Life Time Group Holdings, Inc. Q2 FY2025 Earnings Call

Greetings. Welcome to the Life Time Group Holdings Inc. Second Quarter 2025 Earnings Conference Call. As a reminder, this conference is being recorded. It is now my pleasure to introduce Connor Wienberg, Vice President of Capital Markets and Investor Relations. Thank you. You may begin.

Good morning, and thank you for joining us for the Second Quarter 2025 Life Time Group Holdings Earnings Conference Call. With me today are Bahram Akradi, Founder, Chairman and CEO; and Erik Weaver, Executive Vice President and CFO. During the call, we 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 also 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 will turn the call over to Erik.

Thank you, Connor, and thank you all for joining us this morning. Let me begin with our second quarter results. Total revenue increased 14% to $761 million, driven by a 14% increase in membership dues and enrollment fees and a 14.4% increase in in-center revenue. Comparable center revenue grew 11.2%. Given continued strong performance in both dues and in-center businesses, we are raising our full year comparable center revenue guidance to be between 9.5% and 10%. We ended the quarter with more than 849,000 center memberships. Including on-hold memberships, total memberships reached approximately 899,000. Average monthly dues grew 10.6% year-over-year to $219. Average revenue per center membership was $888, an increase of 11.8% from the prior year quarter. Net income for the quarter was $72.1 million, an increase of 36.5% and includes approximately $9 million of tax-affected losses on sale leaseback. This compares to a $6 million tax-effected gain in the prior year quarter. More importantly, adjusted net income, which excludes the impact of gains and losses on sale leasebacks, was $84.1 million, up 60.5% year-over-year. Adjusted EBITDA was $211 million, an increase of 21.6% and our adjusted EBITDA margin improved by 170 basis points to 27.7%. Net cash provided by operating activities rose approximately 15% to $196 million compared to the prior year quarter. Free cash flow was $112 million for the second quarter, marking our fifth consecutive quarter of delivering positive free cash flow. We remain committed to funding our growth through net cash from operations and sale leasebacks with a target of sustaining annual positive free cash flow. In Q2, we closed on the sale leaseback of 3 properties, generating net proceeds of approximately $149 million; $139 million of these proceeds were reported in the investing section of our cash flow statement and the remaining $10 million was reported in the financing section. With that, I will now turn the call over to Bahram.

Thank you, Erik. We had a great quarter, thanks to the efforts of our entire team. As a result, we are once again in a position to raise our full year revenue and adjusted EBITDA guidance. Visits remain at all-time highs with visits per membership up 5.7% versus the same quarter last year. Retention continues to stay at record levels, with Q2 improving over the prior year quarter. We accomplished all of this while strengthening our balance sheet and achieving a BB credit rating, a critical milestone that provides us the opportunity to lower interest costs and increase earnings. As to liquidity, at the end of Q2, we had no balance on our revolver and more than $175 million in cash on hand following our most recent sale leaseback. The sale-leaseback market remains open and attractive, and we expect to close another $100 million in transactions in the second half of the year. With the methodical and sequential progress we have made over the past four years, we are now perfectly positioned to shift our focus a bit. Growth is now our top priority. To that end, we're modestly accelerating the development of our new club openings from our robust pipeline and are now targeting 12 to 14 club openings in 2026. These new clubs will average nearly 100,000 square feet and will primarily be ground-up developments compared to the 78,000 square feet average of clubs opened in '24 and '25. We're excited about our continued strong performance and the significant growth opportunities ahead, including several high-potential accelerators. Life Time Digital now has 2.3 million accounts, up 216% year-over-year. We recently launched L.AI.C, our AI-powered personal health companion to digital and center access members. Our LTH nutritional supplement line continues to grow, with revenues up 31% versus the prior year quarter. Our first 2 MIORA locations continue to perform well, with subscriptions and revenues growing month-over-month. Several additional locations are slated to open in the second half of the year. In short, we are pleased with our current momentum. We are laser-focused on accelerating club growth and capitalizing on our asset-light, high-margin expansion opportunities to drive sustained revenue and adjusted EBITDA growth. With that, we will open the call for questions.

