Good afternoon, and welcome to Life Time Group Holdings conference call to discuss financial results for the third quarter fiscal 2021. [Operator Instructions] Please be advised that reproduction of this call in whole or in part is not permitted without written authorization from the company. As a reminder, this call is being recorded. .

During this call, the company will make forward-looking statements, which involve a number of risks and uncertainties that may cause actual results to differ materially from our forward-looking statements. There is a comprehensive list of risk factors in the company's SEC filings, which you are encouraged to review.

Also, the company will discuss certain non-GAAP financial measures, including adjusted EBITDA and free cash flow before growth capital expenditures.

This information, along with reconciliations to the most directly comparable GAAP measures, are included in the earnings release issued this afternoon, in the company's 8-K filed with the SEC and on the Investor Relations section of Life Time website. .

On the call from management today are Bahram Akradi, Founder, Chairman and Chief Executive Officer; and Tom Bergmann, Chief Financial Officer. I will now turn the call over to Mr. Akradi to get started. Please go ahead, sir. .

Thank you, Jessie. Good afternoon, and thank you for joining us on our first earnings call following the close of our IPO in early October. It's great to speak with all of you as a public company once again. I especially want to thank and congratulate all Life Time team members for achieving this incredible milestone for a second time. .

First, I want to take the opportunity to reinforce the significant distinction that defines our business, so hopefully, we don't have to address them again and again in the future. Then I will share a few highlights from the third quarter before turning it over to Tom to provide additional details on our results. .

Life Time is a comprehensive, highly differentiated, high-end, aspirational, healthy lifestyle brand. We have been consistently delivering the best places, programs, experiences, performers and now the best digital platform as well. Our comprehensive athletic resort destinations are not gyms or fitness studios.

We provide all aspects of a healthy way of life, including entertainment, nutrition, weight loss, athletic training and sports for all ages from 90 days old to 90 years old, both physically and digitally when possible. Ultimately, we aim to create a healthier, happier lifestyle for our communities and members. .

We're also committed to delivering long-term shareholder value through the significant growth opportunities presented by all aspects of our healthy way of life ecosystem.

Life Time is in a very unique position with an incredibly trusted brand, millions of customers, difficult-to-replicate athletic resorts across the country, an amazing team and culture, all of which we are leveraging to continue our growth, particularly with the opportunities that have emerged in the last 20 months. .

Turning now to our financial results. We had a fantastic third quarter. Total revenue grew 66.7% from $231 million in the second quarter (sic) [ third quarter ] to $385 million in the third quarter this year. The total revenue also grew 19.2% from $323 million in the second quarter of 2021 to $385 million in the third quarter.

Adjusted EBITDA grew from $4.2 million in the second quarter 2021 to $47 million in the third quarter. Center membership grew from 658,000 in the second quarter 2021 to just over 668,000 in the third quarter.

And we achieved this despite nearly 20% of our large clubs still being impacted by additional COVID-19 masking and other related restriction during the quarter. .

Regardless of any additional turbulence from COVID and its variation, we are in a great position to continue capturing market share.

We expect to have a very robust recovery of our center memberships, membership dues and adjusted EBITDA in the first half of 2022, resulting in monthly adjusted EBITDA catching up to the [ '19 ] in the summer and then exceeding 2019 monthly adjusted EBITDA by the end of 2022. .

Our new center development pipeline continues to be very robust with significant opportunities to expand. During the third quarter, we opened 2 new centers in Peabody, Massachusetts at Northshore Mall and Coral Gables, Florida.

As of September 30, 2021, we have 12 new centers under construction, and we have 10 or more planned new centers annually for the foreseeable future in an increasingly affluent market. Life Time Digital is also in a great position for rapid growth in 2022 and beyond, resulting from our continued enhancement of this platform.

We remain very focused on our core strategic goal of providing our growing community of members with the best and most comprehensive omnichannel health and wellness experiences and programming via our physical spaces and the digital platform. .

And as I now turn it over to Tom, I want to emphasize that I have never been more excited about the future of Life Time.

Tom?.

Great. Thanks, Bahram, and hello, everybody. I'll provide some additional detail on our third quarter and year-to-date results as well as our outlook for the remainder of the year. .

In the third quarter, total revenue increased 67% to $385 million, driven by increases in both center and other revenue. Total center revenue increased 63% to $372 million and was driven by increases in both membership dues and in-center revenue.

