Life Time Group Holdings, Inc. Q4 FY2022 Earnings Call

Good morning, and welcome to the Lifetime Group Holdings 2022 Fourth Quarter and Full Year 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 is being recorded. I will now turn the call over to Ken Cooper with Investor Relations for Lifetime Group Holdings. Please go ahead.

Good morning, and thank you for joining us for the Lifetime 2022 fourth quarter and full year 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 our forward-looking statements made today. There is a comprehensive list of risk factors in the company's SEC filings, which you are encouraged to review. Also, the company will discuss certain non-GAAP financial measures, including adjusted EBITDA and free cash flow before growth capital expenditures. This information, along with reconciliations to the most directly comparable GAAP measures where possible without unreasonable efforts are included in the earnings release issued this morning and in the company's 8-K filed with the SEC and on the Investor Relations section of Lifetime's website. I'm now pleased to turn the call over to Bob Houghton, Bob?

Thank you, Ken, and good morning, everyone. We appreciate you taking the time to join us today. I will briefly cover our fourth quarter and full year results. The full details can be found in the earnings release we issued this morning. Bahram will then outline our strategies and key initiatives followed by updated guidance for 2023. Starting with our 2022 results, fourth quarter total revenue increased 31% to $473 million, driven by a 32% increase in membership dues and enrollment fees and a 28% increase in in-center revenue. For the full year, total revenue increased 38% to $1.8 billion. Center memberships increased 12% to end the year at more than 725,000 memberships. Fourth quarter average monthly dues were $162, up 20% from $135 in the fourth quarter last year. Fourth quarter revenue per center membership increased to $640, up 19% from $536 in the prior year period as we continue to benefit from higher dues and increased in-center activity. We generated net income for the fourth quarter of $14 million compared with a net loss of $305 million in the fourth quarter of 2021. Excluding the one-time expenses detailed in our earnings release in both periods, net income improved by $51 million. Adjusted EBITDA increased 123% to $107 million and adjusted EBITDA margin of 22.6% increased 9.3 percentage points versus 13.3% in the fourth quarter of 2021. For the full year, our net loss improved to $2 million, and our adjusted EBITDA was $282 million. We delivered another quarter of improving cash flow with net cash provided by operating activities of $76 million versus a $5 million net use of cash in the prior year period. We reduced our net debt to adjusted EBITDA leverage in the quarter and our year-end liquidity position remains strong with cash and cash equivalents of $26 million and $423 million in total available borrowings on our revolving credit facility. As we turn to 2023, our business is in great shape, and our strategies are working. We believe we are successfully using price to optimize our club performance and enhance our member experience, driving increased club usage across our strategic investments, opening new clubs and expanding margins, helping to drive increased cash flow and reduce leverage on our balance sheet. I will now turn it over to Bahram to outline our 2023 strategic initiatives and financial guidance.

Thanks, Bob. I am very proud of our more than 34,000 team members and our accomplishments in 2022. Our main priority in 2022 was to grow back our revenue and adjusted EBITDA margins and prove that our business model is intact and healthy. In 2022, we successfully made adjustments to our pricing strategy and executed our strategic initiatives of ARORA, which is our active aging program, DPT, our Dynamic Personal Training model, SGT, execution of our Small Group Training and, of course, the rollout of pickleball. These initiatives were critical to increasing our traffic and revenue. Additionally, we rewired our decision-making process to have significantly fewer layers to get things done, which helped our margin expansion effort. We took the past three years as a great challenge and made necessary adaptations to keep Life Time in a leading position. As I have visited more than a third of our clubs over the last few months, I'm happy to report that our clubs are both busy and vibrant. For our clubs that were open at the end of 2019, January of 2023, membership dues in aggregate were 103% of membership dues in January of 2020 and are still ramping. As we have explained over the past several months, it takes three to four years to ramp or re-ramp one of our large athletic clubs. While we have already surpassed January 2020 membership dues across these clubs in aggregate, we're still in a recovery period and expect to continue to improve results. In addition to the tailwinds for our reramping clubs, we feel we have significant pricing power and opportunity driven by a strong value proposition. The average dues of our memberships sold this year through February is $208. This compares to the total average dues of all memberships of $164. Not only are we adding new memberships at higher rates, each membership churn results in roughly $44 additional dues per month. In addition, there are over 510,000 memberships that, in aggregate, are paying roughly $17 million less in dues per month than our current rates. Furthermore, the first couple of months of the year have been very strong, and we're looking forward to the full year 2023 and beyond. I am proud to say that our brand and business model have never been in better shape. With all that, we are setting the expectation for adjusted EBITDA in the first quarter to $108 million to $110 million and we are raising our full year guidance to $440 million to $460 million from the $430 million to $450 million that we established on January 9 of this year. Our focus for 2023 will remain on continuation of our recovery and margin expansion, growing our adjusted EBITDA to record levels and reduction of debt to adjusted EBITDA. We have already announced $123 million in sale-leaseback transactions so far this year, we have closed on the first $33 million of that at the end of February. We are well on track to accomplish our goal of $300 million of sale leasebacks for the year. Additionally, we're continuing to work on more growth coming from asset-light opportunities where facilities are funded largely from landlords. Every move we make is focused on enhancing our brand, customer experience, our balance sheet, and making Life Time stronger. Now we're looking forward to answering your questions.