Our first question is from Brian Nagel with Oppenheimer & Company.

It was a very good quarter. Congratulations. My question relates to a topic we've been discussing for some time. Referring back to the first quarter conference call, we talked about what seemed to be a softer initial trend in new member sign-ups as we approached the summer pool season. We got the figures today. So my question is, how did new membership sign-ups perform throughout the quarter from your perspective? Did they align with your expectations? Did you notice any recovery as the quarter went on?

Yes, Brian, it's great to hear from you. This is Bahram. As I mentioned in our last call, looking at just one month doesn't really provide a complete picture. I want to reiterate that I discussed this with you all. In the latter part of the quarter, it was primarily a matter of timing. Members who intended to join may have come a bit more slowly in the first half of the quarter, but they eventually returned. As a result, we were able to close the quarter very strongly and compensate for the slower membership sign-ups during the initial 40 days, and it all balanced out naturally without us needing to take any special measures.

That's very helpful, Bahram. And then my follow-up question, again, we're seeing the numbers today, but just any further commentary on your efforts or your abilities to further monetize that membership. And we talked kind of quarter in, quarter out about selectively lifting dues versus rack rates. Are you seeing anything change in that dynamic whatsoever?

The business is very solid. Memberships are strong, and customers are actively using the club across all centers. Currently, we are cautious about the first half of the year due to the macroeconomic situation, not because of tariffs or anything similar. We want to ensure there won't be a significant downturn. Our focus is on achieving a BB rating and maintaining a strong balance sheet so the company can navigate any circumstances. If conditions improve, we will accelerate; if they become challenging, we will still perform well. This has been our strategy. Now, with a strong balance sheet and BB rating, our leverage is low, and we see continued opportunities to grow the business faster while maintaining or even lowering our leverage. I don't have any concerns beyond the day-to-day operations, and I'm ready to seize all the growth opportunities ahead.

And just to kind of maybe put a quantitative point on that, Brian. I mean if you look at our revenue per membership for Q2, it's up nearly 12%. So I think our ability to monetize that has been very effective.

Our next question is from Alex Perry with Bank of America.

Congrats on a strong quarter. I just wanted to talk a little bit more about the unit guide commentary. I think you sort of narrowed the unit guide from 10 to 12 units this year to 10. Was there a timing shift sort of into next year that sort of leads you to accelerate the growth next year? Did the timeline of openings sort of get elongated based on build schedules? Just trying to sort of square up the unit guide this year versus next year.

Yes. So I think, as we mentioned, the '24, '25 was more of a collection of some of the clubs that are going into existing spaces, great locations, opportunistic, but not sometimes in markets like New York, Florida, they're a little smaller than 100,000 square feet because they're more urban and then some conversion clubs. We were also focused on really watching the spend on the balance sheet to make sure we sort of get to that exact level that we wanted to make sure the company sits financially. So all of those factors kind of resulted in the number of clubs that are coming up being closer to that 10 number. And sometimes they just shift a little bit; construction takes a little longer. Now we also have spent quite a bit of time over these past four or five months on construction to make sure we get better bids, better construction numbers, which we have been getting. It's super important. And with all of those things set, we are aiming to deliver, like I said, 12 to 14. And obviously, we're hoping to get the 14 clubs opened for next year. So I think that's really the key, and we have a huge pipeline. There's more deals coming in. So we should be able to continue to grow. As I mentioned earlier, the balance sheet also points out to the fact that we can do this growth and continue keeping this low leverage point that we have achieved now.

That's really helpful. And then just my follow-up is on memberships. What is sort of the expectation for the back half in terms of membership? Should it sort of follow the normal seasonality curve that we see? Have you seen the really strong, what it sounds like good strong exit rate out of the quarter in terms of gross adds sort of continue here as we move through July?

