Operator: Greetings, and welcome to the Life Time Group Holdings, Inc. Q3 2026 earnings call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Connor Wienberg, Senior Vice President of Treasury and Investor Relations. Thank you. You may begin.
Connor Wienberg: Good morning. Thank you for joining us for the Q3 2026 Life Time Group Holdings earnings conference call. With me today are Bahram Akradi, Founder, Chairman, and CEO, and Erik Weaver, Executive Vice President and CFO. During the call, we will make forward-looking statements which involve a number of risks and uncertainties that may cause actual results to differ materially from those forward-looking statements made today. There is a comprehensive discussion of risk factors in the company's SEC filings, which you are encouraged to review. The company will also 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 net debt leverage ratio and free cash flow.
Connor Wienberg: This information, along with the reconciliations to the most directly comparable GAAP measures are included, when applicable, in the company's earnings release and earnings supplement 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 Erik.
Erik Weaver: Thank you, Connor, and good morning, everyone. We appreciate you joining us for our Q3 business and financial update. This morning, in addition to our earnings release, we posted an earnings supplement to our Investor Relations website with additional detail on membership mix and comparable center revenue. Starting with our Q3 revenue. Total revenue increased 14.2% to $893.5 million, driven by continued strength in performance across our clubs, including higher dues revenue and strong utilization of our in-center businesses. Comparable center revenue grew 8.7%. This was above our expectations and driven by an outperformance in our membership acquisition and in-center business performance. As outlined in our earnings supplement, comparable center revenue growth consisted of 2.4% from improved membership mix, 3.0% from price, 3.0% from our in-center businesses, and 0.3% from volume. In-center business growth was driven largely by double-digit growth in Dynamic Personal Training and LifeSpa.
Erik Weaver: As a result of our Q3 performance, we have raised our full-year comparable center revenue guidance to 8.5% to 8.7%, up from 7.9% to 8.3%. Average monthly dues were $244, up approximately 11.9% year over year, and average revenue per center membership was $1,016, up 12% year over year. Year over year growth in average dues was driven primarily by positive membership mix trends and execution of our pricing strategy. We ended the quarter with approximately 859,000 center memberships, which reflects 2.2% year over year growth. As we have discussed on prior calls, we continue to actively manage our membership mix, including limiting certain memberships administered through third-party medical insurance providers, which we refer to as qualified medical memberships. Qualified medical memberships declined by approximately 21,500, or 19.6% year over year. All other memberships increased by approximately 39,600 or 5.4%.
Erik Weaver: This strategy is working, as reflected in the 13.7% increase in total dues revenue. In the Q4, we expect total center membership growth of 2.4% to 3.1%. Excluding qualified medical memberships, we expect center membership growth of 4.8% to 5.2%. Moving on to net income. For the quarter, net income was $106.5 million, an increase of 4% year over year. Adjusted net income was $115.9 million, up 24.6% year over year. Net income in the prior year included tax-affected net cash proceeds of $16.2 million received from employee retention credits under the CARES Act and a tax-affected net gain of $5.7 million on a sale-leaseback transaction. Adjusted EBITDA was $256.3 million, an increase of 16.5% over the prior year quarter, and our Adjusted EBITDA margin improved by 60 basis points to 28.7%.
Erik Weaver: As noted in our earnings release, we increased our full-year 2026 revenue and Adjusted EBITDA guidance. We also increased the midpoint of our full-year Adjusted EBITDA margin guidance to 28.4%. Our updated guidance includes the impact of seven clubs opening in Q4 and the associated pre-opening expenses and early operating ramp impact on margin. Net cash provided by operating activities increased to $262.1 million, approximately 4.4% higher compared to the prior year quarter. The prior year quarter included certain non-recurring items, primarily the same $16.2 million received from employee retention credits under the CARES Act that impacted net income. Total capital expenditures were $288.7 million, up 29.8% from the prior year, reflecting construction activity in support of our new club openings for 2026, as well as the construction of clubs planned for 2027 and beyond.
Erik Weaver: In September, we closed on a sale-leaseback transaction that generated approximately $62 million of proceeds. We expect to complete approximately $135 million of additional sale-leaseback transactions in Q4. Our full-year target remains unchanged at $400 million, supporting our ongoing focus on generating annual positive free cash flow. With that, I will pass the call to Bahram.
Bahram Akradi: Thank you, Erik. Good morning, everyone, and thank you to our team members for their incredible work and dedication. Our Q3 results were above our expectations across the business, including dues, memberships, and our in-center businesses. We are seeing very good results from our new initiatives like CTR, HYBRID XT, LT Games, and LT Social. Our members are engaging with our clubs more than ever, as average monthly visits per membership reached 13 times in Q3, up 4% year-over-year. Opening new clubs remain our most significant growth opportunity. We are on track to open 14 new clubs this year, the high end of our initial range. We also expect to open 14 new clubs in 2027, nearly all of which are already under construction. We have great visibility into our pipeline beyond that.