Average center revenue per center membership also rebounded nicely to $555 from $349 in the same prior year period, reflecting increased spending with our in-center businesses, the continued execution of our pricing strategy and the opening of new centers in more affluent markets. On a same-store basis, comparable center sales increased 59%. .

Center memberships increased approximately 17% to just over 668,000 as of September 30, 2021, compared to approximately 573,000 as of September 30, 2020. Our third quarter ending center membership balance also reflects a sequential increase of just over 10,000 memberships compared to the end of the second quarter of 2021. .

During the third quarter, as Bahram stated, nearly 20% of our clubs in various jurisdictions across the country, including some of our large markets such as Chicago and North Carolina, had mask mandates and other COVID-19-related restrictions imposed on them during the quarter.

In light of these restrictions and the typical seasonality in our business during this quarter, we are particularly pleased with the sequential quarterly growth in memberships. .

As Bahram shared, we have continued our relentless focus on delivering the very best premium experiences to our members. As we have delivered these premium experiences, we have strategically increased our new join membership prices across most of our centers in early 2021.

We believe we can continually refine our pricing as we deliver exceptional experiences and find the optimal balance among the number of memberships per center, the member experience and maximizing our return for each center. .

Third quarter average monthly dues per membership of $134 was approximately 10% higher than the average monthly dues per membership of $122 in the third quarter of 2019 and approximately 20% higher than the average monthly dues per membership of $112 in the third quarter of 2020.

Important to highlight is that this increase in average monthly dues per membership shows our strategy is working by being able to charge higher new join membership rates and opening new centers in more affluent markets. We believe we also have the opportunity over time to increase legacy member pricing.

We are using our experience and data analytics to look at member data and pricing across the portfolio of our clubs, and we expect to continue to raise prices thoughtfully and analytically while minimizing any member attrition.

We expect average revenue per membership and average monthly dues per membership to continue to increase as we acquire more new members, increase legacy member pricing and open new centers in increasingly affluent markets. .

Other revenue, which includes revenue generated from businesses outside of our centers, increased more than fourfold to $13 million in the quarter and was primarily driven by our athletic events business as we were able to produce several of our iconic events during the third quarter of 2021 compared to the third quarter of 2020 when COVID-19 restrictions forced the cancellation of most of our events.

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Moving on to operating expenses. In the third quarter, total operating expenses increased 25.1% to $402.6 million versus the prior year period and included $4.1 million of share-based compensation expense and $2.5 million of nonrecurring items.

Center operations expense increased 40% to $232 million and was primarily driven by the reopening of our existing centers and the addition of 7 new centers, partially offset by staffing productivity and other cost efficiency initiatives at our centers.

Rent increased 10.5% to $52.5 million, driven primarily by the sale leaseback of 5 centers occurring since Q3 of 2020 and our taking possession of 6 sites for future centers where we started incurring GAAP rent expense, most of which is noncash. .

General, administrative and marketing expenses increased 40.7% to $45.3 million, which included $4.1 million of share-based compensation expense and $0.6 million of nonrecurring expenses.

This increase is primarily due to the return of corporate team members who remained furloughed during the third quarter of 2020 and an increase in marketing spend with more clubs opened during the third quarter of 2021 compared to the third quarter of 2020.

Depreciation and amortization decreased 5.5% to $58 million, and other operating expenses decreased 2.3% to $14.8 million. As a result of our continuing recovery, our operating loss improved 81% to $17.5 million from $90.8 million in the prior year period. .

Net interest expense increased to $39.8 million from $31 million in the third quarter last year. This is due to a higher average net debt balance during this year's third quarter. Our third quarter effective tax rate was 20.8% compared with 22.8% in the prior year period.

This lower effective tax rate is primarily a result of valuation allowances against our state net operating loss carryforwards. .

Net loss was $45.4 million this quarter compared with a net loss of $93.6 million last year, which included tax-effected expenses of $3.2 million related to share-based compensation and $2 million primarily related to a nonrecurring loss on a sale-leaseback of one of our properties. .

Finally, as Bahram mentioned, adjusted EBITDA improved significantly to $47 million from a loss of $12.4 million in the third quarter of last year. .

Moving on to the balance sheet. Cash and cash equivalents as of September 30, 2021, was $44.8 million compared to $33.2 million as of December 31, 2020. As you all know, we completed our IPO earlier this month, which generated proceeds of approximately $670 million after offering related underwriting discounts and other cost.

We used the proceeds to repay $576 million of our senior secured term loan facility, which included a $5.7 million prepayment penalty and added cash to the balance sheet for general corporate purposes. .