Yes, we will continue. In the third quarter, we are experiencing our usual seasonal trend. Looking back at last year, memberships decreased by 6,000. However, last year's numbers were somewhat influenced by our new builds, which may have obscured that seasonal trend. In 2023, we added 7 clubs, totaling 600,000 square feet, which would have been in their second year of ramping up last year. Last year, we opened 4 clubs with around 300,000 square feet. Therefore, last year's results might have seemed slightly lower because more clubs were in their second year of ramp-up. Thus, we expect that the third quarter will see a decline. We won't benefit from as many clubs this year in the third quarter, possibly around 50% less square footage, so that should be considered.

Yes. To be clear, we are not observing any signs of weakness. What we are experiencing is the typical seasonality of execution, which reflects normal fluctuations. In fact, everything is going exceptionally well. Regarding this quarter, I want to emphasize that we prefer not to comment on mid-quarter developments going forward like I did last quarter. I will make a comment now, but I hope that in the future, mid-quarter questions are not asked. The beginning of this quarter is showing the same trends as the latter half of the previous quarter. So overall, things are very positive, but I want to stress that we do not want to engage in discussions about mid-quarter matters, if that’s alright with everyone.

Our next question is from John Heinbockel with Guggenheim Securities.

Bahram, I want to start off with how you think about managing the pipeline. Right? I think that would be helpful for everybody, right? When you look out to '26 or even maybe thinking about '27, how many projects are kind of in the pipeline? You think about doing 12 to 14, there's sort of 15 to 20 or 20-plus candidates or maybe more than that kind of floating around in case some slip. And then when you think about the timing of that, what you can do with, let's say, takeovers, malls, right, stuff that has a shorter time horizon? How quickly can you move on that if you wanted to move up a couple of projects?

I appreciate this, John. The ongoing challenge in a public environment is avoiding the trap of becoming overly reactive. We have consistently prioritized the best interests of the company. The best approach for us is to leverage the robust cash flow we're producing. Our real estate team is actively managing between 85 to 100 deals in the pipeline, and that's a number we keep track of. We can accelerate the start-up and construction process when it makes sense, especially now when business is strong, in-center performance is good, membership dues are solid, and new clubs are ramping up effectively. Our balance sheet is also in good shape. This is the optimal time to consider expediting some of these pipeline deals. However, we will never compromise by pushing out numbers just for the sake of it, as that could undermine our long-term interests. Nonetheless, I firmly believe we can continue to meet the growth targets we've set, aiming for light double-digit top-line revenue, and we have a clear path to achieve that.

As a follow-up, when considering the maturation process, I understand that every club is unique, but the plan was to start with around 2,200 to 2,300 members. With both new staff and new members, there's a need to adjust to the environment before rapid growth over the next few years. Is this still the plan? Given the increased brand awareness and larger waitlists, you have the potential to open with a stronger membership base. However, are you still intentionally limiting membership acquisition to enhance the overall experience?

You have to do this because when you open a brand-new club with 50% memberships in the first three to six months, it feels as busy as it does a couple of years later when there are twice as many members. This happens because the members are new and not using the club as efficiently for themselves. Over time, members adjust their habits; some prefer the busy atmosphere and enjoy the social aspects, while others look for quieter times when the club is less crowded. This natural process is important to the club's dynamics. The worst thing you can do is become greedy and try to open with too many members, making the initial experience awkward. We want to avoid that because we’re already delivering the results we are committed to by managing the experience consistently.

Our next question is from Chris Woronka with Deutsche Bank.

Bahram, could you expand on this a bit? This relates to the previous question. I think one area where people sometimes get confused is how the waitlist affects your member growth. It would be helpful if you could provide some insight, perhaps with a specific number regarding member growth outside of clubs with waitlists and how that influences overall growth. This perspective would be very useful.

