Good morning and welcome to Life Time Group Holdings Second Quarter of 2023 Earnings Conference Call. Please be advised that reproduction of this call in whole or in part is not permitted without written authorization from the company.

As a reminder, this conference call is being recorded I will now turn the call over to Ken Cooper with Investor Relations for Life Time..

Good morning and thank you for joining us for the Life Time second quarter of 2023 earnings conference call. With me today are Bahram Akradi, Founder, Chairman, and CEO, and Bob Houghton, CFO.

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

Also, the company will discuss certain non-GAAP financial measures, including adjusted EBITDA, net debt to adjusted EBITDA or what we refer to as our net debt leverage ratio, and the free cash flow before growth capital expenditures.

This information along with reconciliations to the most directly comparable GAAP measures are included in the company's earnings release issued this morning, our 8-K filed with the SEC, and on the Investor Relations section of our website. I'm now pleased to turn the call over to Bob Houghton.

Bob?.

Thank you, Ken, and good morning. We appreciate you joining us for our business update. I will briefly review our second quarter 2023 financial results, which include continued strong revenue and adjusted EBITDA growth.

Bahram will then provide his thoughts on the quarter and our strategic initiatives, which are all working to grow our business, improve profitability, increase cash flow, and reduce leverage.

Our second quarter revenue increased 22% to $562 million driven by a 25% increase in membership dues and enrollment fees and a 13% increase in incentive revenue. Center memberships increased to 26,000 from the first quarter and we ended June with approximately 790,000 memberships.

Total subscriptions including digital on-hold memberships are now at approximately 832,600. Second quarter average center revenue per membership increased to $701, up 10% from $639 in the prior-year quarter. We generated net income for the second quarter of $17 million compared with a net loss of $2 million in the prior year quarter.

Adjusted EBITDA increased 116% to $136 million. Our adjusted EBITDA margin increased by over 10 percentage points to 24.2% versus 13.7% in the second quarter of 2022. Rent as a percentage of revenue was 12% in the second quarter of 2023 and 13% in the prior-year quarter.

We delivered another quarter of improved cash flow with net cash provided by operating activities of $142 million versus $71 million in the prior-year quarter. Year-to-date we have generated net cash provided by operating activities of $216 million versus $80 million in the prior year-to-date period.

We are incredibly pleased with our performance in the first half of this year. Our strategic initiatives are successfully driving growth in revenue and adjusted EBITDA at sustainably higher profit margins. We are seeing a significant increase in the number of asset-light opportunities to grow our business.

And we are rapidly deleveraging our balance sheet. Looking forward, we remain confident in our ability to continue delivering growth in revenue and earnings while providing the unrivaled athletic Country Club member experience that is unique to Life Time. I will now turn the call over to Bahram..

Thanks, Bob, and good morning everyone. I am very pleased with our progress in the second quarter towards our main objectives. Our strategic initiatives are all paying off and our team is focused and excited. We are delivering the best quality programming and experiences to our members. And at the same time, we are delivering great operating margins.

We're continuing to see more asset-light opportunities to grow the company and we are securing these opportunities. Net debt to adjusted EBITDA is dropping at a very fast pace, and it has decreased to 4.2 times at the end of second quarter compared to 9 times at the end of same period last year.

We expect this rapid deleveraging to continue in the third quarter. We have included some potential recessionary headwinds in our guidance. However, we are not seeing that impact yet. As we have mentioned before, June was the first month that our attrition rate was below 2019.

We are seeing these trends now through July and August, which reflects strong member sentiment to the Life Time Brand. Nevertheless, we will maintain our conservative perspective.

Based on our first-half financial results and despite our conservatism, we're still raising our full-year adjusted EBITDA guidance to $510 million to $520 million from $470 million to $490 million. This reflects an adjusted EBITDA margin of 22.5% to 23.3%.

We are also narrowing our full-year revenue guidance to $2,235 million to $2,265 million for the year and maintaining the same midpoint despite shifts in some club openings to later in the year. For the third quarter, we expect revenue to be $585 million to $595 million and adjusted EBITDA to be $136 million to $138 million.

