Good morning, and welcome to the Life Time Group Holdings Conference Call to discuss financial results for the First Fiscal Quarter of 2022. At this time, all participants are in a listen-only mode. Later, we'll conduct a question-and-answer session and instructions will follow at that time. 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's 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 morning and the company's 8-K filed with the SEC and on the Investor Relations section of Life Time's website. On the call from management today are Bahram Akradi, Founder, Chairman, and Chief Executive Officer, and Tom Bergmann, President and Chief Financial Officer. I will now turn the call over to Mr. Akradi. Please go ahead, sir.

Good morning, and thank you for joining our first quarter earnings call. Our long-term strategy has been and remains to build and uphold the most premium, most loved and respected brand in the healthy way of life, live, work, play ecosystem. As a result of executing this strategy, Life Time was at an inflection point for very accelerated growth pre-COVID. Despite the impact of government-mandated shutdowns, masks, vaccines, and other restrictions, we've continued to build and strengthen our brand reputation, systems, and programs. We are seeing great results and rewards from the way we treated our team members, members, landlords, vendors, and communities. This has put us in a great position not only to recover but to exceed our past performance. Life Time is once again at an inflection point, with a great outlook. Our fundamentals have not only been improving each month, they also have been accelerating. Tom will provide full color on this call. Now, I'm going to break down our short-term strategy in three parts. First, our most capital and investment life opportunity is to grow our existing athletic country clubs to their highest potential in revenue and profitability. We're seeing approximately 4% month-over-month dues revenue growth in our athletic country clubs, at which we have implemented numerous initiatives over the last 18 months. These initiatives are paying off and we believe will continue to improve throughout the rest of the year. We believe it will bring the majority of our clubs to exceed our 2019 dues revenue by year-end. Second, we continue to evaluate opportunities to make our company more asset-light and strengthen our balance sheet. In this area, we are actively exploring additional sale-leaseback transactions and other structures to achieve this objective. Third, we are leveraging our brand equity and reputation to capture additional asset-light real estate locations for our athletic country clubs, along with potential health and well-being growth opportunities where our membership base and trusted brand give us a natural advantage to succeed. For our first priority on growth, our first-quarter results were right in line with our expectations, and we're continuing to accelerate as we rapidly grow our revenue and profitability at our existing athletic country club locations. From mid-February onward, we have seen strong growth in visits, revenue, and membership recovery at our athletic country clubs and we believe this will continue throughout the second quarter. Tom and I look forward to sharing those results with you next quarter. As I mentioned, we have invested in a range of initiatives that complement our premium athletic country clubs and provide fuel to accelerating our revenue and profitability recovery. Our aggressive nationwide rollout of pickleball, active aging, and small group training are just three of the many initiatives we have underway. Members are increasingly engaging in these programs and our membership base is both growing and becoming more diverse. This also has put us in a strong position to capture significant additional membership at substantially higher average dues. Average membership dues were $145 in the first quarter, a sequential increase of $10 from the $135 we reported just in the fourth quarter of last year. We see these numbers growing to the $150 to $160 range by the end of the year. The new join dues rate for memberships sold during the first quarter averaged $166 compared to $135 in the first quarter of 2021 and $115 during the first quarter of 2019. For the second priority to further strengthen our balance sheet, we're evaluating alternatives for sale leaseback transactions involving a significant amount of our owned real estate portfolio. As a reminder, we currently own approximately 60 athletic country clubs. As we mentioned on our fourth-quarter 2021 call, we closed on a sale leaseback transaction with proceeds of $80 million in the first quarter and expect to close another two transactions on or about May 13 with proceeds of $95 million bringing the year-to-date total to $175 million. We're currently evaluating sale leaseback and other opportunities to monetize up to an additional $500 million of owned real estate by the end of the third quarter of this year. We will provide you with updates as we progress. For our third priority, we will continue to explore asset-light growth opportunities that are a natural extension to our brand. We have built a healthy way of life ecosystem and a premium brand that is extremely well positioned to grow and capture new growth opportunities. As I turn it over to Tom, I want to reinforce my confidence in the power of Life Time, our brand, and the experiences we deliver. We feel very good about the underlying trends in our business and the strategic initiatives we have in place driving these trends. Thank you for your time today and your continuous support in Life Time. Looking forward to the Q&A. Tom?