Yes, I can address that, and Bahram can provide additional insight. To clarify, we view waitlists similar to how we view enrollment fees. It's important to note that a waitlist is not designed to be a key performance indicator. Instead, it's one of the tools we utilize to manage the member experience. We monitor factors such as traffic and the times of day for a particular club. A club might go on a waitlist and then come off it. This approach allows us to effectively manage the member experience. Therefore, think of it more as a tool, similar to pricing, that we use for better management.

We don't want that to be a key performance indicator for you. I believe it's a mistake to pursue that. I may have already mentioned this, and I don't intend to be disrespectful, but I want to be clear. The reason we've established such a strong brand over more than 30 years is our constant focus on the customer experience. Our aim is to create a brand that is desirable, a destination people want to visit, and an experience that is valued. That is our main priority in execution. Sometimes we need to implement a waitlist to keep things in check. We occasionally have to take a club off the waitlist, not because the demand has changed, but due to execution problems that could lead to a diminished experience if the club isn't managing the waitlist effectively. We're juggling many factors. If you, whether you're on the buy-side or sell-side, try to derive insights from that, it can actually mislead you. Therefore, we are being careful not to provide answers that might lead to inappropriate performance indicators. This should not be treated as a key performance indicator.

And what I would point you back to are 2 things. We said visits per membership 12.7. That's the highest it's been. If you look at total swipes across the system, they're up 7.9% versus the prior year quarter. So the clubs are busy.

And really feel right. That's the most important thing.

Our next question is from Eric Des Lauriers with Craig-Hallum Capital Group.

Congrats on a very strong quarter here. First one for me, just on the average revenue per membership, obviously continues to demonstrate very robust growth, approaching $900 a quarter. Just curious how much room you see for this figure to continue increasing without materially impacting retention? Are you guys seeing any signs of fatigue among any demographics or geographies? And just overall, how do you assess whether you're kind of approaching a wallet share limit with members?

No. I mean, based on the results that we just posted, both in swipes, as Erik just mentioned, dues revenue, and in-center execution, we are not seeing any weakness in any part of our business and anything with the customer at this point.

All right. That's great. And I guess just kind of as a follow-up there. So you called out in-center, personal training, obviously cited as one of the drivers of that growth. Just curious if this is sort of typical seasonality where personal training kind of picks up heading into summer? Or is there something structural that you see kind of causing the increased utilization of personal training or perhaps other in-center offerings?

It's the fundamentals of the programming and the creation of dynamic personal training and the execution of our team. There is constant methodical planning of programs, and it is not a seasonal thing. In fact, summer months typically aren't necessarily the big months for people coming inside. Our swipes are strong, which is really an indication of the clubs working the way we want them to work. And then the personal training is strong, and that's due to the programs that our team is executing. It's not seasonal.

Our next question is from Owen Rickert with Northland Securities.

Can you comment on some of the in-center revenue trends and initiatives that are going on? I know that DPP and some other membership engagement events like the pool parties are doing really well. But what else is working well? Are there areas where you see potential for improvement going forward?

We have been focusing on developing the best nutritional products for various needs, including men, women, multivitamins, performance vitamins, hydration, sleep, and a range of protein isolates. Our commitment has always been to create high-quality products without cutting corners. We ensure that our offerings are scientifically sound, tailored to people’s needs, and pleasant to consume, while also performing effectively. Currently, our LTH line is showing significant growth, particularly in clubs, as we've seen a year-on-year increase. For MIORA, we have implemented two locations and are experiencing steady month-over-month growth, as this business model develops as anticipated. We aim to launch an additional 4 to 6 MIORA locations this year and gradually expand that business. Additionally, there are plenty of opportunities in our spa and food and beverage segments, and we’re focused on executing plans to enhance growth and provide great customer experiences. We're also working on L.AI.C, which represents a larger vision of offering customers a comprehensive view of their health, encompassing not just workouts or nutrition, but overall well-being. L.AI.C serves as an AI companion designed to assist with various aspects of health. We've recently launched the initial version, which will perform a few of the desired functions exceptionally well, with plans to enhance its capabilities over the next couple of years. Ultimately, we aim to provide a personalized health overview based on the extensive data Life Time has gathered over the past three decades. This project is significant and requires considerable effort, but we are making steady progress every few months. The success of L.AI.C will benefit LTH, MIORA, and our club ecosystem overall. Our vision includes reaching tens of millions of users through Life Time Digital, whether they are members or subscribers. We are actively working on these initiatives alongside increasing club openings and expanding our footprint. There is a lot happening, and everything is progressing positively at this time.