Additionally, the underwriters in the IPO notified the company yesterday that they were exercising their option to purchase nearly 1.6 million additional shares of common stock at the $18 per share IPO price, which will result in additional net proceeds to the company of approximately $27.2 million after deducting underwriting discounts and commissions.

We intend to use the net proceeds for general corporate purposes. .

Net capital expenditures totaled $79.8 million during the third quarter compared with $45.6 million in the prior year.

The increase is primarily due to a higher number of active new club construction projects and an increase in maintenance capital expenditures compared to last year's third quarter when many of our clubs were just reopened or partially opened during the quarter. .

Turning now to our outlook. For Q4 2021, revenue is expected to be in the range of $350 million to $360 million, and adjusted EBITDA is expected to be in the range of $48 million to $52 million. Included in this guidance is the closure of 4 smaller nonpremium, nonbrand right centers where the company has elected to allow the leases to expire.

Also underlying this guidance is the assumption that current COVID-19 mask mandates and other related restrictions remain in place for the clubs that are currently under restrictions and do not impact more clubs than are affected today. .

With this guidance, we expect our fourth quarter adjusted EBITDA margin to improve compared to the third quarter of 2021 as we continue to see the benefits of staffing and other cost efficiency initiatives, lower insurance and team member benefit costs and lower real estate tax expense. .

So before closing, I want to join Bahram in sharing how pleased I am with how well positioned the company is to continue to gain market share as demand for experiences and healthy living continues to grow.

With the Life Time brand, our attractive member demographics and our asset-light real estate development model, I believe we are poised for rapid expansion for the foreseeable future and the opportunity to serve and bring healthy living, healthy aging to more and more consumers across North America. .

To wrap it up, I want to reiterate Bahram's comments on how proud we are of the extraordinary Life Time team members who continue to deliver an unparalleled healthy way of life experience for our members and advance our strategic priorities. .

And with that, I'll turn it back to you, Jessie, to open the call up for questions. .

[Operator Instructions] Our first question comes from the line of Brian Harbour with Morgan Stanley. .

Congrats on completing the IPO. So maybe just a first question on some of the membership sign-up trends.

Did you see kind of significant differences for clubs that had restrictions in place? What happened if some of those restrictions were lifted at all during the quarter? Have you been -- maybe any comments on October, just curious how that trended sort of throughout the quarter and perhaps into the fourth. .

Yes. Brian, that's a great question. So those clubs, basically the moment the mask mandate showed up, the clubs sort of stopped their membership recovery. They sort of didn't go back down, but they didn't really continue to grow the membership. So the mask mandate is sort of like a break if you think about it.

But now the positive news on that is when we had mask mandates get lifted, prior to that, we saw the clubs that when the mask mandate gets lifted, it's an immediate surge of memberships coming back from hold and new people coming signing up.

So Tom?.

Yes. I mean, I would just add, Brian, yes, we definitely see a difference in performance once the mask mandates come into play. It's about 5% to 6% difference in dues performance that we saw with those clubs with mandates imposed during the third quarter versus those that didn't. So pretty substantial change. .

It's a very fluid environment, as you know. Just yesterday, we found out that 3 of our clubs in different jurisdictions, the mask mandates being lifted, so some positive signs there. But as you know, it's still too early. And that's why we expect it to be fluid here for the next quarter or 2. .

But as I've mentioned before, this is really important, our -- all of our insight, everything that we're picking up on a monthly basis, looking to see where the people are coming from, regardless, all of these, as I mentioned in my earlier remarks, all of these additional turbulence is continuing to work to our advantage.

We're in a situation where we're looking at where the member is coming back. So some of them obviously are members, but many are coming from other places. And just the way we've handled team members and members for the last 1.5 years is paying huge dividends right now. .

Okay. Great. Maybe just a second one on the pricing strategy, which you provided some good detail on that, certainly.

In terms of picking up pricing on some of the legacy members, has that actually started to happen yet or is that still ahead of you? How fast do you think you can kind of do that? And what would the magnitude be? And if you have done any of that yet, I guess, what are some of the kind of your early observations about that?.

Yes. Let us try. Tom and I will give you the best color we can give you so you can work your numbers. So when you look at the current prices that we are selling versus the members who are not paying that price, we have roughly, in the gross amount, somewhere about $130 million, $135 million of annual dues revenue.

