Life Time Group Holdings Inc (LTH) 2021 Q3 法說會逐字稿

Good afternoon and welcome to Life Time Group Holdings' conference call to discuss financial results for the third quarter fiscal 2021. (Operator Instructions). As a reminder, this call is being recorded.

During this call the Company will make forward-looking statements which involve a number of risks and uncertainties that may cause actual results to differ materially from our forward-looking statements. There is a comprehensive list of risk factors in the Company's SEC filings which you are encouraged to review.

Also, the Company will discuss certain non-GAAP financial measures, including adjusted EBITDA and free cash flow before growth capital expenditures. This information, along with reconciliations to their most directly comparable GAAP measures, are included in the earnings release issued this afternoon and the Company's 8-K filed with the SEC and on the Investor Relations section of Life Time's website.

On the call from management today are Bahram Akradi, Founder, Chairman and Chief Executive Officer, and Tom Bergmann, Chief Financial Officer. I will now turn the call over to Mr. Akradi to get started. Please go ahead, sir.

Thank you, Jesse. Good afternoon and thank you for joining us on our first earnings call following the close of our IPO in early October. It's great to speak with all of you as a public company once again. I especially want to thank and congratulate all Life Time team members for achieving this incredible milestone for a second time.

First, I want to take the opportunity to reinforce the significant distinction that defines our business so, hopefully, we don't have to address them again and again in the future. Then I will share a few highlights from the third quarter before turning it over to Tom to provide additional details on our results.

Life Time is a comprehensive, highly differentiated, high-end, aspirational, healthy lifestyle brand. We have been consistently delivering the best places, programs, experiences, performers and now the best digital platform as well. Our comprehensive athletic resort destinations are not gyms or fitness studios.

We provide all aspects of a healthy way of life, including entertainment, nutrition, weight loss, athletic training and sports for all ages from 90 days old to 90 years old, both physically and digitally when possible. Ultimately we aim to create a healthier, happier lifestyle for our communities and members.

We are also committed to delivering long-term shareholder value through the significant growth opportunities presented by all aspects of our healthy way of life ecosystem. Life Time is in a very unique position with an incredibly trusted brand, millions of customers, difficult to replicate athletic resorts across the country, an amazing team and culture, all of which we are leveraging to continue our growth, particularly with the opportunities that have emerged in the last 20 months.

Turning now to our financial results, we had a fantastic third quarter. Total revenue grew 66.7% from $231 million in the second quarter to $385 million in the third quarter this year. The total revenue also grew 19.2% from $323 million in the second quarter of 2021 to $385 million in the third quarter. Adjusted EBITDA grew from $4.2 million in the second quarter 2021 to $47 million in the third quarter.

Center membership grew from 658,000 in the second quarter 2021 to just over 668,000 in the third quarter, and we achieved this despite nearly 20% of our large clubs still being impacted by additional COVID-19 masking and other related restriction during the quarter.

Regardless of any additional turbulence from COVID and its variation, we are in a great position to continue capturing market share. We expect to have a very robust recovery of center memberships, membership dues and adjusted EBITDA in the first half of 2022, resulting in monthly adjusted EBITDA catching up to 2019 in the summer and then exceeding 2019 monthly adjusted EBITDA by the end of 2022.

Our new center development pipeline continues to be very robust with significant opportunities to expand. During the third quarter we opened two new centers in Peabody, Massachusetts at North Shore Mall and Coral Gables, Florida. As of September 30, 2021, we have 12 new centers under construction and we have 10 or more planned new centers annually for the foreseeable future in an increasingly affluent market.

Life Time digital is also in a great position for rapid growth in 2022 and beyond, resulting from our continued enhancement of this platform. We remain very focused on our core strategic goal of providing a growing community of members with the best, most comprehensive omni-channel health and wellness experiences and programming via our physical spaces and a digital platform. And as I now turn it over to Tom, I want to emphasize that I have never been more excited about the future of Life Time. Tom?

Great. Thanks, Bahram, and hello, everybody. I'll provide some additional details on our third-quarter and year-to-date results as well as our outlook for the remainder of the year. In the third quarter, total revenue increased 67% to $385 million driven by increases in both center and other revenue. Total center revenue increased 63% to $372 million and was driven by increases in both membership dues and in-center revenue.