I'd like to finish my remarks by emphasizing the equity value in the Life Time brand with more than 120 billion impressions annually. Our brand is providing an increasing number of opportunities to become bigger and stronger through asset-light growth. We expect that this will continue well into the future.

Before we start Q&A, I would like to take a moment to thank our incredible team of more than 34,000 people. Each of our enthusiastic and passionate team members plays a vital role in helping our members live healthier, happier lives. This has allowed us to extend the power of our brand and fuel the strong results we are seeing.

We're now looking forward to your questions..

[Operator Instructions] Our first question is from Chris Carril with RBC Capital Markets. Please proceed..

Hi, good morning.

So can you expand a bit more on the membership growth that you saw in the 2Q, maybe how that came in relative to your own expectations and then how you're thinking about membership counts here going forward into the 3Q and the 4Q and how that's embedded in your guidance?.

It's been growing exactly to our expectation, Chris. We're very happy with the growth. We are not seeing any weakness in any of the trends, the memberships that they're coming in, as we have told you.

You guys and you understand there is zero marketing, zero promotions, zero efforts to sell. Our focus has been continuing to work on desirability in our clubs. And it's working. I mean our attrition rates are dropping, and as attrition rates drop, that makes the net increase in memberships much easier to obtain. We're very happy with where we're at..

Got it. And then, I did want to ask about the development update this morning and just specifically, what's driving that increase in the openings guidance here, I think from 10 previously to 12 openings for the full year? And just driving - and what's driving the confidence there? Thank you..

Yes. It's a great question, Chris. We are systematically looking to see what are the number of opportunities that are available out there for us. And to our surprise, that number is nearly almost 200 asset-light opportunities.

This is not building our big battleships which is another couple of hundred possible locations, but on the asset-light ones, we have already done about 10% of those, we have already done about 20 asset-light deals and then there is another 20 in discussions.

So they are legit and I think we can continue to basically harvest this opportunity in the years to come in the next four or five years, which allows the company to grow revenue and EBITDA at a very, very nice pace without having to add significant amount of leverage. Actually, we should be able to continue to de-lever the company..

Okay. Great. Thanks so much..

Our next question is from John Heinbockel with Guggenheim Securities. Please proceed..

So guys, let me follow on that last one right about sort of the expansion cadence in the capital-light nature, right? So Bahram, would you think one - if I think about openings of the organization can handle, do you think that's about one a month, right? So we settle in kind of 12 a year.

And do you think the capital-light piece ends up being, maybe 2 or 3 of that 12? Or is it more than that? And then I guess the last piece, the suburban battleships, is there a way to bring the cost of those down without harming the experience?.

Yes. Actually, the costs will start coming down in the next - we're starting to see already the construction costs sort of starting to get leveled off feet on the ground with some of the contractors instead of being up in the sky.

And so - and what we - this is giving us the ability to do, John, is to sort of pick and choose which way we're going to grow the business. With the asset-light opportunities, we can grow the revenue EBITDA easily in the double digit levels if we didn't launch many of the big boxes.

We are continuing to purchase the land, get the permits, get the approval, have the designs ready, and then we'll just decide systematically when to deploy the construction on those with a huge focus on making sure that we are continuing to de-lever the company as we go forward.

Growing the EBITDA and making sure we maintain the debt levels at the levels that they are right now without it going up so that will continue to de-lever the business and then strategically we will pick locations where we feel like the market is so amazing. And we have pent-up demand, we will just start construction on the bigger ones..

Okay, great.

And then, curious your assessment of the in-center - the big in-center businesses today, right? And their recovery from COVID, obviously personal training and re-tool, but where do you think we stand on that? And I know you talked about trying to build in some macro headwinds, is that where it will show up? My dues will be fine but maybe engagement with some of the personnel - some of the in-center businesses.

Is that what you think we see softness if we see it anywhere?.