Bahram Akradi: The quantity and the quality of the development opportunities in front of us have never been better. Our outlook remains strong. We closely monitor visits, joins, retention, and in-center spending, and we continue to feel very good about what we are seeing across the business. While we remain mindful of the macroeconomic environment, we believe we are in a very good position to perform in various economic conditions, given the strength of our premium business and our balance sheet. Our net debt leverage ratio is 1.3 times. We have more than $900 million of liquidity, and we expect to deliver another year of positive free cash flow. The financial strength allows us to continue investing in our clubs, pursue attractive growth opportunities, and deliver strong revenue and Adjusted EBITDA performance. We look forward to your questions.
Operator: Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate that your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment please while we poll for questions. Our first question comes from Randy Konik with Jefferies. Please proceed with your question.
Randy Konik: Thanks so much for allowing me to ask some questions here. I guess, Erik, for you, what I noticed was interesting in the quarter is that when you take out the qualified medical memberships, membership growth was up 5.4% in the quarter, and that accelerated from 4.2% in Q2, which also accelerated from 3.7% growth in Q1. You just guided, I think, 5% growth for membership at the midpoint for Q4. Can you kind of unpack that a little bit? Because it seems you are getting some acceleration there. Would you think about that mid-single-digit membership growth being somewhat sustainable over the medium term, and are there items of lower churn impacting that number? Are you seeing higher members per membership impacting that number?
Randy Konik: It would be really helpful to unpack that because you are seeing that acceleration from a low single digit to a mid-single digit type of growth rate. Thanks.
Erik Weaver: Yep. You are welcome. Exactly. You mentioned membership mix. We continue to obviously see that improve, but we got a couple of things happening in our memberships. As you know, this year, the number of clubs that we are opening and the size, they are larger. As we open more clubs in Q4, we have 7 in Q4, so a growth rate that is getting closer or above 5% is long-term sustainable, and that is going to continue to hold next year as we plan to do 12 to 14 clubs as well. That is exactly right. You are seeing that acceleration as we look at that, absent the impact of those qualified medical.
Randy Konik: Super helpful. Then maybe just one other here. If you go back to the guidance you gave a couple of quarters ago where you put that line in the sand and said, "Hey, listen, we are going to be big enough when we have these units open to generate $400 million of free cash flow by 2030." Yet the quarterly revenue and Adjusted EBITDA performance seems to be coming in better than expected, or at least what we are modeling, and very balanced. Do you think about that timeline kind of accelerating a little bit versus 2030? How do we think about that? Then when you think about deploying those free cash flows, maybe remind us of what you are thinking about in terms of builds or other options, dividends or share buybacks or stuff like that we should be thinking about in the business.
Erik Weaver: Yeah. I would still point you to 2030. That is our kind of current forecast. Again, we have got flexibility in how we get there. As you know, we are doing 12 to 14 clubs. We have got the opportunity for ground ups and some of those more urban builds. But at this point, our trajectory, we are still pointing to that 2030. Now, it does not mean that along the way, we may have opportunities to accelerate that, but in the event that we do, obviously we will update that. But I would continue to point you to 2030. Bahram Akradi, if you want to add anything there.
Bahram Akradi: I think as we look through the next several years with the strength of the cash flow generated from the business itself, together with our very, very low leverage that we have right now, continued growth in the asset value that we still own the fees for the buildings, I think the options are going to be significant. We will look at, obviously, two things. We look at the cost of the capital and then what the return on investments are. We basically choose the lowest cost of capital to grow our business. We will maintain that flexibility and then we will make the decision according to what is best at any given time.
Randy Konik: Understood. Thanks, guys.
Erik Weaver: Yep.
Operator: Our next question comes from John Heinbockel with Guggenheim Partners. Please proceed with your question.
Jake Nivasch: Hey, guys. Good morning. This is Jake Nivasch on for John here. Two for me. The first one, the average in-center revenue per member has been sequentially accelerating pretty meaningfully since the start of the year. Just curious, what is driving those gains? Any seasonality factors to consider here, such as anything relating to the pools, or is it largely still related to personal training?
Erik Weaver: Yeah, I can take that. Yeah, exactly. Right. When you look at our comp, last quarter, we had a great comp. This quarter, same thing. A large part of that continues to be the success that we are seeing in our in-center businesses, right? So we put out that supplement that kind of broke down that comp and in-center was 3%. So that is exactly right. We are seeing great in-center business penetration there and
Bahram Akradi: Average dues
Erik Weaver: average dues and acquisition retention.
Jake Nivasch: Perfect. Then just a follow-up from me here, and you kind of alluded to it before, but with the 2027 club pipeline almost complete and rolling through 2028 now, just curious if you could talk to us about your current thoughts on the size of the opportunity and the components from ground up to urban developments. I know you briefly mentioned that a little bit before, but just curious if you can elaborate on that. Thank you, guys.
Bahram Akradi: I will take that. This is Bahram. As I mentioned in my prepared remarks, the quantity and the quality of opportunities in development for us in the pipeline really has never been better. I do not really want to pigeonhole the company in exactly how many of what type of clubs we are going to deliver on a given year. The only reason I do not do that is the size of the clubs that we are doing are significantly large buildings, whether if we go into an existing project, into the brand-new building that is being built and we are included in that project, or we are doing ground up. The timing of these things can move around significantly based on acquisition, approvals, site work, et cetera. We are very confident right now that we can deliver the higher end of the 12 to 14 for the foreseeable future.