Thank you. At this time, we will begin the question-and-answer session. Our first question comes from Chris Carril from RBC Capital Markets. Please go ahead.

Hi, good morning. So you previously disclosed that you expect 35% to 40% of your clubs will reach profitability maturity this year and that's up from about 15% in '22. Can you update us on whether you still think that's the case here? I presume it's still just based on the EBITDA guidance that you provided this morning. It's largely unchanged from what you gave us in early January, but also how you expect that may hurt to ramp over the course of the year?

We are observing that the clubs are continuing to improve under swipe and are catching up to previous swipe levels, doing so with higher average dues. The in-center performance is also improving and, in some instances, exceeding past results. I believe there is still significant potential for clubs to reach and surpass the performance levels from early 2020 before the closures, particularly in terms of revenues and margins. Even though our financial figures have recovered, there remains a substantial opportunity to increase revenue, memberships, and traffic across the majority of the clubs. Each month, more clubs in various states are surpassing their previous performances and are on track to continue this upward trend. While I can't provide a precise mathematical analysis in response to your question, I believe there is still significant potential for growth. When we consider clubs reaching maturity, it doesn't mean they cannot continue to grow; most of the clubs that have recovered their revenue margins still have the capacity to gain more memberships and increase occupancy.

Got it. Yeah. Thank you. And then just as a follow-up on pricing. Can you talk about maybe recent reception to the pricing actions you've taken? Thanks, again.

Yeah. We've sold tens of thousands of memberships in the first couple of months of the year and not any resistance. It's interesting, our rejoins are still at a higher rate today than they were pre-pandemic. And there is zero resistance to the price front. The customer is finding the value proposition at Lifetime. It's not just a gym. It's really the variety of athletic offerings they do for their family, sports. So it's a social community. So actually, we're getting zero price resistance. And we're continuing to adjust the prices, and we will see if they work, they don't. If they don't, we can easily just go back and change the price in the club for the next week. But so far, we haven't had to take any club backward.

Hey, Chris, it's Bob. Just to add a little more color to that. Not only are memberships up, membership churn or membership departures are actually down the first two months of '23 relative to '22, and that's despite the fact that our average dues are up roughly $20 versus last year.

Okay. Thanks so much for the detail.

Thank you. Our next question comes from the line of Brian Nagel from Oppenheimer. Please go ahead.

Hi, good morning, guys.

Hi, Brian.

Nice quarter.

Thank you.

My first question is regarding your cost control and the repositioning of costs within the model. You have done a commendable job in managing costs over the last few quarters. Considering the business and our improving top line from membership dues, how should we view the sustainability of these cost controls, or more specifically, their leverageability?

That's a great question. I don't expect us to keep increasing our margins indefinitely. I want to be clear that while our overall revenue is rising, many clubs will still see revenue growth, which will enhance our margins due to the increasing revenue percentage. On the cost side, we have completely restructured the company. The decision-making process at Lifetime has been streamlined from needing five to seven approvals to just three, allowing us to make decisions much more quickly. We've removed unnecessary layers, ensuring that costs won't escalate. Additionally, we've adjusted the corporate office structure so that as we open more clubs, the majority of the corporate office won’t need to expand. This change enables us to benefit from the company's scale. I want to clarify that we do not plan on going back to cut costs further. What we've established should be sustainable for the long term.

Yeah, Brian, just to emphasize one point that Bahram made, most of the cost efficiency actions were taken in the fourth quarter of last year. So we'll see the full annual benefit in 2023. There aren't a lot of additional cost-saving steps we need to take to see that full year benefit this year.

But they're rolling through right now every month.