That's a huge number, and it's not all attainable at one time. We would never do it. But our plan is to sort of take about 1/3 of that per year, rough and tough and laid out very, very intelligently and from a customer-friendly standpoint. .

Having said that, when you look at the price increases across everything else, we haven't passed on any price increases to anyone for 24 months now. So our plan is for the first group of people getting some price increase early December, and then another batch will get it in January.

And then as we mentioned before, deploying very, very sophisticated AI and our own analytics to kind of regroup that. The biggest opportunity at Life Time is pricing, and let me just elaborate on a little bit. .

When you look at our clubs today, after the price increases we put in place beginning of last year, more than 50% of our clubs even today are offering over 120, 130 different types of classes per week of different types of group fitness, yoga, spinning, other types, and the pools and the whole facility, everything, all the sports.

And the prices for the whole thing right now, still significantly below what the single modality fitness studios for yoga, for cycling, for this or that would offer per month. .

So we -- as I have mentioned on the past calls with all of you guys, we had priced the company significantly too low at the get-go. And we had been sort of very, very cautious and methodical as we had raised the price.

But when you're considering what has happened to all prices the last few years to all other businesses, we're still significantly behind.

So we feel incredibly confident that we can not only add legacy pricing to where the rack rates are now, we also have room to continue to adjust the net rack rate again and still be substantially below those tiny little studios offering just one thing. .

So hopefully, that helps you. We have significant opportunity there to kind of deliver the numbers we need to in the foreseeable future.

Tom?.

Yes. I think Bahram covered most of it. Well, obviously, we have a lot of experience in the company of doing this. So we'll continue to do it thoughtfully in a member friendly way. And then later on, the artificial intelligence and data analytics, they keep getting better and better within the company. .

But to Bahram's point, we still have significant pricing power ahead of us. And for our legacy members, I think it's important to note that our new join rates are well over 20% higher than our average legacy member price. So we have a lot of room to move our legacy members up, again, very thoughtfully and analytically.

And these legacy members also have not had a price increase for over 2 years. So that gives us -- yes, it's been a lot of time. .

So -- yes. And we're now 9, 10 months into these higher prices, and we still see very strong acquisition performance overall across the portfolio. So I think Bahram and I feel really confident that we've got a fair amount of pricing power ahead of us still. .

Our next question is coming from Robby Ohmes with Bank of America Securities. .

Bahram and Tom, I had 2 questions. One was, I was wondering if -- I know it's early. But could you speak to how the Coral Gables opening has gone and the recent New York location, how those are performing versus expectations? And maybe on Coral Gables, again, I know it's very early.

But is there anything that you've learned that applies to maybe other future vertical residential developments that you can highlight to us?.

And then my other question, just as you guys are commenting on the staffing cost efficiencies, can you maybe speak to how -- contrast that with providing great member experiences as you're sort of gaining efficiencies with staffing, et cetera?.

It's great questions. I'll take it and then give it to Tom. So as it relates -- let me take it in reverse way. As it relates to staffing, we are spending more money on making sure the clubs are pristine, the services are at the highest level, not less money there.

Where we had efficiencies in our system, substantial, is between -- it was in the corporate, number one, then between the corporate and the clubs, what we call the middle of the field, which we consolidate those roles and have less layers. Then finally, it was in consolidation of 3 positions into 1.

We took the front desk, member services and sales into a member concierge program. That eliminated needs for about 150 department heads because we either took the sales department head to the member concierge role or we took the member services department head into that.

The total experience is substantially superior to what it used to be because as we mentioned to you guys, we are running these things like a Four Seasons, Ritz-Carlton. We're not driving promotional sales at all. .

And to the other question that you asked, the memberships are working. So right now, every club -- I mean, every month, we are actually hitting our internal expectation. We're going to beat that with no promotion, no salespeople.

We're going to beat our internal goal that we have for sales this month, and this is really promising because all of it is happening organically. It's not forced. It's not pushed through some promotion trying to get those numbers in. So it's working. But the savings are there.

The other place of savings was on the credit card charges, which will -- when it's all worked out, that's a couple of percent, 1.5% to 2% on the credit card charge. It will be almost about the same amount from the member consolidation of those 3 positions into 1. .

So we really have done this very intelligently with a mindset that we actually want to invest more in the clubs being more Four Seasons, more Ritz-Carlton sort of a delivery. So they're cleaner. We have better staff. We're very comfortable paying more to our frontline employees so that they're taken care of. .