Bahram Akradi: With that, we are super excited with the opportunities that we are seeing. We are also having a lot of incoming requests for international growth as well, on top of what we are addressing to you right now, just in US. Those significant additional opportunities are ahead of us when we have the opportunity, the time, to invest in going into those markets and start exploring what we can do there. But right now, the last concern I have is lack of growth opportunities. It is just we have never seen anything better.
Jake Nivasch: Perfect. Thank you very much, guys.
Bahram Akradi: Thank you.
Operator: Our next question comes from Arpine Kocharian with UBS. Please proceed with your question.
Arpine Kocharian: Thank you. I appreciate it. Good morning. My question is, overall consumer picture has gotten maybe a little bit weaker, or at least perception of it is that it has softened a little bit. But your results today show acceleration. More importantly, if you look at average revenue per center member is accelerating as well nicely. This is before larger clubs really get into the same-store comp. Before we think about acceleration from here, could you maybe talk about the sustainability of this revenue per center member growth, particularly as it relates kind of these newer clubs coming online? Specifically, if you could talk a little bit about other places you see room for improvement for in-center spend, and how you execute on it. Thank you.
Bahram Akradi: All right. That is a great question. We have significant variance between the execution level of our in-center businesses within our roughly 200 locations that we have right now. Without concerning ourselves too much about the outside macroeconomics, we have significant opportunity to focus on improving those particular locations where they have significant opportunity in front of them. I really like to focus the investor and our team members on taking the opportunity when the opportunity is right in front of you. Hiding behind macroeconomics is not something we are going to do now or we are going to do later. We are really not seeing any impact from the macroeconomics. We are watching it, as I mentioned in my remarks. We are not ignorant to it. We are paying attention as closely as we can, picking up as much information as we can from all sources we trust.
Bahram Akradi: And with an eye on that, we are working on what are the things we can do better inside of our control. There is quite a bit of opportunity still there. Many of our clubs are executing exceptionally well, not only in creating that desirability for the customer experience, for the facility, that which brings them the subscription and the dues. They do exceptional job in in-centers, whether it is personal training, café or LifeSpa, kids. Some are mediocre, and we have the opportunity to go within and sort it through, and we do it every single week, every single month, and figure out where we can go and improve our performance. I still feel very comfortable that we have significant opportunity within our capabilities and our execution.
Arpine Kocharian: Thank you. That is very helpful. My follow-up is related to the leaseback market. In general, the transaction environment, given rising rates, and maybe if you could talk to the depth of the market right now and whether some of these core factors like rates are affecting you much.
Erik Weaver: I can take that. The cap rates do not move one for one, like with the ten-year as an example. We are still getting attractive rates as it relates to sale-leasebacks. The availability is obviously still there. We are still able to get those at rates that are attractive.
Bahram Akradi: Rates are still very similar to what they have been historically. The difference in the few percentage points in the, like a 20 basis point, 15 basis point on the cap rate, absolutely is insignificant in our total numbers that we will deliver. It is not significant at all. It will not play a factor in our numbers.
Arpine Kocharian: Thank you. This is very helpful. Thanks.
Operator: Our next question comes from Brandt Montour of Barclays. Please proceed with your question.
[Analyst] (Barclays): Hey, good morning, everyone. This is Elizabeth on for Brandt. Thanks for taking our question. I wanted to ask, I know part of your strategy has been this ongoing membership optimization and the continued reduction in qualified medical members. I am wondering how much more runway do you see here, both in terms of where you think that membership base ultimately settles out and over what time period? Then maybe as a follow-up to that, as well as you think about the general contributors to membership mix in your comparable center revenue growth, how do you think about the relative contribution from each of those individual buckets, whether it is expanding into more affluent markets, members for membership, legacy churn, et cetera?
Bahram Akradi: All right. I am going to take this on and give you an answer that I can best formulate for you. I start with the end. It is really, once again, not going to play a significant factor. It has never been a huge part of our dues revenue. It is a member sector that we would love to serve in a reasonable fashion. Over the last four or five years, some of our partners, insurance companies, have been extremely good partners, and they have been also very realistic on what our particular situation is and what we can do and what we cannot do. We have been in negotiations with most everybody. We are in a very good place, getting as much flexibility for our side to handle this type of population at the time in our clubs, that it does not create capacity issues for the other members.
Bahram Akradi: It is a delicate situation. It is not significant in numbers. It is delicate in terms of how we want to treat all folks as they want to come in and enjoy the Life Time facilities. We want to try to serve the best way we can without impeding on other types of memberships. It is a delicate management. We are extremely focused at making sure we are doing the right thing by all constituencies, yet buying as much flexibility in how we handle this. Ultimately, as a percentage of our total membership numbers, these numbers will continue to decline, but very slowly from here going forward, based on our negotiations. As far as the relative dues as a percentage of our total dues, it is also going to continue to be reduced to almost diminishable number. It is just not something we have a concern.