No, I actually don't think it has anything to do with that. Everything has to do with our execution. We have tremendous opportunity within our control with the execution of our in-center programming.

We have significant performance in certain clubs and we have so-so performance in some others with similar demographics, similar conditions, similar size of the clubs, similar offering. So this is just going to take time. It's an opportunity to gradually take those places where there is significant opportunity to execute.

And the really positive news is we have continued to work on innovation, creating new ways to grow the business, and I'm really excited about what we are launching right now.

It will take a couple more months before we have at least 150 locations robustly executing dynamic stretch, which will be another opportunity for our personal training to get yet another double-digit growth within itself on a per-month basis.

So, and then beyond that we have other things that we've been working on, to basically increase the volume of revenue and the profitability in the four walls of each asset that we already own or anything that we will launch going forward.

So look, if you're standing still, if you're creating nothing and you are expecting the same business to continue to do well for you, that's going to get tapped out at some point. But Life Time has never stood still.

We have constantly looked to see what are the other opportunities to elevate the experience to a higher quality more extraordinary and invent and introduce new programming that gives us more opportunity.

So the last couple of years, we had to really work on all the different innovations, all different transformations to get the company to a level where we are producing record levels of EBITDA margin from our business.

And at this point, I think we're just now super-excited to roll out these new opportunities to continue our growth for '24 and beyond..

Okay, thank you..

Our next question is from Brian Nagel with Oppenheimer & Company. Please proceed..

Hi, good morning..

Good morning, Brian..

Nice quarter. Congratulations..

Thank you..

So my first - I have a couple of questions.

But the first question, we've talked a lot about the leverage ratios, Bob and Bahram, you both mentioned leverage ratios in your prepared comments, but - so I guess, I'll maybe ask a couple of parts, but I mean if I'm doing the math correctly, given the guidance, the EBITDA guidance you laid out for Q3, that implies a leverage ratio in Q3 down to about 3.6% to 3.7%.

So I just want to make sure I did my math correctly there, but the bigger question is how with that - how close are you now getting to that target you want to be at?.

It's a great question. Brian, I mean rough and tough from you.

You came to the thumbnail, the guidance for the 3Q plus what we have delivered first - the first couple and then the first - and the last quarter of last year, trailing 12 months, EBITDA is - rough and tough is looking right just about $500 million at the end of 3Q when you look at trailing 12 months EBITDA.

So, I mean I'm very, very proud of our team. We always have had a goal of doing $500 million of EBITDA this year, that was the internal goal for the company and we steadily have executed. Our team has steadily executed on the goal and we've been able to raise - beat and raise the guidance every quarter.

Our expectation is that obviously, we're going to grow the revenue and EBITDA again, on a trailing 12 months basis every quarter, in foreseeable future. And so one way or the other, we're going to quickly very rapidly get the company to under three times debt to EBITDA.

And I want to emphasize, this is with at least - debt to EBITDA is a nice number but what's really not being considered that Life Time owns well in excess of $3 billion of fee-owned assets today that continues to support the strength of the balance sheet of the company.

And so we feel very, very good about getting the company under three times and we are clearly on our way to get there. Thanks for the question, Brian..

That's very helpful. And then the second question I want to ask, just with regard to the center, the club openings. So we talk about the delays here.

So maybe, I guess the first question would be, particularly more like what's causing these delays? But then I think more importantly how has the performance of new clubs been? Because I am looking through my model. These are delayed, but I think they've been performing very well.

So that should actually bode well then for '24, right, and recognize you haven't given specific guidance for '24..

Absolutely. So we have - everything is within our control. And then there are things outside of our control. I want to be clear. Being able to get the initial building permits to get launched, is something that we work - our team is very professional group at that.

But sometimes it is completely outside of our control and the municipalities will take their time to give you their plumbing permits or electrical permit, and we just can't get started, I mean. So once we start, then we can go.

And then once we get to the other end, we have to have the health inspectors to come in through the health inspection and the building permits. You get the occupancy permit and some of those frankly are just completely outside of your control and as a little bit of a delay on the construction, it's really a non-event situation in here.

