Q3 2024 Life Time Group Holdings Inc Earnings Call
[music].
Greetings and welcome to the Lifetime Group Holdings, Inc. Q3, 'twenty 'twenty four earnings conference call. At this time, all participants are in a listen only mode.
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A question and answer session will follow the formal presentation he'd be replacing the question too.
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Speaker Change: My pleasure to turn the call over to Ken Cooper Investor Relations. Please go ahead.
Ken Cooper: Good morning, and thank you for joining us for the third quarter 2024 Lifetime Group Holdings Earnings Conference call with me today are Brian Crotty, founder Chairman and CEO and Eric Weaver Executive Vice President CFO during the call. The company will make forward looking statements, which involve a number of risks and uncertainties that may cause actual results to differ materially.
Ken Cooper: Really from those forward looking statements made today there is a comprehensive discussion of risk factors in the company's SEC filings, which you are encouraged to review the.
Ken Cooper: The company will also discuss certain non-GAAP financial measures, including adjusted net income adjusted EBITDA adjusted diluted EPS net debt to adjusted EBITDA or what we referred to as net debt leverage ratio and free cash flow. This information along with the reconciliations to the most directly comparable GAAP measures are included.
Speaker Change: When applicable 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 I will turn the call over to Eric.
Eric Weaver: Thank you Ken and good morning, everyone.
Eric Weaver: We appreciate you joining us this morning, we're excited to share with you our third quarter results.
Full details of which can be found in the earnings release, we issued this morning.
Eric Weaver: For the third quarter total revenue increased 18% to $693 million driven by a 20% increase in membership dues and enrollment fees.
Eric Weaver: And a 16% increase in in center revenue.
Eric Weaver: Center memberships increased 5% compared to last year to end the quarter at more than 826000 memberships.
Eric Weaver: When combined with our digital on hold memberships total memberships ended the quarter at approximately 877000.
Eric Weaver: Average monthly dues were $198 up approximately 13% from the third quarter of last year.
Eric Weaver: Average revenue per center membership increased to $815 from $722 in the prior year period, as we continued to benefit from higher dues and increased in center activity.
Eric Weaver: Net income for the third quarter was $41 4 million versus $7 9 million in the third quarter 2023.
Eric Weaver: Adjusted net income was $56 $3 million versus $26 $7 million in the prior year period, an increase of $29 $6 million.
Eric Weaver: Diluted earnings per share was <unk> 19, compared to <unk> <unk> per share in the third quarter last year and 26 per share on an adjusted basis compared to 13 in the prior year period.
Eric Weaver: This was an increase of 100% versus the prior year period.
Eric Weaver: Adjusted EBITDA for the third quarter was $183 million, an increase of 26% versus 143.0 a million dollars in the third quarter 2023, and our adjusted EBIT margin of 26.0% increased 160 basis points.
Eric Weaver: As compared to the third quarter 2023.
Eric Weaver: Net cash provided by operating activities increased 32% to $151 million as compared to the third quarter 2023.
Eric Weaver: For the second consecutive quarter, we achieved positive free cash flow free cash flow increased by $169 million to $138 million in the third quarter compared to the prior year period. While this number includes sale leaseback and land sale proceeds of $74 million for the quarter we achieved.
Eric Weaver: Positive free cash flow prior to these proceeds.
Eric Weaver: We reduced our net debt to adjusted EBIT leverage to two four times in the third quarter versus three seven times in the prior year period with that I will now pass the call over to Bryan Bryan.
Eric Weaver: Yeah.
Bryan Bryan: Thank you Eric for doing such a fantastic job and let me extend my thanks to our more than 31000 team members, who made this great performance, Eric just shared that <unk> possible.
Bryan Bryan: I'm going to keep my remarks very short.
Bryan Bryan: The numbers speak for themselves.
Bryan Bryan: As many of you know I'm never satisfied, but I am as pleased as I have ever been with the accomplishments of our entire team over the last few years.
Bryan Bryan: We responded.
Bryan Bryan: To the challenges presented over the last four years.
Bryan Bryan: Reinventing transforming and improving every aspect of lifetime.
Bryan Bryan: We elevated our brand.
Bryan Bryan: <unk> evolved our clubs and today.
Bryan Bryan: We're engaging with our members deeply and profoundly as never before.
Bryan Bryan: Our members Love lifetime.
Bryan Bryan: At the same time, we have rewired.
Bryan Bryan: Our business and organizational structure to maximize efficiency.
Bryan Bryan: Today, we are by far the best version of ourselves that we have ever been.
Bryan Bryan: We offer the highest quality member experiences and the best facilities in the health and leisure industry.
Bryan Bryan: Our momentum has been spectacular and it continues today.
Bryan Bryan: We exceeded every financial goal and every performance metric, we set for ourselves membership retention revenue adjusted EBITDA free cash flow and EPS.
Bryan Bryan: Now that we have deleveraged our balance sheet.
Bryan Bryan: And we are generating free cash flow, our focus will be on continuing to deliver double digit revenue and adjusted EBITDA growth.
As you read in this morning's press release, we are raising revenue guidance to a range of.
Bryan Bryan: To 595 billion to $2 six or $5 billion.
Bryan Bryan: And our adjusted EBITDA guidance to a range of $658 million to $662 million.
We are now looking forward to take your questions.
Speaker Change: Thank you so I'll be conducting a question and answer session if you'd like to be placed in the question queue. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue. You May press star two if still like to remove your question from the Q1 moment. Please.
While we pull for questions.
Speaker Change: Our first question is coming from Brian Nagel from Oppenheimer. Your line is that lives.