And Robby, I would just add on your Coral Gables question, it's going extremely well. So some really good learnings. That is a village that's branded Life Time Living. The landlord there has been ramping up with new units faster than they ever have at premium rents to what is in the Coral Gable market.

So the landlord is extremely pleased with the ramp there. The club is also ramping extremely well as well. So early signs, and again, it's early. We opened it in mid-August, but I think it shows a lot of confidence. And even the landlord there said they're not doing another project, the real estate developer, without Life Time being involved on it. .

So yes, really, really good learnings. I think it reinforces our growth opportunities in those residential vertical developments, and Bahram and I can talk a long time about the number of active projects that are under discussion. So early signs are really positive. .

Our next question is coming from the line of John Heinbockel with Guggenheim. .

So guys, let me start with, where do you think your share gains are going to -- are coming from and are going to come from? And as part of that, right, there's a little over 20 million upper income households out there.

I'm curious where you think ultimately, I'm thinking out maybe 10 years or more, where your share could be of that cohort?.

Yes. So the -- as we look at these on a regular basis, about 1/3 of the people joining are past Life Time members. So that's really just coming back to Life Time. About 1/3 are coming from other larger fitness providers. Again, we emphasize there isn't a lot of other full-service athletic resorts like Life Time.

So they're coming from that type of stuff, and a lot are coming from studios. And quite a bit, interestingly enough, quite a bit is coming back from home fitness. .

What we hear from -- this is what -- we talked about the omnichannel, omnichannel, omnichannel. What we hear right now on a constant basis, what we see analytically and anecdotally is that the customer is really using health and well-being in an omnichannel basis.

Some of our own employees are doing some of the workouts in the club, and they're doing some on our stream classes early in the morning before they come to work. .

So I think it's an interesting observation that we have basically been able to watch for the last several months. And our confidence level that the answer is not digital or physical, it's actually omni is what -- we're 100% on that visibility. .

Yes. And John, I would just add on to your comment of 20 million high-income households. Today, we only sit with 155 locations.

And I think this is why Bahram said he's more excited than he's ever been about Life Time is that when we look at the real estate pipeline and the opportunity in our white space now between our traditional suburban model, the success we're seeing in Coral Gables and vertical residential, helping reimagine and transform the malls as well as potential urban locations, as we get to 300, 400, 500 locations over the next 5, 10 years, that's going to give us that ability to physically reach all of those members.

And then on top of that, we've got the digital experience that we can grow as well side-by-side with it. .

So I think, yes, we'll continue to gain in the short term with the dislocation in the industry. But long term, I think the exciting part of it is we know that over half of the people who leave Life Time leave because they're moving away from close proximity to a Life Time.

As we grow more locations, that's going to give more people the opportunity to become a Life Time member. .

And then just secondly, what's -- and it's early, I know.

But what's the experience been with the signature membership? And how do you think about tiering generally, maybe even something beyond signature, which would have other amenities?.

Yes. It's an interesting question. Again, great question, John. We are working literally on a daily basis on sort of an assortment of this and what product and services will go into Signature.

Do we create a second tier that has another bucket of services embedded in that and then maybe have a basic? But what I can tell you from a modeling standpoint is my expectation is that by end of next year, our average dues -- our goal is to try to get it to roughly about $160-plus. What Tom mentioned was $130-some right now.

I see virtually no difficulty or resistance achieving that by the end of next year. So then it really allows us to -- and it could be higher than that. The -- some of the -- we're not opening any club that a single rack is much less than $150 but sometimes $250 for a single person.

The family memberships on those clubs are coming up in the $200 to $250, $260, $280 rate or maybe $300 for a single -- for a membership number. .

And so we have just a significant opportunity to sort this out. It's sort of an opportunity, honestly, created from earlier mistakes. We made the mistake in the past of pricing these too low. But today, we have these assets that you can't literally replace for $60 million or $70 million, and we have been just charging way too little for them.

So methodically and with consciousness for our customers, we have huge opportunity to keep adjusting those and continue to keep going with the rate and delivering the experience that we talk about in a consistent fashion. .

If I can just add, John, for 2022, when I look at our new club openings and you look at some of the affluent markets like Buckhead in Atlanta, where we're going into 1 Wall Street, 85 Jay, when you look at the pipeline next year, our average dues are well over $200 for almost every opening next year, except for one.

So this is where as we continue to move into these more premium, affluent markets, price -- plus the existing pricing power we have in our existing core clubs, lots of opportunity here to continue to drive our average dues up. .

Our next question is coming from Brian Nagel with Oppenheimer. .