Our revenue in the clubs in the first two months to three months is either a negative EBITDA revenue or slightly positive after two, three months contribution margin positive. So it really doesn't move the needle on the EBITDA, if anything, it's just a little bit of a negative, but that's already baked into our numbers.

But on the other hand, you look back, we're going to open like literally 5 or 6, 7 clubs here in the next 90 days and we're going to get those all opened up and then all of that will start generating revenue in the fourth quarter, but it's going to generate really nice EBITDA in the 2024 and years after that.

So we're not seeing anything in here that would concern us. Everything is moving very satisfactory to us as a management group and looking forward to continue to deliver the growth that we have been de-levering that we - and the increase in EBITDA..

I appreciate all the color. Thanks, Bahram..

Thank you..

Our next question is from Brian Harbour with Morgan Stanley. Please proceed..

Yes, thanks, good morning guys. I wanted to follow up just on that question about in-center revenue as well.

You mentioned it's kind of on you guys just to execute, but what is that specifically? Is it just like more training is required or just takes time to launch some of these programs? Do you think that you have to hire more to actually roll out some of those initiatives to better harvest some of that revenue? Is there any sort of capital costs that's going to be required? What specifically is it that will drive that revenue?.

Great question, Brian. And it's actually - when we went through - before we went through COVID and we have clubs that they performed really well in spa, in personal training, in the cafe. And then we had equivalent clubs who weren't performing as well, but they were doing okay.

During COVID, with the shutdown stuff, we basically had almost everything go backwards.

And then as we came back with the reintroduction of the way we're running the business, it is much more focused on casting the real leaders in each category and getting those going where we have been able to, it's not just hiring, hiring just personal trainers isn't going to work. You have to cast the absolute highest quality professional trainers.

So we're able to get those secured and placed, and then support them from the all the initiative from the office. We're seeing that thing. It's a work in progress. It all is growing. It's not going to all happen at once. It's just going to take time to roll it in and then we are - like I told you the next piece of innovation is like the dynamic stretch.

That's going to have a significant impact on the opportunity of each trainer at Life Time to make more money, each massage therapist to make more money as we create a better opportunity for our team members to have a really nice living and a good income with good benefits.

Now we continually grab those best talents in the community to come to work with Life Time. That is continuing on. Nothing has stopped. Nothing has slowed down from that, it is just the continued progress. So we're not seeing - again, I'm not unsatisfied overall with the growth in our in-center, it's just going to take time, but it is steadily growing..

Okay, thank you. Yes, that makes sense. Some of the asset-light opportunities you've called out.

Is this a shift at all in the sense that do you think you may, in fact, grow faster but what kind of like the same quantum of CapEx? Or do you think CapEx could even be more restrained going forward if you're going to kind of lean into these? I don't know if this is just - if you're thinking about this differently or if it's largely status quo..

That's a great question again. And I want to just give it to you in a different form.

My - as I have stated repeatedly, my personal goal is to get this company to a level of EBITDA that we are able to finance 100% of our growth with internally generated cash and that is basically in the horizon in the next two to three years, we can continue to grow the EBITDA significantly and basically with being able to do locations where there are $5 million to $10 million upfronts, it's just timing.

For right now, we can lean heavier on these to sort of get that EBITDA to $500 million, then to $600 million. And then, as we get to the $600 million to $700 million of EBITDA, we're also going to be able to kind of build the big battle shifts.

Again those look fantastic once you go through the sale-leaseback with them, they are just sort of a front heavy. And so we are just balancing all of this, the great news is, we have absolutely, completely under our control opportunity to grow this narrative. We can grow the revenue.

We can grow the EBITDA, reduce leverage, and then when the revenue and EBITDA has grown significantly more, we'll take that excess cash flow and we do more of the big battleships as well. We also are going to continue to do our sale-leasebacks. I just want to be clear.

We have no intention of ever changing the strategy of the company from asset-light strategy, but it's just we have so much opportunity right now that based on the macroeconomics, the company has chosen to take advantage of more of the asset-light ones early on and then later on we're layering the bigger boxes as well..