Average center revenue per center membership also rebounded nicely to $555 from $349 in the same prior year period, reflecting increased spending with our in-center businesses, the continued execution of our pricing strategy and the opening of new centers in more affluent markets. On a same-store basis comparable center sales increased 59%.

Center membership increased approximately 17% to just over 668,000 as of September 30, 2021, compared to approximately 573,000 as of September 30, 2020. Our third-quarter ending center membership balance also reflects a sequential increase of just over 10,000 memberships compared to the end of the second quarter of 2021.

During the third quarter, as Bahram stated, nearly 20% of our clubs in various jurisdictions across the country, including some of our large markets such as Chicago and North Carolina, had mask mandates and other COVID-19-related restrictions imposed on them during the quarter. In light of these restrictions and the typical seasonality in our business during this quarter, we are particularly pleased with the sequential quarterly growth in memberships.

As Bahram shared, we have continued our relentless focus on delivering the very best premium experiences to our members. As we have delivered these premium experiences, we have strategically increased our new joint membership prices across most of our centers in early 2021. We believe we can continually refine our pricing as we deliver exceptional experiences and find the optimal balance among the number of memberships per center, the member experience and maximizing our return for each center.

Third-quarter average monthly dues per membership of $134 was approximately 10% higher than the average monthly dues per membership of $122 in the third quarter of 2019, and approximately 20% higher than the average monthly dues per membership of $112 in the third quarter of 2020. Important to highlight is that this increase in average monthly dues per membership shows our strategy is working by being able to charge higher new join membership rates and opening new centers in more affluent markets.

We believe we also have the opportunity over time to increase legacy member pricing. We are using our experience and data analytics to look at member data and pricing across the portfolio of our clubs and we expect to continue to raise prices thoughtfully and analytically while minimizing any member attrition. We expect average revenue per membership and average monthly dues per membership to continue to increase as we acquire more new members, increase legacy member pricing and open new centers in increasingly affluent markets.

Other revenue, which includes revenue generated from businesses outside of our centers, increased more than fourfold to $13 million in the quarter and was primarily driven by our athletic event business as we were able to produce several of our iconic events during the third quarter of 2021 compared to the third quarter of 2020 when COVID-19 restrictions forced the cancellation of most of our events.

Moving on to operating expenses. In the third quarter total operating expenses increased 25.1% to $402.6 million versus the prior year period and included $4.1 million of share-based compensation expense and $2.5 million of nonrecurring items. Center operations expense increased 40% to $232 million and was primarily driven by the reopening of our existing centers and the addition of seven new centers, partially offset by staffing productivity and other cost efficiency initiatives at our centers.

Rent increased 10.5% to $52.5 million driven primarily by the sale-leaseback of five centers occurring since Q3 of 2020 and our taking possession of six sites for future centers where we started incurring GAAP rent expense, most of which is non-cash.

General, administrative and marketing expenses increased 40.7% to $45.3 million, which included $4.1 million of share-based compensation expense and $0.6 million of nonrecurring expenses. This increase is primarily due to the return of corporate team members who remained furloughed during the third quarter of 2020 and an increase in marketing spend with more clubs open during the third quarter of 2021 compared to the third quarter of 2020.

Depreciation and amortization decreased 5.5% to $58 million and other operating expenses decreased 2.3% to $14.8 million. As a result of our continuing recovery, our operating loss improved 81% to $17.5 million from $90.8 million in the prior year period.

Net interest expense increased to $39.8 million from $31 million in the third quarter last year. This is due to a higher average net debt balance during this year's third quarter.

Our third-quarter effective tax rate was 20.8% compared with 22.8% in the prior year. This lower effective tax rate is primarily a result of valuation allowances against our state net operating loss carryforwards.

Net loss was $45.4 million this quarter compared with a net loss of $93.6 million last year, which included tax affected expenses of $3.2 million related to share-based compensation and $2 million primarily related to a non-recurring loss on a sale-leaseback of one of our properties.

Finally, as Bahram mentioned, adjusted EBITDA improved significantly to $47 million from a loss of $12.4 million in the third quarter of last year.

Moving on to the balance sheet, cash and cash equivalents as of September 30, 2021, was $44.8 million compared to $33.2 million as of December 31. As you all know, we completed our IPO earlier this month, which generated proceeds of approximately $670 million after offering related underwriting discounts and other costs. We used the proceeds to repay $576 million of our senior secured term loan facility, which included a $5.7 million prepayment penalty and added cash to the balance sheet for general corporate purposes.