Bahram Akradi: Again, it is all about making sure we take care of our customers the best way we can.
Erik Weaver: Yeah, to your comp, the second part of that question, the way you are going to see that materialize in the comp is, right, some of that, you are still going to see a mix component of that being part of the comp. You are going to start to see volume increases as you start to see the 12 to 14 and some of the larger format clubs. That is the way it is going to play out in the comp set.
Operator: Great. Thank you. Our next question comes from Brian Nagel with Oppenheimer. Please proceed with your question.
Brian Nagel ]: Hey, guys. Good morning.
Bahram Akradi: Morning.
Brian Nagel ]: Nice quarter. Congratulations again.
Bahram Akradi: Thank you.
Brian Nagel ]: The first question I want to ask, or topic, I guess, I want to is pickleball. Clearly, we have talked for a while about pickleball being a significant effort and driver for Life Time. There has been some news out there lately or recently of maybe some failures within the broader pickleball market. I guess the question I want to ask is maybe twofold. One is, an update on what you are seeing with your pickleball and your centers, member engagement and such. Then secondarily, as you have these potential financial dislocations out there, does that create or help to create more of a market share opportunity for Life Time that given your management business much better?
Bahram Akradi: Hi, Brian. This is Bahram. I will take this one. Look, the failure of some of these pickleball-only facilities, franchise-based, it is not a surprise. It was clearly my expectation from the get-go. Developing a racket sports business that is strictly based on that particular racket sport, strictly squash clubs, strictly racquetball clubs, just entirely tennis clubs or pickleball facilities, there is no difference. They are difficult economically to work. Life Time concept has always been creating an environment that basically gives you all things under one roof. We have not been too concerned about those people coming, and we are not too concerned about them going. Many of the locations they have are not the type of real estate we would put a pickleball court in because they are inadequate spaces. They are not enough the right spacing.
Bahram Akradi: It is not something that we are going to jump in and try to go take over to run them. We have an incredible success with the way we are executing our pickleball. Our customer appreciates the entire facility, everything else they get with pickleball, the quality and the attention to detail that we provide for every aspect of our business. The business is performing very strong still for us. I do not think these entities coming and going is a function of anything wrong with the sport. It is really a function of people coming into it half-cocked without enough information, without enough due diligence, and they just roll out a bunch of franchise facilities. Of course, a lot of them will run into trouble. There is nothing more to read into it.
Brian Nagel ]: No, Bahram, that is very helpful. I appreciate all that context. The second question I have, the follow-up question I have, and I guess the follow-up to some of the prior questions, but you mentioned, or Erik, maybe as you mentioned, LifeSpa is the driver of maybe some of the outsized expansion we are seeing now in center revenue. I guess, maybe we just dabble deeper in there. What is happening with LifeSpa, and how should we think about the runway here, from your efforts with the LifeSpa business?
Bahram Akradi: I'll take it again with this one. Look, it's all about execution. If you go back and sort of check back the past remarks over the several years, we came back out of COVID with a strategy to focus on our swipes, getting the subscription built, building our dues, of working on our basically efficiency of wiring of the company to create the margins. The next important priority was DPT, our Dynamic Personal Training, ran by our superpower here, Ryan Sonnenburg, that basically has really transformed the personal training. That has been really working and building. Sequentially, the next two areas of focus were then LifeSpa and the cafe. The cafe is the strategy to go in and basically streamline, simplify execution so we can execute everything that we do much better.
Bahram Akradi: That has helped us with the margin improvement this year because we are streamlining, and with expectation that we will grow the revenue in the cafes next year. The LifeSpa, the team has done a phenomenal job of increasing engagement and bringing additional talent, recruiting the best LifeSpa talent into locations, and we're seeing nice growth. So we are basically sequentially picking the areas that we need to improve, and LifeSpa has been one of those that has been showing up in revenue growth very nicely. We still have much more runway to go with the LifeSpa, and we have significant runway to go with the cafe. So those are both areas of focus right now, with some early work paying proper dividends, and there's plenty more work to do in both areas.
Brian Nagel ]: Much appreciated. Congrats. Thanks.
Bahram Akradi: Thank you.
Operator: Our next question comes from Eric Des Lauriers with Craig-Hallum Capital Group. Please proceed with your question.
Eric Des Lauriers: Great. Thanks. Taking my questions. Congrats on another strong quarter here.
Bahram Akradi: Thank you.
Eric Des Lauriers: First one for me, just a bit of a follow-up on the in-center revenue. Obviously some nice progress improving the mix of qualified medical memberships. I know that the sort of difference in revenue generation mostly comes up in the dues for qualified medical memberships, but wondering if there is any material or significant difference on in-center revenue spend from those members to call out as we kind of think about that mix continuing to decrease?
Erik Weaver: No, I mean, nothing there. And quite honestly, a lot of those qualified medical memberships, they tend to swipe less and they are obviously maybe even a little more less engaged in the in-center businesses. So, it is actually a net positive for us in that regard.
