Q4 2023 Life Time Group Holdings Inc Earnings Call

Operator: Good morning, and welcome to the Life Time fourth quarter and full year 2020 earnings call. Please be advised that reproduction of this call in whole or in part is not permitted without written authorization.

Good morning, and welcome to the Lifetime Group Holdings fourth quarter and full year 2023 earnings Conference call. Please.

Please be advised that reproduction of this call in whole or in part is not permitted without written authorization from the company. As a reminder, this conference is being recorded I would now.

Operator: As a reminder, this conference is, I will now turn the call over to, Vice President of Corp. Good morning, and thank you for joining us for the Lifetime 2023 Annual Earnings Conference Call. With me today are Brahma Krati, Founder, Chairman, and CEO, and Eric Weaver, Interim CFO and Chief Accounting Officer. 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.

I'll turn the call over to David Mackey, Vice President corporate finance.

Good morning, and thank you for joining us for the lifetime 2023 annual earnings Conference call with me today are Brian Crotty, founder, Chairman and CEO, and Eric Weaver interim CFO and Chief Accounting Officer.

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.

Eric Weaver: 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 refer to as the net debt leverage ratio, and free cash. This information, along with reconciliations to the most directly comparable gap measures, is included in the company's earnings release issued this morning, our 8K filed with the SEC, and on the investor relations section of our website. With that, it is my pleasure to turn the call over to Eric Weaver. Eric.

The company will discuss certain non-GAAP financial measures, including adjusted net income adjusted EBITDA adjusted diluted EPS.

Net debt to adjusted EBIT or what we referred to as net debt leverage ratio and free cash flow.

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.

With that it is my pleasure to turn the call over to Eric Weaver.

Eric.

Eric Weaver: Thank you, Danny. And good morning, everyone. Before I begin, I'd like to take a moment and share how excited I am to be on the call with you today. I've been with Life Time for over 20 years, holding various roles in the finance department, and I have made a seamless transition into my role as Interim Chief Financial Officer. We have an amazing company and a strong financial I'm now pleased to share our financial results. Starting with our fourth quarter, total revenue increased 18.2% to $558.8 million, driven by a 20.9% increase in membership dues and enrollment fees and an 11% increase in incentive revenue. Access memberships increased 5.2% to end the year at more than 763,000 members. Total memberships ended the quarter at approximately 815,000.

Thank you Danny and good morning, everyone.

Sure I begin I'd like to take a moment and share how excited I am to be on the call with you today.

I've been a lifetime for over 20 years holding various roles in the finance Department and have made a seamless transition into my role as interim Chief Financial Officer, We have an amazing company and a strong financial team I'm now pleased to share our financial results.

Starting with our fourth quarter total revenue increased 18, 2% to $558 $8 million.

Driven by a 29% increase in membership dues and enrollment fees and an 11% increase in in center revenue.

Access memberships increased five 2% to end the year at more than 763000 memberships.

Total memberships ended the quarter at approximately 815000.

Eric Weaver: Average monthly dues were $183, up 13.2% from the fourth quarter last year. Revenue per access membership increased to $711 from $640 in the prior year period as we continued to benefit from higher dues, increased visits, and increased in-center activity. Net income for the fourth quarter was $23.7 million, up 73% versus the fourth quarter of 2022. Adjusted net income was $38 million, an increase of $20.4 million versus the fourth quarter of 2020. Adjusted diluted earnings per share was $0.19, compared to $0.09 per share in the fourth quarter last year.

Average monthly dues were $183 up 13, 2% from the fourth quarter last year.

Revenue per access membership increased to $711 from $640 in the prior year period, as we continued to benefit from higher dues increased visits and increased in center activity net.

Net income for the fourth quarter was $23 $7 million up 73% versus the FERC fourth quarter 2022.

Adjusted net income was $38 million, an increase of $24 million versus the fourth quarter 2022.

Adjusted diluted earnings per share was <unk> 19, compared to <unk> <unk> per share in the fourth quarter last year.

Eric Weaver: Adjusted EBITDA increased 28.7% to $137.7 million, and our adjusted EBITDA margin of 24.6% increased 200 basis points as compared to the fourth quarter of 2020. Our strong financial performance continues to drive growth in cash flow and a reduction of our net debt. Net cash provided by operating activities increased 74.7% to $132.1 million as compared to the fourth quarter.

Adjusted EBITDA increased 28, 7% to $137 $7 million and our adjusted EBITDA margin of 24, 6% increased 200 basis points as compared to the fourth quarter 2022.

Our strong financial performance continues to drive growth in cash flow and a reduction of our net debt leverage.

Net cash provided by operating activities increased 74, 7% to $132 $1 million as compared to the fourth quarter of 2022.

Eric Weaver: We reduced our net debt to adjusted EBITDA leverage to 3.6 times in the fourth quarter versus 6.5 times in the prior year period. For the full year, total revenue increased 21.6% to $2.217 billion, driven by a 24.4% increase in membership dues and enrollment and a 15.3% increase in incentive revenue. Net income for 2023 was $76.1 million versus a $1.8 million net loss in 2020. Adjusted net income was $129.7 million, which increased by $171.3 million versus a net loss in the prior year. Adjusted diluted earnings per share were $0.64 compared to a loss of $0.21 per share for the prior year.

We reduced our net debt to adjusted EBITDA leverage to three six times in the fourth quarter versus six five times in the prior year period.

For the full year total revenue increased 21, 6% to two point to $1 7 billion.

Driven by a 24, 4% increase in membership dues and enrollment fees and a 15, 3% increase in in center revenue.

Net income for 2023 was $76 $1 million versus a $1.8 million net loss in 2022.

Adjusted net income was $129 7 million, which increased by $171 $3 million versus a net loss in the prior year.

Adjusted Diluting diluted earnings per share was <unk> 64, compared to a loss of 21 per share for the prior year.

Eric Weaver: Adjusted EBITDA increased 90.6% to $536.8 million, and our adjusted EBITDA margin of 24.2% increased 8.8 percentage points compared to the full year in 2022. We are extremely pleased with the company's financial performance in 2023. With momentum on our side, we are very excited about the opportunities in front of us in 2024. I will now turn the call over to. Thank you, Eric, for your commitment to the company for the past 20 years and for excelling in your new role as interim CFO.

Adjusted EBITDA increased 96% to $536 $8 million and our adjusted EBIT margin of 24, 2% increased eight eight percentage points compared to the full year in 2022.

We are extremely pleased with the company's financial performance in 2023 with momentum on our side. We are very excited about the opportunities in front of us in 2024, I will now turn the call over to Brian.

Thank you Eric for your commitment to the company for the past 20 years and for excelling.

That's your new role as interim CFO, let me begin by expressing my gratitude.

Brahma Krati: Let me begin by expressing my gratitude to our 37,000+ team members at Life Time. Our continued progress and success would not be possible without their passionate and relentless commitment to elevating our brand and delivering the finest member experiences in the leisure industry. We accomplished this through our innovative programming and services designed to delight our one and a half million members across North America. I'm extraordinarily proud of our accomplishments this past year.

Two our 37000 plus team members that lifetime.

Our continued progress and success would not be possible without their passion and relentless commitment to elevating our brand and delivering the finest member experiences in the leisure industry.

We accomplished this through our innovative programming.

And services designed to delight.

One and a half million members across North America.

I'm extraordinarily proud of our accomplishments this past year.

Brahma Krati: 2023 was a great year of outstanding progress for Lifetime. We achieved every one of our operating and strategic objectives while exceeding our financial goals. And our progress is continuing this year and has set us up very nicely for 2024. Early 2024 has been among the strongest starts we have ever seen in terms of member engagement, member visits, and member retention. In terms of financial goals for 2023, we increased our revenue by over 20%, and even more impressively, our adjusted EBITDA almost doubled compared to the prior year. In addition, a primary financial objective has been to lower our net debt to adjusted EBITDA.

2023.

Great year of outstanding progress for lifetime.

We achieved every one of our operating and strategic objectives, while exceeding.

Our financial goals and our progress is continuing this year and has set us up very nicely for 2024.

Early 2024.

Has been among the strongest starts we have ever seen in terms of member engagement.

Member visits and member retention.

In terms of financial goals during 2023, we increased our revenue by over 20%.

Even more impressively, our adjusted EBITDA almost doubled compared to the prior year.

In addition, our primary financial objective has been to lower our net debt to adjusted EBITDA.

Brahma Krati: We are making progress here, and we expect this ratio to be under three times by the end of 2024 as it relates to our operating and strategic progress. We continue to elevate our brand, our programming, and our member experiences to be the finest in the high-end leisure industry. The enhancements we have developed in areas such as small group training, Pickleball, and Aurora offering have increased the desirability of our brand and the engagement of our members. As a measure of the remarkable progress we achieved during 2023, by the back half of the year, member visits in our same store clubs had essentially caught up to the very high levels of 2019. The clubs look and feel healthy and energized, a trend that we're seeing into 2024.