Speaker Change: Hi, good morning.
Speaker Change: Good morning, Good morning, Ryan.
Brian Nagel: Once again, congrats on a very nice quarter.
Brian Nagel: I have two questions I guess, one bigger picture, maybe one smaller good job sort of together, but first off the alarm on the bigger picture side or the other.
Speaker Change: Work on our balance sheet.
Speaker Change: Yet your debt ratios now.
Speaker Change: At or below the targets you articulate previously how should we be thinking about.
Speaker Change: So to say the growth profile of lifestyle going from here, particularly as we start looking towards 2025.
Speaker Change: Andrew openings.
Speaker Change: Question I have.
Speaker Change: It usually just shorter term.
Speaker Change: Just with respect to guidance once again.
Speaker Change: <unk> Street estimates.
Speaker Change: The guidance for the year.
Speaker Change: You don't give quarterly guidance, but I guess the question I'm asking is are you actually with this guidance increase lifting your own internal targets for the quarter as well. Thank you.
Speaker Change: Okay. So.
Speaker Change: We let me start with your first question.
Speaker Change: Our targeted EBITDA.
Speaker Change: Is that debt to EBITDA is $1 75 to 225.
Speaker Change: That's the range that I think is appropriate.
Speaker Change: For our company.
Speaker Change: Considering the fact that we own over $3 billion of.
Speaker Change: Market market price owned real estate more like $3 5 billion.
Speaker Change: If we didn't have that I would like to have our debt to EBITDA would be one to one in a quarter than one and a half.
Speaker Change: So in our lifetime brand is such an incredible brand.
Speaker Change: It's paying such an incredible dividends.
Speaker Change: Our mindset has been the balance sheet has to match that brand.
Speaker Change: And.
Speaker Change: Thanks to our partners and our team Eric everybody, we've kind of had been steadfast to getting that.
Speaker Change: Average, where we want to the other thing that I have in mind is a company that is cash flow positive.
Speaker Change: After is growth capital is on different kinds of companies the kind of company that basically has the best in the us.
Speaker Change: In their own hands.
Speaker Change: So we.
Speaker Change: Have guided everybody over and over that $25 million to $30 million of net.
Speaker Change: Out of our pocket.
Speaker Change: For <unk>.
Speaker Change: Location then.
Speaker Change: When I say that and it is basically in our mind.
Speaker Change: So to the large format equivalent and turbine per 100000 square feet.
Speaker Change: As well, what's going to take to build.
Speaker Change: And.
Speaker Change: We have probably about 100 different deals in the pipeline, we're chasing right now.
Speaker Change: The pipeline looks very good for 25 looks even better for 2006 and 'twenty seven.
Speaker Change: And we will manage the.
Speaker Change: The growth so that a we can continue to deliver excellent results.
Speaker Change: And we're continuing to make sure we uphold our brand and to.
Speaker Change: We are able to generate.
Speaker Change: Incremental $50 million to $100 million of free cash flow per year.
Speaker Change: The rest of it is intended to grow the company.
Speaker Change: So we have substantial free cash flow after interest, which is now going to be significantly lower.
Speaker Change: After what we were able to accomplish last couple of days.
Speaker Change: For 2025.
Speaker Change: Then the spending in 2000 and 423 after the interest in what we call maintenance Capex modernization capex.
Speaker Change: We will have significant additional capital where we can.
Speaker Change: Start projects.
Speaker Change: Expedite growth.
Speaker Change: We still maintain that free cash flow positive.
Speaker Change: So that's really what.
Speaker Change: The first question. The second question is look we have always guided you guys.
Speaker Change: With a number that we foresee hard to miss.
Speaker Change: We want to incorporate any potential macro.
Speaker Change: Headwinds or anything conservatively make sure with the number we gave you Erick and I is one that we have a very very high level of confidence that we can deliver it doesn't mean that all of this can be all it means is the number we want to share with you to make sure. We don't go below that.
Speaker Change: Yes, just to add to that the guidance, we increased it because we're obviously seeing still very positive trends in the business and so the.
Speaker Change: The implied guidance for Q4 on a revenue basis is about 15% year over year growth and about 16% on adjusted EBITDA and then for the second half 17 on the revenue side in 'twenty, one on adjusted EBITDA, So still very great.
Speaker Change: <unk> in the business that we're seeing.
Speaker Change: Thanks, guys I appreciate it.
Speaker Change: Thank you.
Speaker Change: Thank you. Your next question is coming from John Heimbach <unk> from Guggenheim Securities. Your line is now live.
John Heimbach: Hey, Brian I wanted to start with the 100 plus deals in the pipeline.
John Heimbach: How would you segregate those out.
John Heimbach: The ground ups right maybe.
John Heimbach: Take club takeovers your various channels right.
John Heimbach: Identical buildings how.
John Heimbach: How would you segregate that out and then yes.
Speaker Change: I know you talked about the 10 to 12 <unk>.
Speaker Change: What do you think is the organization's capacity.
Speaker Change: Uh huh.
Speaker Change: Can you eventually do more if you look at a couple of years do more than the 10 to 12.
Speaker Change: Would prefer to limit it to that.
Speaker Change: No.
Speaker Change: Actually.
Speaker Change: As it looks like right now.
Speaker Change: And our next year could be that 10 to 12 25 26, right now as the way the schedule rolls out.
Speaker Change: <unk> already probably 12 to 14 and I think that number can expand.
Speaker Change: So we we.
Have this pipeline and we're working on deals and some of the gestation are much longer than others.
