Earnings Call Transcript - LTH Q4 2025

Operator, Operator

Greetings, and welcome to Life Time Group Holdings, Inc. Q4 and Full Year 2025 Earnings Conference Call. Please note, this conference is being recorded. I will now turn the conference over to Connor Wienberg, SVP of Treasury and IR. Thank you, Connor. You may begin.

Connor Wienberg, SVP of Treasury and IR

Good morning. Thank you for joining us for the fourth quarter and full year 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'll turn the call over to Erik.

Erik Weaver, Executive Vice President and CFO

Thank you, Connor, and good morning, everyone. As always, we appreciate you joining us for our business and financial update. Starting with our fourth quarter results. Total revenue increased 12.3% to $745 million, driven by continued execution in our centers, including higher average dues and utilization of our in-center businesses. Average monthly dues were $223, up approximately 10.8% from the fourth quarter of last year, and average revenue per center membership was $882, up 10.8% from the prior year quarter. Comparable center revenue grew 9.9% and was in line with our expectations, reflecting strength in our membership dues and in-center business performance. We ended the year with over 822,000 center memberships. Including on-hold memberships, total memberships reached approximately 873,000. Net income for the quarter was $123 million, an increase of 231%. Fourth quarter net income benefited from approximately $45.6 million of net tax-affected items that are excluded from adjusted net income, as they are not reflective of our ongoing operations. These adjustments primarily included proceeds we received in partial satisfaction of legal claims and employee retention credits as well as adjustments for net gains on sale leaseback transactions and share-based compensation. Adjusted net income, which excludes the tax-affected impact of these items was $77 million, up 28.4% year-over-year. Adjusted EBITDA was $203 million, an increase of 14.5% over the prior year quarter, and our adjusted EBITDA margin improved by 50 basis points to 27.2%. Net cash provided by operating activities increased to $240 million, approximately 47% higher compared to the prior year quarter. This included $59 million of nonrecurring proceeds from partial satisfaction of legal claims and employee retention credits. For the full year 2025, total revenue increased 14.3% to $2.995 billion, driven by a 13.9% increase in membership dues and enrollment fees and a 15.1% increase in-center revenue. Comparable center revenue grew 11.1%. Relative to our initial guidance in 2025, the outperformance was driven primarily by our mature clubs, which in aggregate, reached and exceeded our expected levels of performance faster than we had anticipated. We believe this outperformance from our mature clubs is largely complete coming into 2026. In 2026, we expect full year comparable center revenue growth of approximately 6.3% to 7.3%. We expect a continuation of the quarterly trends we saw throughout 2025, starting the year at a higher comparable center growth rate and gliding downward as the year progresses. Average revenue per center membership was $3,531, up 11.7% from the prior year. Net income increased 139% to $374 million and adjusted net income increased 62.3% to $326 million. Adjusted diluted earnings per share increased 51.6% to $1.44 compared to $0.95 per share from the prior year. Adjusted EBITDA increased 21.9% to $825 million and adjusted EBITDA margin increased 170 basis points to 27.5%. Net cash provided by operating activities increased to $871 million, approximately 51% higher compared to the prior year. This included $94 million of nonrecurring proceeds from partial satisfaction of legal claims and employee retention credits. Total capital expenditures, net of construction reimbursements were $892 million for 2025, this included $657 million for growth capital expenditures. Looking forward to 2026, we expect to invest between $875 million to $915 million of growth capital. It is critical to underscore that over half of our growth CapEx in 2026 will be for clubs opening in 2027 and beyond as we have been accelerating the number of new clubs versus prior years. This increased investment in growth CapEx is driven by both the greater number of club openings this year and the next few years compared to 2025 and 2024 as well as the increased size of our clubs. We are nearly doubling the amount of square footage we are opening in 2026 as compared to 2025 and 2024. Of our 2026 clubs, we have opened 1 and the remaining 13 are under construction. As these owned clubs open and begin to ramp, we expect to recycle the invested capital through sale-leasebacks over time. In addition to growth CapEx, we anticipate $140 million to $150 million of maintenance capital expenditures and $130 million to $140 million for modernization of existing clubs, technology and corporate investments. We anticipate funding our CapEx through cash from operations, sale-leaseback proceeds and cash on hand. For 2026, we expect to do a minimum of $300 million of sale leasebacks. One final note. With our increased growth capital spending, a larger portion of our interest expense will be capitalized this year as compared to 2025. For 2026, we expect to capitalize between $33 million and $35 million of interest expense.