We are making progress here and.

And we expect this ratio to be under three times.

By the end of 2024.

As it relates to our operating and strategic progress.

We continue to elevate our brand our programming and I remember experiences are the finest in the high end leisure industry.

The enhancements we have developed in the areas such as a small group training pickle ball and Aurora offering have increase the desirability of our brand and the engagement of our members.

As a measure of the remarkable progress we achieved during 2023 by the back half of the year member visits in our same store clubs has essentially caught up to the very high levels of 2019.

The clubs look.

And feel healthy and energized and trend that we're seeing into the 2024.

Brahma Krati: With the increased demand for our membership, we now have more than 20 clubs with waitlists, and we expect to have additional clubs on the wait list by the April-May timetable. While establishing wait lists for our busiest club is designed to maintain our extraordinary member experience, it also improves our member retention. We are experiencing record visits per membership as a result of the strategic initiatives we developed and implemented over the last several years. Increased visits for membership translates into higher retention rates and enhanced member satisfaction. We expect to realize the highest retention rates in the history of the lifetime plan in 2024. Like most high-end leisure brands, we're not seeing any weakness in our demands or traffic so far in 2024. Right now, we see no reason to suggest that the positive trends we're experiencing today should change going forward. Importantly, we're not seeing any negative impact on our business from the new weight loss drugs we're all hearing so much about. For individuals on such programs, exercise and strength training are absolutely vital for avoiding the loss of lean muscle mass and for maintaining a healthy weight long term.

With the increased demand for our membership.

We have now more than 20 clubs with waitlist and we expect to have additional clubs on the wait list by the April may time table.

While establishing waitlist for our busiest club is designed to maintain our extra ordinary member experience. It also improves I remember at the retention.

We are experiencing record visits per membership as a result of the strategic initiatives, we developed and implemented over the last several years.

Increased visits for membership translates into higher retention rates and enhanced member satisfaction.

We expect to realize the highest retention rates in the history of the lifetime for 'twenty 'twenty four.

Like most high end leisure brands, we're not seeing any weaknesses.

And our demand or traffic so far in 2024 right now we see no reason to suggest that positive trends, we are experiencing today should change going forward.

Importantly, we're not seeing any negative impact on our business.

From the new weight loss drugs, we're all hearing so much about.

For individuals on such programs.

The size and the strength training is absolutely vital for avoiding the loss of lean muscle mass and four maintaining healthy way long term we are confident.

Brahma Krati: We are confident that this mega trend will be particularly positive for Lifetime. I will be glad to expand on this with more details during Q&A.

That this mega trend will be particularly positive for lifetime I will be glad to expand on this with more detail during Q&A.

Now.

Brahma Krati: Our key financial objectives for 2024 are, first, to deliver double-digit growth for revenue and adjusted EBITDA, as stated in our earnings release this morning. We're guiding to revenue of $2.46 billion to $2.5 billion and adjusted EBITDA of $595 million to $610 million for 2024. And secondly, to be cash flow positive after all capital expenditure for the year.

Our key financial objectives for 2024 our.

First.

To deliver double digit growth for revenue and adjusted EBITDA as stated in our earnings release this morning.

We are guiding to a revenue of 2.46 billion to $2 5 billion.

And adjusted EBITDA of $595 million.

Two $610 million for 2024.

And secondly to be cash flow positive after all capital expenditure for the year.

Brahma Krati: At this point, we're still expecting it to turn positive during the second quarter of this year. Again, we'll be glad to expand on this during Q&A. Now that Lifetime's recovery is very much behind us, going forward, our intention is to issue guidance on an annual basis, consistent with our high-end leisure industry peers, such as Vale Resort. We plan to visit this annual guidance quarterly and update as needed throughout the year. To help with this transition, we're providing first quarter revenue and adjusted EBITDA guidance. And this will be our last quarterly guidance.

At this point, we're still expecting to turn positive during the second quarter of this year.

Again, we will be glad to expand on this during Q&A.

Now that lifetimes recovery is very much behind us going forward.

Our intention is to issue guidance on an annual basis consistent with our high end leisure.

Industry peers, such as Vail resorts.

We plan to visit this annual guidance quarterly and update as needed throughout the year.

To help with this transition we are providing first quarter revenue and adjusted EBITDA guidance.

And this will be our last quarterly guidance.

Operator: With that, we're guiding to revenue of $585 million to $595 million and adjusted EBITDA of $142 million to $146 million for the first quarter. Over the last 30 years, Life Time has repeatedly demonstrated the ability to respond to major challenges and emerge better and stronger every time. We have become a highly coveted high-end leisure brand, and it sucks. Our growth opportunities have continued to expand as our business has evolved. As a highly evolved subscription business, our priority is to be the most desirable brand in the leisure industry by providing the finest destinations, the strongest programming, and the best customer experience. To track our success, we constantly measure member engagement, which has never been higher, as illustrated by visits per membership and our improving retention rate. In sum, for 2024, we look forward to continuing to build upon the progress and the successes that we delivered in 2023 and the momentum we've enjoyed so far this year. Thank you. We're happy to take your questions now.

With that we're guiding to the revenue of $585 million to.

To $595 million and adjusted EBITDA of $142 million to a $146 million for the first quarter there.

Over the last 30 years lifetime has repeatedly demonstrated the ability to respond to.

Two major challenges and emerge better and stronger every time.

We have become a highly coveted high end leisure brands and as such.

Our growth opportunities have continued to expand.

As our business has evolved.

As a highly evolved subscription business our priority is to be the most desirable brand in the leisure industry by providing the finest destinations the strongest programming and the best customer experiences.

To track our success, we constantly measure member engagement, which has never been higher as illustrated by visits per membership and our improving retention rates.

In sum for 'twenty 'twenty four we look forward to continue to build upon the progress and the successes what we delivered in 2023.

And the momentum we are enjoying so far this year. Thank you we're happy to take your questions now.

Operator: Thank you. At this time, we will be conducting a question and answer session. If you would like to ask a question, please press star 1. A confirmation tone will indicate you're live. You may press start again if you would like to remove... For participants using speaker equipment, it may be necessary to pick up your handset before pressing start.

Thank you.

At this time, we will be conducting a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad.

Confirmation tone will indicate your line is and the questions you.

You May press star two if he 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 need starkey.

Operator: One moment, please, while we pull for questions. And our first question comes from the line. Megan Alexander with Morgan Stanley. Please proceed with your question. Hi, good morning.

One moment, please loan pool for questions.

And our first question comes from the line of Megan Alexander with Morgan Stanley. Please proceed with your question.

Hi, good morning, Thanks, very much a problem I wanted to ask about the membership that that you know you talked about early 'twenty four being amongst the strongest start in terms of engagement visits retention I guess looking at the fourth quarter, where you ended from a membership perspective. It does look to be at that bill.

Megan Alexander: Thanks very much. Bram, I wanted to ask you a bit about membership. You know, you talked about early twenty-four being amongst the strongest starts in terms of engagement, visits, and retention. I guess looking at the fourth quarter, where you ended from a membership perspective, it does look a bit below what historical seasonality would suggest, so maybe can you just walk us through how 4Q played out relative to your expectations, both from what you're seeing in terms of churn and new joins, and then what you' That's a great question, Megan. Good morning.

Oh, what historical seasonality would suggest so maybe can you just walk us through how <unk> played out relative to your expectations. Both from what Youre seeing in terms of churn and new joins and then what you're seeing so far in 2024.

Question Good morning.

So.

Brahma Krati: So, the fourth quarter was just slightly above our expectation in net memberships. Our expectations are basically, as we've stated over and over, are focused on really trying to get the right balance of the membership so we can deliver the right experience in the club. In the fourth quarter of this year, everything was as expected or slightly better, as I mentioned. However, we had more. And I'd like this versus like in 2019.

The.

Fourth quarter, there was just slightly above our expectation and the net memberships.

<unk>.

Our expectations are basically as we've stated over and over is focused on.

We're really trying to get the right balance of the membership. So we can deliver the right experience in the clubs.

Fourth quarter there of this year everything was as expected or slightly better as I mentioned, however, we had more.

And I'd like this versus like 2019, we had way more club openings in the fourth quarter. There. So offsetting some of the memberships that they dropped the seasonal drops that comes from the September to December.

Brahma Krati: We had way more club openings in that fourth quarter, so it offsetted some of the memberships that they dropped, the seasonal drops that come from September to December. But everything is completely in line and, you know, again, within our expectations, except better. And then the same thing, the beginning of the year. Our beginning of the year is, you know, slightly above our expectations in terms of the net membership gain. And that is truly the name of the game in our business. It's really net membership, how many memberships are dropping out, how many coming in, and finding the right balance there to make sure you don't overcrowd the clubs, you don't pinch the experiences. So, you know, we constantly manage that as diligently as we can across all the different centers. Really helpful. Thank you. And maybe as a follow-up, you know, can you just talk about openings for the year? I think you said nine to ten.