Speaker Change: And we the ground ups.
Speaker Change: D R.
Speaker Change: The ones that they take longer time to put together.
Speaker Change: The ones that go into the high rise residential buildings.
Speaker Change: Let's take those take a long time, but there are deals we're working on those but they have been in the pipeline for a long time.
Speaker Change: So.
Speaker Change: As as it as it what I can answer to you and everybody else.
Speaker Change: You have to look at or we're not building sweet Greens, we're building anywhere from 40 to 50000 square feet to 120, 30, 40000 square feet and on variety of different real estate opportunities.
Speaker Change: So and we have these deals into the pipeline in each of them have their own.
Speaker Change: Schedule.
Speaker Change: It's the right timing for the developer for us for the whole project.
Speaker Change: So they're going to be lumpy, but what I mean by that is next year could be more of.
Speaker Change: Clubs that they're takeovers.
Speaker Change: Transformations.
Speaker Change: The following year is going to be a lot more ground up so what I would.
Speaker Change: Basically recommend to everybody has to really think about them as a blended.
Speaker Change: Half and half.
Speaker Change: At this point.
Speaker Change: I think as we go into.
Speaker Change: <unk>.
Speaker Change: Three or four years from today.
Speaker Change: Based on the number of conversations we're in.
Speaker Change: And based on the incredible results that David lifetime living is producing for the for the left them living.
Speaker Change: The owners of the actual buildings.
Speaker Change: In terms of ramp.
Speaker Change: Consistently we're getting about 15% to 20% more rent.
Speaker Change: <unk> we have.
Speaker Change: A retention that they have never seen before is 20, 20%.
Speaker Change: Attrition rates in that side of the business for them versus as much as for the other apartment buildings.
Speaker Change: And of course, we will ramp these faster so that has.
Speaker Change: The increase and we now have 567 of these locations in place.
Speaker Change: So they can look at the data it's not just a thought process, it's actually facts supporting.
Speaker Change: They were in a lot of those discussions so I think as I look out four or five years out.
Speaker Change: John I see theres going to be probably a lot more of those coming online.
Speaker Change: But for right now I would like to guide everyone to Hey, take a look at a three year period.
Speaker Change: 30 to 40 locations in that three period.
Speaker Change: Three year period.
About half and half is the right mix of ground up versus other stuff.
Speaker Change: And then maybe as a follow up on that right. So I think about the.
Speaker Change: The incentive revenue spend right per month per member.
Speaker Change: I think it's like 75 Bucks.
<unk>.
Speaker Change: In theory, it could be higher than that right. If people are engaging with all your offerings.
And I, but I think you've also not wanted to do a hard sell there.
Speaker Change: How do you think about expanding that wallet share over the next several years.
Speaker Change: Is there anything you would you want to do differently to accelerate that or it just happens naturally.
Speaker Change: So.
Speaker Change: There are two or three categories one.
Speaker Change: We have.
Speaker Change: Really done a nice job my team has done a nice job.
Speaker Change: With DPT with our dynamic personnel training.
Speaker Change: And that has been growing very nicely, but despite that you have clubs that theyre doing $5 million a year in the <unk> and you have clubs.
Speaker Change: <unk> sized clubs doing $2 million. So we have.
Speaker Change: Always opportunity.
Speaker Change: To go through best practices due to top 25 bottom 25 clubs in terms in each categories cafes, Bob BT Kids, we do that routinely.
Speaker Change: And then as more things are going really well, we have more time to focus on the areas, where theres more opportunity and thats exactly whats happening at lifetime. So I think there's still substantial opportunity.
Speaker Change: To execute better.
Speaker Change: Across the board than when I say that is there. Some clubs are doing amazing exceptional performance in PT or in food or in small and then there are clubs who are not so we have in aggregate we have room to do better job with our F&B we have <unk>.
Speaker Change: <unk> the room to do better job with Spa.
Speaker Change: And even with Pte those are the three big drivers of in center of course kits.
Speaker Change: There's also one but we do a pretty good job with that now.
Speaker Change: <unk>, which we talked about while back and I told you guys to not get excited about it it's important and you still don't get excited about it my goal was to deliver a customer journey that is fantastic.
We've done that then.
Speaker Change: And then the goal was to create a profitable unit.
Speaker Change: <unk> business model, we are doubling our revenue right now.
Speaker Change: Sometimes by the week, sometimes by the <unk>.
Speaker Change: Month over month for sure is doubling.
Speaker Change: September over August October over September.
Speaker Change: And once we have that and the goal for that has ended this year. Once we have a model that is absolutely perfect. Then I would say probably for the 50 locations across the country not wanting every club, but basically at least 123.
Speaker Change: Fair market.
Speaker Change: We can rollout mirror the beauty of that is you need the IP, we have it you need the Chief Science Officer, we have it.
Speaker Change: You need space, So we don't have to.
Speaker Change: Freestanding business as to what we already have this space, we already have the customers we have the demand so we got that.
Speaker Change: We have.
We are just about to launch LTE H.
Speaker Change: Lifetime health.
Speaker Change: Brand, that's all of it supplements and nutritional products, we expect that business to grow substantially.
Speaker Change: For over a year on year.
Speaker Change: Not 10% or 20%, but significantly more than that.
Speaker Change: And in the in 2025.
Speaker Change: Digital.
Speaker Change: The additional subscription is growing.
Speaker Change: About.
Speaker Change: Okay.
Speaker Change: 100000 subscribers.
Speaker Change: A year, we are a month or so just been now over 1 million 1 million subscribers.
Speaker Change: That will fuel.