Thank you..

Our next question is from Robbie Ohmes with Bank of America. Please proceed..

Hi, good morning. Hi, Bahram, I wanted to sort of see, if you could give us an update on how you're thinking about the continued pricing benefit you're getting. I think it was - I think the average monthly dues are running around $163 now and we're up about 15% versus last year.

Can you - how long can you keep growing? Where do you think that the membership is going to end up? And how much of a tailwind is that going to continue to be for the back half of this year and next year?.

As I've covered that, we have adjusted the prices for the new customers coming in, entirely to manage the experience we want. So we have had so many clubs doing so well that currently we have about 7 or 8 clubs that they're actually on a waitlist.

Now, we're still taking memberships with these but we are able to go through the waitlist, call people in, and basically take these people in as using the clubs in the forms of the ways that will continue to help delivering them the experience that we want.

At the same time, this has allowed - again the price changes has been a function of completely and entirely controlling the experience we want to deliver as we are an experiential Company.

So the benefit is that when you look at where the price changes on the new member rack rate versus the people who have joined earlier with a lower dues, there is about $17 million, $18 million a month difference between - if everybody who was at that rack rates, right - if everybody wins, rack rate would be $17 million to $18 million a month.

And I'm glad to cover this on this call because there is no way at any given time that we will ever do such a thing because that would be like a brand suicide.

However what we do have is we have a very, very like big supply, massive opportunity to continually pass on a slight amount of dues increase very systematically with a complete sophisticated use of AI where we know that it doesn't bump up the satisfaction or the attrition rate.

And so we can continue to see some increase in the dues revenue and on top of that as the - even though with attrition rates dropping below 2019 numbers, we're going to keep seeing that people as they drop out and we get new customers coming in, that also bumps the dues revenue of the clubs We have more clubs - significantly more clubs doing over $1 million of dues a month now than we had before we went through the COVID.

So it's really - I mean like I wish I could sit here and report something bad to try to balance things out, but we are extremely happy with the way everything is working out right now..

That's great. That's really helpful. And then just a follow-up, maybe for Bob, the center ops expense was lower than we were expecting this quarter, I think it was like $18 million. Is - that seems lower than we would have thought.

Does that stay lower or how are you guys doing that? And then also the conversely, the center maintenance CapEx, I think it was like double year-over-year.

Was that a timing thing? Or is there something going on there?.

Yes. To answer the second part, for Robbie, that's just timing. I mean remember, we will always invest to protect that member experience, and that's something we'll do year in and year out. So that's just timing. As it relates to center ops with function of the rewiring of the company that Bahram and I talked about previously, and that's sustainable.

That's not one quarter and that's a sustainable change that we've made in how our clubs operate. So you should expect to see that benefit going forward..

That's great. Thank you..

Our next question is from Chris Woronka with Deutsche Bank. Please proceed..

Hi, good morning guys. Wanted to go back to the, I guess the asset-light question one more time, and come out of it from maybe slightly different way which is - what's most important when you're evaluating these sites? I mean you don't like - obviously, you don't want to cannibalize your existing clubs.

There's a lot of markets where that wouldn't be an issue. But what's the - how do you rank order prioritize in terms of a number of memberships you can get, a pricing you can get, a margin? Just trying to understand like what drives that decision to pick the old department store here but not over here..

Yes. Great, great question. First, we studied the markets, demographics, the locations we want to be in. Then we decide on exactly what type of product we want to deliver and what's the best way - what is the best strategy to deliver those products and services in that community. And so when you do the big clubs with all things in one, that's fantastic.

But sometimes based on the more urban markets, the geographical situation does not allow you to go by 12 acres or 14 acres or 20 acres of land and build your big, big boxes with everything under one roof.

So then we deliver the product in some form of assortment and in some locations, it may be 40,000 or 50,000 or 60,000f square feet and we delivered the some of the components of our total product but we deliver best in class in those services that we do offer. We have clubs like downtown Austin is at 58% contribution margin.