Bahram Akradi, Founder, Chairman and CEO

Thank you, Erik. Good morning, everyone, and thank you for joining us. First, I want to recognize and thank all of our team members for their continued passionate execution of our strategies. 2025 was another great year of achieving our objectives and exceeding our financial goals. Many of our centers operated at or near optimal levels with an average of 12.5 monthly visits per membership for the year, 4.8% higher than in 2024, and approximately 122 million visits in aggregate, 7% higher than in 2024, with revenue per center membership up 11.7% year-over-year. We generated substantial cash from our operations, and we exceeded our margin objectives. In 2025, we achieved a 27.5% adjusted EBITDA margin, 130 basis points above the midpoint of our initial guidance set in January of last year. We also exceeded our balance sheet objectives. We ended 2025 at 1.6x net leverage, well below our 2x target. These milestones were instrumental in achieving another year of record revenue and adjusted EBITDA and a BB credit rating, which helped reduce our cost of capital. Reflecting on the current status of the company, in aggregate, our mature clubs are operating at optimal levels. Our new and ramping clubs continue to perform extremely well. Together, clubs are generating substantial cash flow from operation. The sale-leaseback market is robustly open, and we have a very strong balance sheet. As a result, we have stepped into 2026 with exceptional financial flexibility. Currently, we expect to open up to 28 clubs across 2026 and 2027 to be funded primarily through operating cash flow and a robust sale leaseback market. Next, we are very excited to announce a $500 million share repurchase program, which has just been approved by our Board of Directors. We intend to utilize this program opportunistically while diligently managing our leverage ratio to stay at or below our 2x net leverage target. This is a significant milestone for Life Time. Our repurchase program reflects our confidence in the predictability of our business model and our ability to generate cash, invest in our future growth and drive shareholder value. Before I close my remarks, I would like to emphasize that the success of our company has been the result of our unwavering focus on our member point of view. We remain committed to optimizing a member experience, revenue, and EBITDA on a club-by-club basis. This is what has delivered our success to date and what will ensure our future success. With that, we will open the call for questions.

Operator, Operator

Our first questions come from Brian Nagel with Oppenheimer.

Brian Nagel, Analyst

Congratulations on another nice quarter, nice year.

Bahram Akradi, Founder, Chairman and CEO

Thank you so much, Brian.

Brian Nagel, Analyst

As we look ahead to 2026, there's been significant success with the initiatives in the centers related to programming. What do you see as the biggest opportunities as we approach 2026? We've previously discussed some of the changes made in the cafe and in training programs. What do you believe are the key opportunities here?

Bahram Akradi, Founder, Chairman and CEO

Yes. So Brian, this is Bahram. Our business is always evolving. The customer is the more affluent, more in tune with health and wellness customer, who is basically a pro at utilization of this type of services. They're looking for the new proven methods for being healthier and engaging in the clubs in whatever is the current way that people get involved in health and wellness. We are always focused on modernizing, updating, and evolving the facilities to make sure Life Time is always the best provider of all things people are looking for at the highest level of our customer experience. So we're constantly working on developing new formats, changing the floor in a way that the members are now wanting to use the facilities. And then we are working on all different aspects, from our cafes to spa, personal training, small group training. Again, the introduction and rollout of MIORA, we're basically constantly adapting. And that's what it takes for any company to continue to build revenue and EBITDA and continue on their journey of basically being the place that people want to go to. We have tons of things we're working on right now. Lots of opportunities to do things better. And we have just launched this year that sort of a work on the cafes to try to improve the speed and the quality of what people want. And a lot of great progress early on is sort of happening, and we expect this all to continue. Personal training is doing great. Pickleball is doing great. Our new MIORA locations are launching pretty strong. So we just have a whole host of things we're working on. But the big picture is, everything is working exceptionally well. Members are using the club at the highest level we have ever seen. Clubs are packed. They're operating at near-optimal levels of utilization per day or per month based on how much visits a club can take and deliver great quality. So we're as happy as we can be.

Brian Nagel, Analyst

That's very helpful, Bahram. My follow-up question, just with respect to the new center opening. So I guess I'll ask it this way. You opened a number of centers later in '25. So maybe if you could just comment upon the initial performance of those? And as we're looking at these '26 openings and realize, I think you said one is open, but obviously, there's still a lot more to come. Is there anything you've gleaned so far from anything you're doing with the presale activity?