That's great and very helpful. For my follow-up question, we're seeing the results track well. How do you feel about the new center openings? How are they measuring up against your expectations and historical levels?

They're fantastic. Our new model is performing well in terms of club operations, programming, and pricing. Currently, we're opening clubs that exceed our business plan in dues revenue, and they are ramping up nicely. We typically experience a significant loss in the months leading up to a club's opening and for about three to four months afterward. As you know, we've opened several clubs in December, including a large one in California this week. We are managing the negative EBITDA from these new openings, but typically within four to five months, they become profitable and start generating positive EBITDA. We're very optimistic about the direction of our business, which, as I mentioned earlier, has never been healthier or stronger than it is today.

Helpful. Congrats, again. Thank you.

Thank you.

Thank you. Our next question comes from the line of Robby Ohmes from Bank of America. Please go ahead.

Hey, Bahram. Hey, Bob. I have two questions. The center memberships declined less than we anticipated in the fourth quarter. Is that because the departure rates were much lower as Bob mentioned? Can you discuss the initiatives that might have contributed to this? I'm curious about the impact of pickleball compared to personal group training in ARORA. Additionally, could you provide examples of clubs with and without pickleball? Is there a notable difference in membership performance and departure rates between them?

It's not only about pickleball. To clarify, all the programs I mentioned, such as ARORA, small group training, and personal training, are experiencing a remarkable comeback and recovery under our new programming, DPT. This has led to an increase in customers, better revenue margins, and a rise in personal training participation. Small group training has more than tripled since early last year. Essentially, our business relies on generating memberships, with an average of about 10 swipes leading to membership sign-ups. We have concentrated on creating swipes, encouraging people to visit our large athletic facilities, which in turn generates subscriptions and revenue. This strategy was implemented last year and continues to be our focus. We anticipate significant growth in ARORA, our active aging program, this year, especially after its strong performance in the first quarter. We are also seeing substantial growth in small group training and steady progress in pickleball, where we continue to capitalize on opportunities. All our programs are performing well, and we typically see significant membership gains in the first quarter, exceeding our expectations this time around. Overall, we are very optimistic for the year ahead as our initiatives are gaining momentum and entering a phase of growth that I find very promising.

That's helpful. I have a follow-up question about the in-center revenue growth. What are the expectations for in-center growth in the guidance for 2023? Also, do you disclose the frequency driver for in-center revenue growth compared to spend per visit?

Let's discuss the current situation. The in-center business consists of several components, with personal training being the most significant. We have revamped our training methods and aligned our efforts from the corporate level down to the clubs, and this strategy is proving to be highly effective. Our performance is currently better than ever, and I anticipate continued growth. Additionally, our children's programs and aquatics are performing very well. We are seeing increased registrations for summer camps, and we are selling spots much earlier than before. This allows us to identify opportunities to expand our capacity, as many of our clubs are close to selling out. In terms of the cafe operations, we are making enhancements and are performing significantly better compared to our past revenue metrics from the same locations. Progress is being made, and I believe that our cafe revenue will continue to grow. Overall, all of our in-center services are on the rise. Previously, we saw a revenue split of one third from in-center services and two thirds from memberships. However, during the pandemic, this shifted to about 70% coming from dues. As we readjust our programming and recover, I expect the in-center revenue to increase again, and we are already witnessing this trend.

That sounds great. Thanks so much.

Yeah.

Thank you. Our next question comes from the line of John Baumgartner from Mizu Securities. Please go ahead.

Good morning, thanks for the question. I guess first off, I want to come back to pricing. And I think conceptually, Bahram, you've been clear about the lack of resistance to price increases on the part of your members thus far. But from your perspective, for the memberships that have seen pricing already increased, how consistent are these new prices with your objective relative to what you perceive the lifetime experience to be worth? I'm sort of more curious about how you think about price versus value from an operator's perspective.