Speaker Change: The partnership LP partnerships revenue that will improve that will increase the opportunity just a L th product.
Speaker Change: R R.
Speaker Change: Our apparel that we partner with the different partners and the products of other partners.
Speaker Change: We anticipate.
Speaker Change: Continuing to rollout our <unk>.
Speaker Change: Opportunities to expand the revenue of the company and EBITDA of the company on an incredibly asset light format.
Speaker Change: Based on the power of our brand and our footprint.
Speaker Change: As we are expanding that footprint building more incredible exceptional.
Speaker Change: Brand building as well as revenue square foot building locations, we continue to look for ways to expand.
Speaker Change: Our revenue and EBITDA.
Speaker Change: And deliver more asset light. So we expect to deliver a we don't want to commit to a more than a very low double digit revenue.
Speaker Change: And EBITDA for the 10% to 12% revenue EBIT does just like I mentioned before.
Speaker Change: Before per year, which I think is a very respectable number.
Speaker Change: But.
Speaker Change: We obviously arent going to be satisfied with that and thats not the internal goal, but we're not going to commit to anything more as I mentioned earlier, we do not want to disappoint.
Speaker Change: Are you or any investor by over promising and under delivering.
Thank you.
Speaker Change: Thank you. Your next question is coming from Megan Alexander from Morgan Stanley. Your line is now live.
Megan Alexander: Hey, good morning wanted to just maybe touch on the change in the leverage target around two times youre talking about it at that midpoint versus.
Megan Alexander: Two and a half ish prior.
Megan Alexander: Can you just talk about the thinking around that for us.
Speaker Change: No I think I think you might have misunderstood our target was to get to.
Speaker Change: Committed to get to the three beginning of the under three which is a critical.
Speaker Change: Points for so many investors, but many investors some of the large large bulge bracket investors basically said hey, three years, Okay. We really don't want to even engage until this really under two five times.
Speaker Change: We believe the company is a strong double b credit.
Speaker Change: Thank god, regardless of Moody's or S&P wanting to wait another quarter or two before they actually give that in our corporate rating.
Speaker Change: The investors hailed us by giving us the rate that matches the strong double b. So we're very very grateful for that what we were able to accomplish this last week.
Speaker Change: But the target that I believe makes our company a strong double b is exactly the numbers I told you it needs to be under two times debt to EBITDA.
Speaker Change: For sure. If you don't have if you don't have.
Speaker Change: <unk>.
Speaker Change: Real estate assets.
Speaker Change: What gives me the comfort to be between $1, 75% to two five is the fact that our entire debt could be completely retired by just doing 1 billion and a half sale leaseback. So that is what allows me to say, okay, let's call it between 175% to $2.
Speaker Change: <unk> targets.
Speaker Change: And that number is easily go into them, we're going to be our our estimate Eric's estimate right. Now is we're going to be under two five.
Speaker Change: Of the year, which gives us.
Speaker Change: At least one more step down on our revolver. So we just feel like that's where we want to be we want to have a brand and a balance sheet that they are both excellent.
Speaker Change: And we get the cheapest cost of capital, but it doesn't by no means Megan is going to restrict.
Speaker Change: Our growth opportunities, we can grow inside of that envelope.
Speaker Change: As much as we.
Speaker Change: We really.
Speaker Change: Feel like the growth opportunities are there.
Speaker Change: That's really helpful makes lot of sense and maybe just a follow up on that I think you said.
Speaker Change: You could do as much as $1 billion and half of sale leasebacks, obviously, the sale leaseback proceeds have come in better this year than what you were talking about to start the year is that still mostly opportunistic are you starting to see cap rates that are closer to what you'd like to see and how are you thinking about kind of.
Speaker Change: The market for sale leasebacks as we head into 2025, Yeah Fantastic question, Megan So it's going to be incredibly robust we are already getting inbound.
Speaker Change: Sort of.
Speaker Change: Conversations from our partners that they like to have a couple of hundred million dollars $100 million worth of sale leaseback that if we can provide the assets.
Speaker Change: So, let's let's think about it this way.
Speaker Change: If we were to build.
Speaker Change: 10.
Speaker Change: Ground up facilities that could take as much as <unk>.
Speaker Change: $600 million of capital all in.
Speaker Change: What we keep telling everybody and we keep reiterating is $25 million to $30 million.
Speaker Change: So.
Speaker Change: If you take that number take even the $30 million off of it on 10 of those that's.
Speaker Change: Thats six $300 million 350 million Bucks.
Speaker Change: The other portion of it is recycling.
Speaker Change: At clubs that we have already built if you know what I'm, saying to you. So we have right now at least a half a dozen clubs we build just in the last year or two paid for all of the roundup.
Speaker Change: Very very amazing asset.
Speaker Change: Large format Super large.
Speaker Change: When we still own all the real estate, we haven't taken those to sell leaseback.
Speaker Change: So when the incoming offers are attractive.
Speaker Change: And I think by Middle of next year, we will see sale leasebacks.
Speaker Change: On our credit.
Speaker Change: More favorable than the best sell leasebacks, we've ever done and I expect us to do that.
Speaker Change: <unk> $250 million to $300 million worth of sell leaseback on an annual basis take that money and recycle it.
Speaker Change: So that the net invested capital in.
Speaker Change: In each new ground up is no more than 25 30 million Bucks does that makes sense.
Speaker Change: Thanks, a lot of sense alright.
Speaker Change: Alright, thank you so much Megan.
Speaker Change: Thank you next question is coming from Christopher <unk> from Deutsche Bank. Your line is now live.