But everything is completely in line.

Again within our expectation, except better and then same thing beginning of the year or beginning of the year is.

So slightly above our expectation in terms of the net membership gain and that is truly the name of the gaming our business. It's really the net membership is how many memberships are dropping out how many coming in and finding the right balance there to make sure. He is an overt overcrowded.

Obviously, you don't you don't you don't pinch to experiences so we constantly manage that.

As diligently as we can do across all the different centers.

Really helpful. Thank you.

And maybe as a follow up you know can you just talk about the openings for the year. I think you said nine to 10, maybe help us with how many of those are asset light versus some of them are big suburban heavy builds up build outs and then just related to that you know I think on the last quarter call. You said you may need.

Brahma Krati: Maybe help us with how many of those are asset light versus some of the more big suburban heavy build-ups. And then just related to that, you know, I think on the last quarter call you said we may need more clubs if we're doing more asset light to get to a similar revenue number. I think the 9 to 10 is a bit below what you've been doing; help us understand what the offset is there.

More clubs, if we're doing more asset light to get to a similar revenue number am I think the sign to turns a bit below what you've been what you've been doing so maybe just help us understand what the offset is there yeah. It's just a little timing on getting the projects through the construction phase approval phase we actually.

Brahma Krati: Yeah, it's just a little timing on getting the projects through the construction phase approval phase. We actually have pretty front-loaded this year. So we have about half a dozen clubs that we open early. We have a total of about nine or ten clubs. And I think the one thing that we tell you is that when you guys, this is the challenge that we talked about with our business, is that, you know, just because an asset is light doesn't mean it's smaller. Like, as an example, we're opening two clubs this year, Harbor Island and Droid in Atlanta. These are full-size clubs.

Have a.

Pretty well.

Once loaded this year. So we have about a half a dozen clubs that we opened early.

We have a total of about nine to 10 clubs and I think the one thing that I would tell you is that when you guys that this is the challenge that we've talked about with our business.

Is that.

This asset light doesn't mean, they're smaller like as an example, we have we're opening two clubs this year Harbor Island, and Georgia and Atlanta. These are full sized clubs. There are 90000 indoor outdoor tennis pick up the ball.

Brahma Krati: They're 90,000 indoor, outdoor, tennis, pickleball, you know, 90,000, 100,000 square feet of total assets, you know, indoor plus the external. But they were asset light. You know, we got these back from the landlord, we're from different places, they gave us nice TIs, and then we're spending maybe another 10 or 15 million bucks on each one out of our pocket. But they're not small clubs. And then there are some clubs that like 40 to 60,000 square feet facilities. And there are a half a dozen clubs, four or five clubs that they're opening right now, early this year. And these are big clubs.

90, <unk> hundred thousand square feet total assets indoor plus the extra external.

But they they were asset life, we got these back from the landlord in particular, where from a different they gave US nice T is and then we're spending maybe another 10% or 50 million Bucks.

For each one.

Of our pocket.

But theyre not small clubs and then there are some clubs that like 40 to 60000 square feet of facilities.

And there is a half a dozen clubs for four or five clubs that they are opening right now early this year and these are big clubs.

Big.

Chris Carroll: These are big traditional facilities, that we had started, you know, building last year and they're just opening so a lot, as we go through the balancing of the CapEx, you will see a bunch of the CapEx last year was for, you know, getting these clubs launched, the bulk of the money was spent, now they're just going to open. Then we have a club like Arden, you know, Arden in Sacramento, California and that facility, again, is a large facility but it, again, will show up as an asset light. So asset light doesn't mean necessarily they're smaller, it just means that we got into it with less than 60-65 million dollars of our capital up front before the cell is back. Yeah, can I if I could just add to that, just if from a square footage standpoint, just to add to that, you know, last year, we opened up 800,000 square feet, and we intend to do the same or more this year. So just to add to that point.

Traditional.

Facilities.

Hmm.

We had started building last year and they've just opening so a lot more as we go through the balancing of the Capex you will see a bunch of the Capex last year was for getting these clubs.

Launched.

Bulk of the money was spent now theyre just going to open and then we have a club like our then.

Arden.

And Sacramento, California and that facility.

<unk> is a large facility but.

Again will show up as an asset light so asset light it doesn't mean necessarily there's smaller.

Just means.

We got into it with less than $60 million to $65 million of our capital upfront before the sale leaseback.

Can I, if I could just add to that just to.

On a square footage standpoint, just to add to that you know last year, we opened up 800000 square feet and we intend to do the same or more this year. So just to add to that point.

Brahma Krati: Thank you. Thank you. Our next question comes from the line of Chris Carroll with RBC Capital Markets. Please proceed with your question. Hi, thanks. Good morning.

Makes sense. Thank you.

Yes.

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

Hi, Thanks, good morning.

Brahma Krati: So, Bram, maybe you could talk about some of the trends that you're seeing in your newer markets versus your legacy markets? You know, if you could touch on what you're seeing from the perspective of revenue per center member or visits in those different markets, that would be helpful. Yeah, so let's talk about, you know, that separate clubs from Markets, Newer Clubs opening up. They're opening up with a faster ramp, the fastest ramps we've ever had in the history of the company. They're opening up, and we're pretty much cash flow positive at the center level and contribution margin positive at the center level, like within 60 days, 90 days. This is much faster than they used to be on a contribution margin basis, the best results.

Bob maybe can you talk about.

Some of the trends that you're seeing in your newer markets versus your legacy markets. You know if you could touch on what Youre seeing from the perspectives of revenue per center member or visits.

In those different markets that'll be helpful.

Yes, so let's talk about.

This separate clubs.

From markets newer clubs opening up.

They are opening up with a faster ramp the fastest ramps we ever have had in the history of the company. They are opening up and we're pretty much cash flow.

Positive.

At the center level and contribution margin at the center level.

Like within 60 days 90 days this is much faster than they used to be on a contribution margin basis.

Best results than revenue.

Brahma Krati: Their revenue per square foot, however way you want to look at it, for the asset, the average membership price, all of those are higher than the traditional clubs, where we have the legacy, a large amount of legacy memberships where we have told you guys repeatedly, while we are raising legacy prices, we don't do it all at once, and we are very thoughtful of the customer reaction to how we treat them in this matter.

Or square foot, However, way you want to look at it for the asset the average membership price all of those are higher than the traditional clubs, where we have the legacy large amount of legacy membership.

We have told you guys repeatedly while we are raising legacy prices, we don't do it all at once and we are very thoughtful of the customer reaction to how we treat them in this matter.

Brahma Krati: So, the new clubs are breaking records one after another in terms of how they are getting opened up. We just opened Red Bank, New Jersey, yesterday with brand new records and everything. So, we are really, really thrilled about the way the business is working. We spent a significant amount of time, money, and energy over the last two years remodernizing and updating those clubs so they can deliver the same experience and the same programming as we're doing in our brand new clubs. We spent the bulk of that money over the last 24 months, and the result of that is that they're all having their best same stores on average, and, generally speaking, those older clubs are doing better than they ever have as well.

So.

The the new clubs are breaking records.

After another in terms of how they they are getting in there getting all pent up we just opened.

Red Bank.

New Jersey yesterday would be brand New records and everything so we are really really thrilled about the way every.

The business is working the older clubs.

We spend significant amount of time money and energy over the last two years.

In re modernizing.

Dating those clubs so they can deliver the same experience in the same programming as we're doing in our brand new clubs.

We spent the bulk of that money over the last 24 months.

And the results of that is that they are all having debt.

Their best same stores on a general and generally speaking those older clubs are doing better than they ever have as.

As well and Theyre continuing to continuing to accelerate and they are in the ramping.

Brahma Krati: And they're continuing to accelerate in their ramping. And some of them, you know, some of the older clubs are like Westchester, Syosset, Garden City. These types of clubs are way above where they used to be, and they are doing numbers as good as all the record-breaking clubs that we are opening. And so, really, across the board, we're not seeing any sort of a trend of less, um, you know, performing clubs of the past.

And some of them.

Some of the older clubs are like the west chest, there say asset Garden City. These type of clubs are way above where they used to be and they are doing numbers as good as all the record breaking.

Clubs that were opening.

And so I, just really across the board and we're not seeing.

Any sort of a trend.

Trent are are less.

Performing clubs of the past.

Brahma Krati: And when we're digging in on those, and we spend very methodical energy identifying the top 25, what we do right there, the bottom 25, what we're not doing great there, and we break it down, that's where we have the opportunity in just our own execution. It's not the market, it's not outside forces, it's just our own lack of precision in execution in some of those markets, which is why we work really, really hard to sort of try to figure out how we can problem solve. But the new business model is the most important thing, the most important takeaway for all of you. The new business model, the positioning of Life Time as a higher-end leisure company, having the most engaged customers that we have ever had, and having the most visits per membership that we have ever had. The new model is far superior to anything we have ever executed over the last 30 years.

