Life Time Group Holdings, Inc. Q3 FY2024 earnings call

• Team efforts: Thanks to over 41,000 team members for the performance. - Brand and transformation: Elevated the brand, evolved clubs, and engaged members deeply. - Efficiency: Rewired business and organizational structure for efficiency. - Financial performance: Exceeded financial goals in membership retention, revenue, adjusted EBITDA, free cash flow, and EPS. - Balance sheet: Deleveraged balance sheet and generating free cash flow, now focusing on double-digit revenue and adjusted EBITDA growth.

For the third quarter, total revenue increased 18% to $693 million. Membership dues and enrollment fees rose 20%, and incentive revenue increased 16%. Center memberships ended the quarter at more than 826,000, with total memberships at approximately 877,000. Average monthly dues were $198, up ~13% from Q3 2023. Average revenue per center membership increased to $815. Net income for Q3 was $41.4 million, adjusted net income was $56.3 million, adjusted EBITDA was $180.3 million, net cash provided by operating activities increased 32% to $151 million, free cash flow was $138 million, and net debt to adjusted EBITDA leverage was 2.4x.

• Raised revenue guidance to a range of $2.595 billion to $2.605 billion. - Raised adjusted EBITDA guidance to a range of $658 million to $662 million. - Focus on continuing double-digit revenue and adjusted EBITDA growth, with plans for future openings and managing growth to uphold the brand and generate free cash flow.

Q: Along on the bigger picture side, how should we think about the growth profile of Life Time going through there, particularly as we start looking towards 2025 and new openings? And second, are you lifting your own internal targets for the fourth quarter as well?

A: Bahram Akradi responded about debt ratio targets, real estate value, growth pipeline with about 100 deals in pipeline, and guidance on growth mix. Erik Weaver added implied guidance for Q4 on revenue and adjusted EBITDA.

Q: How would you segregate the 100-plus deals in the pipeline, and how do you think about expanding wallet share over the next several years?

A: Bahram Akradi discussed pipeline segregation as blended half and half of ground-up vs other stuff over three years, and expanding wallet share through improving performance in areas like DPT, F&B, Spa, and rolling out MIORA and LTH brands.

Q: Talked about the change in leverage target around 2x, and thoughts on sale leasebacks as we head into 2025?

A: Bahram Akradi explained target of under 2x debt to EBITDA for strong BB credit, and sale leasebacks being robust with inbound conversations and plans to do $250 million to $300 million annually.

Q: When looking at club takeovers or conversion opportunities, do you tend to think you'll be more surprised on revenue upside or operating models?

A: Bahram Akradi said takeovers cut through challenges like zoning but are modeled similarly to new builds with 30%-40% IRR on net invested capital.

Q: What gives you confidence to lift the guidance, dissecting pieces like membership churn, pricing, etc.?

A: Erik Weaver said strong flow-through from membership dues, strong retention, north of 12% same-store sales, and strong demand in DPT are drivers. Bahram Akradi added best retention in company history contributing to guidance raise.