Bahram Akradi, Founder, Chairman and CEO

Yes. All I can say to you is our clubs are now opening stronger than ever and ramping faster than ever. Some clubs reach literally contribution margin positive in the first full month of the club operation, which is pretty incredible. We're very, very happy. As a result, we are opening as many clubs as we can as both Erik and I mentioned in our remarks. This year we'll open more square footage of clubs that we opened in '24 and '25 and '27 should be no different than '26. So we're really, really excited. We have an amazing pipeline of more dynamic, exciting locations that are going to come in the future years after '27, '28 and beyond. So we couldn't be more pleased with the way things are going right now.

Operator, Operator

Our next questions come from the line of Arpine Kocharyan with UBS.

Arpine Kocharyan, Analyst

I was hoping you could give a little bit more detail on the unit economics of the new clubs you're opening this year. Obviously, much larger square footage with expanded amenities. As we think about revenue per member trends as well as kind of member mix as we go into the back half of the year, do you expect any changes to the typical seasonality of the business in terms of quarter-to-quarter member growth? And I apologize, it seems like I blended 2 questions in one. But first, I want to ask about sort of the unit economics of the new clubs. And then any help on the mix of members that we are looking at for the back half of the year?

Bahram Akradi, Founder, Chairman and CEO

Yes. What you should expect is as we are opening new clubs, these clubs don't have any discounted programs available in them. So there is no discounted membership in them. The membership prices are higher. The model for the new clubs are significantly fewer members, and they are paying a much higher base rate. This model is actually way more efficient than what we used to do in the very, very past, and we've been adjusting the older clubs gradually to match the performance of the new clubs. And so the memberships are expected to grow altogether because we're opening all the new clubs. However, again, they're performing extremely well. And while we don't see any specific ups and downs regarding seasonality other than the fact that we are basically getting more members using the club more often, they are paying higher dues on average and using the club more. So it's exactly the model we're looking for. It's an engaged and super engaged membership model instead of a non-used membership model. We are basically operating at optimal levels of that right now.

Erik Weaver, Executive Vice President and CFO

Yes. If I could just add some quantitative context. When you look at our kind of existing clubs, if you just take an average membership per club it's $4,500, $4,600. So when you talk about our new clubs, we're planning those at membership levels of $3,700 to $4,000. So we are building those with fewer memberships because, again, we're assuming a better mix there. So but seasonality to your question, no changes in expectations around seasonality.

Arpine Kocharyan, Analyst

That's super helpful. And then just a quick follow-up. Could you remind us the rack rates you currently have and what's running through the system? Sort of what that delta looks like, just a refresher.

Bahram Akradi, Founder, Chairman and CEO

What was the question again?

Erik Weaver, Executive Vice President and CFO

Can you say that again?

Arpine Kocharyan, Analyst

The rack rate you have? And what's running through the system and what that difference looks like today?

Bahram Akradi, Founder, Chairman and CEO

That's only increasing. I want to underscore that for the benefit of everybody listening. Our clubs are operating at incredibly optimal levels. Parking lots are packed, people are coming in, and they're using the club in every place and all parts of the club. So what now we are reaching with so many clubs at that level, we basically want to optimize the membership so that we are ensuring the customer experience in no shape or form deteriorates. As we do that, we are basically getting a higher realization of the membership, higher use and we are allowing basically fewer memberships in the club. When the visits to the club are basically at the saturation level and the members you have are paying more, right? Then you are definitely using the club more. That makes it that you can have maybe fewer less members for that optimal deal. Therefore, the only way you can do that is really raise the membership prices. And we are doing that really to protect the customer experience. It's just where we need to do it. It's not across the whole system. It's club-by-club strategy. And we are raising market-by-market, club-by-club. And as we take those rack rates up, then it basically increases the amount of dollars, this is between the legacy customer and that. And as we raise the legacy customer prices, that reduces it. But I think right now, it's still relatively in that 17 million to 20 million.

Erik Weaver, Executive Vice President and CFO

Yes, it's 19.5 million exactly.

Bahram Akradi, Founder, Chairman and CEO

Yes, exactly. And that hasn't really changed because the last few years, as we have kind of done both, we've been raising the rack rates. At the same time, we've been getting some of the members getting some legacy price increases. So that number has kind of stayed between that 17 million and 20 million per month.