And when we are digging in on those and when we spend very methodical energy on identifying the top 25, what we do right. There at the bottom 25, but we're not doing great there and we break it down.

That's where we have the opportunity in just our own execution, it's not the market.

Not outside forces is just our own.

Lack of precision in execution and some of those markets, which is then we work really really hard to sort of try to figure out how to be problems solved.

The new business model. This is the most important thing the most important takeaway for all of you.

The new business model, the positioning of lifetime as the <unk>.

Higher and leisure company.

Having the most.

Engaged customers that we have ever had.

Having the most visits per memberships that we have ever had.

The new model is far superior to anything we have ever executed over the last 30 years.

Brahma Krati: Thanks for all that. And then on the center operations expense, can you provide maybe a little bit more detail on what drove that lower as a percentage of center revenue in the 4Q? I mean, even lapping some of the costs coming out in the 4Q of 22, you were still able to see some good leverage on that line. So, you know, hoping you could expand a little bit more on that center ops leverage and to what extent you expect this to continue into 2020. So we expect to have our EBITDA margin hovering between 23.5% and 24.5%. Now, that doesn't seem like a big margin, but it is quite a bit when you actually look at the numbers, that 1% up or down.

Got it thanks for all that.

And then on the center operations expense could you provide maybe a little bit more detail on what drove that lower as a percentage of center revenue in the <unk> I mean, even lapping some of the costs are coming out and the <unk> of 'twenty. Two you were still able to see some good leverage on that line. So hoping you could expand.

And a little bit more.

That center office leverage and to what extent you expect this to continue.

24, so we we expect to have our EBIT margin hovering between 'twenty through 'twenty, three and a half and 24, 5%.

Now.

It doesn't seem like a big margin, but it is quite a bit when you actually look at the numbers that 1% up or down and that's the difference in like okay. The timing of the clubs you open a bunch of clubs at the same time, you have a little of it we'd have to pre hire everybody youre, taking all of that expense you open the clubs. So then really.

Brahma Krati: And that's the difference in, like, okay, the timing of the clubs; you open a bunch of clubs at the same time, you have a little bit, you know, you have to pre-hire everybody, you're taking all that expense, you open the clubs. So then, you know, really, we're buying a little bit of buffer for that. As we get the clubs more caught up in RERAMP, so this is another super important takeaway for all of you, we were misunderstood at the beginning of last year. You know, as I brought up to you guys and repeatedly explained, we weren't re-ramped in our clubs, and most clubs were in a re-ramp stage. Today, the re-ramping of the clubs is probably 90% done, but they're not 100% done.

Did we just we're buying we're buying a little bit of a buffer.

For that.

As we get the clubs more caught up and re ramp. So this is another super important takeaway for all of you.

We.

Were misunderstood beginning of last year.

I brought up to you guys and repeatedly explained we werent re ramp in our clubs and most clubs veterinary <unk> stage today.

That really ramping up the clubs is probably 90% done.

But they are not 100%, so you're going to see throughout the year the impact.

Brahma Krati: So you're going to see throughout the year the impact of that catching up. So this level of EBITDA margin, this 24%, give or take, half a percent, is where I would recommend someone to target in their modeling. I wouldn't go much higher because sometimes we do deliberately decide to make additional investments to make sure the experience will stay top-notch. And so that's really what I can tell you.

Of.

That catching up so this this levels of EBIT margin as Tony.

4% give or take half a percent is where I would recommend someone to target in their modeling.

I wouldn't go much higher because.

Sometimes we do it deliberately decided to make additional investments.

To make sure the experience was stay top notch.

And so that.

It's really what I can tell you. So I don't I don't see a particular shift in anything we did is just naturally the business caught up more dues coming in.

Brahma Krati: So I don't see a particular shift in anything we did. It's just naturally the business caught up, you know, more dues coming in as the clubs are re-ramping and producing. Now we're spending more money, as I've mentioned to you guys, and we will continue to spend more money on programming, on pickleball pros, pickleball leagues, small group classes. We're adding, and we're paying more to the top-end stars that people love to follow. So we're going to continue to invest to deliver the highest experiences. And then, the opposite of that, of course, when you're delivering that, you end up with clubs on a wait list. You have the ability to charge exactly what you need to charge to make sure you can get the right experience in there, and the margin will come right. Great, thanks so much.

Clubs of re ramping and producing we're spending more money as I've mentioned to you guys and we will continue to spend more money on programming on pickle ball pros pickle ball leagues.

Small group classes, we're adding we're paying more to the top end stars that would people love to follow so we're going to continue to invest to deliver the highest experiences.

And then the opposite of that of course, when you are delivering that you ended up clubs on a wait list you have the ability to charge exactly what you need to charge to make sure you can get the right experience in there and the margin will come breakthrough.

Great. Thanks, so much.

Alex Perry: Thank you. Our next question comes from the line of Alex Perry with Bank of America. Please proceed with your question.

Thank you. Our next question comes from the line of Alex Perry with Bank of America. Please proceed with your question.

Brahma Krati: Hi, thanks for taking my questions and congrats on a strong quarter and finish to the year. I guess just first, can you talk about your pricing outlook, especially in light of, you know, a large amount of clubs being on the waitlist? What is your expectation of where pricing could go versus the $183 in average monthly dues you added in 2023? So, I'm going to start. I'm going to give it to Eric and Danny to chat about this. You know, they run the forecast and updates all day long.

Hi, Thanks for taking my questions and congrats on a strong quarter and finish to the year. I guess just first can you talk about your pricing outlook, especially in light of.

A large amount of clubs been on waitlist, what is your expectation on where pricing could go versus the $183 of average monthly dues you added in 2023.

So I'm going to start I'm going to give it to Eric and Danny to chat about this they run the.

Forecast then updates all day long.

Brahma Krati: So, you should kind of think about it in two major categories. We have done the bulk of repositioning for our company over the last couple of years. And that means, you know, we needed to move the clubs out of the middle level price point, get them to the high end, and make sure the experiences matched. And to make sure Life Time was a higher end leisure brand in an athletic country club.

So you should you should kind of think about it in two major categories.

We have done the bulk of repositioning for our company.

Over the last couple of years and that means we needed to move the club's other than middle level price point get them to the high end and make sure. The experience is matches and to make sure lifetime homogeneous Lee is the higher end leisure brand in our athletic country Club space.

Brahma Krati: Most of that is done. The next piece is, you know, we feel a little pressure on the club's utilization, and at that point, you know, all right, do we add another $10 a month or $15, $20 a month to the rack rate? We're almost forced sometimes to add that price to make sure the club doesn't get overcrowded.

Most of that is done.

The next piece is we feel a little pressure on the on the club utilization.

At that point alright.

Alright, do we add another $10, a month or $15 $20 a month of the rack rates.

We're almost forced sometimes to add that price to make sure the club doesn't get overcrowded.

Brahma Krati: And then, you know, the way we're managing it now is we basically quickly put the club on a wait list, and then we can manage the wait list, manage the sign-up, and then we can then say, okay, now maybe we need to go from 249 to 259, or 259 to 269. So that's really, I would say the bulk of it is done, the new changes to the rack rates would be modest changes going forward, necessary because of, you know, over demand, right? But it will be modest. And then you will expect, because of what we told you when we told you guys in the middle of last year, we have about $17 million difference between the customers who are not paying the RAC rate and all of them paying the RAC rate. That's $17 million a month. We're never going to take that all at once.

And then you know.

The way, we're managing it now as we pace that we quickly put the club on a wait list and then we can manage the weight this managed to sign up.

And then B can didn't becomes okay. Now maybe we need to go from $2 49 to $2 59, or $2 59 to $2 69. So that's really I would say the bulk of it is done the new changes to the rack rates, new rack rates would be modest changes going forward necessary by.

Overs over demand right.

But it will be modest.

Then you will you should expect because of what we have told you. When we told you guys middle of last year, we have about $17 million difference between.

The customers who.

Who are not paying the rack rate if all of them paid the rack rate that $17 million a month.

We're never going to take that all at once we're going to.

Brahma Krati: We're going to, you know, just bleed that in so slowly so that, again, the customer experience is not like we're gouging them or we're, you know, we're taking advantage of the situation. So that's going to come in, some of it with the churn. When somebody drops in at 182, the next person comes in at 220, 230, that's going to continue to kind of lift a little bit. And then

We believe that in so however, slowly so again the customer experiences.

Like were gouging them or where we're at.

Taking advantage of the situation.

So that's going to come in.

Some of it with the churn when somebody drops in at 182 extra so it comes in at $2 20 to 30, that's that's going to continue to kind of lift a little bit and then.