Additionally, the underwriters in the IPO notified the Company yesterday that they were exercising their option to purchase nearly 1.6 million additional shares of common stock at the $18 per share IPO price, which will result in additional net proceeds to the Company of approximately $27.2 million after deducting underwriting discounts and commissions. We intend to use the net proceeds for general corporate purposes.

Net capital expenditures totaled $79.8 million during the third quarter compared with $45.6 million in the prior year. The increase is primarily due to a higher number of active new club construction projects and an increase in maintenance capital expenditures compared to last year's third quarter when many of our clubs were just reopened or partially open during the quarter.

Turning now to our outlook. For Q4 2021, revenue is expected to be in the range of $350 million to $360 million and adjusted EBITDA is expected to be in the range of $48 million to $52 million. Included in this guidance is the closure of four smaller nonpremium non-brand right centers where the Company has elected to allow the leases to expire.

Also underlying this guidance is the assumption that current COVID-19 mask mandates and other related restrictions remain in place for the clubs that are currently under restrictions and do not impact more clubs than are reflected today.

With this guidance we expect our fourth-quarter adjusted EBITDA margin to improve compared to the third quarter of 2021 as we continue to see the benefit of staffing and other cost efficiency initiatives, lower insurance and team member benefit costs, and lower real estate tax expense.

So, before closing I want to join our Bahram in sharing how pleased I am with how well positioned the Company is to continue to gain market share as demand for experiences and healthy living continues to grow. With the Life Time brand, our attractive member demographic and our asset light real estate development model, I believe we are poised for rapid expansion for the foreseeable future and the opportunity to serve and bring healthy living, healthy aging to more and more consumers across North America.

To wrap it up, I want to reiterate Bahram's comments on how proud we are of the extraordinary Life Time team members who continue to deliver an unparalleled healthy way of life experience for our members and advance our strategic priorities. And with that I'll turn it back to you, Jesse, to open the call up for questions.

(Operator Instructions). Brian Harbour, Morgan Stanley.

Congrats on completing the IPO. So, maybe just a first question on some of the membership sign-up [promos]. Did you see significant differences for clubs that had restrictions in place? What happened if some of those restrictions were lifted at all during the quarter? Have you been -- maybe any comments on October -- just curious how that trended throughout the quarter and perhaps into the (multiple speakers).

Brian, that's a great question. So those clubs, basically the moment the mask mandate showed up, the clubs stopped their membership recovery. They didn't go back down but they didn't really continue to grow the memberships. So, the mask mandate is like a break, if you think about it. But now the positive news on that is when we had mask mandates get lifted prior to that, we saw the clubs -- when the mask mandate gets lifted its an immediate surge of memberships coming back from hold and new people coming signing up. So, Tom?

Yes, I would just add, Brian, yes, we definitely see a difference in performance once the mask mandates come into play. It's about a 5% to 6% difference in dues performance that we saw with those clubs with mandates imposed during the third quarter versus those that didn't. So, a pretty substantial change.

It's a very fluid environment, as you know. Just yesterday we found out that three of our clubs in different jurisdictions, the mask mandate is being lifted, so some positive signs there. But as you know, still too early and that's why we expect it to be fluid here for the next quarter or two.

But as I had mentioned before, this is really important -- all of our insight, everything that we're picking up on a monthly basis looking to see where the people are coming from, regardless, all of these -- as I mentioned in my earlier remarks, all of this additional turbulence is continuing to work to our advantage.

We are in a situation where we're looking at the members coming back. Some of them obviously are members, but many are coming from other places. And just the way we've handled team members and members for the last 1.5 years is paying huge dividends right now.

Okay, great. Maybe just a second one on the pricing strategy, which you provided some good detail on that certainly. In terms of taking up pricing on some of the legacy members, has that actually started to happen yet or is that still ahead of you? How fast do you think you can do that and what would the magnitude be? And if you have done any of that yet, I guess what are some of your early observations about that?

Yes, let us try to, Tom and I, give you the best color we can give you so you can work your numbers. So, when you look at the current prices that we are selling versus the members who are not paying that price, we have roughly in the gross amount somewhere about $130 million, $135 million of annual dues revenue.