Speaker Change: Hey, guys.
Speaker Change: Good morning, Chris Hey, Bob.
Speaker Change: Morning.
Christopher: So Rob when you when you talk about the some of the I guess club takeovers are conversion opportunities right that are that are separate and distinct from the new builds when you. When you look at those those existing assets is there.
Christopher: Obviously, youre solving for an ROIC see youre solving for some kind of free cash flow yield ultimately.
Christopher: Do you think that you tend to think.
Christopher: Youll be more surprised on revenue upside or in the case of an existing center or something like that or a takeover.
Speaker Change: There are more opportunity to just get a better a better whether it's rents or.
So existing club better operating model is there any way to think about which.
Speaker Change: Which opportunity means more to you.
Speaker Change: Not at all.
Speaker Change: Give you just two examples one club has been opened in Tampa.
Speaker Change: We took two clubs last year.
Speaker Change: Last year, we took some.
Speaker Change: From the landlord basically gave it to us within great Ti package.
Speaker Change: One in Tampa one did.
Speaker Change: Troy and Atlanta.
Speaker Change: The Tampa Club just opened this year and this summer August I think Andy.
Speaker Change: Atlanta facility will open in November.
Speaker Change: Both of them are incredible.
Incredible deals.
There's a lease lenders, providing some additional ti dollars.
Speaker Change: We go in and we've got those things out when we take a club out from somebody else. Many times, it's just like a new new build.
Speaker Change: The benefit is you already have the right zoning you already have that location is approved for a club business.
Cuts through some.
Speaker Change: Some challenges, but it we.
Speaker Change: We literally designed redesigned from the get go.
Speaker Change: And sometimes we're all we're getting is really a.
Speaker Change: Piece of land, we're getting to shell.
Speaker Change: And the fact that this already zoned for that use but then it's completely rebuilt from scratch like a brand new club.
Speaker Change: Now because you have the zoning you have the curb and gutter you have all that instead of taking 40 years. It takes a year or 18 months to do so.
Speaker Change: Then we expect it to deliver exactly the same type of return our business plan isn't going to go into these things and we are excited about it if it has a lower rate of return than the other things we do so and that rate of return generally speaking is in that 30% to four.
Speaker Change: <unk>.
Speaker Change: Percent.
Speaker Change: IRR on a net invested capital basis, we always look at these the same way and so there are other and then there are some that the strategic you might take over some assets because it's extremely strategic or intending to do something with tenants are pickle ball or some other deal.
Speaker Change: That its blends in but.
Speaker Change: I really just want to make your work all of your work easy enough is that if you. If you would think about how we are guiding you.
Speaker Change: With the 25 30 million net invested capital per large format.
Speaker Change: Large format equivalent.
Really what we need to maybe try to help you guys with best is to try to give you a schedule of opening as soon as we can commit to it.
Speaker Change: Four.
Speaker Change: How many.
Speaker Change: Hundreds of thousands square feet per quarter, there is probably the better way to go about it.
Speaker Change: Otherwise it is really really hard to create a model that anticipates Oh, My God 26, you're going to get 12, all ground up clubs.
Speaker Change: 27, you might get something a little different so it's just.
Speaker Change: Just we will try to manage that and simplify it and give you guys a way too.
Speaker Change: Model much easier.
Speaker Change: Okay. Thanks, Thanks, Brian that's Super Super helpful.
Speaker Change: We certainly appreciate any color on that I had quick follow up if I could in excess on the VLT th.
Speaker Change: Brand branded things you'll be doing is there any way to put.
Speaker Change: Together framework now for how big that opportunity is and how you measure it is it going to be based on.
Speaker Change: <unk>.
Speaker Change: Revenue you ultimately generate per digital number plus in center member or how are you going to know that you've reached the full potential whenever you do yes.
Speaker Change: No I think you might want to look at companies like Zorn.
Speaker Change: At the top four five high quality.
Speaker Change: I'm going to give some props to thorn because.
Speaker Change: I take a bunch of their product myself other than my products are generally either LTE HR Thorn.
Speaker Change: But we but there are other really great brands take a look at really really high quality brands.
Speaker Change: High quality production, it's very rare to come by.
Speaker Change: Very hard to trust.
Speaker Change: Nutritional products because theyre not.
Speaker Change: Regulated like drugs are.
Speaker Change: That's why I take about 80 supplement pills.
Speaker Change: Day, I'm not going to put anything in my body that it's not tested.
Speaker Change: For what it is so we have been we've had this discipline for 20 plus years to produce the absolute best products, we didn't really.
Speaker Change: They didn't have enough scale.
Speaker Change: Four four to really put energy behind it but now I emphasize with lifetime subscription growing at 100000 subscribers a month athletic event is growing our partnerships is growing the brand is 134, the 1 billion impressions and it's going to keep growing.
Speaker Change: Now is the time to silicon, we can build the business that five years 10 years could be easily a $500 million billion dollars supplement business and so and nobody has a better right to win in that space and lifetime. So.
Speaker Change: My my long term not.
Speaker Change: 2024 or 2025.
Speaker Change: The long term.
Speaker Change: <unk> vision is that we.
Speaker Change: We havent built to have $1 billion business out of that.
Speaker Change: Then I really have.
Speaker Change: Not achieved my vision with that thing so I think it's.
Speaker Change: And it's not just about money.
Speaker Change: This is a place where we really can do some incredible good for the society because there just aren't that many supplement lines that you take and you take it to a lab you have them tested and youre going to find half the stuff that it stays in there is not there or they're not in the quantities. They say it's there.