Operator, Operator

Our next questions come from the line of John Heinbockel with Guggenheim Partners.

John Heinbockel, Analyst

Bahram, I'd like to hear your thoughts on two topics. First, regarding one-time initiatives, as I understand you have implemented these in only a few clubs. Do you believe this experience justifies such initiatives, and how widely could this be applied? Secondly, DPT has experienced an 18% growth in sessions over the past two years. How sustainable do you believe this growth is, given that the penetration rate remains quite low? Is there potential for improvement in penetration, and can DPT continue to grow at nearly 20%?

Bahram Akradi, Founder, Chairman and CEO

Yes, I want to give credit to our team across the corporate who leads that category as well as our folks in the clubs. We have a very, very robust plan for DPT this year as well. The plans that they presented to us are very, very robust. Yes, we expect DPT to continue to grow. And in some clubs, the revenues are by far the biggest revenues and margins we have ever seen in the history of the company. And in some other markets, we still have the opportunity to add team members, add leaders into those facilities to kind of get those going. But we are super, super happy with where it's at and with its potential and the game plan that we have on hand for continuing to improve the personal training program throughout the year.

John Heinbockel, Analyst

Okay. As a quick follow-up for either you or Erik, what does the composition of the openings in '27 look like in terms of ground-ups? It seems like that will be quite significant. Considering the CapEx budget, is this an elevated year, or will we be at a new higher level moving forward, while also having $300 million to $400 million in sale leasebacks each year?

Bahram Akradi, Founder, Chairman and CEO

That's a great question. We have a significant number of new projects planned for 2026 and 2027, which involves a substantial investment of capital expenditures for clubs opening in 2027 and beyond. I feel very confident about this because our newly built clubs consistently exceed performance expectations and ramp up quickly. They will be ready to enter the sale leaseback market, allowing us to pair these new clubs with older ones that have a low carried book value. This helps us minimize taxes on gains and losses and creates a significant opportunity for more sale leasebacks. Looking further into 2028 and beyond, our real estate team is working on several exciting facilities, particularly large ones in urban markets where landlords cover most of the costs, and we just contribute to leasehold improvements. This strategy is paying off as we're dramatically increasing our owned asset value, which can also be leveraged for sale leasebacks. I believe we will generate enough cash to manage our needs, utilize sale leasebacks, recycle funds, and still have available capital for share buybacks.

Operator, Operator

Our next questions come from the line of Kate McShane with Goldman Sachs.

Katharine McShane, Analyst

We wanted to focus on the expense side a little bit. You've done a really great job in managing both the inflation, I think we've seen across labor, but also with other expenses such as health care costs, which we're seeing other companies struggle with a little bit here over the last couple of quarters. Could you maybe talk a little bit about your expectations for '26 when it comes to these couple of line items and how you continue to manage it?

Bahram Akradi, Founder, Chairman and CEO

I will take this, and then Erik will add to it. We are very aware of the challenges posed by increases in payroll and supply costs. These factors have been fully considered in our plans and are reflected comfortably in the guidance numbers for this year. I will hand it over to Erik, but we are actively working on managing these issues as effectively as possible. I want to emphasize that customer experience and member experience remain the top priority in building a brand that is truly loved by our community. I often meet people who, despite moving, express how much they miss their Life Time experience and wish to find something similar nearby. We are committed to maintaining that quality experience while also navigating these challenges. Now, I'll pass it over to Erik.

Erik Weaver, Executive Vice President and CFO

Yes, absolutely. Regarding labor, I believe we've managed well. We've discussed our increases of 2.5% to 3%, which align with industry trends. Like many others, we have faced rising supply and expense costs, but we've also effectively collaborated with our suppliers to minimize those impacts. I commend our procurement team for their efforts. On the healthcare cost front, we've taken significant steps to manage risks through our captive, and overall, our employee base remains healthy. As we assess our healthcare expenses, we've been able to control them effectively. In summary, while we are experiencing similar pressures as others, I think we've done a commendable job of managing them.

Bahram Akradi, Founder, Chairman and CEO

And again, it's in the numbers. Look, we have anticipated these increases coming. So when we're establishing the budget, we basically put all of those at a level that we feel comfortable we can deliver.

Operator, Operator

Our next questions come from the line of Eric Des Lauriers with Craig Hallum.