That is a huge number and it's not all attainable at one time, we would never do it. But our plan is to take about a third of that per year rough and tough and laid out very, very intelligently and from a customer friendly standpoint.

Having said that, when you look at the price increases across everything else, we haven't passed on any price increases to anyone for 24 months now. So, our plan is for the first group of people getting some price increase early December and then another batch will get it in January. And then as we mentioned before, deploying very, very sophisticated AI and our own analytics to regroup that.

The biggest, biggest opportunity at Life Time is pricing and let me just elaborate a little bit. When you look at our clubs today, after the price increases we put in place beginning of last year, more than 50% of our clubs even today are offering over 120 [to 130] different types of classes per week of different types of group fitness, yoga, spinning, other types, and the pools and the whole facility -- everything, all the sports, and the prices for the whole thing right now still significantly below what the single modality fitness studios for yoga, for cycling, for this or that would offer per month.

So we, as I have mentioned on past calls with all of you guys, we had priced the Company significantly too low at the get go. And we had been very, very cautious and methodical as we had raised the price. But when you're considering what has happened to all prices the last few years to all other businesses, we're still significantly behind.

So, we feel incredibly confident we can not only add legacy pricing to where the rack rates are now, we also have room to continue to adjust the net rack rate again and still be substantially below those tiny little studios offering just one thing. So, hopefully that helps you. We have significant opportunity there to deliver the numbers we need to in the foreseeable future. Tom.

Yes, I think Bahram covered most of it. Obviously we have a lot of experience in the Company of doing this, so we'll continue to do it thoughtfully in a member friendly way and then layer on the artificial intelligence and data analytics that keep getting better and better within the Company. But to Bahram's point, we still have significant pricing power ahead of us.

And for our legacy members, I think it's important to note that our new join rates are well over 20% higher than our average legacy member price. So, we have a lot of room to move our legacy members up, again, very thoughtfully and analytically. And these legacy members also have not had a price increase for over two years, so that gives us -- it's been a lot of time.

And we're now 9 to 10 months into these higher prices and we still see very strong acquisition performance overall across the portfolio. So, I think Bahram and I feel really confident that we've got a fair amount of pricing power ahead of us still.

Robby Ohmes, Bank of America Securities.

I had two questions. One was, I was wondering if -- I know it's early, but could you speak to how the Coral Gables opening has gone and the recent New York location, how those are performing versus expectations? And maybe on Coral Gables again, I know it's very early, but is there anything that you've learned that applies to maybe other future vertical residential developments that you can highlight to us?

And then my other question, just as you guys are commenting on the staffing cost efficiencies, can you maybe speak to how -- contrast that with providing great member experiences as you're gaining efficiencies with staffing, etc.? Thanks.

Great questions. I'll take it then give it to Tom. So, as it relates to -- let me take it in reverse order. As it relates to staffing, we are spending more money on making sure the clubs are pristine, the services are at the highest level, not less money there. Where we have efficiencies in our system, substantial, is between -- it was in the corporate, number one; then between the corporate and the clubs, what we call the middle of the field, which we consolidate those roles and have less layers.

Then finally it was in consolidation of three positions into one. We took the front desk member services and sales into a member concierge program. That eliminated needs for about 150 department heads, because we either took the sales department head to the member concierge role or we took the member services department head into that.

The total experience is substantially superior to what it used to be because, as we mentioned to you guys, we are running these things like a Four Seasons, Ritz-Carlton. We're not driving promotional sales at all.

And to the other question you asked, the memberships are working. So, right now every club -- every month we are actually hitting our internal expectation. We're going to beat that with no promotion, no salespeople. We're going to be our internal goal that we have for sales this month. And this is really promising because all of this is happening organically. It's not forced, it's not pushed through some promotion trying to get those numbers in. So, it's working.

The savings are there. The other place of savings was on the credit card charges, which when it's all worked out that's a couple percent, 1.5% to 2% on the credit card charge. It will be almost about the same amount from the member consolidation of those three positions into one.

So, we really have done this very intelligently with a mindset that we actually want to invest more in the clubs being more Four Season, more Ritz-Carlton sort of a delivery. So, they are cleaner, we have better staff, we are very comfortable paying more to our front-line employees so that they're taken care of.

And Robby, I would just add on your Coral Gables question, it is going extremely well. So, some really good learnings. That is a village that's branded Life Time Living. The landlord there has been ramping up with new units faster than they ever have at premium rents to what is in the Coral Gables market. So, the landlord is extremely pleased with the ramp there. The club is also ramping extremely well as well.