Speaker Change: Okay.
Speaker Change: Thanks, Thanks from very very insightful. Thank you.
Speaker Change: Thank you. Your next question today is coming from Michael Hirsch from Wells Fargo. Your line is now live.
Michael Hirsch: Thank you for taking my questions.
Michael Hirsch: At your Investor Day, you announced your long term target of 4% to 5% growth from fully ramped centers.
Speaker Change: 2024 exceeded that so I'm just wondering how should we think about this for 2025. So Michael This is <unk> I'm going to start taking those for the appeals with most shake and give a chance to Eric to give you. Some good fit out of area come on yes, yes.
Eric Weaver: Yes, we were still benefiting a little bit this year.
Eric Weaver: From some of the some of the pricing, but the 4% to 5% is still what we're modeling long term. So for next year and going forward, that's going to begin to normalize into that four 5% range.
Speaker Change: Okay. Thank you and then as my follow up I know you mentioned 10 to 12, new openings for 2025.
Speaker Change: You had to open two new center during the third quarter and then the Atlanta location in November. So I'm. Just wondering was there anything specific in 2024 that led to around seven new openings versus the 10 to 12 target.
Speaker Change: Yes, we've had some delays in projects getting pushed.
Speaker Change: Back.
Speaker Change: What I can say that again, you got to look at this in a multi year rather than a year by year.
Speaker Change: As of right now 26, it looks like we will make up for everything in 'twenty, four and more all with big Humongous clubs. So.
It's just getting delayed into the 'twenty, but theres still coming.
Speaker Change: And we have a pretty good opportunity to get some additional deals.
Speaker Change: Deals done it's not done yet, 100%, but we are working on some additional growth potentially yes versus $4 25.
Speaker Change: It's it's really irrelevant because.
Speaker Change: We as we've told you we've been very very methodical.
Speaker Change: <unk>.
Delivering the numbers that we commit to you in terms of topline and bottom line.
Speaker Change: And then keep enough latitude for how we execute that on our own.
Speaker Change: And we've known we have so much and we've told you we have so much.
Speaker Change: Momentum in our core business that we could manage to a slower openings right now to make sure we are capturing that in center opportunity.
Speaker Change: Two's growth opportunity in the entire portfolio by the time it drops down to 45% whenever that is.
Speaker Change: We will then have to have a very very robust.
New club opening and additional growth like <unk> or LTE, H and L tissue partnership to continue to deliver that double digit growth, which is a strong desire of the company.
Speaker Change: But we will figure out a way to deliver what we commit to you.
Speaker Change: Thank you.
Speaker Change: Thank you. Your next question is coming from Alex Perry from Bank of America. Your line is that right.
Alex Perry: Hi, yes. Thanks for taking my question I just wanted to go back to the guidance raise a bit.
What gives you confidence to lift the guide and maybe sort of dissect the pieces for us is that youre seeing less membership churn than you would.
Alex Perry: Normally seasonally see are you baking in higher expectations for pricing, which continues to be a tailwind for you just maybe go through.
Alex Perry: Some of the pieces that led to the race. Thanks.
Yes.
Alex Perry: Eric So a couple of things here, we're still seeing really great flow through from our membership dues. So that's one big piece and retention.
Alex Perry: As you mentioned continues to be very strong.
Alex Perry: You also probably saw in our release our same store sales was north of 12% and that's another big driver of that and Bryan talked about it earlier was our DPT.
Alex Perry: So we continue to see very strong demand in <unk>, which is a big driver of that so all of those things are again as we've talked about just the consumer continuing to show strong demand gives us absolute confidence in being able to raise that guidance.
Alex Perry: Alex.
Alex Perry: <unk>.
Alex Perry: With a little more color.
Alex Perry: We've told you over and over we told all of you guys that we are seeing the best retention.
When I say the customers love lifetime, they really do.
Alex Perry: Lifetime.
Alex Perry: We have the best retention.
Alex Perry: I have.
Alex Perry: Ever seen in the history of the company and 34% 35 years.
Alex Perry: And on top of that.
Alex Perry: Really like it looks like.
Alex Perry: <unk> it.
Alex Perry: It could be like even better than that in 2020.
Alex Perry: Five.
Alex Perry: So.
Alex Perry: We are at this point.
Alex Perry: Retention again, it's not a number we're going to continue to give but I.
Alex Perry: I have given it during the.
Alex Perry: Presentation with the debt guys. So I just want to we are going to finish the year north of 70% in retention and for <unk>.
Alex Perry: Anybody who really understands this business there is no more <unk>.
Alex Perry: Portland.
Alex Perry: Metric and that retention just no different than our apartment business.
Alex Perry:
Alex Perry: It's really strong and.
Alex Perry: The brand.
Alex Perry: Is resonating with the customer and has given us additional opportunities or were working trying to kind of create more products for that but that's the reason the retention is really the key and <unk>.
Alex Perry: Good results into the dues.
Alex Perry: And once you have a strong dues everything else will follow.
Speaker Change: Perfect and then just on pricing are you expecting the same level of year over year price lift as we move into the fourth quarter and then as you think about your pricing structure for next year as we move into 2025.
Speaker Change: Will you likely reset prices even higher.
Speaker Change: The year, given the membership demand you're seeing thanks.
Speaker Change: Look I think we have largely repositioned the company to where we want to be we want to be the athletic country club destination, neither Jim as People's third place second place.
Speaker Change: As we see with our customer they are now using the facilities.
Speaker Change: Just about on average every other day so that is.
Speaker Change: Another reason for the strong retention is this engagement that is at all time high and we are working.