All right, thanks, Bahram. I'll now provide some additional detail on our three priorities Bahram highlighted, first quarter results, and outlook for the full year. To start with the first quarter, total revenue increased by 57% to $392 million, driven mainly by center revenue growth. Total center revenue increased by 56% to $382 million and was driven by a 55% increase in membership dues and a 57% increase in in-center revenue. Average center revenue per center membership increased to $580 from $459 in the prior year period, reflecting increased member spending with our in-center businesses that continued execution of our pricing strategy and the opening of new athletic country clubs in more fluid markets. On a same-store basis, comparable center sales increased by 50.3%. Center memberships increased approximately 24% to just under 674,000 as of March 31 compared to 544,000 as of March 31 last year and approximately 649,000 as of December 31, 2021. As we discussed on our last earnings call, the timing of the Omicron surge early this year disrupted our typical seasonal membership patterns. While January would typically be the strongest membership month in the quarter, this pattern was reversed in the period because of Omicron. While we do not intend to provide monthly memberships on a regular basis, the following breakdown will help provide some context to the progression of the quarter and momentum of the business. By month we added 3,300 net center memberships in January, 4,400 in February, and 16,900 in March. To put this into context, in 2019 we added 21,400 net center memberships in January, 3,300 in February, and 7,000 in March. Further, the momentum we saw in March continued into April, with us adding 13,800 net center memberships compared to just under 5,000 back in April of 2019. Given the momentum we are seeing in the business, we expect to add 50,000 or more net center memberships during the second quarter. Average monthly dues per membership was approximately $145 in the first quarter, compared to $121 in the first quarter of last year, and $135 in the fourth quarter of last year. This year-over-year and sequential increase was driven by the opening of new athletic country clubs, increases in legacy pricing, and a higher mix of family memberships. We continue to see average dues per member increasing to the targeted $150 to $160 range by the end of the second quarter and remaining in that range during the back half of the year. Other revenue, which includes revenue generated from businesses outside of our centers, more than doubled to approximately $10.6 million in the quarter and was primarily driven by our athletic events business. Total operating expenses during the first quarter were $403 million. This included non-cash share-based compensation expense of $21.4 million and a one-time gain of $28.4 million related to the sale leaseback of two properties in the quarter. Excluding these items, total operating expenses increased by 24.5% to $410 million. Center operations expense was $240 million and included $1.2 million of non-cash share-based compensation expense. Excluding share-based compensation expense, center operations expense increased 37% due to increased staffing requirements to support our investment in our programs and services and centers, and increased usage of our centers and services by our members during the quarter. Rent expense increased 10.8% to $56 million, driven primarily by additional sale leasebacks compared to the prior year and additional non-cash rent expense where we've taken possession of a site to begin construction but have not yet completed construction and opened it for operation. General administrative and marketing expenses were $66.6 million and included $19.9 million of non-cash share-based compensation expense. Excluding non-operating items from both periods, general administrative and marketing expenses increased 24% to $46.2 million. This was primarily due to the re-staffing of our center support overhead functions as centers reopened and usage rates continued to increase, along with additional public company expenses. Depreciation and amortization decreased by 5.1% to $58.1 million and other operating income was $70 million, including $400,000 of non-cash share-based compensation expense and a $28.4 million one-time gain related to the sale leaseback of two properties in the quarter. Excluding these items, other operating expenses increased $11.1 million from $6.1 million primarily related to the increased activity in our athletic events business. Our GAAP reported loss from operations for the quarter was $10.9 million compared with a loss of $82.2 million in the prior year period. Excluding the $6.6 million net impacts from share-based compensation expense and other one-time items, the adjusted loss from operations was $17.5 million compared to an adjusted loss from operations of $79.9 million in last year's first quarter. Net interest expense was $29.9 million, a 68.9% decrease compared to the $96.2 million in the prior year period. Excluding the one-time items impacting its interest expense in the first quarter of 2021, interest expense declined by $7 million or approximately 19% due to lower debt levels. Our effective tax rate was 7% compared with 26% in the prior year period. This lower effective tax rate is primarily a result of an increase in the valuation allowance associated with certain of our deferred tax assets, as well as deductibility limitations associated with executive compensation. GAAP net loss was $38 million compared with a net loss of $152.8 million in the prior year period. Excluding share-based compensation expense and other nonrecurring items, our adjusted net loss improved to $44.1 million from $94.1 million last year. Adjusted EBITDA increased to $40.6 million from a loss of $18.9 million in the prior year period. Moving on to the balance sheet, cash and cash equivalents as of March 31, 2022, was $41.1 million compared to $31.7 million at year-end. During the quarter, as Bahram mentioned, we closed on the sale leaseback of two properties for gross proceeds of approximately $80 million, and we expect to close on two additional sale leaseback properties on or about May 13 for approximately an additional $95 million in gross proceeds, bringing our year-to-date sale leaseback gross proceeds to $175 million. As Bahram discussed, we continue to look at opportunities to further monetize our real estate portfolio and are currently evaluating opportunities to sale leaseback up to an additional $500 million of real estate prior to the end of the third quarter. Assuming the successful completion of an incremental $500 million of sale leaseback proceeds, we would plan to use the proceeds to pay down our term loan and put cash on the balance sheet to fund future growth. As a reminder, as we continue to execute sale leaseback transactions and incur incremental cash and non-cash rent expense, we look at adjusted EBITDA plus the impact of rent expense as reported in our financial statements to better understand our underlying operating performance and trends. Capital expenditures totaled $111 million during the quarter, compared with $43 million in the first quarter of last year. The increase was primarily related to the higher number of athletic country club openings and properties currently under construction. We plan to open 12 new athletic country clubs, compared with just six in 2021. Turning to our outlook, last quarter, we focused our guidance around the first quarter and provided some commentary on how we were thinking about the full year. Our first-quarter results were right in line with our expectations and we are seeing the type of acceleration that we anticipated moving through the second quarter. As a result, we feel very good about the progress of the business and our total revenue outlook for the full year of $1.8 billion to $1.9 billion has not changed. Assuming we close on the $500 million of additional sale leaseback transactions at the end of the third quarter, we expect total cash and non-cash rent expense for the year will increase from our previous range of $235 million to $245 million, or approximately 13% of projected total revenue for the year to $245 million to $255 million, or approximately 13.5% of projected full-year revenue. Even with this higher rent expense, we still expect our adjusted EBITDA margin to steadily improve into the 18% to 20% range in the back half of the year as we continue to gain momentum in our business and operating leverage on our fixed cost base. Finally, a couple of items to note as you think about our performance for the full year. First, as I mentioned earlier, we expect average monthly dues to be in the $150 to $160 range by the end of the second quarter and remain in that range during the second half of the year as our mix of family memberships begins to seasonally decline when our pools close and the kids go back to school. Second, unlike previous years, where we typically lose net members in the back half of the year, we expect to gain net new center memberships in the third and fourth quarters of this year due to the opening of 10 new athletic country clubs during that period and improved member engagement and retention. There is a lot to be optimistic about as we move away from the pandemic, look forward to our summer outdoor season and see the momentum building in many of the new initiatives we have been investing in. With that, we will turn the call back over to the operator for Q&A.

