Good morning, and welcome to the Life Time Group Holdings, Inc. Q2 2024 Earnings Conference Call. All participants will be in listen-only mode. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference over to Ken Cooper, Investor Relations. Please go ahead.

Good morning, and thank you for joining us for the second quarter 2024 Life Time Group Holdings earnings conference call. With me today are Bahram Akradi, Founder, Chairman and CEO; and Erik Weaver, Executive Vice President, 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. The company will discuss certain non-GAAP financial measures, including adjusted net income, adjusted EBITDA, adjusted diluted EPS, net debt to adjusted EBITDA, or what we refer to as net debt leverage ratio, and free cash flow. This information along with the reconciliations to the most directly comparable GAAP measures are included, when applicable, 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. With that, I'll turn the call over to Erik.

Thank you, Ken, and good morning, everyone. As always, we appreciate you being on the call with us. We are pleased to share with you our second quarter results, the full details of which can be found in the earnings release we issued this morning. For the second quarter, total revenue increased 19% to $668 million versus the prior year quarter, driven by a 20% increase in membership dues and enrollment fees and an 18% increase in incentive revenue. Active memberships increased 5% compared to last year to end the quarter at nearly 833,000 memberships. When combined with our digital on-hold memberships, total memberships ended the quarter at approximately 879,000. Average monthly dues were $198, up approximately 13% from the second quarter of last year. Revenue per active membership increased to $784 from $701 in the prior year period as we continued to benefit from higher dues and increased consumer activity. Net income for the quarter was $53 million versus $17 million in the second quarter of 2023. Adjusted net income was $52 million, an increase of $14 million versus the second quarter 2023. Diluted earnings per share was $0.26 compared to $0.08 per share in the second quarter last year. Adjusted EBITDA for the second quarter was $173.5 million, an increase of 28% versus the second quarter 2023. And our adjusted EBITDA margin of 26.0% increased 180 basis points compared to the second quarter 2023. Net cash provided by operating activities increased 20% to $170 million compared to the second quarter 2023. As a result of our strong financial performance, we generated positive free cash flow in the second quarter. In addition, we received net sale-leaseback proceeds of approximately $143 million in the second quarter. Free cash flow was $175 million in the second quarter compared to $21 million in the prior year period. As a reminder, we include proceeds from sale-leasebacks and the sale of land in the calculation of free cash flow. However, we are pleased to note that we delivered approximately $26 million of positive free cash flow this quarter before sale-leasebacks or land sale proceeds. We reduced our net debt to adjusted EBITDA leverage to 3.0x in the second quarter versus 4.3x in the prior year period. We are extremely pleased with our continued financial performance and the expedited fashion in which we are achieving our key financial objectives. I will now turn the call over to Bahram.

Thank you, Erik. On behalf of the Board of Directors and the entire team at Life Time, I would like to thank you for all of your contributions over the past 20 years and congratulate you on the well-deserved promotion to Chief Financial Officer. You have certainly earned it, my friend. Now to our financial results, during our Investor Day in May, we shared our strategies and priorities that have transformed Life Time into the best version we have ever seen. The numbers that Erik just shared with you demonstrate how strongly our members have embraced the Life Time brand and our dramatic evolution over the past three years. For Q2, we exceeded every one of our goals in terms of membership growth, retention, revenue, adjusted EBITDA, free cash flow, leverage and EPS. Every single financial goal we had set for ourselves and shared with you we exceeded. At the beginning of the year, we shared our objective of improving our net debt to adjusted EBITDA leverage ratio to 3x by year-end. We achieved this important milestone six months ahead of schedule, and in the upcoming quarters, we will continue our path towards a leverage ratio of equal to 2.5x or less. We also shared our objective of becoming free cash flow positive by the end of the second quarter while funding double-digit top line and bottom line growth. Again, we accomplished this objective and expect our free cash flow to improve over the quarters ahead as adjusted EBITDA grows and our interest burden is lightened. Our next objective is to achieve a BB credit rating in the near term. We also intend to extend the maturities of our debt in the coming quarters. We expect that the powerful combination of our revenue and adjusted EBITDA growth, our positive cash flow and BB rating will reduce our total interest expense, further enhancing our free cash flow and EPS. As we stated in our earnings release this morning, we are raising our revenue guidance for the year to $2.56 billion on the low end and up to $2.59 billion on the high end. The midpoint of this range will deliver approximately $1.31 billion of revenue in the back half of this year versus $1.14 billion last year, implying a 14.6% revenue growth rate for the second half of 2024. For adjusted EBITDA, we raised our guidance to $642 million on the low end up to $652 million on the high end. The midpoint of this range would deliver approximately $327.5 million of adjusted EBITDA in the back half of this year versus $280.7 million last year, implying a 16.7% adjusted EBITDA growth rate for the second half of 2024. I want to thank the entire incredibly dedicated Life Time team members for their relentless commitment to delivering the best experiences to our members and great financial results for our investors. With that, we now are ready to take your questions.