Eric Des Lauriers: Okay, that is helpful. And then last one from me, just a bit more of a kind of macro qualitative question. So, obviously, consumer sort of focus on fitness has increased a lot over the past handful of years. As you guys continue opening clubs in new markets and kind of increasing your depth in existing markets, just curious what you are seeing from an overall market share perspective. How much do you kind of view this membership growth as kind of the growing pie overall versus members switching to Life Time from other clubs? Just kind of wondering how you are sort of viewing that more longer term kind of market share opportunity for you guys. Thank you.
Erik Weaver: Yeah, I do not know. And, Bahram, if you have a different perspective here, but a lot of our consumers that we have in our clubs do not obviously overlap with some of the high volume, low price. But what we see is we are going into more high-end markets. Our members are willing to spend more wallet share on health and wellness. And so, we obviously expect that to continue, the trend in the industry obviously to continue. And we expect to see that play out in all the markets we are going to.
Bahram Akradi: Yeah. The only thing I can just emphasize is that deliberately since coming back from COVID, 2021, 2022, we have consistently focused on placing the company at the top end of the K-shaped band for the consumer. We have consistently felt that we were not seeing any impact from the consumer getting the macroeconomic pressures. And the customer who is coming to Life Time is coming to Life Time fully because of the desirability of what we deliver to them. And that particular customer is not. I do not think they are shying away from buying things, still. So we are not seeing any impact.
Eric Des Lauriers: Very helpful and encouraging. Thanks for taking my questions.
Bahram Akradi: Thank you.
Operator: Our next question comes from Jon Keypour with Goldman Sachs. Please proceed with your question.
Jon Keypour: Great. Thank you, guys. Good morning. I appreciate the question.
Bahram Akradi: Good morning.
Jon Keypour: I just wanted to talk about in-center revenue a little bit more. Obviously, in the comp, we have seen an acceleration in the last three quarters. I am just wondering if you guys expect for that to continue in Q4 or it is a seasonally smaller quarter. I am not sure if you are expecting a drawdown there. If you can point to maybe the drivers of that sequential improvement. It sounds like it is DPT and LifeSpa, but just any more color on DPT attachment. Is that going up? Is it higher frequency? Is it pricing? Just exactly what is driving that. Thank you.
Bahram Akradi: You are very clever. As I have said, we try not to make mid-quarter comments. I will refer you back to what I said earlier. We are not seeing any impact from anything. So our results are still following the same trends that we have had in the past. Again, there are seasonality into the summer months with the pool beach clubs. But taking that seasonality out, everything is still exactly the same.
Erik Weaver: Yeah. We have kind of said this, it is kind of been the same kind of thing quarter over quarter. As it relates to DPT, we are adding more trainers. Their efficiency is going up. This is another quarter. We do not give penetration, but we did have an increase in penetration. You could take this across the in-center business, as you look at the number of swimmers we have. That was up double digits. So, when we talk about the overall execution and the experience, when we do that, it obviously heightens the level of in-center business engagement, and that is what we are seeing, continue to see.
Jon Keypour: Are you seeing the same kind of trajectory both in the comp centers as well as new centers, that DPT attachment and revenue generations both?
Erik Weaver: We are, yeah. It is not just the new clubs. We are also seeing that in comp clubs across the portfolio.
Jon Keypour: Perfect. Sounds great, guys. Thank you very much.
Erik Weaver: Thank you.
Operator: Our next question comes from Chris Woronka with Deutsche Bank. Please proceed with your question.
Chris Woronka: Hey, good morning, guys. Congratulations.
Erik Weaver: Good morning.
Chris Woronka: On another great quarter.
Erik Weaver: Thanks.
Chris Woronka: So obviously, again, really impressive results on the comp growth with both dues and in-center. You have talked a lot about it. The question would be, when you look at the bucket of folks who are not spending as much as the top end on in-center things, is there any thought to giving them bundling options to draw out that spend? Just curious, I am not really talking about the qualified medical memberships, but there is probably a bucket of folks who are, on a relative basis, underspending versus the higher end. Is there any initiatives you guys are working on to increase spend among that group? Again, it is a good problem to have because you are having very good results.
Erik Weaver: Yeah
Chris Woronka: But you are always looking for more, right?
Erik Weaver: Well, I would say we are always looking for ways to obviously add value to the membership. But when you talk about things like bundling and promotions, as you know, we are not a promotional company. Our focus continues to be on delivering the highest experience in all of our programming, in all of our services, and at the end of the day, that is the draw, what brings people in to engage in those services. So, I would say from bundling promotions, it is just not how we position our products and services.
Chris Woronka: Okay. Thanks.
Erik Weaver: Go ahead, Bahram.
Bahram Akradi: Deliberately, the strategy of the company is not to focus on promotional packaging, bundling, whatever you want to call it. Once you start going in that direction, you stop focusing on what can I do better to improve the actual product or experience that the customers have. We are very deliberate to not engage in those things, to try to make sure our result is a function of the product that we deliver to the customer.