So - and it's only 35,000 square feet.

So it's just as a network of our clubs and as part of the Life Time brands, we have Alpha, we have ultra-fit, we have [Strike] I mean I can go on and on and we have all these amazing brands that we can choose from, is each of all the brands that we provide will properly be - can be represented in a market and if we feel like we've got the opportunity to assemble enough of those brands and deliver a profitable business model and service the community, then we'll just go ahead and deliver that.

So it - and sometimes, they become the opportunity where you have a couple of big, big clubs, maybe 12 miles apart. And then you have the opportunity to put the smaller one in between and that sort of shows the whole thing together. So we've been - my team and I here at Life Time, we've been doing this for about 32 years.

Prior to that - I did it for another 10 years prior to that time. So we've been selecting sites and delivering different types of boxes' sizes and all with similar profitability. We're always targeting that high 30s, low 40s IRR after sale-leaseback or if we just go into a lease.

They're all depending on the situation and the development strategy can change..

Okay, I appreciate that. So I know we're not going to - we are not talking about 2024 yet, but I wanted to ask a directional question which is just to sanity check.

I mean, if we think we know roughly a number of units you might add next year, and we layer in a little bit of pricing and in-center growth, I mean - I know you're not - we're not economists in forecasting in-depth, but is there any reason to think if we just add all those variables up that we're not going to still have significant however you want to define that revenue growth next year? And is there any reason that wouldn't flow through to positive margin expansion? Just trying to get a sense.

Thanks..

So look, as we - well, let's talk about the last piece of your question on margins. So I - as we put out 22% to 23% - 23.5% EBITDA margin right now, is really what I see, can that grow? The answer is yes.

But can you just go ahead and it could you get - to the level on the low end of that or high end of that, it depends on the - how many clubs will open all at the same time in a quarter or five months and that can put a little bit of a negative pressure and put that on the lower end of that 22%, 22.5% and so then as those clubs ramp and go from contribution margin negative to contribution margin positive, it can push you, So just rough and tough, we pretty confidently believe we can deliver those margins going forward.

And then as far as the growth, my expectation has been, we will grow the company double-digit, top and bottom line, and that's our goal.

And I - at this point, I don't want to get into delivering any sort of guidance for 2024, but with a number of opportunities ahead of us, I just - I don't have lot of concern making a commitment that we are committed to growing the company in double digits range..

Okay, very good, thanks guys..

Our next question is from Dan Politzer with Wells Fargo. Please proceed..

Hi, good morning everyone, and thanks for all the color thus far..

Thank you, Dan..

I want to - yes, I wanted to follow up on the $300 million of sale-leasebacks that you guys reiterated that you would get done this year. I mean, in terms of timing, obviously, we're in the back half of the year at this point.

I just wanted to make sure, one, the $300 million is proceeds that you received total this year, and if there's any update in terms of the tone of conversations, how far along you are, and maybe how you think about the risk-reward to the extent that rates are lot higher now and how these conversations have progressed even versus three or six months ago.

Thanks..

Great question, Dan. I'm still fully expecting to go forward with what we have set forward as a goal. We have been working very methodically, my goal has been to get the company to this $500 million of trailing 12 months EBITDA range and then kind of attack that market.

As I've mentioned to you guys repeatedly, I have been working that market for years and years and years. I have no concerns about us getting sale-leasebacks done, we were still getting inbound calls to go through with those.

It's just a matter of getting that rate, and I will give you guys an update on that in the next 60 days in terms of how we're going to get those done and we're planning to get them done..

Got it. And then, just for my follow-up.

In terms of the fourth quarter, I think the implied center OpEx, and I think you've touched on it a little bit, but I just want to make sure I was clear, it sounds like that's going to take higher just as you open a bunch of new centers in the third quarter, right? But I guess, were there any other variables in that guidance like to the extent that you are reflecting that recessionary conservatism or a ramp-up of in-center revenues in the fourth quarter as you have these new centers come on? Or is it just that contribution margins going to be a little bit pressured as you open these new centers at the onset?.