Brahma Krati: The other piece of it is that there were small legacy price increases. So I expect we see, more like, you know, a typical year, not 2020, four we will still have a bigger same store, but going into 25, 26, 27, I expect that three to four percent same store growth opportunity just as this pricing thing works its way through the pipeline if that helps you at all. Yeah, that's incredibly helpful.

The other piece of it is there were small legacy.

Price increases so I expect we see.

More like.

In a typical year not 2020.

Four we will have is still because of this tail end of the re ramp we will have a bigger same store, but going into 'twenty five 'twenty six 'twenty seven I expect that 3% to 4% same store growth opportunity just as this.

Pricing thing just work its way through the pipeline if that helps you at all.

Yeah. That's incredibly helpful. And then my follow up is I just wanted to ask about the strategic initiatives are there any new strategic initiatives, we should be thinking about to increase member engagement beyond what you've already talked about how you've talked about pickle ball small format group trade and you started to talk about.

Brahma Krati: And then my follow-up question is, I just wanted to ask about the strategic initiatives. Are there any new strategic initiatives we should be thinking about to increase member engagement beyond what you've already talked about? You've talked about pickleball, small format group training, you started to talk about a new food offering or Miura, just any new strategic offerings that we should be thinking about that should help drive 2024? Thanks. Yeah, so I don't do so everything you're thinking about 24.

Our new food offering or me or just any new strategic offerings that we should be thinking about that that should help drive 2020 for it. Thanks, yeah. So I don't so the everything youre thinking about the 24. So we are doing sort of a revolutionary change like we did with DPT with our food.

Brahma Krati: So we are doing sort of a revolutionary change like we did with DPT with our food. Our food was really playing offense. As I mentioned to you guys, we played offense coming out of COVID. And what we didn't play offense on in our food, the food was playing defense. It was unimpressive.

Our our food was really playing we were as I mentioned to you guys. We played offense coming out of Covid.

And what we needed to play offense in our food the food was playing defense.

It was an impressive I was for the most part and I don't want to say this is across all the systems, but generally speaking a very uninspiring very boring I'm just kind of defensive actions and that was the 2024 initiative. We just launched beginning of this year.

Brahma Krati: I was, for the most part, and I don't want to say this is across all the systems, but generally speaking, very uninspiring, very boring, it's just kind of defensive actions. And that was the 2024 initiative. We just launched at the beginning of this year. So the freedom and creativity we're allowing the clubs to, you know, kind of test, provide suggestions and offers. We're having a really, really enthusiastic launch with this. It's going to take months and months and months before you're going to see meaningful material numbers, but I expect, you know, we are. It's 10, 15, 20% better on our F&B by the back half of the year than we're doing right now. We're seeing the lift start, but it's going to be kind of slow and gradual.

So the freedom and creativity, we're allowing the clubs too.

Kind of test provide us.

Our suggestions and offers we're having a really really enthusiastic launch with this it's going to take months and months and months before youre going to see meaningful material numbers, but I expect we're doing.

10, 15, 20% better.

On our on our F&B by the back half of the year than were doing right now we're seeing the lift start, but it's going to be kind of slow and gradual mirror is a huge opportunity for particularly lifetime, we have exactly the right customer base in our clubs.

Brahma Krati: Miura is a huge opportunity for Life Time, particularly because we have exactly the right customer base in our clubs. One of the things I mentioned that I wanted to expand on was weight loss drugs. This is going to remain a mega trend. It's going to stay, particularly not only is it not a negative for exercise because you absolutely need to combine the proper weight training and nutrition with these drugs if you want them to work.

<unk>.

And one of the dimensions I've mentioned that I wanted to expand on was that the weight loss drugs. This is not this is going to remain a mega trend.

It's going to stay its not its not for and it's <unk>.

Particularly not only it's not a negative for exercise because.

You absolutely need to combine the proper weight training and nutrition with these drugs. If you wanted to work they will work they are they there was.

Brahma Krati: They will work, and they will stay. But just like everything else, it's a tool. People can use the tool the wrong way, or they can use the tool the right way. If they use the tool the right way, the exercise business is going to get a win out of it. However, Life Time is particularly in the right spot because our customers are paying $200 to $300 a month for their membership. The weight-loss customer is spending $500,000, $600,000 a month on this drug. They are going to want the right professional facilities and professional personal trainers and nutritionists to help them with the augmentation of the big investment they're making in that. Some of these people would feel uncomfortable going to clubs at first.

Stay, but just like everything else is a tool people can use the tool the wrong way people can use the tool the right way if they use the tool the right way.

The exercise business is going to get a win out of it however.

Lifetime is particularly in the right spot because our customers paying two to $300 a month for their membership the weight loss customer spending 500 $600000 a month on this drug they are going to want.

The right professional facilities and professional personal trainers and nutritionists to help them with the augmentation of the big investment, they're making in that some of these people would feel uncomfortable going to clubs initially now that they get a little head start they lose 15 2030 power.

Brahma Krati: Now that they get a little head start, they lose 15, 20, 30 pounds, they get more comfortable coming in, and not only that, but they also start seeing, hey, shoot, I am losing weight, but I'm also becoming skinny fat, to put it mildly. And then they really have all the elements needed to go to the right place. And then Life Time is uniquely positioned, again, because we have many, in every market we have facilities where we can launch Miura clinics for longevity, for addressing these weight loss trends, the peptides, all of that. But there are also regulations against that, there are a lot of people trying to do this online across states, and the expectation is that clearly you're going to have to visit the doctor in your state.

<unk>.

They get they get more comfortable coming in and not only that they also start seeing Hayes shoots I'm, losing weight, but I'm also becoming skinny fat to put it mildly and then they really.

Have all the elements needed to go to a to go to a right place and then lifetime is uniquely positioned again, because we have many located in every market. We have facilities, where we can launch <unk> clinics for longevity for addressing this weight loss.

Trends the peptides all of that there is also regulations against that there's a lot of people are trying to do this online across states.

The expectation is that clearly youre going to have to visit the doctor in your states and again, we are so perfectly suited.

Brahma Krati: And again, we are so perfectly suited with the facilities we have, the clinics that they're already embedded in almost every market; we have at least one or two facilities that have built-in clinics in them. So we look at this as nothing but an upside. Perfect. That's very helpful.

The facilities, we have the clinics that theyre already embedded in almost every market. We have at least one or two facilities that have built in clinics in them. So we look at this as nothing but upside.

Perfect. That's very helpful best of luck going forward.

Brahma Krati: Best of luck going forward. Thank you. Thank you. Our next question comes from the line of Brian Nagel with Oppenheimer & Company. Good morning. Nice morning, nice year.

Thank you.

Thank you. Our next question comes from the line of Brian Nagel with Oppenheimer.

Oppenheimer <unk> company. Please proceed with your <unk>.

Yeah.

Hey, good morning.

Hey, good morning, guys here. Thank you so much.

Brian Nagel: Thank you so much, and Danny, welcome to the call. Thank you. I've got a couple of questions.

And Eric and Dan and welcome to the call. Thank.

Thank you.

So I've got a couple of questions I.

Yes.

More quantitative in nature, but we talk a lot about and you mentioned again the call today.

Brahma Krati: Can you just go through, and I know this may be a bit of a follow-up to one of the prior questions, but just the building blocks of that, you know, particularly with Life Time still... 2024, you know, still pursuing a relatively aggressive expansion plan. But how should we think about the building blocks to get to that, that, precast load positive and Q2 and the, Yeah, yeah, Brian, this is Eric. I can take that. So I mean, you know, as we kind of mentioned, our adjusted EBITDA, call it 600, right? We, you know, we expect probably about another 130 million for debt service, and then you account for our non-cash rent, that that's going to get us to about 500 million in cash before CapEx.

Plan to get to free cash flow positive for the year starting in the second quarter.

Can you just go through and I know this may be a bit of a follow up to one of the prior questions, but just the building blocks of that Youre, particularly with lifetime still in here.

Here in 2024 still pursuing a relatively aggressive expansion plan, but how do we how should we think about the building blocks to get to that.

Free cash flow positive in Q2 and beyond.

Yes, Brian This is Eric I can take that so I mean.

As we kind of mentioned our adjusted EBITDA call. It 600 right.

We expect probably about another 130 for debt service and the new account for our noncash rent that that's going to get up to about $500 million of cash before capex. So that's going to give us $500 million of capital to deploy and in our pipeline that we have planned that shows us that that gets us to that free cash flow of that pipeline is going to deliver.

Brahma Krati: So that's going to give us, you know, $500 million of capital to deploy. And in our pipeline that we have planned, that shows us that that gets us to that free cash flow; that pipeline is going to deliver that double-digit top and bottom line that we talked about. So it is math, and the math works, and we've got it planned out. So the 500 million he's mentioning, you know, we'll probably spend roughly 150 million, give or take 10 million, 15 million of that on the modernization of our facilities, CapEx for technology, et cetera, right? And that leaves, call it 320, 330, that can be purely applied to future growth capital. And when you start thinking that,

That double digit top and bottom line that we talked about so it is math and the math works and we've got it planned out so the 500 million he's mentioning.