Our next question is from Logan Reich with RBC Capital Markets.

Congrats on the strong results. I wanted to ask one on pricing. I mean your retention is at all-time highs, swipes continue to improve. And I know you sort of take that all into account when you're looking at pricing. But can you just give any sort of color on what pricing you took on legacy members in Q2? And then what's sort of your outlook for the rest of the year? I think the implied same-store sales for the second half of the year is around a 350 bps deceleration. So I'm just wondering if there's anything specific we should be looking at in terms of the deceleration? Or is there just some conservatism baked into the guidance?

Yes. I mean, as you know, we always have some level of conservatism baked into the guidance. But we did raise the comp sales from 9.5% to 10%. It certainly wouldn't be unrealistic for us to hit or go north of that. But as it relates to pricing, we typically do take legacy pricing in Q2, Q4. And so consistent with our strategy around pricing, we did do that in Q2. I would still point you to the fact that we still have quite a bit of embedded pricing in our legacy. We've talked about that before. So nothing really, I guess, what I would call different or unusual that wasn't really aligned with how we were thinking about our pricing strategy. And then again, related to comps, we feel great about the raise and our ability to hit that.

Great. Super helpful. And then just a follow-up. It's sort of been asked a couple of different ways. Maybe I'll take a different approach to it. Just on the unit growth pipeline beyond '26. I appreciate the color on the 12% to 14% for next year. And I recognize you guys are very careful around making sure the new centers open successfully. I guess what are the sort of things you guys need to do to continue accelerating the pipeline maybe beyond the 12% to 14% range in '27 and the years beyond?

Yes. Look, as the company gets bigger, to maintain that 10% plus top line growth, we also need to continue to deliver more growth, more new club growth. There are many ways that this can manifest itself. We have a pipeline so solid right now, and the real estate team is just adding to it, not losing any steam on that. So it's hard to just come and give you guys a number for '27. But you got to expect that it's at least 10 to 12 clubs a year that we've said before. And when we can deliver more, we deliver more than that.

Our next question is from Molly Baum with Morgan Stanley.

This is Molly, filling in for Stephen. I know you touched on the maturation process of new stores, but I wanted to ask a follow-up. Can you provide more insight on how same-store sales perform in your most mature markets compared to those that have been open for less than three years? Additionally, do you anticipate any changes in the new club strategy with the opening of larger stores? I'm looking for any details on your expectations moving forward.

We are experiencing growth in all areas of our programming and membership dues; it's not limited to any specific group. The overperformance is evident throughout the system. I would like to keep it at that level of detail. We prefer not to delve into additional metrics, but I can assure you that all clubs are performing well. The older clubs are doing exceptionally well, while the new and ramping clubs are also seeing positive results.

Yes. And just to add that, you guys kind of know our ramping profile. And some of those markets and some of those clubs, they do kind of ramp quicker than some of our historical builds. And to Bahram's point, there's nothing really regional. As I look at the same-store sales in our various businesses, I mean, PT, aquatics, spa, kids, they're all up versus the prior quarter. So it's nothing really regional; it's just everything across the system that's driving that growth.

There are no further questions at this time. I would like to turn the conference back over to Connor for closing remarks.

Yes. Thank you, operator, and thank you, everyone, for joining us this morning. We look forward to the next call with you.

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