I have acknowledged my mistake in the beginning of our business when we decided to create large athletic clubs and price them very low. This approach presented challenges; we struggled to maintain the high level of quality I aim for, comparable to a Ritz-Carlton or a true athletic country club. The high volume of members made it difficult to manage the clubs effectively. Additionally, our sales team was not able to adapt quickly to pricing changes, which resulted in a cumbersome process. The key change we made was eliminating the salesperson as the middleman and implementing a system where customers can directly explore products online or at the clubs. We have member concierges at our corporate office to assist through chats and calls, as well as in the clubs to showcase facilities, allowing customers to make their own purchasing decisions without pressure. This new approach represents a significant shift from my earlier business strategy over the past 30 years, and we are pleased with the outcomes. There’s no longer hesitation about pricing mistakes. For instance, if we raise the price of a membership and it doesn't achieve the desired results, we can quickly revert to the previous price within a day. We've seen minimal pushback with these price adjustments. However, we do have some clubs that have reached membership saturation, like the one in South Austin, which was at approximately $1 million in revenue per month pre-pandemic. Now, it has grown to revenues of $1 million, $3 million, and even $4 million per month, demonstrating our facilities' potential. These clubs are expensive to build, costing around $60 million to $80 million, making them difficult to replicate and not something we need to undervalue. Our current system allows us to intuitively find the right pricing balance for each club.

Okay. Thanks for that. And then just as a follow-up, I wanted to dig in a little bit around the phasing for 2023. The outlook for EBITDA in Q1 was stronger than expected, but it also implies sort of a sequential step down in EBITDA margin for the duration of the year. Are there any timing considerations, whether it's new opening expenses, rent or anything else that would drive that margin moderation fall in Q1? Or I guess is there anything that elevates margin temporarily in Q1? Thank you.

We believe the first quarter margins are right where they should be at this moment. As we experience revenue growth in the summer over the next two quarters, we anticipate a significant increase in EBITDA. However, we will also incur additional costs, such as for summer camp, which means increased payroll. The reason we have not raised our guidance more is that we want to be cautious, given the uncertainties in the market, and we want to ensure we can deliver on our commitments each quarter. We do not expect margins to decline as revenue increases; the only real pressure on our margins comes from opening new clubs, which has already been factored in. Therefore, we do not foresee any events that would lead to a decrease in margins for the rest of the year.

Okay. Thank you very much.

Thank you. Our next question comes from the line of Simeon Siegel from BMO Capital Markets. Please go ahead.

Thanks, good morning Bahram. I hope you're doing well. Could you break out the revenue increase you're anticipating from pricing versus new units and new members for the first quarter and the full year? I apologize if I missed it, but did you explain why rent was $10 million lower than the expected amount from January? Also, is there any offset we need to consider regarding the expected cash balance? Thank you.

Sure, Simeon, it's Bob. I'll address the rent issue first. It's primarily due to some of the sale-leaseback proceeds being received and completed later in the year than we initially anticipated, rather than being evenly distributed. However, we are still on track to achieve the $300 million target. Regarding Q1 revenue contributions from pricing and memberships, both are going to significantly contribute. As Bahram noted, we're experiencing stronger-than-expected membership growth this quarter. Historically, we tend to add memberships in the first quarter, so expect both to play an important role in revenue growth during this period.

Great. And then if I can quick follow-up on. In terms of the seasonality comment, out of the members that tend to fall off in 4Q, what percent tends to come back? So just maybe talk about the reactivations within the churn.

That's a great question, Simeon. You're really adept at assessing both the positive and negative aspects. I often revisit how we report our membership numbers. Essentially, we don't count a customer if they drop out, and they come off our list as soon as they do. However, many of these individuals return within a year. Customers can choose to temporarily suspend their membership for a fee or let it lapse and come back later. They might end up paying a bit more in dues, but that doesn't truly affect their decision to leave and return. We see an opportunity to start introducing enrollment fees as we gain strength. We've waited until now, when we have fully recovered and surpassed our previous position. Currently, around 10 to 12 clubs are charging initiation fees that range from a couple of hundred dollars to $750. I anticipate that by summer, we'll implement enrollment fees at about 100 locations across the system. This fee could act as a deterrent for those who might drop out and rejoin easily. However, we haven't observed any troubling patterns. Our customers generally appreciate what Life Time offers. Those who can afford it choose Life Time, while others seek alternatives.

Great. Thanks a lot guys. Best of luck for the year.

Thank you so much. Yeah.

Thank you. Our next question comes from the line of Dan Politzer from Wells Fargo. Please go ahead.

Hey, good morning everyone. Thanks for taking my question.

Hello, Dan. How are you?

I'm well. Hope everybody's well over there too. I wanted to follow up on the enrollment fees. I know you just mentioned that that could be something you're facing over the course of the year at 100-plus locations. Is that included in the guidance at all? Because I would think that, that could be material.