We'll probably spend roughly 150 ish give or take $10 million $15 million of that and modernization of our facilities, our capex for technology et cetera, right and that leaves call. It 323 30.

That can be purely applied to future growth capital.

And when you start thinking that.

Brahma Krati: You know, some of these assets are, you know, kind of upfront leases where we're getting some, you know, TIs, and then we put some of our capital in. For those type of clubs, I would put 10, 15 million in on average. If we take a club, if we build the ground up for 65 million, take it back to sell the lease back at 50, now we still have 15 million. It's just upfront loaded.

Some of this assets are kind of upfront leases, where we're getting some.

And then we put some of our capital in for.

For dose type of clubs I would put $10 15 million in on average.

If we take a club if we build a ground up for 65 million take it back to sell leaseback at safety.

Now, we still have $15 million. It's just upfront loaded. This is really important for all of you guys to sort of understand the beauty of our position right now.

Brahma Krati: This is really important for all of you guys to sort of understand the beauty of our position right now. When we have the clubs that are committed on an asset-light basis to a landlord, they have a certain expectation of when they're opening. They're providing their TI, we're putting the money in, we're pretty much locked in. But the good news is the investment is small. When you look at the ones that we're doing ground up, that was the $60-65 million of upfront spend and then going to sell these back. Now, 100% of control of that is in our hands. We own the land, we own the construction company, and we're the general contractor. We can decide exactly when we want to start that.

When we have the clubs that we have the clubs that are committed on an asset light basis to a landlord they have a certain expectation of when the opening they are providing their ti, we're putting the money and we're pretty much locked in but the good news is the investment there's a small.

When you look at the ones that we're doing ground up it was $60 million to $65 million of upfront spend and then going to sell leaseback.

No.

100% of control of that is in our hands, we own the land we owned the construction company, we have where the GC. We can decide exactly when we want to start that so our commitment to you guys as a hey, we're going to deliver double digit topline and bottom line and we're going to manage this amazing cash.

Brahma Krati: So, our commitment to you guys is, hey, we're going to deliver a double-digit top line and bottom line, and we're going to manage this amazing cash flow. And then, again, I mean, next year, we're going to generate more than $320,000, $330,000 million that allows us to deploy more capital for growth. So, we feel really solid about what we're telling you here. Is that helpful? That's very helpful. So let me know one that's helpful.

And then again I mean next year, we're going to generate more than 320 $330 million had been allows us to put deploy more capital.

<unk> for growth so we feel really.

Solid, but what we're telling you here does that helpful.

No that's very helpful Barometer, Eric So let me help.

Helpful. Let me ask another question or I guess, just a follow up to that but yes of course, we've been watching that business.

They develop evolve out of the Covid crisis, we've talked that you mentioned this I think in your prepared comments about the quarter I called reported was flat.

Brahma Krati: Let me ask another question, or I guess it's a follow-up to that. But, you know, first, we've been watching the business, www.lifetimegroup.com, you know, and forgetting or putting aside, you know, the new centers will be opening in 24 and beyond. What's still the incremental even...

The ongoing.

Re ramp sort of save these clubs, but as you look at the centers now.

Forgetting or putting aside for a second.

The new centers Youll be opening 24 and beyond.

Whats still the incremental EBITDA.

Brahma Krati: So, given, and I'm asking this from your perspective, here you've been, for all intents and purposes, blowing away your EBITDA, www.lifetimegroup.com. Yeah, you know, Brian, this is probably one of the most astute questions that any investor should ask, and then get the full detail and really model this out. But really, the way we look at it, and when we went private, with how the private equity shops looked at this, OK, how many clubs do you have? If you don't, if you complete what you have under construction and don't build anything new, what would your EBITDA be? You can, you can sort of rough and tough, back of the envelope, accept about one hundred to one hundred and fifty million dollars of incremental EBITDA that will come if you ever stop development and let everything that is left completely mature out. That's the kind of missing link here in people calculating the rate of return.

That's the sort of perspective here have you been relatively.

The low end of what your EBITDA expectations for the last several quarters now, but as we look at the base of centers now.

What do you view as incremental EBITDA that could come as a result.

Just from your centers you have now.

Ryan This is probably one of the most students questions that any investor or any investor should ask.

And then get the full detailed and really modeled this out.

But really the way we look at it and when we went private but the how the private equity shops looked at this okay. How many clubs do you have if you don't if you.

You complete what you have under construction and don't build anything new what would be the EBITDA. You can you can sort of a rough and tough back of envelope, except about $100 million to $150 million of incremental EBITDA.

That will come if you ever stop.

<unk> and let everything that is left to complete the mature out.

That's the kind of a miss missing link in here and people are calculating rate of return.

Brahma Krati: And the way that Eric, Danny, and I are thinking about this as we go forward is to provide you guys with, hey, here we have, you know, X amount of dollars deployed at the end of 2023. We expected, you know, at maturity, to give it two more years on all of that investment. We expect the return to, you know, we expect this level of revenue and EBITDA on that bucket. Now, we're going to spend $400 million, I'm just giving this as an example, $350 million, $400 million of new net capital this year, and this much includes leverage, whether it's capitalized rent or whatever, and then you can expect this such and such revenue and return on that over the next three years.

And the way that Eric Danny and I are thinking about this as we go forward is.

Is to provide you guys hey here we have.

X amount of dollars deployed at the end of 2023.

We expect the at maturity and gave it two more years on all of that investment. We expect the return to we expect this level of revenue on EBITDA on that bucket now we're going to spend $400 million I'm, just giving just as an example, $350 million $400 million of Nu.

Net capital.

This this year and this much including leverage whether if it's capitalized rent or whatever and then you can expect this.

Such and such revenue on return on that over the next three years. So that's the way we need to kind of translate our business in the future.

Brahma Krati: So that's the way we need to kind of translate our business in the future, so that this piece is not misunderstood, but roughly $100 to $150 million of incremental EBITDA would be if we just, you know, the clubs are opening, let's say by the first half of the year, let all of these clubs mature, you can add that number. It can be $700, $750 million of EBITDA. Very helpful. Congratulations, and good luck here. Thank you. Thank you so much.

So that this piece is not misunderstood, but roughly $100 million to $150 million of incremental EBITDA would be if we just the clubs or opening let's say by the first half of the year, let's let all of these clubs mature.

You can add you can add that number it can be 700 750 million of EBITDA.

Yes very helpful.

Congratulations good luck. Thank you. Thank you so much.

John Heinbockel: Thank you. Our next question comes from the line of John Heinbockel with Guggenheim Partners. Please proceed with your, Hey, Buram, I wanted to start with, can you talk a little bit about the pipeline? I know you look at, right, the battleships.

Thank you. Our next question comes from the line of John <unk> with Guggenheim Partners. Please proceed with your question.

Hey, Brian wanted to start with can you talk a little bit about the pipeline I know you look at the battleships.

Brahma Krati: The Takeovers, Urban Residential, and Suburban Mall. Right, you think about those four. What does the pipeline of projects that you're looking at look like, right, in each of those four, and is the idea going forward that you sort of want to do 50% capital light, and maybe not so much projects, but, well, I guess projects, 50% capital light and 50% not capital light, is that the idea so that you spend $500 million or so in total capex? Yeah, it's a great, great question. So look, here's what I believe.

The takeovers urban residential and suburban mall or do you think about those four.

What does the pipeline of projects that Youre looking at look like right in each of those four.

Is the idea going forward, but you sort of want to do 50% capital light and maybe not so much projects, but.

Well it gets projects, 50% capital light and 50% Nat cat.

Capital Light is that is that the idea so that you spend $500 million.

So in total Capex.

Yes, it's a great great question, so look here's what I believe them.

Brahma Krati: I'm, I'm currently just, you know, in discussions about Sully SPAC with certain entities. And there are a couple different ways to answer your question. I want to give you full detail on this.

Right now currently in.

In discussions for a sale leaseback.

With certain entities.

And there is a couple of different ways to answer your question I want to be I want to be full detail on this.

Brahma Krati: So we have, at least, Ken Sait, that are under contract, land paid for, permits are in the process, so we can start the ground up facilities. And I wanna start changing the term from battleship because what happens is people think that if we take over 120,000 square feet of club space and an asset-like basis, it's no longer a battleship. So let's just talk about ground up versus non-ground up.

No we have.

At least.

10 sites.

They are under contract land page four.

Permits are in process.

So we can start the ground up facilities and I want to start changing deter them from battleship because what happens is people think that if we take over 120000 square feet club and.

Asset light basis, it's no longer a battleship so let's just talk about ground up versus non ground up so when we looked at the ground up assets.