Our first question will come from Alex Perry with Bank of America. You may now go ahead.

Hey, thanks for taking my questions and congrats on a really strong quarter here. I just wanted to first ask Bahram, the in-center business dollar contribution was really strong in the quarter. Can you just talk about sort of what drove the strength in the in-center business and sort of what the plans are for that?

It's the progress we're making on executing our stated strategies that we had before. So we still have some room to go, we still have room to improve on the progress. Some clubs, as I've mentioned before, are ahead of others and they are really executing on the exact play. And the numbers are absolutely incredible. Some clubs are mediocre and some clubs still have significant opportunity. And our dashboards and our systems today are basically set up to identify where the opportunities lie and our team does an amazing job of getting together with those clubs where they still have significant opportunities and kind of troubleshoot how they can improve those. So we still have room in spa. We still have room in the cafe. We still have room in personal training. We still have room in many parts of our business to continue the progress on executing the strategies we had laid out for you guys.

Really helpful. And then my follow-up is, it looks like you raised the EBITDA guide by more than you sort of beat the Street. I guess what's driving that? Is it based on the momentum you're seeing carry into the third quarter?

Yes, exactly, Alex, it's the momentum that we're seeing. We're new and we're noticing a nice flow from that. So that's continuing to carry from Q2 into Q3 and Q4. Exactly.

Best of luck going forward.

Our next question will come from Megan Alexander with Morgan Stanley. You may now go ahead.

Hi, this is Louise Doss filling in for Megan Alexander. You achieved a 26% EBITDA margin, and your updated guidance suggests around 25% for the year. You've mentioned before that the second quarter tends to have lower margins due to pool-related costs. Given that, why can't you exceed a 26% margin in the second half? Were there any specific factors in the second quarter that we should consider when looking at the second half?

This is Erik. I'll take that. Q2 was strong, as we saw many positive developments. For instance, we experienced significant growth in PT, with stretch contributing to that. We also had a very successful bistro season, which was beneficial. Additionally, we received some support from the NCOs. As you know, we typically experience seasonal fluctuations as we move into Q3 and Q4, which is standard for our business. Therefore, a 26% margin exceeds our guidance. As we mentioned before, we are targeting a margin between 23.5% and 24.5%. So those were the main factors at play.

And I want to add to that, Erik's statement is all absolutely correct. Look, a company needs to be thinking about the next three years, four years, five years and beyond. We need to continue to invest in developing new programs, new ideas and new initiatives that would accelerate the future growth of the company. And we feel strong that the 24%, 25% EBITDA margin is a great margin. And rather than trying to continue to squeeze that for more and start hurting the customer experience, we like to make sure we have the bullets to invest in the future of the company properly. So we do not want to guide you guys to a higher number than what we are putting in front of you. You have a choice to do what you want to do.

Our next question will come from John Heinbockel with Guggenheim. You may now go ahead.

Hey, Bahram, I have a question. Now that you've nearly achieved your desired balance sheet and sales-leasebacks have returned, could you discuss your efforts to accelerate growth and reach those 10 to 12 openings a year? What is the current status of that process? It seems to me that it might be 2026 before we reach that target. How do you view the pipeline, including ground-up developments and takeovers, over the next two years?

It's a great question, John. We intentionally slowed down the new club expansion to achieve the critical goal of becoming cash flow positive and to be responsible with our cash spending. However, we continued to actively search for and secure growth opportunities. As a result, we have a significant pipeline, and I believe that over the next few years, we can easily deliver more than 30 large format locations. I am not concerned about this. We had strong momentum from our strategic initiatives, and we experienced positive momentum from our existing clubs that will contribute to double-digit growth. We were able to balance the new club launches while still building our pipeline, which is now more robust than ever. I am completely confident that we will achieve the top line and bottom line results that you are looking for. Right now, we are mapping out how we can accelerate growth, both top line and bottom line, based on what we are prepared to guide you with. This includes a combination of additional unit growth and various initiatives that are in the final stages of rollout for 2025 and 2026, such as LT Digital, LTH, Life Time Health products, and Life Time Partnerships, among others, including MIORA. All of these represent additional opportunities for rollout, but our real estate pipeline is very strong.