Welcome back to the public markets. .

I am excited. .

The first question I have, just looking at the really impressive year-on-year gain in average center revenue per center membership, now I know you talked in your prepared comments and in response to some of the questions about the pricing.

But the question I want to ask, are you seeing members come back now as COVID is abating? Is there anything you can tell us... .

So let's walk through this so there's no ambiguity. We typically gain memberships through June. And then we've seen July, August is sort of flat. And we lose significant memberships typically every year, the last 10, 15 years, in 3Q, which basically -- in September, netting our 3Q net membership down typically.

Where this year, we were actually able to gain membership in 3Q. 4Q, same thing. We typically lose membership every year. And this year, we may have membership go down slightly, but it will be significantly less drop than in the other years.

Now if those mask mandates were all lifted tomorrow or next week, there's a possibility we would actually not have that happen because we will get a surge, as I mentioned to you. .

Now when we normally gain all of our memberships throughout the year, for the year, every year is in the first and second quarter, which we expect it to be an absolute robust 6 months. And we will significantly gain membership count.

As I mentioned, my plan, Tom's plan is we want to give all of you guys run rate EBITDA per month by summer that matches or beats 2019 per month EBITDA. And we have a very good plan on how -- we have very good projection on how we can get there. .

And then by the end of the 2022, we expect to have that EBITDA be exceeding the 2019 monthly EBITDA. So that's what we see. That's what we sort of expect to happen, and that's what we're working to deliver. .

Bahram, could you also just talk a bit about -- you mentioned just the digital offering.

How, from a consumer standpoint, you are integrating the digital offering into what has been the kind of the physical experience of the centers?.

Right. So our -- every customer that we have right now, of 1.4-plus million customers, 1.1 million of them are regularly using our app. We are studying every day to see what they like, what they're using, make that more robust.

We are streaming -- out of our 10,000-plus classes that we teach to our clubs, to our members in open clubs, we're streaming about 500 of those. I just want everybody to be clear that if we decide we want to stream 1,000 or 1,500 of those a week, it's just a matter of decision. It will take about a week to schedule them and get them going. .

a, how much we put marketing power behind promoting that individually; b, does it need to be $15? Does it need to be $9? Does it need -- so we will basically make those determination as we get there. .

But meanwhile, we see that our customer really is happy to be able to use that app when they're not able to come to club or whatever. Now they can do the nutrition. They can do weight loss. They can do meditation. They get content. They can get one-on-one training. So the -- it's very, very comprehensive, robust. And we're continuing to add features.

And every month, we launch a new version. This very next few weeks, we launch the next version with Health Talks in it, which is podcast version of our Health Source, delivering content that then people really need to listen to.

Does that help you, Brian?.

No, that's great. That's very helpful. Well, congratulations and the best of luck here. .

[Operator Instructions] Our next question is coming from the line of Simeon Siegel with BMO Capital Markets. .

Great. And also, congrats on the first quarter back to public markets, exciting stuff. So Bahram, I don't know if you just said it.

But can you just let us know, so what were the total members in the quarter within the 668,000 memberships?.

And then Tom, maybe how much of the digital on hold decline came from the conversions back to center memberships? And then how are you thinking about that rate of recapture going forward?.

Yes. The 668,000 memberships come out to just over 1.3 million members as of September 30 as you get a mix change between single, couples and families, as you transition from the June 30 quarter to the September 30. So we're just over 1.3 million members. I don't have the exact numbers of on hold, of what came back to full center versus what moved out.

Typically, it's -- 80% plus come back. So right now... .

Yes. As we look at that, that's fine opportunity for you guys to convert back. .

Yes. Go ahead again. .

Yes. It's -- digital on hold is one of our best opportunities because we stay in touch with those members while they're on hold. We keep engaging with them. We keep inviting them on a personalized basis to come back and enjoy their club and their favorite activities or favorite instructors.

It obviously has a virtually no cost of acquisition to bring those members back. So it's really -- it's one of our short-term levers that we can use to really pull memberships back to full access or full center memberships. .

Yes. To also be clear for you guys, there is a 6-month window with this. So if you go on hold, you decide when you are coming back. You give us that date. Or at the maximum, you can be on hold for 6 months. So these people automatically rotate back in.

And those members who have sort of gone to hold right now, it's roughly 80,000, 90,000 memberships on hold at this moment, these are the pros. These are the ones who are -- really don't want to give up their Life Time membership. And they go on hold the period that they can or if they need to. But then they really have the intention of coming back.