Thank you. We will now be conducting a question-and-answer session. First question is from John Heinbockel of Guggenheim. Please go ahead.

I want to start with real estate. So what give us a sense of the pipeline for '23 because I think right now, including Brooklyn tower, that you might have seven REITs that we can clearly see. That's part one. And then maybe for Tom, if you think about the current rate environment, which I don't think that would have much impact on your per property valuation. Normally get about $40 million per property. I don't I don't think this rate environment would impact that. Can you comment on that?

All right. So, John, how are you first of all? How was your day? Great. No complaints. Your question is total clubs opening in '23.

Yes. Just sort of with the pipeline, right, you said 11 plus, I'm just curious right now.

It's really like, part of it is just I think everybody needs to remain fluid. We have an incredible pipeline of deals we're working on. At the same time, we're not going to commit to like, if need be 10 clubs, or 12 clubs, or 14 clubs. The pipeline is massive and activity is nonstop. However, deliberately, we are taking the time to sometimes rebid some of the constructions. Construction costs are high right now. Some of it will remain, won't go back. Some of it is purely sort of a timing issue where there has been too much demand, and not enough supply of just not just the subcontractors. So they sort of give you whatever number without doing any work on it. So you just have to take the time to go back and rebid. So, those are just logistical issues we have to deal with. But in the macro picture, our growth opportunity has never been any better, so literally never been any better. We are in so many discussions all the time that I have no concern about, do we have amazing opportunities to grow the brand? And of course, the new clubs opening up if you guys have a chance to see the New York City clubs that are opening up in Chicago or what just happened in Frisco. They just perform amazingly. So we're looking forward to the growth there, but I am less concerned about if it's 11 or 12 or 13. More focused on hey, can we have, do we have 100 deals in the pipeline for the next five, six years and the answer is yes.

Yes, John, and on your second question on the rate environment that we're currently in, you're right, it will have very minor impact on our proceeds or on our sale leaseback environment. So obviously, it's a volatile rate environment, but we're extremely confident in the attractiveness of our properties. And the change in interest rate environment, again, it's pretty minor.