Great. As a follow-up, it makes sense to continue reinvesting in the business. Can you discuss the areas you want to focus on for investment? You mentioned a few already. Given the ability to leverage overhead significantly, the investment amounts are quite substantial. What specific programs are you aiming to invest in? Additionally, for Erik, will this all be reflected in center operations rather than general and administrative expenses?

Let's go through this. I think the most significant change in this era is AI. If you don't stay ahead, you'll fall far behind. Investing in technology is essential. We remain open to identifying areas where we must invest in technology, which will require some additional capital. I am very intentional about this at Life Time. First, AI needs to enhance the customer experience, making it easier for customers to transact and engage. Secondly, we should leverage AI to improve efficiencies in our operations. This is an area we will continue to closely monitor. Additionally, we will keep investing in new initiatives and growth accelerators. Initially, these investments will require funding before they become profitable. I don't want to restrict our potential margins, but I'm not guiding anyone on that. Now, I'll pass it to Erik.

Yes, John, to respond to your question, our initiatives include digital, retail, and Bahram's café. We anticipate that these will positively impact our center performance. Therefore, while we will invest capital, we expect the margins from these initiatives to enhance, not reduce, our profitability.

So initially, they take some money. You just have to make sure you have enough cushion between the last thing we want to do is come back and disappoint the Street by saying, "Well, we have to invest in such in order to deliver the future. We are just making sure we are measured in how much we guide you guys.

Our next question will come from Brian Nagel with Oppenheimer. You may now go ahead.

Good morning, Ryan, Erik, congratulations. Thank you. I have two quick questions that I’ll combine. Bahram and Erik, could you discuss the performance of the new units you've recently opened? Are you seeing anything particularly noteworthy as these centers begin operations? For my second question, which I know I've asked before, I’d like an update. As analysts monitor consumer trends, we are noticing signs of incremental weakness in the market. However, your results do not reflect this. Bahram, as you observe consumer behavior, are you detecting any indications of a slowdown?

No, I can take that. Actually, quite the opposite. As I mentioned, we had a very strong bistro season. So we're seeing really good lift there. In our PT group, stretch, nutritionals, we're actually seeing an increase there. So as we look across our in-center business offerings, in almost all categories there we're seeing significant growth there. So we're actually experiencing quite the opposite. And that's part of the engagement and all the things that we've been doing to continue to get members using those services.

Yes. I think there are more opportunities in improving your execution than there are headwinds from a macroeconomic. So yes, I think that maybe the overall customer base for the full universe has got some challenges. But for an entity focused on particular deliverable, as long as you're delivering the customer what they're looking for, I think there's plenty of customers who are willing to pay for that. We are not seeing any weakness at all anywhere across our business.

Right. And then just on the new centers, is there anything notable there?

Yes. As I mentioned earlier, new club openings are performing very well and are meeting or exceeding expectations. This contributes to the positive momentum I discussed earlier. Everything is on track as anticipated.

Yes, they are actually ramping up faster than what we have seen in the last decade. This is due to the successful repositioning of the company around our brand. I want to emphasize that our brand is performing well. When we announce a new club in a market, we immediately see a significant natural buildup of people on a waitlist eager to join. This helps us to make clearer decisions regarding pricing and other aspects as we roll it out. We are also seeing a strong positive reflection of our brand on the other side of the business, which is attracting top talent. We are opening a club in Westlake, Dallas, with 30 excellent personal trainers. Currently, we have about twenty times more applicants than we need to fill these positions. We are in the best position we have ever been.

Congrats again.

Our next question will come from Simeon Siegel with BMO Capital Markets. You may now go ahead.

Thank you. Good morning everyone. Great work. I hope you’re all well and congratulations on your promotion, Eric. Regarding the other achievements, congratulations on the increased membership dues. Can you explain how much of the increase came from like-for-like rate increases versus new members joining at higher rates or upselling? Also, it was great to hear about the greater flow-through on revenue from the structural business improvements you have been implementing; could you discuss that a bit more?

Yes, Simeon, I can address the rate. I would estimate it's about evenly split. We are benefiting significantly from the new club openings, as well as seeing positive impacts from churn and new members joining at a higher rate. If I had to divide it, I would say it's roughly 50-50. Could you please repeat the second part of your question regarding the structural...