Chris Woronka: Okay. Understood. Thanks. Thanks, guys. Just as a follow-up, certainly understanding and respecting Bahram's comment earlier that some of these standalone racquet sport centers don't really work, but do you guys have, when you comb across the whole estate of 200 locations, do you have any opportunities where you could add, again, it is an addition, it is not a standalone, where you could potentially add some standalone, whether it is pickleball or tennis or basketball or something else there, as you are going through the sale-leaseback strategies? Are there any areas in the owned portfolio where there is going to be some stuff that is additive on the kind of outdoor sports side?
Bahram Akradi: Look, if the opportunity is there and the market is there, we are making those types of adjustments all the time. I think we have taken the bulk of, but not all, the bulk of the facilities in the country. We have transformed our spaces from one use to the other to increase the utilization of that space. That is work in progress. It always is. We measure the efficiency of every particular space that we have in any club, and if that utilization is not at a reasonable level, then we put something else in it. So there are always some adjustments, but the bulk of these movements were taking place. We are building a lot of new clubs. They have additional pickleball, indoor, outdoor, covered, whatever, that they are part of. So continue.
Bahram Akradi: We're almost closing the year just under 1,000 pickleball courts, and within the first few months of next year, we'll have over 1,000 pickleball courts in operations, which is really a number that the goal we set up a few years back. I'm really, really proud of my team for executing with such level of excellence, both on building the places, managing it, programming it, and delivering the experience to the customer. What we see that I really love is members who are traveling around the country for their work, for their business, for vacation, and they are literally going from Life Time location to Life Time location, sending us pictures. They love the experiences they get in different parts of the country.
Bahram Akradi: As we build more incredible, extraordinary facilities around the country, that will strengthen the relationship between us and our customer because they can touch Life Time even when they're away from home, which has been something I've been looking forward to for years and years. Finally seeing it in action is really cool.
Chris Woronka: Okay. Very good. Appreciate all that color. Thanks, guys.
Operator: Our next question comes from Owen Rickert with Northland Capital Markets. Please proceed with your question.
Owen Rickert: Hey, Bahram. Hey, Erik. Congrats on another unreal quarter. First for me, LT Social sounds like it's been an absolute hit so far. I know it's still early, but do you view LT Social as primarily a retention or loyalty tool, or is there a path to this becoming a real incremental revenue driver?
Bahram Akradi: Both. That's the answer.
Owen Rickert: All right. Fair enough. Next question.
Bahram Akradi: You asked a very nice question, and I gave you a very great answer. Both.
Owen Rickert: That you did. I cannot argue with that. Then, I guess secondly for me, kind of building off that, G&A was up in the quarter just on incentive benefit and marketing costs. Is the step up in marketing spend tied specifically to LT Social and brand elevation? Should we expect that to persist at the higher run rate percentage of revenue going forward?
Erik Weaver: No. There was very little cost associated with LT Social. There was a little off. You mentioned the incentive, but we are still scaling G&A as a percent of revenue. That just was not the big driver.
Bahram Akradi: We do not plan to spend any more percent. We really do not see a need for spending more money on marketing as a percentage of our revenue. The question is that small percentage that we are spending, as we grow the revenue, that dollar, there is actually at the same percentage, we have more incremental dollars to spend, is how do we deploy that? LT Social event in New York at the premiere was unique, but the other LT Social events, they are not really there for a huge revenue or profit business, but they will generate revenue and margins, as we execute those. The main function of the LT Social right now is to deliver that other dimension of health and wellbeing, which is a social health, a social connection, feeling happier, being in an environment with the people that you want to be with, you associate with.
Bahram Akradi: There is plenty of opportunities along the way, how we can add additional monetization to it. But initially it will help retention and customer experience.
Erik Weaver: Yeah. Owen, just back to the kind of a little more tactically, you mentioned, in nominal dollars, G&A. As a percent of revenue, it was actually 20 basis points better than last quarter and last year. Just want to point that out.
Owen Rickert: Awesome. Thanks, guys. Appreciate it.
Erik Weaver: Thank you.
Operator: Our next question comes from Anthony Bonadio with Wells Fargo. Please proceed with your question.
Anthony Bonadio: Yeah. Hey, guys. Thanks for taking our questions. Just wanted to ask about the Q4 margin guidance for starters. I think, this implies a slight step down versus what you would typically see seasonally. I know you have some cost ramp associated with new clubs coming on. You guys tend to plan conservatively, but just anything else to flag there in terms of puts and takes as we model that out?
Erik Weaver: You mentioned one of the bigger ones. You have three things going on there. One, we are going to have some presale costs associated with clubs that will open late in the quarter. You have the new clubs coming online, which obviously as they are early in their ramp there is a little bit of margin compression there as well. Then as a reminder, proportionally, when you look at our revenue, we are seeing an outsized growth in our in-center, versus dues. We have seen that this year and last year, et cetera. As you know, in-center has a lower margin. It is really just a function of those three things.
Anthony Bonadio: Got it. That is helpful. Then just on Muse and AI agents in general, I think we heard some concerns through the quarter from investors in terms of people using these, to maybe cancel or negotiate subscriptions. It seems like you did not really see an impact based on what you just reported. But can you just maybe talk about what you saw there as the consumer started using those?