And one more thing, this is important for everyone, I have to continue to explain. There are different types of investors. We're talking to numerous different kinds. Normal, big REITs, private REITs and also those some of these people are investing strictly from FFO that and they have big, big, massive corporate revolvers, and they don't do project-by-project financing. Interest rates are going to go up, they're going to come down these guys know that. So they're looking for great assets and tenants that actually have paid their rent throughout that whole time. There aren't that many of those. So obviously, they do come to us. This is when I say treating people the right way, building your brand over 30 years will pay off. We treat everyone with total respect. As a result, landlords everywhere want to work with us, wanting more lifetime assets, and then, but certainly is not very the facts, it is the people who buy specific assets and have specific financing to that asset, they're buying three clubs, they're putting 40% on, and they want to get financing, and that group is going to have a harder time competing with the other folks who are giving us the kind of cap rates we're looking for. And we're not worried about it. I have zero concern about a lack of ability to get some of these facts done.

All right, and then one quick follow up, where are you in rebuilding the personal training staff? And when you think about getting back to 2019 internal revenue per member, I think that was always maybe mid to late '23 timetables. That's still fair?

So now you're starting to ask trade secrets. And if I tell you, I have to come back, make sure you can't tell anybody about it. Look, I have always been pessimistic about the personal training business for the last 10 or 15 years. So without getting into details, I am personally working on creating a product that can only be delivered physically and at Life Time. Super excited about it. We're involved daily. And my plan is to beat and surpass past personal trainers' performances. I’m pretty confident we're going to get there. Right now we are in the height 2,000s in terms of the number of trainers and then that number will increase. But it's more important to have the educated, well-trained personal trainers who are truly the type of coach that they're earning their keep. A lot of the personal training business really is fluff. I don't think that has been much of a difference that I've seen in the years. But we're transforming it to a place where I am confident we will stand alone in the quality of what we deliver and the type of trainers we attract. So it's been the highest focus right now for the company. Dues are, as you guys will see, building exactly as we want it. Other incentive revenues are coming following the swipes of the clubs and growing. I think the personal training, we will have it credit to the same areas that we need to like 2019 and beyond by towards the end of the year for sure.

Hi, good morning.

Good morning, Brian. How are you?

Doing well. Congrats on the momentum here. So the first question and Tom, appreciate all the month-to-month breakdown you gave us in your commentary. So my question just on with regard to that membership growth. I mean, anything you could say as we're looking at the build here, regionally. And then also that as far as the members now joining what portion of those were your digital on hold now converting back to normal versus really new to Life Time?

Yes, Brian, thanks for the question. Good question. Yes. Really happy with the momentum we saw in the quarter. And what continued into April, and it's getting broader and broader across the country as the Omicron restrictions got reduced. As you would expect, we saw really great strength across the heartland and into the mountain region, and now especially down into Texas in the South, where largely our strongest performers are. Then we're seeing the areas that had more severe mandates and that came off later starting to rebuild. That's what gives us the confidence that we see all these other markets where the restrictions were last that we know these other markets are following the same trajectory and are starting to rebuild. We're continuing to see in those markets again, where we're near or at 100%, of pre-pandemic levels. The on-hold balances are back to a normalized level or lower. Another reason for optimism in areas such as the Northeast or the Mid-Atlantic is we're starting now to see some of those on-hold balances start to convert back to active access memberships as well. So feeling really good about the momentum coming through. And as you would expect, again, those states with less restrictions that came off earlier, coming back and are in the upper 90s, or are already at 100% of where they were at pre-pandemic levels.

We are seeing the market each month more clubs are achieving 2019 dues with a couple more tweaks where the programming that we're pushing. They also will surpass 2019 revenues. You can see those patterns again, just like Tom said, the more the government interfered, the more they put all these restrictions in place which, obviously today, the data clearly demonstrates none of them had any detectable effect versus the places did it versus didn't do it. It doesn't matter, it's water over the dam. But now we see that trend coming back, and we don't have much doubt that the majority, I mean, I think all but maybe a handful of clubs, that uniquely sort of idiosyncrasies we will get everything back to the 2019 profitability and revenues of course. There have been gives and takes on cost increases. We implemented many great initiatives changing the sale structure to the member concierge and few other things that had given us quite a bit of incredible margin to make up for all the increase in costs and utilities and stuff. So we are really well-positioned to get our clubs to the exact same level of productivity, revenues, and profits, that we used to have. The question is just is it going to be a couple of months sooner or a couple of months later. We have enough trends. We have enough data. We have enough examples of what it takes now. Clubs that had severe restrictions for a very long time and that were shut down for a longer period of time have had a deeper drop. This is really important for all the analysts to understand. Some of you guys run technology, some of you guys run hard-line retail, some of you guys are in restaurants. Our business is not like any of those businesses. We're a subscription business. It takes forever to build a subscription. Each month, we basically sell somewhere between 2% and 4% of the total memberships of a mature club. So it takes time to build that and that gives you the protection. It also takes time for it to go down except when the government steps in and does the ridiculous things that they did with shutting businesses down the way they did this. At this point, we have company turned the corner, we have positive EBITDA. We never stopped investing in our growth rebuild strategy, not in December, not in January. We continued to plow through and continue to spend the money, put all the programs in place, get the people, get everything going, and now we're seeing the fruits of that. We obviously will have a pretty robust quarter here, second quarter with all our pool fast and all the athletic beach clubs that we have and families joining. Then typically we have a seasonal drop coming end of August, September, October. We have a seasonal drop and people go memberships back on hold or drop out. We have been implementing so many different programs to make sure Tom and I are on it. Jeff is with us and everybody else to make sure come August, September, we actually do not have the seasonal dropping the membership we go back. We are confident in our strategy, in our execution, and the trends are supporting it.