Brahma Krati: So when we look at ground-up assets, currently and in the past, how we've done those is we have bought the land, we've built them out, we've spent 60, 65, what today's dollars are, 70 million bucks to build them out, and then we take out 45, 50, 55 million of that and sell them back after the club is open. We also have had situations where our landlord has said, OK, we will buy that. 60 days after you're open, they have a binding LOI, and they'll take it from us when we are able to pay off all the bills and get them clean lien waivers on that.

They're currently and in the past how we've done dose.

As we have bought the land we built them out we spent $60 65, what today's dollars $70 million Bucks to build them out and then we take out.

$45 $50 $55 million of debt and sale leaseback.

After the club is open.

We also have had situations where the land our landlord has said, okay. We will we will buy that.

Yes.

60 days after you are open.

Binding LOI they'll take it from us.

And when we when we are able to pay off all the all the.

Bills and get them cleanly and waivers on that the other way to get them done as to actually just do like we put up $10 million. They put up $50 million, we put up the last $10 million and we have a structure that is sort of some some mixture of a lease upfront.

Brahma Krati: The other way to get them done is to actually just do like we put up $10 million, they put up $50 million, we put up the last $10 million, and we have a structure that is sort of some mixture of a lease up front and go forward. We're working on all these different options, but on a pipeline basis, John. We have enough deals in the pipeline that we can start as many as those that we want, and we need to accomplish our goal. We literally have 100% flexibility there. On the other hand, it's a little more opportunistic.

And go forward, we're working on all of these different options, but we have in our pipeline basis, John we have enough deals in the pipeline that we can start as many as those that we want and we need to accomplish our goals. We just literally have 100% flexibility there.

On the other side, it's a little more opportunistic I am going to be after today. After all of these calls meetings et cetera kind of be on the plane flying out for a couple of days I am looking at assets.

Brahma Krati: I am going to be after today, after all these calls, meetings, et cetera, going to be on the plane flying out for a couple of days. I'm looking at assets, two or three of them are things that we can take over, we can spend some money, remodel, and launch. And then there are, we're discussing people, office buildings are another market where it's another huge growth opportunity. You have a new office building. You know, you have to revitalize this thing. You need a game changing. You can't have your own little fitness center in there that nobody goes to.

Two or three of them are things that we can take over we can spend some money to remodel and launch so there and then there are.

Discussing people office building is another market where it is.

Another huge growth opportunity you have a new office building.

You have to revitalize this thing you need to you need a game changing you can have your own the la fitness center in there that nobody goes to you need a branded experience inside of that like people need the branded experience in the high rise apartment buildings and there are just enough.

Brahma Krati: You need a branded experience inside of that. Like people need branded experiences in high-rise apartment buildings. And there are just enough deals in discussion and in the pipeline, John, that I do not see a scenario where we cannot deliver 10 clubs a year and 800,000 to a million square feet per year. That's the way I see it. Now, the makeup of that, you know, I don't want to tell you it's going to be this makeup or that makeup because then I, then it looks like we, you know, we said something, we did something different. I think we can expect about 800,000 to a million square feet of new assets coming online per year. And the return on them is all pretty much the same.

Deals in.

In discussion and pipeline John that I don't I do not see a scenario, where we cannot deliver 10 clubs a year and 800000 to 1 million square feet per year, that's the way I see it now the makeup of that.

I don't want to tell you is going to be dismay club or that may come up.

Then I then it looks like we.

That's something we did something different I think we can you can expect about $800 to 1 million square feet.

New assets coming online per year.

And the return on them, it's all pretty much the same we target.

Hi, third of these is our <unk>.

Brahma Krati: We target the high 30s for our IRR on our net dollar invested. So, if we sell this back, gets to the same number, and if this is leased up front, that's the target. We're looking at a 35% plus IRR on the dollars we invest. That's great. One other question or opportunity, I think. So you look at in-center revenue, right? You think about wallet share, right?

Here are on our net dollar invested so if we after sale leaseback gets to the same number and if this lease upfront lesser target.

We're looking at a 35% plus IRR on the dollars we invest.

Yeah.

That's great.

One other question or opportunity I think.

So you look at incentive revenue right and you think about wallet share right with your premium households.

Brahma Krati: With your premium household. How do you think about growing that? Because there's a big opportunity to do that, there's some holes, but I also think you have it marketed aggressively, I don't think so, to those existing households. So how do you attack that, and when?

How do you think about growing that because there's a big opportunity to do that you probably there's some holes, but I also think you haven't marketed aggressively.

I don't think so to those existing households, so how do you attack that and win.

Brahma Krati: Yeah, listen, if you have something worth purchasing or a service worth taking, our customers will do it. So it's our own lack of execution when the customer isn't buying from us. So to just illustrate that to you, you know, as I'm taking through the top 25, bottom 25 clubs in execution, I'll give you an example of Cafe. Some clubs are selling, you know, $30 a customer.

Listen if you have something worth purchasing or service worth taking our customer will do it.

So it's our own.

Lack of execution when the customer is buying from us so to just illustrate that to you.

Im taking through the top 25 bottom 25 clubs and execution I'll give you. An example of cafe. Some clubs are selling $30 a customer some clubs are selling six.

Brahma Krati: Some clubs are selling six. So if we're selling $6 a month per customer, what we're doing is we're just making sure the customer doesn't walk into that cafe. We are turning them off. The service is slow, the food isn't exciting, it's not thrilling, but then we have examples like Miami Falls or West Palm Beach where we are delivering the right experience, and the numbers are just dramatically different, right? But the only thing I can tell you is that you can sit back. And I'm proud of my team. I want you guys to understand we got hit by a tsunami, a hurricane, and a tornado all at the same time in 2020. It's been a sequential and methodical process. First, we had to get the traffic and dues in. Then we had to work on the next most important thing, reinvent our personal training. In January, we had 2,500 applicants for our personal training department versus 11 to 1200 the year before.

So if we're selling $6 a month per customer what we're doing is we're just making sure that customer doesn't walk into that cafe, we are turning them off.

The service is slow the food is an exciting is not thrilling, but then we have examples like Miami falls or West Palm Beach, where we are delivering the right experience and the numbers are just dramatically different right. So.

But the only thing I can tell you is.

You can sit back.

And I am proud of my team I once you guys understand we.

We got hit by a tsunami of hurricane or tornado all at the same time at 2020, it's been a sequential.

And methodical progress first we have to get the traffic and dues and then we have to work. The next most important thing to reinvent our personal training and we had in January we had 2500 applicants for our personal training Department.

This is <unk>.

11% to 1200 the year before lifetime takes it takes time to build the brand for the customers to come so we fixed PT PT has done a great.

Brahma Krati: Life Time, it takes time to build a brand for the customer to come. So we fixed PT. PT is making great progress. We're having record weeks right now as we're going forward. Now we're working on Café. The Café will take, as I told you, from beginning to end of the year. Miura.

The progress we are having record weeks right now as we're going forward.

Now we know we're working on.

<unk> the cafe will take as I told you from beginning to end the year Mirror and then the other area that we have not.

Brahma Krati: And then the other area we have not done at all, even a thoughtful job in the past, is our shop. What we actually package, the experience we provide for people buying Lifetime branded clothing, LTH nutritional products, etc. All of that has now been bundled up under one superb executive of the company named Timo and his team. We are working on that. Again, I wouldn't change the numbers, John, for next quarter, quarter after, but I expect us to deliver, you know, sort of incremental revenue opportunities to our shops, through Miura, through Café, through Spa. We have enough, we have enough tailwind this year to deliver the numbers we just gave you, what we gave you, and guidance for the year and for the quarter. That's just the tailwind of the things we have done. It does not require the implementation of the things I just mentioned to you to get those numbers.

Adult even a thoughtful job in the past.

Is our shop is what we actually package experienced would provide for people to buying lifetime branded Clothing's L. Th nutritional products et cetera. All of that now has been bundled up under one superb executive of the company named Chemo.

And his team. We are we are working on that again I wouldn't go change the numbers John for next quarter than a quarter thereafter, but I expect us to deliver.

You know sort of the incremental revenue opportunities through our shops through mirror tourist cafes through spa.

Have enough.

We have enough <unk>.

<unk> wind this year to deliver the numbers. We delivered we just gave you what we gave you in guidance for the year and for the core there. That's just the tailwind of the things we have done it does not require the implementation of the things I just mentioned to you.

To get those numbers, but we want to get those things rolling So we have enough momentum into them by the fourth quarter. This year. So then we have set ourselves up properly for 25 and going forward. That's really the way we have tons of opportunities yet left in our own execution.

Brahma Krati: But we want to get those things rolling so we have enough momentum behind them by the fourth quarter this year, so then we have set ourselves up properly for 25 and going forward. That's really the way. We have tons of opportunities yet left in our own execution. I emphasize, you know, we do a lot of things really well, and we have a lot of opportunity to improve our execution, John. Thank you.