Bahram Akradi: We have seen zero. We have had zero impact from this. Again, I emphasize the reason why. Some of the things that will end up being done to help the consumer is because many businesses do not build their business from a customer point of view to begin with. They find ways to just sort of make it more difficult for a customer to get out of a contract or something. We built the company based on the customer point of view, having no contracts. We eliminated any sort of promotional sales process. Focused our company on maximum desirability is our only weapon, as I mentioned earlier, for people to join. Then we have the easiest, we have had the easiest cancellation policy to begin with. We have no contracts.
Bahram Akradi: They are month to month, and they want to drop out if we are not pleasing them the way we aspire to, then they just give us a notice, a 30-day notice, and they drop out. This would have had zero impact. They are basically forcing other companies to do what we have been doing the entire 30 years.
Erik Weaver: Yeah.
Bahram Akradi: So.
Erik Weaver: If I could add to that, Bahram, the other thing to remember, we are a use model. When you think about a $10 or a $15 subscription that nobody is using, for sure, that is at risk. But as Bahram mentioned in his comments, members are visiting 13 times per month, so just has not been an issue. No impact there.
Anthony Bonadio: Thanks so much, guys.
Operator: Our next question comes from Andrew Didora with Bank of America. Please proceed with your question.
Andrew Didora: Hey, good morning, everyone. Bahram, just in terms of the unit growth expectations, the 12 to 14, you've clearly had a lot of success with the comparable center revenue set and new openings. I guess, what specifically are the constraints on going maybe above 14 new openings per year? Why is that the right target? Anything internally or externally keeping you at that number? Maybe any milestones you would need to see met to move above that 14 new center target. Thank you.
Bahram Akradi: Look, our commitment, my past CFOs, now particularly Erik, one of the best I've ever seen, and myself, commitment to you guys is try to not overpromise and underdeliver. The reality is, can it possibly some year go more than 14? Yes. For right now, I think 12 to 14 is really the right number. It accommodates all of our growth metrics that we have in mind of how fast we want to grow the business. It also allows us to deliver our brand with excellence every time we do it. Is it possible that we can deliver more than that? Yes. Would I lead you on to just go ahead and start modeling a bigger number? I wouldn't want to do that.
Bahram Akradi: The main thing is to make sure we deliver the right locations with the right quality and the right talent to deliver the experiences the way we want it.
Erik Weaver: Yeah. If I could come at it from a numbers perspective, I'd remind you also that we're targeting double-digit revenue growth, 10% to 12%. We can get there with 14 clubs. We have ways that we can get there. It's not inherently just about the number of clubs, it's about obviously the experience, as Bahram mentioned. But again, targeting that 10% to 12%.
Bahram Akradi: What I feel really great about right now is the focus on the quality of the experiences and continuing to strengthen our brand with our customer who appreciates what Life Time brings to them. Secondly, going back to some of the earlier comments regarding sale-leasebacks and such. As we look at our long-range plan, each year going forward, 2027, we need to do less sale-leaseback versus 2026, in order to still stay cash flow positive. 2028, we would need to do even less sale-leaseback. As we go forward, by the time we get to 2029, 2030, we can absolutely deliver all of our growth without even needing the sale-leaseback market.
Bahram Akradi: That doesn't mean we won't utilize that market when it's efficient capital for us to come in, but we do have now the company at a place that when you can see down the runway, we are in a position to basically pick the best cost of capital, deploy the dollars in the best place for rates of return, and then look and see when we have opportunity to accelerate the growth.
Andrew Didora: That's great color. I'll leave it there. Thank you.
Bahram Akradi: Thank you.
Operator: Our next question comes from Molly Baum with Morgan Stanley Investment Management Group. Please proceed with your question.
Molly Baum: Hi. Thank you so much for taking our questions. The first one I wanted to ask, another one on AI, but maybe more so if you could just talk about where you see some of the bigger opportunities from an AI standpoint, whether it is from a member experience standpoint with L.AI.C, or if you see opportunities to use it from a maybe club-level productivity standpoint. I know you talked about some variance in in-center execution, so if you see opportunities there. Thanks.
Bahram Akradi: Yeah, it is a great question. We have AI initiatives in every part of our business. From customer standpoint, we continue to work on making sure AI can become a better tool for them, and they can use AI in a way that just they expect today, as they get better with utilization of AI, that naturally they have to be able to do that with our Life Time assets. As of just yesterday, I know within our own group, somebody brought up the LT shop. It is harder to find on the app because, of course, we offer 50 different programs on one app. So it is hard to have everything surface on the front page. But if you go to L.AI.C and just say, "Take me to LT shop," it will take you right to that.
Bahram Akradi: That is an easy, simple example of having to make sure L.AI.C will continue to become an AI tool for our members to navigate all the different programs that we offer in the company better. For internally, it is everywhere. When you think about what AI can do for any individual, for every position, AI should be able to help any position. Somebody who manages a club, how can they be more aware of all the administrative, all the analytical things? With their AI companion, they will be able to be much more aware and organized, prioritize, execute all managerial tasks much, much better by proper utilization of AI. Then we, of course, have to build them an enterprise system companion, so our information stays within our walls, and then give them that.