Speaker Change: We are working strongly on actually okay. What can we do right now to deliver even more exceptional desirability in every aspect of our business. That's really the strategic work that is taking place today.
Speaker Change: With me.
Speaker Change: <unk>.
Speaker Change: President of the club operations real estate, and then everybody all the RVP.
Speaker Change: The lead generals, so as we roll that out.
Speaker Change: Where we see that.
Speaker Change: Getting getting.
Speaker Change: That demand at the level that we are creating gives you pricing power and then the the way to adjust the price is really a function of.
Speaker Change: Clubs have three.
Speaker Change: <unk> thousand visits a day at that level, we really don't want any more visits in that club per day.
Speaker Change: Its busy throughout the day.
Speaker Change: Now the key is okay, maybe there is an enrollment fee.
Speaker Change: Now.
Speaker Change: Starting more locations, we started with just a few now we're looking at other locations, where we have to raise the enrollment fee from a few hundred Bucks 300 Bucks to 1000 Bucks 500 box in order to manage that type of club the clubs that they're sitting at 55000.
Speaker Change: This is a large format location equivalent.
Speaker Change: 55000, swipes 60000, and so absent a month they have room to get more memberships. So theres not necessarily we got to get we got to get that club yet to 70000 80000 people going through so it's club by club location by location.
Speaker Change: We have opportunity right now I think this last few.
Speaker Change: Weeks four weeks six weeks there has been quite a few clubs that they've gotten that rack rate moves.
Speaker Change: A little bit.
Speaker Change: And based on everything I, just told you it's not just because we want to raise rates or something like that is really managing to the club experience the right right customer mix.
Speaker Change: Into a particular club and then.
Speaker Change: And the real Big thing is.
Speaker Change: That gap between the pricing.
Speaker Change: Of Iraq rate and once you run that rack rate.
A month or two and it's clear indication of the customer to go that's completely unacceptable right. Nobody is having a hard time with it. So now that you would know that you've tested that price.
Speaker Change: Then the call them the gap is everybody who's paying below that.
Speaker Change: Right. The <unk> gives you that 17 18 $19 million that we've told you.
That is a difference between what people are paying.
Speaker Change: Versus if everybody paid the rack rate that creates that reservoir.
Speaker Change: You can basically.
Speaker Change: Draw from two ways to draw from it either people churn new people coming in same number of swipes, you get more and more <unk> for it.
Speaker Change: Or some number of memberships or you pass on $10 $15 $20.
Speaker Change: Legacy price increase.
Speaker Change: Per year for those people, who are paying below the rack rate theyre happy because theres still ended up paying below the rack rate and they recognize we appreciate there.
Speaker Change: Loyalty to the company and were good and you guys are good and the investors are good because we keep getting this a natural same store coming through even when other retailers don't have.
Speaker Change: The opportunity to fight it maybe little bit of a tough macro and then maybe their sales go down 2%, we are buffered extremely well for that.
Speaker Change: Perfect. That's incredibly helpful best of luck going forward.
Speaker Change: You.
Speaker Change: Thank you. Your next question is coming from Alex Firming from Craig Hallum. Your line is how life.
Alex Firming: Great. Thanks, very much for taking my question, Brian you alluded to this a little bit.
Alex Firming: In in what you were just saying, but it looks like over the past couple of months just in September and October you, you've taken up the new member price at a pretty meaningful.
Alex Firming: Number of your clubs here does that mean, we should expect to see you're starting to kind of reach out to new members over the next couple of months in those clubs, who now that the gap between what they're paying and the rack rate right is expanding.
Speaker Change: It's a good question no it's not just dose clubs so we.
Speaker Change: Go through I think probably seven eight times a year.
Speaker Change: There are three or four months that we skip but there is no there was like 40000 or 50000 or 30000.
Speaker Change: Whatever the program the AI is suggesting.
Speaker Change: Members will get that lovely dues increased leather.
Speaker Change: And we have like very systematic categories.
Speaker Change: It can be.
Speaker Change: Not hitting.
Speaker Change: All members of five clubs are all members of.
Speaker Change: It's basically goes.
Speaker Change: Across the whole membership platform of 500000.
Speaker Change: People are paying below rack rate as an example, or 600000 people who've been in black rate.
Speaker Change: It will sort through those.
Speaker Change: So these guys signed up six months ago, they are paying below their accurate, they're not going to do is increase right. Now we don't we don't generally give dues increases more than once a year. So there is a very very sophisticated AI algorithm that we have developed over the last.
Speaker Change: To say seven eight years.
It's gotten significantly better.
Speaker Change: I've seen the best version of it this year over even last year, where right now we hardly see any incremental attrition.
Speaker Change: When those 30 40 50000.
Speaker Change: Leathers go out or the notices go out we hardly see any incremental attrition out of it. So we have fine tuned that extremely well.
Speaker Change: Okay. That's really helpful. Appreciate the color thanks, Brian Thanks.
Speaker Change: Thank you next question is coming from Owen Richard from Northland Capital Markets. Your line is now live.
Owen Richard: Hey, Brian Hey, Eric just congrats again on another phenomenal quarter.
Owen Richard: It sounds like the vast majority of clubs are very high performing but if we take a look at some of the clubs in the portfolio that maybe not as high performing.
Speaker Change: The goal would be is it renovation of the club getting new equipment and providing more offerings.
Speaker Change: I guess just all in all how do you look at these locations and what is the plan going forward with these ones yeah. So look.
Speaker Change: Internally, we are running as it can.
Speaker Change: <unk> business plan.