So it's very helpful. And Rob, just one follow up to that on that. With regard to all the investments you've made, and you've talked a lot about the big push into pickleball and other programming. Are you seeing I know it's early, but are you seeing a better than normal uptake on these programs from your members, other newer existing that could suggest a sticky membership going forward?

Absolutely. I mean, we are taking the unique customer that is using the different programs. Our pickleball literally is like almost 40,000 people and it's growing explosively. But understand that we are in a position to be like the Amazon of online sales for pickleball. The number of assets we have with basketball courts, outdoor facility space, and the tennis courts that we have, we're going to finish having almost 200 dedicated courts. These are not going on the in the basketball courts on a wood floor with some paints on there, some tape. This is absolutely professionally executed. Like everything else we do, dedicated court programming, nobody will have the same opportunity that they would have with Life Time. You can go from Phoenix, Arizona, California, Florida, Minnesota, Chicago, Texas, it doesn't matter whatever market you're in, you can go to your Life Time athletic country club, you can use your app, reserve a court and play and join the programs. We're going to be literally 10x the largest provider of pickleball in the United States within the next 18 months and we are taking that. We're doing it. Small group training, we are relentless on providing enough programs. We used to teach roughly the goal of 100 small big group classes, just a normal group fitness program yoga, this that span per club. Right now we are focused on getting to some numbers similar to that with small group training. Obviously, it's a lot of programming, setting up the places, hiring the people, putting the schedule together, making it convenient for the customer to join it and then all those classes have to ramp up. We are not focused on a month-to-month today EBITDA just to be clear. We're focused on getting the top line revenue, the swipe standard subscriptions to a level where we will be making more money in each club than we did in 2019. All the programs obviously are put in place. As an engineer and all the other brilliant people we have in this company, we run a program, we test it, we see how it works. We make adaptations, we run it. We adjust it. We test it. So yes, we are trending it with looking at all those trends, and then we make adaptations that we need to and everything is working extremely well.

Congrats again. Thank you.

Our next question is from Christopher Carril of RBC Capital. Please go ahead.

Hi, good morning, and great to hear from you all. So you discussed healthy quarter-over-quarter growth and the average membership dues with a line of sight on that $150 to $160 level. Can you expand a little bit more on the contribution from those different tailwinds to that growth that you talked about including legacy increases and the new center contribution?

Let's go through that. I'm going to walk you guys through the pricing. At Life Time we have always and again this is I've always taken the blame for myself. It's not nobody else but me. We built big, large athletic clubs, and we sold them way too cheap. We've worked with literally, we are working around the clock for 10 years to try to micro-adjust those prices by the small adjustments so that we wouldn't upset the membership in the past. We took a bolder approach. The reality is this business really breaks down to two, you guys compare, and some of you guys compare a planet fitness results or cruncher, etc. with our business, and these two could not be any more different as a business model. We as an athletic country club, our business is a use model. We expect the customer to use the club. They're paying a high amount of dues to use the facility. But even in a use model, maybe 18% to 20% of the customers that you have signed up over 10 or 15 years, they start using the club a little more lightly, or sometimes they are not there for a month at a time, but they keep paying their dues. In a non-use model, 75% of Americans, like the $100 to $200 HVLP model, that 75% of the customers are not using the club but paying the $10 or $15 a month because it's too easy. That's the business model there. So with us, we focused on creating an experience that cannot be duplicated. We told you guys during the road show that at 88%, 89% of our membership count, we are planning to get to 101%, 102%, 103% of our dues. This wasn't a mystery. This was as clear as water. We will not going to immediately and quickly, it will take years to build back that tank of people who are paying and lightly using. So this strategic execution has to allow. We get into the 100% plus of dues at 90%-ish of our membership count. Now at 90% membership count based on the type of users paying the dues and back, you have heavier users. So you basically have swipes that match the 2019 swipes with, albeit, the club membership is about 10% lower. We have had the ability to change the prices. We're not promoting. We're not selling. We're not pushing, the customer is just coming in, based on what the Life Time brand is experiences. They're just simply buying. And we assist them with that buying. It's smoother, it's much easier to navigate the momentum or lack thereof because we're not skewing it by any gimmicks. We see that trend is improving. We see that the clubs are going to get to 100% swipe like, if you look at the Texas market, these are reaching the 100% swipe which then also says they're 100% dues and then the other stuff are following through with it. Our pricing is pretty straightforward. We should be able to get to the higher end of that $150 to $160 by December on the total membership bank. As the new customers come and join, the new customers are coming and joining us, but at $170-ish in the price. Our current membership, just Tom said like last quarter, there was $145 and it's creeping up each month. Each time a customer of past drops, the average dues is $145. The new person joining those average dues is $175. So this continue transaction, this rotation of membership plus strategically going back to a person who's paying $30 a month less than the rack rate and saying we're going to take your dues up $15, you're still going to pay $15 less than the rack rate because you have an old member. We have lots of opportunity in our pricing. The drag rate that is working versus the legacy rate that the customer still has room to go up and still be treated as a legacy customer. So we have a lot of levers left to execute. We're doing it slowly, methodically on a monthly basis as small groups get it. My expectation is we will hit the membership counts and the average dues we need by the very end of the year, setting us poised to go into 2023.