So they don't require a lot of arm twisting for them to come back. .

Perfect. And then if I can have just one more.

How are you guys thinking about the breakdown of membership dues versus in-center revenues going forward?.

Yes. Well, historically, we've run about 63% to 65% of dues to total center revenue. In the future, I still think it's going to run into the upper 60s, so call it that 68% to 70% range, given the dues price increases that we've taken and the rebound of the in-center business revenue at a slightly slower pace than our dues recovery.

So I still think we're looking at the upper 60s for dues as a percentage of total center revenue. .

Our next question is coming from Dan Politzer with Wells Fargo. .

Congratulations on the offering. Bahram, I just wanted to circle back so I make sure I understood it right on your commentary on the fourth quarter and the membership.

It seems like there's a bunch of different dynamics taking place in terms of you have mask mandates and then the typical seasonality in the fourth quarter versus the third quarter, and you're against the backdrop of an improving recovery and kind of getting back out.

So I just -- how should we frame the recovery trajectory over the next couple of quarters in terms of your memberships?.

Yes. So I think that's probably the most important piece of the whole equation. 4Q, it typically is a -- every year, 4Q is a membership drop for Life Time. It's just a normal seasonality. People drop back out of this pool season sort of on September and October, some come to November.

And then in December, with sort of a flat, we don't really gain or lose membership. It's not a typical year. And then we robustly, and I mean massively, 10,000, 12,000 net memberships or more a month, it goes through the first quarter and second quarter. That's a normal year. .

This year, there are massive amount of people sitting on the sidelines still from COVID and all the club closures. So there is an abundance of, what I would say, customers to be grabbed. They are going to look for the best programs and services across -- on their interest.

So we expect to get enough additional access membership count by the mid-summer, early -- by early summer. And -- but the mix of dues, we expect to basically get to the point where we can beat the 2019 dues numbers and EBITDA numbers on a monthly run rate EBITDA basis. .

So it's just -- really, all that's going to happen, maybe typically right after Christmas is when we start seeing a massive demand coming into the membership sign-up. And this will be more robust as like our May, June, July -- April, May, June was more robust than the past years.

This year from December to June will be way more robust than other years because there is more people who are just waiting on the sideline. .

And guys, we see it every day. We're confident of this. People are tired of doing stuff at home alone. We don't think they will give up.

Not everybody will give up their home workout, but they definitely will do some home, those people, and some they go back to their clubs to get some of that community and some of the differentiation that they can get only in the large athletic clubs. So that's what we expect to have, a really, really robust 7, 8 months ahead of us. .

Yes. So Dan, I would summarize the same thing by saying in the fourth quarter, it's going to be choppy with all the COVID restrictions and mask mandates coming and going. We're closing those 4 small off-brand clubs I mentioned. That will take away 9,000 memberships.

So we'll adjust for those when we look at the quarter to make sure we're on an apples-to-apples basis. .

So short term, I think it's choppy. But I think what's important is we understand the business so well.

We have teams really aggressively working on marketing campaigns now so we can really position ourselves well going into the Black Friday and then the holiday season in December and really making sure that the marketing engines are running on all fronts as we hit the first of the year next year when consumers are really focused on fitness and their wellness.

So a lot of work being done really now, really right now. .

Got it.

And then just for my follow-up, in terms of the real estate supply-demand dynamic, I mean, what are your conversations like with real estate partners in terms of cap rates and I guess appetite for sale leasebacks for some of your developments?.

Well, that's really robust from that standpoint. I mean, we are definitely looking for record low sale-leaseback cap rate. But there is no shortage of ability to get as much of this as we want to get done in that 5% cap rate range, 5%, 5.25%, 5.5%. I think we can get as much as we want to get done.

If we want to get it done at 5% or maybe a touch less, we've got to work a little more slow with it. It's kind of more methodical. But the plan is to continue to look at that market. Rates are attractive, and demand is high. .

On the new front, we have -- as I've mentioned to you, we are more robust. We are really the only capable company today to deliver what the landlords need, whether if they're resi or mall, with a high-end customer experience that Life Time delivers. So we are in more discussion than any period I remember in the history of the company. .

Yes. I think it's a good reminder, Dan. Bahram and I are committed to reducing leverage in this company, and we have over $2.5 billion of owned real estate. So as the sale-leaseback rates become more attractive, we'll continue to look at that opportunity. .