Eric Des Lauriers, Analyst

Congrats on another strong quarter here. Wondering, first, if you could expand on your comments around optimizing membership mix. Just curious what levers you have to pull? And how we should think about the potential impact in '26 versus some of the out years here?

Erik Weaver, Executive Vice President and CFO

Yes, we see some opportunities that we've mentioned before, particularly regarding the high traffic in our clubs. This presents an opportunity for us to enhance the member experience, especially in clubs with substantial visitor numbers. We've discussed offering discounted memberships and will continue to optimize that aspect. Many of our clubs still have the capacity to implement these strategies, and we plan to pursue this through 2026.

Bahram Akradi, Founder, Chairman and CEO

Our expectation is that the number of members using discounted third-party pay will decrease as we increase direct membership activity. We believe this approach will help us enhance the member experience while simultaneously boosting our revenue and EBITDA from the clubs. We are focused on three key areas: member experience, revenue improvement, and EBITDA growth, and we have a clear strategy in place to achieve these goals.

Eric Des Lauriers, Analyst

All right. That's very helpful. And then a clarifying question for me. So you mentioned new clubs have been ramping more quickly, contributing to profitability more quickly. You also have a greater number of large format centers opening up in '26. Should we think about this sort of faster ramp as applying to large format centers as well? Is there anything to kind of call out with respect to the ramp with the large mix of large-format centers here?

Bahram Akradi, Founder, Chairman and CEO

The message should be understood this way. Every club we're currently opening is experiencing remarkable success, which boosts our confidence to continue expanding our development plan. That's excellent news. I want to remind you, as I did last year, not to aim for an EBITDA margin beyond 25% because we prioritize investing in the member experience and maintaining the quality of our brand, which has significantly contributed to our success. I'm confident that the EBITDA margin we are presenting is exceptional and should not be underestimated. We want to ensure that people don't get ahead of themselves by pushing for higher numbers and expecting us to deliver more. We have no intention of disappointing anyone, whether it's our members or our shareholders. Our aim is to strike a balance, and we work on that daily. The clubs are reaching their saturation point faster, but overall, everything is performing exceptionally well.

Operator, Operator

Our next questions come from the line of Molly Baum with Morgan Stanley.

Molly Baum, Analyst

I guess, I have one near-term question and one longer-term question. So for the first one, the near-term question, can you speak to maybe trends you saw in January and maybe year-to-date from a new member churn and member engagement perspective? Did you see any impact from weather or any nuances that you'd call out from member behavior so far this year?

Bahram Akradi, Founder, Chairman and CEO

You are so clever, but I am more clever than you. I told you guys, don't ask middle of the quarter questions. That's just inappropriate for us to answer.

Molly Baum, Analyst

Understood. No problem at all. All right. So then maybe shifting to the longer-term question. I know last quarter, you had talked about expectations to see, I think, up to 3 million digital members to start 2026. So I guess my question there is, are you seeing opportunities to increase the conversion of those members into full paying members or any other monetization opportunities from retail, Life Time Nutrition? Can you just comment on maybe the digital and retail landscape and what opportunities you see there?

Bahram Akradi, Founder, Chairman and CEO

That's a great question. We currently have around 3.3 million subscribers, and that number is continuously increasing. We have adjusted our strategy for LT Digital, placing a greater emphasis on using our digital offerings to enhance the experience for our dues-paying members. Subscribers now have access to a similar app experience as regular members, with the exception that they cannot access the clubs. However, this setup allows them to check schedules and facilitates their decision to sign up as full members when they want to visit as guests. We are indeed seeing improvements with this strategy.

Operator, Operator

Our next questions come from the line of John Baumgartner with Mizuho Securities.

John Baumgartner, Analyst

Maybe, Bahram, first off, I wanted to ask about programming opportunities and in-center revenue. I think over the past 12, 24 months, we've really seen consumer spending very resilient for kids and children. And based on the industry data that we've seen, club memberships for children, or I guess minors, they're also among the highest price that are out there. So I'm curious, aside from the swim programs, how underutilized do you think your model is for monetizing kids' programs? Whether it's sports-specific training, to weightlifting, what's the opportunity to ramp that contribution as you plan your next phase of investment?