Got it, got it. Thanks for all that detail. And then on maybe performance by club type, if there's anything else you can add here in terms of demand levels you're seeing at the newer urban locations versus those legacy suburban locations? Thank you.

They're all the same. They are similar whether if it's Frisco or Chicago. Again, I just can't emphasize enough, if you get the opportunity to go to see any one of the new clubs, urban or suburban, you will see these are not gyms, they're athletic country clubs have the highest level of experience for the customer. It's not one that can get, the experience simply cannot be duplicated digitally. Digital is only a small incremental add that we have added for the customer. So if they can't make it to the club, they have the best digital option from classes to meditation, everything you guys have checked the app as it continues to improve. But our business strategy has always been to build a business that has incredible barriers to entry, and create the only art. Life Time is the only national athletic country club, with beach clubs with tennis with swim lessons with the best workout classes best in classes, but we address every detail for every customer. We have no national or international or regional competitors. We just have to take the damage that was inflicted on us by the governments across the country. We have to take that damage. We've taken the hard part of it. We're at it. We've turned around. We have now just got to bring in the remainder of the revenue in these clubs which the bulk of this remainder of the revenue goes into our profitability. So we feel fantastic about how we have dealt with it. The Life Time team has been absolutely nothing short of amazing. This is all my team members, phenomenal in how they have put their back into it and along the way we get the members. We get landlords; we get vendors; everybody all the time is in appreciation of how we have handled this incredibly difficult blow to our company. But it's built on our reputation, our brand, and it's all paying off right now.

Our next question is from Robert Ohmes of Bank of America. Please go ahead.

Hi, this is Alex on for Robbie. Thanks for taking our questions and congrats on the strong momentum here. So just first, on the guidance, could you maybe walk us through some of the embedded assumptions for the 2Q? I guess maybe talk through more on a per club basis when we should expect the profitability to return to pre-pandemic levels. And then if you could maybe layer in how much strategic investments such as pickleball, small group training, the additional aging programs are sort of maybe pressuring the adjusted EBITDA guide versus your original expectations. And maybe when we should start to expect flow-through from these initiatives, and then just as a part of that how much of the 2Q sort of SG&A pressures more sort of one-time investments versus structurally higher center operations expense versus pre-pandemic, maybe due to things like wage inflation? Thank you.

Yes. Hey, Alex, it's Tom. I'll start talking about the second quarter and how we're looking at it. So as you heard in my comments, yes, great momentum coming out of April. And as you know very well, we have our summer season ahead of us. So with that, with the continued momentum, if you look at building it, we see more than 50,000 new joins happening in the second quarter at that $150 to $160 average dues rate. So if you see that, yes, that you start to build up the continued dues momentum in our business. You are right as Bahram talked about, we're making really smart and good investments into these programs such as pickleball, and active aging and small group training. We are really pleased with the early indicators we're seeing in the growth of those business and the member feedback has just been tremendous. So we'll continue to make those investments here through the second quarter. As we grow the membership base, it's really in the third and fourth quarter that we start to get the leverage on our club fixed cost investments and you start to see a much higher flow-through margin. That's why the full year guidance is to have an exit rate in that 18% to 20% EBITDA margin as we gain the leverage on our fixed-cost base and if we can exit the year then at 18% to 20% that sets us up for a really strong 2023. Clearly, we're seeing some wage pressure and supply chain pressure in certain areas as well. I always remind people, people come to Life Time, we have a great culture and a culture of respect. We don't feel as much wage pressure as maybe some other industries do. But we do have wage pressure. I would call it in the upper single digits, if you go back from the beginning of 2021 through today. However, we've taken a lot of steps such as introducing a credit card surcharge fee, as we've talked about introducing our member concierge, and consolidating our member services, and sales functions that have cost savings as well as other cost-saving initiatives in order to offset all that wage inflation and supply chain inflation we've had. So I think we're doing a really nice job of coming up with ways that don't impact the member experience and will help us get that margin expansion in the back half of the year.

