for significantly less capital than we would have done if we had gone from ground up so. And or sometimes landlords who have had other tenants who have not performed, they're taking those assets away and they're coming to us.

Simeon Siegel: The fact that we treated all the landlords, and I've been saying this repeatedly, absolutely properly during the, you know, time that people were not paying rent, we paid all the rent, and that lifetime's brand and reputation is allowing landlords come to us and make deals with us that they're completely asset light for us, but we, it's no different than we had built the rest of our clubs. Does that, does that answer your question, Simian?

Simeon Siegel: Yeah, perfect. No, great, great explanation. So thank you. And then just quickly Bob, one quick one around the change in CAPEX reporting, is that, is that just a 23, is that a change to how you're approaching CAPEX spend or just how you're reporting it given the comments you've made around waiting to see the environment ships in this year? No, I want to be clear, I want to have full flexibility of how we shift capital to take advantage of all the opportunities ahead properly and still deliver the, the lifetime standard of making sure everything is like new, but if there are 10 years old, 20 years old, 25 years old.

Simeon Siegel: But the, that flexibility is what we don't, I don't want to create confusion for you guys. And if I want to take $50 million from one bucket into the other back and forth, it's just not, it's not worth getting people confused over. So we're just going to report the total capital on growth and maintenance CAPEX as one. Yeah, so Simian, just a reporting change, not a change in how we deploy. Perfect. Let me make sure that's all right. That's great guys. Thank you. And best luck for the rest of the year. Thank you so much.

Robbie Owens: Thank you.

Robbie Owens: Our next question has come from the line of Robbie Owens with Bank of America. Please proceed with your questions.

Robbie Owens: Oh, good morning. Hey, I'm a couple of questions. The first is, can you, can you give any commentary on kind of how 4Q membership is our trends are versus expectations. Have you seen any. The changes or hesitancy related to student loan repayments or anything like that? How do I see. Memberships going. So look, we, we are, we don't have a huge change of expectation from our membership. And that's due to the fact that.

Robbie Owens: New membership sales in our company are really don't change the outcome of, you know, the net membership is what you're looking for, you know, you have a little lower attrition, you could sell a few thousand less memberships in a month, but then lower attrition will set the security or net membership. And right now we feel, we feel like, you know, we have been just right on forecast on our targeted dues revenue for the, for the core there.

Robbie Owens: To be clear, it isn't like people are pouring in to sign up. So I don't know what you guys are seeing from your other services or businesses. It's moderate. It's not horrible. It's not great. It's just steady. But the beauty of our business is that it's this strong subscription base. And every given month of sales, new sales is one thirty six, one thirty one forty of the total impact on our total revenue or EBITDA.

Robbie Owens: So it's it's really less important. The net, the net membership is the key and we're doing well with that. Gotcha. That's helpful. And then one of my other questions was just the center operations costs are running, you know, sort of flatish this quarter. How are you kind of holding the center operation costs per, you know, per average center kind of flatish with the swipes going up. That's a, that's a great question.

Robbie Owens: So the our, our center cost fluctuates because the type of revenue that comes in. So in the summer months, we have great revenue and a great margin of the summer camp. We have great revenue, but not great margin. Out of our increased activity on the, on the pool deck. So you basically have a lot more customers coming in, but we have massive amounts of lifeguards. And so, you know, I think if you try to dissect it, you know, month by month, it's not even the same.

Robbie Owens: The three months of a particular quarter if that's helpful at all for you like third quarter July and August are more the same and September is totally different. So when you look at it in a three month basis, we are delivering the team is delivering better than the budget is in terms of what I can tell you. So the numbers are on the top line and the bottom line are, you know, on the top line is as good as what we had expected on the bottom line slightly better as you can see in the results.

Robbie Owens: But, but they're really like a fourth core there. The revenue makes shifts. No, we have about naturally, like I said, $20, $30 million less revenue that is a summer revenue that doesn't exist in the fourth core there. And so what we are balancing is to try to give you guys, you know, with all the different moves we make that steady 23 24% EBITDA margin, but that all comes in different forms of shapes. Got it. That's very helpful.

Robbie Owens: Thanks so much.

Robbie Owens: Thanks, Robbie.

Chris Woronka: Thank you.