Bahram Akradi, Founder, Chairman and CEO

Yes. Look, I think having been involved in doing this for as long as we have, we have obviously tried and tested all types of things. And we continually see opportunity to engage parents and kids into more programs. And that business has been a nice growth opportunity for us and a great engagement, great retention sort of the program in the business. As far as the expanding into additional services, we've tried — and there are pros and cons with those a lot of times. This is basically the challenge of what space you use at what time. And do you have other programs? So we are doing that fine-tuning what we can do to maximize the space that we have being used for various different things as much as possible. So it's not the only category that we can grow in-centers. We have opportunities to grow in-centers on all fronts from a spa to cafe to training, et cetera, and we're doing all of that and including kids, we're always looking to see how we can get them more involved, more engaged and give them real value in what they perceive is what they're getting.

John Baumgartner, Analyst

And just a follow-up on the EBITDA margin. The approach there is very clear, under promise, over deliver. And I'm not so much curious about how high margins can go. But if we think about the Investor Day in 2024, the algo was more of a kind of a low to mid-20% margin. It's migrated up the last couple of years. I guess, I'm more curious, relative to plan, what's sort of broken positively for you? Is it more modest incremental expenses? Is it upsize for mix or larger utilization of the in-center offerings? Just trying to get more of a sense of your confidence in the margin floor and its sustainability there?

Bahram Akradi, Founder, Chairman and CEO

So you're correct. We suggested 23.5% to 24.5%, if my memory is correct, on the Investor Day. And then I told you guys don't go beyond 25%. And we have outperformed the clubs — the clubs matured faster. So remember, at the time, we had a lot of our clubs in a re-ramp stage, similar to ramping. Today, the majority of the clubs are fully, fully re-ramped. I don't — I mean, in aggregate, I'd say, consider it fully re-ramped. So now we have new clubs opening. And those new clubs have to ramp. They're ramping nicely. They're ramping better than our expectation. But all in all, I think there is a limit to how much you want to push the margin. Now it may — and here's what I want to say. It may be a quarter we give you more than 27.5%. I just don't want that to become the standard of the model because I do not want to have the pressure on this company to do things that will damage the company in the long term. So we want to guide you guys conservatively. And we want to make sure we guide to something we don't disappoint. But I think 27.5% EBITDA margin is an incredible margin, and I would build as many clubs as I possibly could build when I have a model that produces that. So do I want to take the risk of damaging our experience with the customer? The answer is, no.

Operator, Operator

Our next questions come from the line of Owen Rickert with Northland Capital Markets.

Owen Rickert, Analyst

Congrats on another great quarter and year. Can you provide an update on how MIORA is performing? How many clubs are you currently operating in? What is the member adoption like? How many visits are you seeing? Any updates on these aspects? Additionally, what is the trajectory looking like for 2026 and 2027?

Erik Weaver, Executive Vice President and CFO

Yes. MIORA, last year, we had 2 locations opened. We've got now 7 or 8 locations open. And so again, for us, just rolling those out this year, we wanted to make sure that we had really kind of nailed that operating model. So we've opened those new locations in great markets. We're super excited about them, and they are ramping at our expectations.

Bahram Akradi, Founder, Chairman and CEO

Yes. We are — and to be fair on that, we've had obviously some challenges with some of those openings with some knick-knack things left over on construction or permits or something like that. But the ones that have opened fully with no hiccups as such, they are ramping faster than our original models, and the rest of them will catch up. As we are designing spaces for the future clubs, we are always planning the places we're going to execute MIORA in, which basically is the queue that this is the one program that we have tested, and I believe it's going to work extremely well, and it's expected to be in every single market, not necessarily every single club, but accessible to every single customer within a club that they're in or a club or something else close enough to them. It is a very, very well-performing versus the plan business that we're rolling out. I'm confident it's here to stay as long as it's done correctly, and we're working on all aspects of that.

Owen Rickert, Analyst

Awesome. And then maybe secondly for me, how is LT Health performing, the supplement business across both in-club and digital channels? And maybe what should we be monitoring there for 2026?

Bahram Akradi, Founder, Chairman and CEO

Yes. For 2026, I think the growth strategy is in clubs, mostly. We are rolling out a more robust plan on how to make sure our club members have better visibility to the LTH than the superiority of the quality of that product versus other products being marketed and sold. And then use that as a platform to take it outside of the lifetime walls in '27 and beyond. So right now, it's working extremely well against the strategy we are currently driving. As far as the digital space, it's mediocre. It's so-so. It requires more education for people, more direct education, understanding why LTH products are more superior because once again, we're not cutting any corners on what needs to be put together, the testing everything that needs to go into a product you can trust and actually works. And so it takes a little more work in terms of educating the customer, and that's why, done through our professionals in the club, the PTs and the group fitness people, cafe folks, it's we're getting great success out of growing that very nicely year-on-year.