Yes, you mentioned in the release that you are experiencing increased revenue flow from the structural business improvements you have implemented. That's great to hear. Could you elaborate on that a bit more?

Yes. Earlier, we mentioned that we noticed a slight increase in costs. However, we have made significant progress, particularly in our labor costs, reducing them year-over-year compared to the previous year. This is positively impacting our bottom line. We have effectively managed our labor hours during the summer, reducing them not only in our new clubs but also in our established clubs.

Nice job, guys, and best of luck for the rest of the year.

Our next question will come from Owen Rickert with Northland Securities. You may now go ahead.

Hey, Bahram. Hey, Eric. Congrats on the stellar quarter here. Just quickly, could you provide us with some more color on initiation fees? I know they were implemented at the new Harbor Island location. But are fees going to become a bigger part of the story with new club openings going forward? And then quickly, can these fees go even higher given the extreme levels of demand for new clubs? I mean, there's 12,000 people on the waitlist at Harbor Island. So how does that influence initiation fees going forward?

If you consider that number, it will always be a very small part of total dues revenue. When we analyze membership revenue, the initiation fee is around 1% to 1.5%. It's not a significant factor; it's more of a strategic consideration. For over 30 years, my team has concentrated on establishing the best brand in the leisure industry, and I genuinely believe they are succeeding. I'm more grateful than ever to the entire Life Time team for their contributions to brand experience. That experience is generating demand, and managing it requires careful attention to customer flow in and out of the club. Achieving a waitlist status for clubs signifies that they are successfully delivering an experience appreciated by customers, leading to demand outpacing supply. Managing that balance is where our opportunity lies. We're focused on implementing waitlists and adjusting initiation fees to ensure a quality experience when visiting our clubs. We will see more clubs reach this standard by refining aspects of their service delivery. Our systems monitor performance and provide insight into improvement areas. Clubs excelling in all areas, such as cafés, spas, personal training, and children's programs, will see their dues perform well. Reaching a point of high demand allows us to adjust fees accordingly. This approach is more strategic than numerical, and I take pride in our team's commitment to the strategies we adopted after COVID. Notably, these results come without any sales personnel; we've mentioned this for the past three years, and now the results demonstrate this success. There have been no promotions or advertisements for memberships—everything has been achieved through the dedicated efforts of my team aspiring to be the best.

Great progress, guys. Love to see it.

Our next question will come from Alex Fuhrman with Craig-Hallum Capital Group. You may now go ahead.

Terrific. Thanks guys for taking my question. Bahram, you shared some really impressive numbers at the Analyst Day a couple of months ago about pickleball participation and court counts. Curious, have you continued to see pickleball scale over the last couple of months? And how big of an opportunity could there be to potentially build more courts?

Yes, we are continuing to pursue the pickleball opportunity and will systematically expand by adding courts to reach our goal of 1,000 courts in the next 18 months. We recently filed a patent for a new pickleball design. As a player for the last three years, I have been frustrated with the inconsistencies of the existing balls, especially at higher levels of play where everyone wants a faster ball. Many of the popular faster balls have design flaws that lead to breakage after just one game and inconsistent performance. As an engineer, I analyzed these flaws and developed a new ball. We conducted testing and worked with our CAD team to finalize the design, and I am thrilled to announce that we officially filed the patent yesterday. I believe we have found the ultimate solution. I see a significant opportunity in this sport and believe it has the potential to become the most participated sport in North America and may even be included in the next Olympics. We are fully committed to supporting pickleball, just as we do with all other sports. This includes collaborations with the MLP, PPA, and even partnerships with other ball and paddle manufacturers. We believe pickleball will encourage more Americans to engage in physical activity. It's essential for players to complement their pickleball game with overall fitness to avoid injuries, as focusing solely on one sport can lead to issues. Life Time offers a comprehensive solution, allowing people to play pickleball while also addressing their nutritional, exercise, training, and stretching needs all in one location. We are fully dedicated to the growth of pickleball.

Our next question will come from Logan Reich with RBC Capital Markets. You may now go ahead.

Morning everyone. Congrats on the results and congrats to Erik moving into the CFO role more permanently. My question was just on Q1. In the prepares you guys sort of alluded to, basically, the entire quarter was better than you expected on every sort of KPI. I guess I'm just trying to understand sort of what changed from relative to last quarter to this quarter? And what was so much better that drove the outperformance? And maybe just sort of expectations on those trends continuing through the year and through 2025?