Bahram Akradi: Then that makes them more capable of delivering what we are looking from them, which is performance, entertainment, engagement, leadership type of qualities. I do not think there is a day that I am not in multiple meetings that we are taking a look and see how AI utilization can enhance our execution. In the back of the house, when you look from our legal department to our finance department, analytics, we are basically putting AI to work in every aspect of our business every day. Bring in AI champions in different areas to make sure they focus on educating and training everybody else on how to operate, how to prompt the AI functions. It is really part of every hour of every day. I do not know what else I could tell you, but we have been engaged.
Bahram Akradi: I have been driving the company for the last 3 years, and I can say the team has done an amazing job, and we are in a really good place at this moment in time, and we have plenty of runway to go. We do not need to build anything in particular. What we need to do is we need to become more efficient in learning how to operate the AI tools that are available. They will enhance themselves every 6 months as everybody is observing. You just have to stay on top of how to use them.
Molly Baum: Got it. No, that makes a lot of sense, and it is very interesting. My next question is a bit more boilerplate than that, but just quickly, I had wanted to also ask, for new club openings, you may have talked about this on past calls, but it is back-end weighted this year, and you talked today about your confidence in unit targets for 2027. Are you able to give any additional color in terms of cadence? Are you expecting similar cadence, where more of the clubs in 2027 are back-end loaded as well? That is it for me. Thanks so much.
Bahram Akradi: I do not think we could make anything more back-ended than this year. It is just pretty much the way the schedule fell together. There are almost 7 clubs opening in the last quarter. I do not expect that to happen next year. It will be a little more balanced throughout the year as I look at the schedule.
Erik Weaver: Yeah. We are just not going to have as many in Q4. Maybe a little back half, but certainly not back Q4 load.
Bahram Akradi: Not back Q4. It is moving forward a little bit.
Molly Baum: Got it. Great. Thank you so much.
Bahram Akradi: Thanks a lot.
Operator: Our next question comes from Logan Reich with RBC Capital Markets. Please proceed with your question.
Logan Reich: Hey, good morning. Thanks for taking the questions and congrats on the solid execution for yet.
Bahram Akradi: Thank you.
Logan Reich: another quarter. I wanted to ask just on MIORA. We haven't gotten an update on it yet on the call. I recall last quarter, you were still working on ironing out the kinks in the operating model before scaling it up. Maybe just an update on how the operating model work is progressing. The second part of it is just what's the or how should we think about the rollout to additional clubs and maybe just sizing that opportunity, either from number of clubs perspective or revenue or Adjusted EBITDA contribution?
Bahram Akradi: Yeah. I would caution everybody not to put anything specifically for that for the immediate near future. This is a long-term growth opportunity for us. We have two ways to think about it. A broader, much easier, accessible to most members strategy that we are working on, through what we call Life Time Health & Wellness Hub. That basically does not require as sophisticated process as MIORA. Then a much more in-depth programming and service and hands-on touch, almost concierge-like service with MIORA. That one is going to take a lot more fine-tuning of our systems. We picked a system early this year for our administration and software to operate, and that system has not proved to be successful for our team.
Bahram Akradi: We had to pause. We are in the process of changing the system, a few more details ironed out. Then I have no doubt that long term, we will have a MIORA location in every market. Then more likely in probably every other club, ultimately, or a third of our clubs would have them. Because the demand is there. Our customer wants this. We have incredible engagement. The retention of our customer in MIORA is absolutely amazing. It is in the 90% range, which is really what we have expected from that physical connection. The expectation long term is to be rolled out across every market and many clubs. There is no loss of enthusiasm towards that. We just want to make sure we do it very right.
Bahram Akradi: Then the other plan is to just have a much broader reach, blood work, blood analysis, and guidance through Life Time Health & Wellness Hub. Those are the two channels that we are working, the macro and the micro. One much easier accessible for everyone, and one a lot more in-depth, through the MIORA facilities.
Logan Reich: Got it. That is helpful, Bahram. Then just my follow-up is on in-center services more broadly. You guys have executed really well on the DPT model. You are taking that over to the LifeSpa, and that seems to be driving acceleration as well. I guess just bigger picture for the in-center business, are there any other services that you guys are contemplating adding into the clubs, to capture more wallet share from your members and the health and wellness space that appears to be growing pretty rapidly?
Bahram Akradi: The short answer is yes. We're always working on what are the other natural programs and services that our customers would want to have under the same brand. We are excited about some of the initiatives that we are on right now, particularly through potential growth channels for LT Social. We'll give you more color as we get closer to implementation of some of those concepts.
Logan Reich: Very helpful. Thanks, guys.
Bahram Akradi: Thanks a lot. Bye.
Operator: We've reached the end of our question and answer session. I would now like to turn the floor back over to Connor Wienberg for closing comments.
Connor Wienberg: Great. Thank you, operator. Thank you everyone for joining us this morning. Look forward to having you on the next call.
Operator: This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.