And I'm going to add to that just so that you know what I am driving here and Tom is helping me drive through the number one task is to get the programs and experiences in such a level that the club's swipes will surpass the past swipes. Once the swipes past our dues have recovered and gone beyond the past dues, the gives and takes that Tom mentioned, the couple savings that we have in transformation to a member concierge count series from sales and from the credit card was initially intended to potentially cover some of the PT margin erosion. But with the oldest supply chain, again, some increased cost, increased cost of programming in our own strategy with adding pickleball coordinators and pickleball throws and additional hourly high priced instructors teaching the small group stuff, we are covering all that cost with the measures we had put in place before. We have a game plan to get the PT margin back. What you should be thinking about is that I am directing the company way more focused on revenue growth, and capturing the market share and being the best experiences that are not duplicable for the next two quarters. In 4Q, we start planning for 2023 by then we have captured the bulk of the revenue recovery and then we will work on efficiencies that are not going to impact the customer experience. Where we have opportunistically the chances to do similar things we did with merging the sales and member services into one division in a club or other things in the corporate office to get rid of layers and what I always call the more layers, the more red tape and streamlining the decision-making process to create more efficiencies, so this year our focus totally is to get the revenue recovery and beyond. Obviously, some of that will naturally flow through to the EBITDA. We want to be, we need to be by December of this year at a jumping-off point for '23 based on our revenue across the system and the EBITDA that gives us a kick ass '23. And that's the goal that we will have, the more focus on hey, now I want to squeeze all the margins I want out of this thing will come heavily in the fourth quarter planning for the 2023 to be the banner EBITDA year for the company.

That's incredibly helpful. Thank you for that. And then I guess my follow-up question is for the full-year guide Tom, I think you sort of mentioned that there are some more sort of optimistic member attention assumptions for 3Q and 4Q versus historical patterns. What do you sort of see driving that? Are you seeing different sort of data signals in terms of usage sort of driving what is assumed to be better memory retention and sort of in those time periods? Thank you.

Yes, Alex, good question. So it's several items that we see as we look at the business. One, our member NPS score continues to improve and B, very strong and we're getting a lot of great feedback again to how we treated people during the pandemic and then the experience that they're walking back into in the club, all the programming initiatives that we're investing in and have been investing in and all the new members coming to Life Time to participate in pickleball and small group training. Yes, they're new members; they're engaged in these activities. So we expect the average membership of those members to continue. It's really the overall club experience and the new investments that we're driving to engage people into all the different communities and social aspects that Life Time provide. So we feel pretty good about where we're heading on the attrition engagement front with our members right now.

Perfect, that's incredibly helpful. Best of luck going forward.

Thanks, morning, everyone. Hope you're all doing well.

Morning.

Thank you.

You're welcome. I appreciate all the color. Yes. Hey. So appreciate all the color and nice to see the acceleration. Tom, just a few nuances if I can just given the moving pieces any quantifying how you expect center operating expense to look over the next several quarters maybe the same question on rent, given the potential lift in sale-leasebacks. And then you had color on G&A and marketing as well just I was a little higher with the sheer base comp and non-operating. So any help on those three line items, given moving pieces over the next several quarters, if you're willing to. Thank you.

Yes. So from a center ops perspective, you'll continue to see continued improvement in our center ops margin. It's starting in the third quarter and fourth quarter again as we've talked about the investments we're making here. I expect to see incremental improvement in the second quarter and then more improvement in the third and fourth quarters. As we grow that membership base back and get the leverage on our fixed cost base. On the rent piece, I expect us to be around 13% of revenue. If and when we close on the additional $500 million of sale leaseback, if you assume we do that towards the end of the third quarter, that moves rent expense for the full year up to about 13.5% and adds about an incremental $10 million of rent expense for the fourth quarter. On the SG&A front, the same thing as we continue to get into the back half of the year and as Bahram talked about, we'll continue to get more leverage on our SG&A base. We're at the point where we do not need to add any more G&A cost into the business that we can leverage our fixed cost SG&A base that we have. On the marketing front, we are really pleased with how we're dialing in. Our marketing spend, we've really become more efficient in it, we reduce certain areas of marketing spend that we didn't see as effective. We're investing in those areas of the experience of the club and on social media marketing to make sure we're getting the message out there to prospective members about what Life Time is about and providing.