Operator, Operator

Our next question comes from the line of Logan Reich with RBC Capital Markets.

Logan Reich, Analyst

I just had 2. The first one is on the rack rate versus the average member dues. I know you guys are talking about that. The delta has been relatively consistent. Just strategically in the longer term, is there a level for that delta you have in mind that the business should run at? Or should that delta converge over time? And then second question is just on the '26 guidance on the same-store sales. Can you just help us think about how the composition of member growth versus pricing versus in-center growth contemplates into the guidance?

Bahram Akradi, Founder, Chairman and CEO

All right. Let's start with your — the latter part of your question. We want to go with the rack rate. Look, for right now, we are basically analyzing on a club-by-club basis where we need to set the price in that club and then consequently in that market in order to maximize the experience and make sure the brand stays in the exact position, which is a top brand in the market. When we are doing that sometimes you just basically almost are forced to take the price of $10, $20, whatever you have to. And that's what we exercise we're going through. When does that end? I don't know. It's not ending right now. We're still reaching those type of clubs where we have to raise that rate. When we raise that rate, we'll get the gap. And then when we — like I said, when we do the legacy price increase, then that gap gets closer. My expectation is sometime in the future that number will shrink, it should shrink because it's not our expectation that the rack rates will continue to go up at the level they have been going. But right now, we're not seeing any immediate change in those numbers.

Erik Weaver, Executive Vice President and CFO

Yes, I mean you kind of touched on it in terms of the delta and what that ultimately when it closes. It's really a tough question to answer because it's really dependent on the pace you increase your rack rate. But you have to remember, part of when we lump things or call things pricing, part of it is when a member turns out at a lower rate, you're getting the benefit of that arbitrage. So it's not like necessarily a direct pricing increase, if you will. So when you think about that, you have to kind of break it up into those 2 pieces. Legacy will continue to be part of our pricing strategy as we go forward. It's just hard to definitively say when that gap closes. I don't see a world where it's ever closed. I mean, that's part of the kind of the retention play, having members pay under the rack rate. And so that will continue. Does that help?

Bahram Akradi, Founder, Chairman and CEO

So the second question, I'm going to turn it over to Erik, and then I'll add on to it.

Erik Weaver, Executive Vice President and CFO

Yes. I mean you talked about reference to the growth guidance that we gave earlier. The revenue per membership is going to increase. That's part of that growth. The membership count, we've guided to roughly...

Bahram Akradi, Founder, Chairman and CEO

We expect to see an increase in that number going from 25. The remainder will contribute to the growth in our centers. The increase in revenue per member will come from both dues and in-center activities. Our focus remains on optimizing the revenue and EBITDA of the club by enhancing the membership experience.

Operator, Operator

Our next questions come from the line of Chris Woronka with Deutsche Bank.

Chris Woronka, Analyst

Congratulations on the successful year. I have one question for you, Bahram. The industry seems to be placing a lot of emphasis on your higher-end consumer and premium product offerings, while there have been some challenges at the lower end. My question is whether you are considering targeting even more of the high-end market. We know that high-end consumers are still willing to spend, so are there any thoughts or plans to introduce a more luxurious service? I’m curious about what that could include, such as enhanced transportation or additional services. Are you looking at ways to engage with the highest end of your customer base?

Bahram Akradi, Founder, Chairman and CEO

Absolutely, yes. We have been working on bundling more programming, yet just sort of more to come on that. But yes, we have been seeing that there is a certain number of memberships that they are wanting to spend more at a more — to your point, white-glove service, more bundled approach, easier for them to transact. That's correct.

Operator, Operator

Ladies and gentlemen, thank you. This concludes our question-and-answer session. I would like to turn the call back over to Connor Wienberg for closing comments.

Connor Wienberg, SVP of Treasury and IR

Yes. Thank you, everyone. Thank you, operator, for joining us this morning. We look forward to speaking with you all again next quarter.

Operator, Operator

Thank you for your participation. This does conclude today's teleconference. Please disconnect your lines at this time, and enjoy the rest of your day.