In the first quarter, we performed well, but there were still some missed opportunities. It became clear that we needed to focus our team. We refer to our managers as lead generals instead of General Managers because everyone at Life Time leads rather than manages. All departments take the lead, actively working on the front lines to stay engaged. Our lead generals operate their clubs with significant autonomy. We have equipped them with advanced dashboards and corporate support systems that help break down their business, identify opportunities, and pinpoint areas where they may be missing out, allowing us to coach them for better execution. This execution flows together like a symphony. Our Club Operations President, Parham, along with our regional vice presidents, area directors, and lead generals, embraced the chance to minimize waste while enhancing the customer experience. They managed to respond effectively within four weeks. Now, I'll hand it over to Erik, our CFO, who oversees all the financials, to share his insights on the company's current ability to react compared to three or four years ago.

Yes, I mentioned earlier that in the first quarter we saw some labor or cost increases. We've addressed that, and we've seen significant improvement year-over-year in Q2, which positively impacts our bottom line. As we've noted, we have more dues flowing through. Additionally, we're experiencing excellent retention, which is better than we anticipated. While there has been some churn among members, we are making impressive strides on the labor front. Moreover, when we look at our in-center businesses, such as PT, cafe, kids, and aquatics, all have shown growth year-over-year, indicating strong consumer demand for our products and services. It's the combination of all these factors that create the synergy Bahram mentioned.

Got it. Super helpful. And then just one quick follow-up, if I could. I think you sort of alluded to maybe some gap in some center performance. I guess like if the centers that are maybe sort of lagging the higher-end centers. If those sort of got to maybe where the average is or if you guys sort of improve those just on the blocking and tackling that you guys need to do. Is there any sort of, I guess, like upside to the 25% margins, like I would assume those stores have lower margins I'm like would you reinvest those additional dollars? Or do you think you could get to above 25% margins while still being able to adequately invest for future growth?

All right. So I'm going to answer this a little differently to you. How many companies are delivering 25% EBITDA margin? I am adamant that we are not going to get pigeonholed into pushing, pushing, pushing until like most businesses, you basically start deteriorating your business, we're not going to guide you to a higher margin than that. Does it mean we can't deliver more than that once in a while? Yes, we probably can. Do I want you guys to go put those numbers in? Definitely, I don't, but you can do what you want. We want to be able to deliver time and time again to you guys. When we give you guidance, we want to make sure we have a very, very high certainty of delivering that number. So we're not going to put our neck on the line. We're not going to tell you go to 26% because we did it in one quarter. Let's just enjoy the 25% for some time. If we can deliver more, we will deliver more.

Our next question will come from Michael Hirsh with Wells Fargo. You may now go ahead.

Hi there and congrats on the quarter, and congratulations to you, Erik. Given your recent pricing increases, could you talk about the competitive environment at this time? And also, how does Life Time react when competitors waive enrollment fees or discount?

I'm going to address your second question first. We are really focused on our execution and not concerned about others at all. The industry typically spends around 5% to 6% of their revenue on marketing, while we are at 1.4% or less moving forward. Our primary goal is to be one of the premier leisure companies, broadening our offerings across all lifestyle aspects. We don’t concentrate on what competitors are doing. I believe that should answer your question; we are not worried about any specific group or party. I have mentioned before that if I left Life Time and took my top 100 team members with me, we still wouldn’t be able to create anything that could challenge Life Time for the next decade or more. The scale of having 175 facilities and adding 10 to 12 more each year is significant. Our technology and brand generate over 130 billion impressions annually. We are focused on improving our own capabilities, discovering new program opportunities, and prioritizing our customers rather than our competitors.

Yes. And as a quick follow-up, could you talk about the sale-leaseback environment now? And how we should think about sale leasebacks and your cash flow profile into 2025?

So we have another $65 million, $66 million that we expect will get done here in the 3Q. And then we really haven't been pursuing anything else. I am pretty confident that we will see a much better rate environment for all those people in the sell leaseback market. They'll be able to get access to a better cost of capital, and that will translate directly to us. I also emphasized in my call, our next biggest goal is to establish this company A, which I think we're almost there as a mid-cap and growing, we could cross the $4.5 billion market cap, get to $5 billion, get beyond that, and most importantly, get to a BB credit, with a BB credit, the interest environment on the way down, I think the sell-leaseback market become way more robust and we can secure lower cost of capital on the debt side and on the sale leaseback, both the same. So I think the '25 looks incredibly more robust. We have full intention of playing our strategy as an asset-light company. We basically intend to recycle our owned real estate assets to basically, at the right time, at the right cap rate to fund the more accelerated growth in the next several years, okay? So sale-leaseback is the part of the strategy. It's just the timing of the sale-leaseback. We did as much as I think was prudent to do this year to achieve the 3x debt to EBITDA. The other nice thing, as we mentioned and you guys have noticed, is that the incremental rent, we knew it's nonevent relative to our over performance of EBITDA. So ultimately, this proceeds coming from sale-leaseback are largely to just lower the debt to EBITDA substantially. Again, our goal is to get to 2.5x sooner than later, hopefully, in the next six months or more or so. And then that puts us in exactly where we want to be free cash flow positive, 2.5x or less debt to EBITDA, $4.5 billion, $5 billion market cap and growing. So basically, all of those things stack up in Life Time's favor to have the best sale-leaseback rates going forward.