<unk>, we do a lot of things, great and we have a lot of opportunity to improve our execution John.

Thank you.

John Joseph Baumgartner: Thank you. Our next question. Baumgartner with Zuho Securities, please proceed with your. Good morning, thanks for the question.

Thanks.

Thank you.

Our next question comes from the line of John Baumgartner with Mizuho Securities. Please proceed with your question.

Good morning, Thanks for the question.

Brahma Krati: Maybe, Rob, I wanted to ask about the digital strategy. You know, digital on the whole has really bottomed out in 2023, it seems, and I'm curious how you're thinking about digital as you're gaining visibility into the post-COVID world and post-COVID activities. How are you thinking about digital engagement at this point? Are there any tweaks to the strategy going forward? Is there a need to invest in or manage differently in regards to digital?

Maybe.

Brian I wanted to ask about the digital strategy. The digital auto holds really bottomed out in 2023. It seems that I'm curious, how you're thinking about digital as youre gaining visibility into the post Covid World Post Covid activities. How are you thinking about digital engagement at this point are there tweaks to the strategy going forward is there a need to.

Better manage differently in regards to digital thank you.

Brahma Krati: That's a great question, where we are. We are diligently working on our execution there. The goal is, if you look at the digital companies... that everybody thought they were the messiahs of the world or the game changers, you have to take a look and see where they're at today. And, you know, the reality is, you know, I don't think that's a sustainable business.

As a great question.

We are.

We are diligently working on our execution there.

The the.

The goal is if you look at the digital companies.

That everybody thought there the <unk> of the world or the game changer, you have to take a look and see where they're at today.

And the reality is I don't think Thats sustainable business. However.

Brahma Krati: However, providing a digital option to all of our customers is a must. And so, therefore, we are 100% committed. There are massive initiatives in line. If you look at our app today, it basically provides everything from podcasts, the best content, the best information, it has the best on-demand sort of exercises and a very, very robust streaming and everything else you would ever need.

Providing digital option.

To all of our customers is a must.

So therefore, we are 100% committed there is massive initiatives in line.

You look at our App today.

It basically provides everything from podcast the best content. The best information It has best on demand towards sort of the.

Exercises and a very very robust streaming and everything else you would ever need.

Brahma Krati: So what we haven't done yet is we haven't decided to kind of robustly market that and create the kind of, I would say, the two options of the one that they pay a certain amount a month, $3 a month, or the freemium option. For Life Time, this is the by-product of what we have to do for our AXS customer. So we have every option. So we chose to take this thing to where we have millions and millions of incremental subscribers that aren't paying anything, but they have access to our brand and some of the content. And then they can do other things. They can shop online with us, etc.

So we haven't done yet as we haven't decided to kind of robust knee market that.

And create the kind of a I would say the two options of the one that they pay a certain amount of months $3 a month or the premium option.

For lifetime. This is the byproduct of what we have to do for our access customer. So we have every option. So we chose to take this thing to where we have millions and millions of incremental subscribers.

That they're not paying anything but they have access to our brand and some of the content and then they can do other things they can shop online with us et cetera vast within our decision bandwidth and I can I'm not going to expand more on it all I can tell you is obviously you should.

Simeon Siegel: That's within our decision bandwidth. And I can, I'm not going to expand more on it. All I can tell you is, obviously, you should expect that we're thinking through all these things. And at the right time, we deploy the right strategy. Thank you. Thank you. And our last line is from Simeon Siegel with BMO Capital Markets, and others.

Expect.

Thinking through all these things and at the right time, we deploy the right strategy.

Okay. Thanks, Bob.

Thank you.

Thank you and our last question comes from the line of <unk> with BMO capital markets. Please proceed with your question.

Brahma Krati: Thanks. Morning, guys. Nice job. I hope you're all doing well. Thank you, Simeon, for a really great CD that was fantastic. Could you quantify that at all?

Thanks, Good morning, guys nice job and I hope, you're all doing well thank.

Thank you Sydney.

Where I'm really great CD increased engagement stats and the retention.

Fantastic could you quantify that at all like where are we now for retention versus pre pandemic to your point and then how does that play into general membership expectations for the coming year, maybe what are you expecting for membership growth embedded in that full year revenue guidance.

Brahma Krati: Like, where are we now for... General Membership Expectations for the coming year, maybe what are you expecting for membership growth embedded in that full-year revenue? Yeah, those are two very astute questions, Simeon. The biggest indicator of the desirability we offer is that we, our customers, want to stay, right? So, I have been surprised by the persistence of higher attrition rates than 2019 in 2023, early half the year. That was just the, you know, 2023 was way higher, despite the fact we don't have sales, we don't have promotions, the customer joins on their own merit. But then we saw that number just consistently come down.

Those are two again very astute questions Simeon first.

The biggest in the K there of the desirability we offer.

We our customer wants to stay right.

So I have been I have been surprised in the persistence of a higher attrition rates than 2019 in 2023.

Early half of the year that was just 23 was way higher.

Despite the fact, we don't have sales within our promotions a customer joins on their own merit.

But then we saw that number just consistently come down. This is the attrition rate and now from here going forward, we want to refer to this as retention, but just basically it's the inverse of that number so.

Brahma Krati: This is the attrition rate. And now, from here going forward, we want to refer to this as retention, but basically, it's the inverse of that number. So, in the fourth quarter of, in the back half of 2023, we start seeing, you know, kind of beating 2019, very nicely beating 2022. But now, we are projecting potentially in the 90% range of 2019 and 80% of, 80-ish percent of 2022, 2023. So, you know, when we go this year, we could have attrition rates that could be almost 20% better than last year. So, these trends are right now, again, the attrition rate, Simeon, is a couple months ahead.

The fourth quarter there.

<unk>.

Back half of 2023 we start seeing.

Beating 2019 very nicely, beating 2022.

But now we are projecting potentially in the 90% range of 2019 and 80%.

All of <unk>.

Eight ish percent of 2022.

2022.

223, so when we go this year, we can have attrition rates that could be almost 20% better than last year.

So this trends are right now and getting attrition rate Simeon is a couple of months ahead. So right now if you came in today.

Brahma Krati: So, right now, if you came in today and put your, you know, notice to drop your membership, you're effectively an April attrition, right? So, we can see that number going forward, and the trends are very, very solid. I expect us to, the big number for me, the big BHAG is, we'll end up the year with a 29-something attrition rate, which would be the historically best attrition rate in the history of the company, ever. That's great. And what was your other question?

And put your.

Notice to drop your membership you are effectively in April the attrition rate. So we can see that number forward.

And it trends are very very solid I expect us to.

The big number for me the Big <unk> is.

We'll end up the year with 29.

Something attrition rate, which would be the historically best attrition rate in the history of the company ever.

Great.

And what was your other question.

Remember sure thinking about yes, yes, exactly so just with it.

Simeon Siegel: I think the reshuffling of the business, You know, I think we are within the last, honestly, last 10% of the re-ramp, and therefore, I think from here going forward, I don't expect the membership, you know, we, I don't expect to give up memberships to get the dues, if you know what I'm saying to you. So we expect to see a modest membership gain on a That's great. Thanks for having me. Best of luck for the rest of the year. Thank you so much, my friend. Thank you, and we have reached the end of the question and answer session. All right.

<unk>.

Think the reshuffling of the business.

I think we are within the last honestly last 10%.

Of the re ramp and therefore.

Think from here going forward I don't expect the membership.

Don't expect to give up memberships to get the dues.

What I'm, saying to you. So we expect to see a modest membership gain on a regular basis going forward for the year.

That's great. Thanks, Brian Best of luck for the rest of the year. Thank.

Thank you so much my friend.

Thank you and we have reached the end of the question and answer session I will now turn the call back over to CEO for.

Operator: I just want to thank all of you guys for your very, very diligent Q&A and care that you have for the company. I am grateful to all of our team, as I mentioned early in the call, for their passion and their commitment. And we're looking forward to a great year. So hopefully, we're looking forward to having you guys in just about 60 days again and continuing our progress forward. Thank you so much. And this concludes today's conference, and you may disconnect your line. Thank you for your participation, www.lifetimegroup.com BF-WATCH TV 2021, www.lifetimegroup.com, In the name of the Father, and of the Son, and of the Holy Spirit. Amen. The Ultimate Parody Site! All rights reserved. Life Time Group, LLC, www.life-time-group.com, Thank you for watching! www.lifetimegroup.com, The Life Time Group

For closing remarks.

Alright, I just want to thank all of you guys for your <unk>.

Very very diligent Q&A and care that you have for the company.

I am grateful to all of our team as I mentioned early in the call for their passion and their commitment and we're looking forward for a great year. So hopefully we.

Well, we're looking forward to having you guys in just about 60 days again.

And continue our progress forward. Thank you so much.

And this concludes today's conference and you may disconnect. Your lines at this time. Thank you for your participation.

Okay.

Yes.

Sure.

[music].