Since Tom is not looking at those construction numbers like I am, I would say that number is more -- the market -- he's talking about what we have in the books, the gross book value. Today, that real estate is worth well in excess of $3.5 billion. You can't replace it. .

Our next question is coming from Chris Carril with RBC Capital Markets. .

So maybe just following up on Simeon's question earlier about in-center revenue. Just curious about how those sales and demand for those services trended during the 3Q and perhaps what you're seeing in October and just how you're thinking about near-term opportunities for the in-center revenue growth going forward here. .

Yes. So the opportunity -- we are fine-tuning menu items in the Cafe. We're working on transformations in the personal training, lots of great activities moving on. The -- our expectation is all of those are going to grow systematically with the memberships growing back to the much higher level than they are right now.

As the clubs get closer to their full traffic, those revenue grows. .

So what I want to emphasize to you guys is that we have markets where the traffic, membership count and utilization, all of these things are pretty much right up -- back up to what they used to. PT is one that drags a little bit compared to others. We have expected that from 1.5 years ago.

We think that the PT has to be reinvented, in-person PT, to kind of -- to get to the point that it would do the similar revenues and margins as -- that it used to have in the past.

Therefore, we have come up with other ways, as I mentioned earlier in the call, that we make up for that EBITDA that the PT is not going to generate from the other programs that we have implemented, the consolidation of some of the roles, some of the other savings. So we expect to achieve those similar EBITDAs from the clubs. .

At this point, we did lower, maybe about a 30%, 35% lower PT revenue than it was there. Now if we can figure out a path to reverse that and have the PT go back up, then that would be all incremental marginal revenue and margin for the company.

But everything else is going to get back to where it was and beyond in terms of revenue and margin, both Cafe, Spa, Kids, all of those. And we have implemented a lot of really, really interesting programs. We have twin programs for the kids between sort of a 9-year-old to 13-year old, which we didn't have before.

We're seeing great traction for those classes. And so we've been reinventing nonstop the last 12 months as we have been -- have the chance to get reopened. And we have some really, really good new sort of findings in the things that are working. And we're just rolling those out more robustly. .

Our next question is coming from the line of Brandt Montour with JPMorgan. .

Can you guys hear me?.

Yes. .

I also want to echo congratulations on the offering. Most of my questions have been answered. I have one question. And in the spirit of this sort of repositioning of the brand to the higher end, and you talked a lot about pricing, I know that pricing will be one of the major levers there, but we didn't really talk about the wait lists at your clubs.

And I know it's come up in the past. I know it's not a big thing.

But is that something that is prevalent at most of your clubs? Is it -- is the -- are there a lot of situations where wait lists are growing? Is that a lever for you in terms of, yes, repositioning sort of the brand and exclusivity of the brand?.

Yes. So the -- what we had launched very robustly is to have a wait list program for opening of new clubs. And we have significant visibility to how those clubs are going to -- how are they going to perform when we would open them up. We're still doing exactly the same approach, same method.

The clubs will get to -- again, with this new strategy, we're going to have more clubs that they're going to get to that point where we have to figure out how to create a wait list for them.

The challenge with having 150, 160, 170 of these is that you have to manage and then you have that sort of a high-end membership where people buy the top-tier membership so they can go to any club. And you've got to kind of figure out how to not let them go to a certain club. So that's been always a challenge. .

So the way we try to manage that is adjust the price. So as an example, we opened Biltmore at like $159. We went to $179. We went to $199 and then just moving it up to $219 a month. This is in Arizona. So we can basically keep adjusting the rack rate up till we can balance the membership in the club precisely where we want to.

Does that help you?.

That's exactly what I was looking for. And that's it for me. And congrats again. .

Thank you. Ladies and gentlemen, we have reached the end of our question-and-answer session. So I'd like to pass the floor back over to management for any additional or closing comments. .

So thank you, Jessie. I want to thank all of you guys once again. I want to thank all the new shareholders that stepped in and helped us achieve this transaction. I want to thank our existing shareholders and partners who have been with us for quite some time, and they stepped up and bought even more. They have great confidence in the company. .

We are committed as we always have been to deliver to our customers, to our shareholders and to our team members. And we will do all we can to make sure you guys have a fantastic investment with us. .

So with that, I want to thank you guys.

Tom?.

Thank you for joining us today. Really appreciate everybody. Talk to you soon. .

Bye. Thank you, Jessie. .

My pleasure. Ladies and gentlemen, this does conclude today's teleconference and webcast. Once again, we thank you for your participation, and you may disconnect your lines at this time..