Everything you mentioned is that you're exactly correct, Dan. So the new club openings, there's quite a few as I mentioned, some have been delayed a little bit here. So they are opening now, they're opening next month, the month, we got a lot of openings.

And again, all those clubs are going to open with a contribution margin negative and early on, and then it's going to take, depending on the location a month or two or three before they flip contribution margin positive. So we have taken that into consideration.

We have - as we have mentioned baked in some conservatism for the macroeconomics, right? And finally, as we continue to execute our strategy to get more locations executing to our standards on the in-center, those many of the in-centers are going to spa, cafe, they all come at a lower margin than our 22%, 23%.

So we still want to grow those because that's the differentiation of Life Time Athletic Country Club providing those services for the customer, but they do come. They generate more revenue and more EBITDA but they come at a lower margin.

So all of those are exactly what you just covered - all of those are taken into consideration for that guidance we're giving you..

Got it. Thanks so much. Appreciate the detail..

Thank you, Dan..

Thanks, Dan..

Our next question is from Simeon Siegel with BMO Capital Markets. Please proceed..

Thanks, guys. Good morning, hope you're all having a nice summer..

Thank you..

Recognize - so recognizing your centers little different, any update how you're thinking about like the average, the right number of memberships per center and then Bahram, just could you speak to some of the learnings you have from the growing presence in maybe the higher traffic areas like Manhattan, you and I are talking about other cities.

And then Bob, just could you speak to price versus new members that's embedded within the third quarter and the full-year revenue guidance. Thanks guys..

Okay. Let's go through those questions, one at a time. First question, again..

Just memberships per center..

Okay. So we - Simeon, we have clubs from literally now with some of the urban ones 25,000 and 30,000 square feet to 300,000 square feet.

So I don't know that I can offer a membership per center, I don't know that I can offer a membership per center that basically that you can just take the number of the memberships we have, divide it up by a number of clubs and try to get an average, but it's not going to help anybody with anything.

And as we are opening a variety of different clubs, I think we just need to sort of help you guys with maybe giving you a perspective of what we think is the right number of memberships in maturity what number of membership that we're looking for, based on the pricing in the market.

So I don't know how to answer that without creating more confusion frankly because there's nothing to average out, I mean the vastness of the variety of the products that we offer.

The second question?.

Learning from high traffic areas like opening clubs in Manhattan..

Yes. So right now, what we are seeing is the brand is allowing Life Time to get really lift on terms of how we are processing things. We are getting waitlist established before the clubs open up, our team then will approach that group and we're getting - our pre-sales are sure there.

They're only about 90 days, because we have a bigger pool of waitlist. So it is much, much more efficient and pretty steadily right now, Simeon, we are able to hit the desired dues goal that we have for a club opening and exceed it. So more clubs are reaching contribution margin faster than ever - contribution margin positive faster than ever before.

So the learning is to continue to do what we're doing, keep pressing on, and keep looking for opportunistic places to grow the Life Time brand and deliver the products and services to people..

And then, Simeon, I'll take the last one on price versus membership growth, if you look at the second quarter, we saw membership growth in clubs that were opened prior to the pandemic, we saw clubs opened from 2020 to 2023 or '22 and we saw membership growth in clubs opening this year.

So we've got very broad-based membership growth across all our clubs sort of regardless of when they were first opened. Any price benefit that we see that is due to pricing that we've already taken, pricing actions already complete.

The only additional pricing, we would take it's what Bahram mentioned earlier, really done to protect that member experience..

Great, thanks a lot guys. Best of luck for the rest of year..

Thanks, Simeon..

Thank you..

Our next question is from John Baumgartner with Mizuho Securities. Please proceed..

Good morning, thanks for the questions. Bahram, I just wanted to follow up on Simeon's question.

When you look at the experience you're gaining with these new rack rates and sort of addressing the overcrowded facilities and applying the AI, when you think about these new learnings you're picking up, whether it's pricing sensitivity, demographics, singles, couples, families, willingness to pay services, amenities you're offering that sort of seals the deal and get you that new member that new sign-up.