One of the tailwinds of our execution is that based on the heavy, heavy, eight times a month promotional approach that we used to do pre-COVID, I believe that approximately 10% of the memberships sold then was based on just the intensity of the promotions, marketing, and selling process. That was basically very, very non-sticky customer. They were sort of being hustled to come and join membership where I hated that. We had the opportunity to take it out during the COVID period. We took it out. My anticipation is once all dust settles, but I've told you guys this during the road show as well consistently, when it all settles, I expect our lifetime retention to be about 10% better than we'd had been before. There's just a natural byproduct of what we are not doing and so the customer who's joining Life Time today, all the literally 28,000-30,000 people joining every month. They are just coming in and joining because they want to engage in Life Time athletic country club in the programming that we're offering, in the classes, in the summer camp, in all the different things we're doing. So it's all being done naturally. Nothing is being, there's no gimmick. We're not spending $300 million a year in advertising like some other folks, boosting inappropriate sales and then have a drop down. It is 100% natural and authentic and so our expectation directly answering one of your questions is that we believe the retention should be about a 10% better. As we have the bulk of it is what Tom is basically keeps explaining, the bulk of our heavy cost infrastructure is already in place. This next $100 million, $120 million of revenue that comes in on a quarterly basis, it should be largely two-thirds of it should be translating into incremental EBITDA because the fixed cost is already covered and the total cost of that incremental revenue should be about 30%, 35%. So we should see a natural margin improvement as the next layer of revenue is coming in. Is that helpful?

Yes, that's great. Thank you. And then what I was hoping to get your perspective on, sorry, if I missed it, I don't think I did. But obviously, we have connected fitness in a different situation, maybe than when we had spoken last year. So any thoughts on using any survey were people are coming back, we can continue to trends across the forum.

So you guys don't listen. I've told you this before, the connected fitness got a little boost from COVID. And the transformation is the customer. Some customers are in the habit of not getting enough exercise at home and getting on their bike or treadmill. They get their affluent enough, they get their social connection and all this stuff. Our business model is radically different. It's everything that you need to have from a social standpoint, programming, leagues, clubs, groups, that business never goes away if it's executed correctly. Now, some customers are doing some of their workouts at home, and some may just have gotten into the habit of just doing it at home. But that is done and over. From here going forward, you're going to see the natural tendencies of human beings play out again. We're creatures of habit but for those people who have home pieces of equipment, or two or three, all this going to take is come in and join one of our pickleball programs, getting that social community. They may still do their stuff at home, but they also join the club. We never saw connected fitness pre-COVID as a threat; we had no data supporting that this was affecting our business negatively. It wasn't. COVID just basically shut us down, so pushed everybody there. Everybody who would want to be back into this social environment is coming back. What I try to explain is the only thing sometimes I worry about you, as the analyst, is that you expect Oh COVID period is over, all the members should come back. It doesn't work that way in a subscription business. It takes 2%, 3%, 4% of your total bank will rejoin doesn't matter how good of a month you have. It just takes time. But the trends are supporting. We feel however many increases are already in our numbers. We have much bigger utility costs this year due to the energy costs than we are. We've already plugged into our numbers. We've already plugged in significantly more dollars for the classes that we will teach incrementally. All that stuff is in there. I don't think, I think the upside is way more robust than the incremental cost headwinds. So again, we are clearing the sweet spot right now of seeing the revenue grow nicely, but the EBITDA grows significantly steeper than that because of all that we've just mentioned to you. So second quarter there I know we'd love to just get to the point where we can be back at this call with you guys and tell you guys what we've been able to learn and communicate that with you during this next quarter there but think results will be great. And the really time where I feel like we need to see the leap stage of all the hard work, all the different initiatives programming that we put in place is really designed to make sure as I mentioned before to be ready, just in time for that by July, August, we have enough other reasons for people to be in our facilities to make sure our membership rep and membership counts continue to grow. So all things are all hands on deck; all the team is working extremely diligently and in alignment. Customer response is fantastic. We just have to let it play itself out and just see hopefully every month the company generates more revenue and more EBITDA for the foreseeable future.

Ladies and gentlemen, that concludes the Q&A session. I would love to hand back to management for any closing remarks.

Great, thank you, Irene. Thank you, everybody, for joining us today. And Bahram, I look forward to speaking with you soon. Have a great day.

That concludes today's conference. Thank you for joining us. You may now disconnect your lines.