Our next question will come from Chris Woronka with Deutsche Bank. You may now go ahead.

Good morning, everyone. Thank you for taking my question. There are many positive developments and trends happening, and you have a well-defined growth strategy with several components. My question is how you manage all of this and whether you have sufficient internal resources to support this growth. You've previously mentioned, including during Analyst Day, your aim to maintain double-digit growth in both revenue and profits. Do you have the capacity at the corporate level, and potentially at the center level as well?

Great question. The answer is absolutely. I have never been more impressed with the Life Time team members. I am fully and entirely indebted to everyone from the frontline to my direct reports. This is the best alignment and teamwork I've seen in over 30 years. Everyone is acting as one, with no self-centeredness, and we are still able to deliver significantly more on the additional initiatives we are implementing. Therefore, I have no concerns about us. I love what I do; I don't just like it, I love it. Those who work with me know I'm always available, and so is the rest of my team. There isn't a team member I couldn't reach on a Saturday afternoon or Sunday night who wouldn't either answer the phone or respond. That's how well we work together. Everyone is engaged and cooperating as a team, and it has never been better.

Our next question will come from John Baumgartner with Mizuho Securities. You may now go ahead.

Good morning. Thanks for the question. First off, Bahram, I guess, I'm curious how you're thinking about member engagement and I guess, specifically utilization. That's been increasingly pretty strongly, coincidently with the investments you've made in programming the last couple of years. But how do you see utilization evolving from here? Is there sort of a historical high watermark for member utilization and engagement that you haven't yet recovered back to at this point? Is there a ceiling for engagement where you sort of tap out for the incremental ROI and programming moderates at some point? Just curious how you're thinking about utilization from here and how that governs your decisions for incremental programming investments.

That's a great question and it really gets to the heart of our programming. Essentially, it's about connecting with our members, understanding them, and identifying opportunities for them to maximize their membership benefits. We're in the final stages of launching L.AI.C, our Life Time AI companion for members, which has been in beta for quite a while. The goal is to help customers discover the best ways to engage and participate in the numerous social events we organize, from group fitness to activities at our beach clubs. We are continually imagining and re-imagining how to provide exceptional experiences for our customers. It can be frustrating when people refer to us merely as a gym, because our facilities serve so many purposes for our members. They are places for socialization, activities, and building networks. While our members do get workouts, it encompasses so much more. We are dedicated to enhancing these experiences from the member's perspective. As we continue to improve these experiences, we expect to see increased engagement, leading to higher demand for our clubs and reduced churn rates. We're fully invested in this endeavor and while we aren't claiming that we've reached our peak, the current engagement levels are remarkable. We aspire to see how we can enhance these even further, but right now, the engagement we are seeing is the best I have witnessed in the years I’ve been in this industry.

Excellent. And a follow-up for Erik, on the operating leverage and specifically the overheads in the general and administrative line. The progress there has been pretty consistent for the past two years or so. And I'm curious how much efficiency you can still get on that G&A line going forward with all the moving parts around programming and leveraging what you've had in the last couple of years with sort of the outlet build-outs?

Yes, it's a good question. We've seen leverage. We've seen great leverage. I think we'll continue to see some leverage as we continue to grow. We will make some investments as we need to. But I would expect that we'll continue to see that lever down a little bit as we continue.

This concludes our question-and-answer session. I'd like to turn the conference back over to Bahram Akradi for any closing remarks.

All right. I just have one quick comment before I leave the call, I want to make sure the credit goes to where the credit is due. That's definitely not me. It's the entire Life Time team. I am most appreciative and impressed by the Life Time's passionate, incredible team for executing on this vision with so much love and passion. So thanks to all of my team. Thanks all of you guys.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.