Speaker Change: And it's in the works right now for every single location.
Speaker Change: The company every single location what is the vision for that particular location was the opportunity where we add to that opportunity what are the things we need to do do we need to.
Speaker Change: Change.
Speaker Change: Grameen do we need to change.
Speaker Change: Facility do we need to add do we need to make some changes in the.
Speaker Change: The leadership of the business. It doesn't mean, it doesn't really stop or and at one of those is the comprehensive analytical plan.
Speaker Change: Full full detailed business plan for every location. So we know what is the ultimate opportunity of that at least for this kind of at this time in that and then we will go appropriately execute all those things.
Speaker Change: So it's more so phenomenal question I'm, just not going to give you the exact answer.
Speaker Change: The only thing I can tell you is that we have a very very robust.
Speaker Change: Strategy process in place that basically evaluates that and then we go systematically execute against it.
Speaker Change: Perfect. That's very helpful. Thanks, guys and congrats again on the quarter.
Speaker Change: Thank you so much.
Speaker Change: Thank you. Your next question is coming from Logan right from RBC capital markets. Your line is now lives.
Logan: Hey, good morning, guys. Thanks for taking my questions.
Logan: I just had one on the incremental flow through maybe this one's for Eric just on the marginal flow through of revenue to EBITDA. It looks like it's been running around 30 to 35 over the past several quarters.
Logan: Obviously, I know you guys are sort of guiding us towards margin expansion, but just given the incremental flow through over the past several quarters.
Logan: I guess I'm sort of curious what would be the puts and takes potentially driving that incremental flow through down.
Logan: Such that margins would be in the similar range. It looks as though you guys would get some fixed cost leverage but.
Speaker Change: Obviously, there are some puts and takes in there. So maybe you can just walk us through.
Speaker Change: Walk us through those thank you.
Speaker Change: Yes.
Speaker Change: One of the things that we've really said is we want to make sure that we're leaving ourselves enough room to kind of reinvest back into the into the centers as we need to do so as.
Speaker Change: As we look into Q4 and forward.
Speaker Change: We're doing things to make sure that we're making those clubs like new.
Speaker Change: And making sure that all the repairs and maintenance and all of that to keeping it in that like new condition. So that's that's going to be one of the things that we're investing in but again on the flow through we're continuing to see it on the <unk> side as we mentioned before Brian talked about retention. So we get a lot of flow through from that and so that's one of the main drivers and then as I mentioned on the DPT.
Speaker Change: Side, that's also been very very strong for us, especially in the third quarter.
Speaker Change: <unk>.
Speaker Change: The caution that we are.
Wanting to issue is that we have guided you guys to 'twenty three and a half.
Speaker Change: 24, and a half.
Speaker Change: Percent on EBITDA margin from beginning of the year.
Speaker Change: When the questions was asked why can't you guys are all smart people.
Speaker Change: You look at the numbers of why can't you do more.
Speaker Change: So when we said we didn't say we can't do more with.
Speaker Change: Just don't want to have you go tweak your models and keep ratcheting. It up there is no reason for that because.
Speaker Change: Number one goal of mine as the visionary founder of the company.
Speaker Change: Is to make sure the brand continues to elevate and not goes backwards and therefore, just like Eric said, we like to guide to a number that we don't disappoint.
<unk>.
Speaker Change: Now I would suggest.
Speaker Change: Hey don't take it much higher than 25.
Speaker Change: Percent EBITDA margin.
Speaker Change: Now, we want to invest into our brands into our programming into our facilities to make sure. The clubs are modernized their like new team members are getting the proper adequate education, they get proper incentives.
Speaker Change: And if we have.
Speaker Change: More.
Speaker Change: Then it takes all of them doing all those things then we let it pass through but I think the wise thing to do is to keep that.
Speaker Change: Margin the range that we guided you guys to end.
Speaker Change: I don't know how many companies actually are delivering 25% EBITDA margin.
Speaker Change: I don't know that.
Speaker Change: This is a win that is a game that anybody can win if you keep ratcheting those expectation up higher and higher higher eventually the company starts doing wrong things to achieve this.
Speaker Change: Chris expectation, so I guide Super strong to all of you to maintain that 25 don't get overexcited.
As we grow the.
Speaker Change: Some of the challenging areas the Spa cafe.
Speaker Change: They grow they're going to actually dragged the margin back down at the total the club is going to make more money, but the margin is going to get pressed.
Speaker Change: Because they never they will never deliver.
Speaker Change: 5% EBITDA margin.
Speaker Change: So.
Speaker Change: It's a better engagement the more people are doing the cafe that more people will go to the spa the better it is for more engagements you get more dues, which is great. That's a great margin.
The negative side of it the margin in those businesses are very low.
Speaker Change: Thank you we've reached end of our question and answer session I would like to turn the floor back over to <unk> founder and CEO pharma Crotty for closing remarks. Please go ahead.
Speaker Change: Thank you so much I really appreciate all of you.
Speaker Change: Analyst investors, we are really really happy.
Speaker Change: About the accomplishments this year, we feel like we're in a really really great.
Speaker Change: Position to go into the fourth quarter into next year.
Speaker Change: And looking forward to continue to deliver what we promise to you.
And.
Speaker Change: I couldnt be more grateful to the lifetime team.
Speaker Change: For literally just passionately delivering.
Speaker Change: And given the results that you guys are seeing so with that I want to thank you guys and have a great day.
Speaker Change: Thank you that does conclude today's teleconference. You may disconnect. Your lines at this time and have a wonderful day we thank.
Thank you for your participation today.