It's not significant because we charge a higher fee for a pool pass during the summer months to manage the influx of new customers who only join for the pool season, which can affect our year-round members. This pool pass fee spreads out over the months that the pool is open and is reflected in the dues line. The memberships we are currently selling include an enrollment fee that is distributed over the duration of the membership. For instance, if we charge about $660 and a member stays for an average of 33 months, we recognize only $20 in revenue per month during that period. As you can see, this results in a minimal impact for now. My goal is for the company to reach a strong position in terms of revenue and EBITDA generation. I hope to eventually introduce actual enrollment fees, which would enhance the experience for our long-term customers and align it more closely with a country club environment instead of a health club.

Interesting. That makes sense. Earlier on the call, you mentioned that memberships, according to the 2019 center commentary, are currently above 3%.

Let me take that really accurately. So it's actually a little bit higher relative to the same clubs are like 104% over the 2019 January dues. And then the clubs that opened all the way through 2020 are 103% of the January of 2020. Now if you remember, January of 2020, we had a robust January and February and then the shutdown came in March. So we had a very strong January, very, very strong. The best January we've ever had was January of 2020, and we were able to beat the similar clubs that were open, able to hit that number at 103%. That's what that number is.

Okay. Got it. And I guess my question around that was, as we sit here today and your pricing is over $160 system-wide and getting those centers fully back. I mean is that membership? Is that pricing? Is it a combination of both? And what's the receptivity to those prior customers to come back at higher prices and possibly enrollment fees.

It's all about supply and demand. We have many opportunities to deliver in various activities like pickleball, and we need to manage that supply and demand to enhance the experience. Life Time is focused on providing a remarkable experience, so we occasionally adjust our pricing. Prior to the pandemic in early 2020, new memberships averaged around $122 to $125. Now, for the recent period, that figure is $208 and has even exceeded $210 this month. If there were concerns about this strategy, we could make adjustments, but it's actually working well. We are seeing robust membership renewals, with 30% of memberships coming from rejoined customers compared to 26% before the pandemic. Customers are seamlessly signing up and enjoying their time in the club, which gives us confidence in our approach. Regarding pricing, some clubs had over 9,000 memberships before the pandemic, which was too much for our brand. We've reduced it to about 6,500 memberships to ensure higher dues, better margins, and an improved experience. We're deliberately keeping our overall membership count below pre-pandemic levels as part of our strategic shift in the business model. Opening new clubs is still part of our plan.

Thanks. I appreciate all the color. And if I could just sneak in one last housekeeping one for Bob. Just as we think about the rent and progressing throughout the year, is there a 4Q exit rate for the rent expense? And then on the leverage, I know you guys said 4 times at year-end. Is there a long-term target on a traditional or lease-adjusted basis we should think about? And that's all for me. Thanks.

I want to keep the long-term leverage below three, so we will continue to improve the balance sheet until we achieve that. For context, I consider a debt-to-EBITDA ratio of three times to be too high for a company that does not have all the real estate assets we currently own. I believe that keeping the ratio under three is very healthy, especially since we are carrying about $3 billion in owned real estate, even with the sale-leasebacks that we consistently engage in, which limits the growth of that $3 billion. However, we are recycling assets. My goal is to maintain the debt-to-EBITDA ratio under three, and we are pleased with our progress. The key to improving that figure will be to grow our revenue and EBITDA, which will enhance the margins and help to reduce the ratio quickly. Bob will provide you with the math to confirm this.

We have projected a rent range of $270 million to $280 million for the full year. We expect to exit the fourth quarter slightly above that run-rate, which means a bit over $70 million, considering we only recorded $33 million which was finalized at the end of February. We have another closing scheduled in the upcoming months, with additional ones planned for June and July, and we are also negotiating other deals that will be announced later. Assuming we achieve $300 million in sale leaseback with cap rates in the mid-6% range for the year, that will add to our exit levels. The timing of these deals will depend on Life Time’s ability to deliver the product and the landlords' timelines for their transactions. This creates a somewhat fluid situation. Overall, we anticipate adding around $20 million in incremental annual rent to our exiting rents from the fourth quarter of 2022.

Thanks so much. Really helpful.

You're welcome.

Thank you. Our next question comes from the line of Brian Harbour from Morgan Stanley. Please go ahead.

Hey, guys. This is Matt Morris on for Brian. Just a follow-up on that conversation around membership dues versus 2019 levels. A couple of months back, you gave it broken down by state. You're obviously performing very well in quite a few of those states, but a couple of other core markets in the Midwest, like Minnesota, Illinois are still running kind of those levels or at least were when you last disclosed. Has that app kind of closed? And is that mostly just due to kind of the timing of restrictions rolling off a bit later in those states? Or is there anything else to call out there? Thanks.