I guess what's the most surprising to you in terms of the new learning as you've been getting over the past, I don't know 12 or 18 months as you dig into the data..

Well, what we are seeing that the customer is interested in the experience. They are pretty insensitive to the price being 229 or 249 or 269. They are just - there is zero, we cannot see any effect.

That's the learning, it's just - it doesn't impact the membership units, the growth, you either have to be 100% committed to metrics or you need to be 100% committed to deliver the brand experience that you want and that's what Life Time has done and our learning is that this is what's working and the customer is appreciative and I see people are so passionate about Life Time, I was just talking to one member last night.

Hi, I - my daughter basically refuses to live somewhere that is not close to a Life Time So they move from one state to another one, when they go back, they are buying a house close to the brand new Life Time opening up.

So they can - so we are going to continue to focus on what has worked, is this control the narrative around our brand to offer our customer experience and that's given us all the leverage, all the power of the muscle we need right now, we're getting more amazing locations, more opportunities than we've ever had.

And so we're going to continue to execute on that, but that's the learning.

The learning is that you can't be wishy-washy, you can't try to control the cost-conscious and experienced conscious at the same time, and I emphasize, there's a lot of just a tremendous amount of narrative about cost - I read the stuff coming back, people like - cost efficiencies, cost efficiencies, cost efficiencies.

I have been like a broken record, we have not focused on cost control. We rewired the company. So we can make faster, better decisions to serve our customers more robustly with more ease and be more responsive to our lead general so they can make decisions and it's that efficiency coming from the rewired business that is a structural for long term.

There is zero focus on cost control, I think literally zero. Our focus is 100% on delivering the maximum experience for the customer.

That's the instruction to every club, every lead general, that is the expectation, all the inspections are - inspections on how you're delivering the right brand quality for what we want and the company has never been more succinct and aligned and homogeneous to be working well, and we see the results of that..

Thanks for that. And then just I wanted to ask big picture about your new weight loss drugs that are hitting the market.

Your membership base skews towards active individuals in a different target market than for pharma, but to the extent, you thought about it, how do you think about the pharma complementing your business? And it does unlock new opportunities for outreach for some of these folks who may be more active for the first time, you can integrate them in the membership base, like you're doing with Aurora for some of the older folks that are out there.

I think some of the programs, your personal training, the stretching you mentioned this morning, that could apply. I'm curious how you think about the potential macro impact on the business from the pharma side. Thank you..

That's a great question. I've been - I think if we were purely a fitness company, it would impact us maybe because people are taking pills to lose weight.

The reality of that particular and I won't mention any names, is that whenever you take a pill that will - suppresses your appetite and you don't eat, it is eventual lose of muscle and then eventual lose of bone density. For someone to take a jump-start to lose a bunch of weight and get off of it, it's okay.

For someone to get on those things and to stay on is absolutely long-term detriment to their health. This will become like everything else will come and go, people will learn their lesson with that, but it doesn't impact our business.

I mean, again, I emphasize our clubs are focused on a very, very, very broad social aspect, country club aspect, beach club, it's the social gathering of people that is all the amazing small and large group classes that is people's actually network of social community, get together, the way we have fewer people joining us for weight loss, then they have - that they're joining for these other reasons.

It's always been the case. But we're not seeing a difference in our sign-up because people are doing these stuff, it's just - it's not really a factor.

So hopefully I answered that correctly for you, but we are not concerned about it nor we are seeing, oh, my god, this person didn't join us because they are taking this particular drug to lose weight, they are not coming to Life Time, that's definitely not the case..

Thanks, Bahram..

Thank you..

We have reached the end of our question-and-answer session. I would like to turn the conference back over to Bahram for closing comments..

Now we're just appreciative of everybody and all the great questions, looking forward to continue and see you guys hopefully in between or next quarter..

Thank you. This will conclude today's conference. You may disconnect your lines at this time and thank you for your participation..