Chris Woronka: Our final questions will come from the line of Chris Woronka with Deutsche Bank. Please proceed with your questions. Hey, good morning guys.

Chris Woronka: Thanks for squeezing me in a lot of ground covered already, but really wanted to I guess revisit the kind of conversion angle in different way, which is, you know, you talked a lot about why it makes sense strategically and financially, but it's already way to I think there's confusion in the market. About what this really means for you guys. I mean, is there any way to, you know, ring-fensive in terms of this is what a what a conversion club ROI is or payback period.

Chris Woronka: I mean, I think we can conceptually get it directionally, but is there any way to put numbers around it to kind of, you know, show folks how, you know, how powerful it is. Yeah, I mean, just going to take a little work for us to create, you know, it doesn't example for you guys of clubs. I mean, there are clubs that we have built of two conversion that they have better returns than some of our best ground ups and when we have ground ups, you know, that they're better than some of the conversions.

Chris Woronka: But if you look at them in aggregate, if you take a look at all the clubs, if you look at lifetime today, they're, these are, these are people think these are new stories that there's just no new stories. It's just, it's just the pace of it. In 2006, the company had, I know, 2030 clubs and I took over six or nine clubs at one time, massive change to our size of companies were much bigger clubs.

Chris Woronka: And they take sometimes they take a little longer, sometimes they take shorter, but today when you look at it in a long term view, every one of those clubs are amazing assets and everybody will think of them today as one of our ground ups. They don't think of them as something new. So you're just going to think about the fact that we open a club. X amount of a square footage with the programs that we have a strike and ultra fit and GTX and alpha and all the same programs, whether or not that box was this box or that box or how, how the outside of is the inside programming is all the same.

Chris Woronka: And then it's the cost of, okay, how much money do you have to spend and how long in advance before you get the first dollar of revenue and these types of takeover, they just have a quicker turnaround. You get to revenue and EBITDA from them faster than you do when you go by a piece of land and takes you three to four years before you have revenue coming from all those dollars that you spent over that period of time.

Chris Woronka: So the right way to think about lifetime, honestly, is as a portfolio, we're big enough today at 170 locations, to look at this company as a portfolio. We manage a portfolio of assets and it's the job of the entity and the executive team and the management of the company to sort of deliver a steady growth of revenue and EBITDA and memberships, while we uphold the quality of our brand so it can give us the opportunity for other ways using our brand to grow revenue.

Chris Woronka: And they have expansion there. Frankly, I think the results will speak for themselves and we've I'm proud of what the team has delivered the last three years, and we expect to continue to grow revenue and EBITDA at a very, very nice pace, despite whatever soft landing or hard landing that the market offers. So what I have thought is the most important thing, based on our assessment of the higher interest rates and the impact and different size of the economy.

Chris Woronka: And as I've mentioned to you guys, the difficulties that I think the real estate market is going to see we wanted to get to this cashful, positive after all of the capital we need for the growth sooner, sooner time than later. And I'm just really, really happy where we are at with that. OK, thanks, Brahmin.

Bahram Akradi: If I can't just a super quick follow up, I mean, you've talked in the past about potentially. I guess the right word is franchising some of your concepts or licensing some of your concepts, not locations, but dynamic stretch or something like that. That's still on the table in terms of generating some 100% fee based income. I will just tell you that lifetime is completely open minded to benefit from the programming and the power of our brand.

Bahram Akradi: But we're always going to protect the brand. So we're not going to jump into what sounds great and have somebody bastard eyes, but dynamic stretch, ultra fit. Many of the programs we have could become a franchiseable model at the any given time we decide to do it. They are amazing programs with great success and there is no way we couldn't do those as good as anybody else. So that's the possibility, but it's not straight line in the in the game plan of the company at this moment.

Bahram Akradi: OK, great. Thanks. Thank you so much. Thank you.

Unknown Executive: We have reached the end of our question and answer session.

Bahram Akradi: I would now like to turn the floor back over to Barack Rady for closing comments. I appreciate everyone. Great questions. Hopefully we provided the right color for you guys looking forward to be with you guys again in three months. Have a good day. Thank you. This doesn't include today's telecomference. We appreciate your participation. You may disconnect your line at this time.

Unknown Executive: Enjoy the rest of your day.