Yes, most of the issues are anomalies, but most of the areas that can be analyzed, like in Orange, haven't fully recovered due to timing. If you look now, we will meet with investors, and we filed those prior to attending an investor conference. Each month, more states are improving from orange, and others are coming up as well. We expect every state will recover to its full potential and even exceed that. It's a matter of timing. There has not been any significant change in Michigan or Minnesota; the situation remains the same. The only factor in Minnesota that has been somewhat inconsistent is a large, major club that opened in town. Depending on the boundaries you set, that club attracts many members from the others, which dilutes the overall impact. It's getting very close, and I believe that by this summer, we will have very few states left behind. Yeah. So Matt, just to give context of what happened in the fourth quarter from November to December, two states, two additional states coverage and six additional clubs. We're seeing similar, if not accelerated progress as we've rolled into 2023.

Yeah, every month, you'll see that progress happening.

Okay. Thanks. And then just 1 more. Curious on how Net Promoter Scores have evolved recently? Have you seen any noticeable shift given gyms are likely less crowded versus pre-COVID, but you also have some additional programming around whatever may be pickleball, small group training or revamped personal training, et cetera? Thanks.

Yeah. No significant change to our NPS. What's happening is we're getting a little better, obviously, results because of expanded programming and then the two things will reduce NPS. The most potent one is when the members get a letter saying their use is going to go up $10 or $15. So the legacy of those increases usually is an impact. It's just a one-month impact. And finally, yes, the January traffic in the clubs basically can make the experience a little pinched and so those are just seasonal, but apples and apples, our NPS is as good as it's ever been.

Thank you.

Thank you.

Thank you. Our next question comes from the line of Chris Woronka from Deutsche Bank. Please go ahead.

Yeah. Hey, good morning, guys. Thanks for all the color so far. Just a follow-up on the kind of the leasebacks. The big question we get a lot from investors is how do we get comfortable that the given the interest rate environment and such that the buyers, which I know includes some REITs that the economics still don't change materially. Any thoughts you can provide around that?

Please proceed.

Yes, regarding the sale leaseback, we are observing cap rates in the mid-6s range, which is consistent with our historical performance. There remains strong demand from REITs interested in our properties. We maintained our rent payments throughout the pandemic, and our clubs are generating positive cash flow, making us an attractive tenant for landlords. This trend of strong demand at rates similar to what we have experienced continues.

I want to emphasize that our leases initially span over 20 years, with multiple five-year options available afterwards. This represents a very long-term commitment. It's akin to a 30-year mortgage. Our partners involved in these deals are certainly facing pressure from their investors, especially concerning current rates. However, it's important to remember that current rates will eventually change, whether this year or sooner relative to 2030. While rates may fluctuate in the short term, whether it's a two-year or five-year span, those variations don't significantly impact a 20-plus or 25-year lease. Thus, there is virtually no concern about failing to finalize these deals. The distinction is merely a quarter percentage point variation in the cap rate.

Okay. Very helpful. Appreciate that. And then, Bahram, you've talked in the past about the potential M&A in the space and being an active participant in that. Has anything changed versus a year ago, six months ago in terms of what you're seeing relative to, again, debt markets being tough for some of the maybe weaker capitalized players. Is there anything that changes your view on what might happen over the next year or so?

I believe that at some point, those opportunities will become very appealing for Life Time. Over the past year, particularly in the first half, we have focused on our core fundamentals. We needed to implement some adaptations to ensure our business model could overcome the inflationary pressures that everyone has faced, as well as recover from the pandemic's ups and downs, particularly concerning construction, supplies, and payroll. I'm thrilled to say that we have successfully achieved that. As we examine the different segments of our business, I tried to present some examples during this call, but it can get complicated when we discuss EBITDA without considering the rental impacts. So, I excluded that to provide a clearer picture. Currently, we have the strongest business model since the company's founding, and I take pride in our company, our team, and my partners for their hard work in making the necessary changes to enhance our business. Now that we've accomplished this, as we continue to open our standard clubs, we can begin to explore additional opportunities. Hopefully, in the next couple of calls, we'll be able to share with you the emerging opportunities and our approach to them.

Okay, very good. Thanks, guys.

Thanks.

And we have time for one. Go ahead guys.

Thank you. Ladies and gentlemen, we have reached the end of the question-and-answer session. And the conference of Life Time Group Holdings Inc., has now concluded. Thank you for your participation. You may now disconnect your lines.