So, early signs, and again it's early. We opened it in mid-August. But I think it shows a lot of confidence. And even the landlord there has said they're not doing another project, the real estate developer, without Life Time being involved on it. So, really good learnings. I think it reinforces our growth opportunities in those residential vertical developments. And Braham and I could talk a long time about the number of active projects that are under discussion. So, early signs are really positive.

John Heinbockel, Guggenheim.

So guys, let me start with where do you think your share gains are coming from and are going to come from? And as part of that, there's a little over 20 million upper income households out there. I'm curious where you think ultimately, and I'm thinking out maybe 10 years or more, where your share could be of that cohort.

So, as we look at these on a regular basis, about a third of the people joining are past Life Time members, so that's really coming back to Life Time. About a third are coming from other larger fitness providers. Again, we emphasize there isn't a lot of other full-service athletic resorts like Life Time, so they are coming from that type of stuff. And a lot are coming from studios and quite a bit -- interesting enough, quite a bit is coming back from home fitness.

What we hear from -- this is what we talk about omni-channel, omni-channel, omni-channel. What we hear right now on a constant basis, what we see analytically and anecdotally is that the customer is really using health and well-being in omni-channel ways. Some of our employees are doing some of the workouts in the club and they're doing some on our streamed classes early in the morning before they come to work.

So, I think it's an interesting observation that we have basically been able to watch for the last several months and our confidence level that the answer is not digital or physical, it's actually omni, is what -- we are 100% on that visibility.

And John, I would just add onto it, to your comment of 20 million high income households. Today we only sit with 155 locations and I think this is why Bahram says he's more excited than he's ever been about Life Time.

That when we look at the real estate pipeline and the opportunity in our whitespace now, between our traditional suburban model, the success worsening in Coral Gables and vertical residential, helping reimagine and transform the malls, as well as potential urban locations, as we get to 300, 400, 500 locations over the next 5 to 10 years, that's going to give us that ability to physically reach all of those members. And then on top of that we've got the digital experience that we can grow as well side-by-side with it.

So, I think we'll continue to gain in the short term with the dislocation in the industry. But long term, I think the exciting part of it is we know that over half the people who leave Life Time leave because they are moving away from close proximity to a Life Time. As we grow more locations that's going to give more people the opportunity to become a Life Time member.

And then just secondly, and it's early I know, but what's the experience been with the Signature membership and how do you think about tiering generally, maybe even something beyond Signature which would have other amenities?

Yes, it's an interesting question again. Great question, John. We are working literally on a daily basis on an assortment of this and what product and services will go into Signature. Do we create a second tier that has another bucket of services embedded in that and then maybe have a basic? But what I can tell you from a modeling standpoint is my expectation is that by end of next year our average dues -- our goal is to try to get to roughly about $160-plus, what Tom mentioned was $130-some right now.

I see virtually no difficulty or resistance achieving that by the end of next year. So then it really allows us -- and it could be higher than that. We are not opening any club that a single rack is much less than $150, but sometimes to $250 for a single person. The family memberships on those clubs are coming up in the $200 to $250, $260, $280 rate, or maybe $300 for a membership number. And so, we have a significant opportunity to sort this out. It's sort of an opportunity honestly created from earlier mistakes.

We made the mistake in the past of pricing these two low, but today we have these assets that you can't literally replace for $60 million or $70 million. And we have been just charging way too little for them. So, methodically and with consciousness for our customers, we have huge opportunity to keep adjusting those and continue to keep going with the rate and delivering the experience that we talk about in a consistent fashion.

I can just add, John, for 2022, when I look at our new club openings and you look at some of the affluent markets like Buckhead in Atlanta where we are going into One Wall Street 85 (inaudible), when you look at the pipeline next year, our average dues are well over $200 for almost every opening next year except for one.

So, this is where, as we continue to move into these more premium affluent markets, plus the existing pricing power we have in our existing core clubs, lots of opportunity here to continue to drive our average dues up.

Brian Nagel, Oppenheimer.

Welcome back to the public markets.

I am excited.

The first question I had, just looking at the really impressive year-on-year gain in average center revenue per center membership -- now I know you talked in your prepared comments and in response to some other questions about the pricing. The question is as you're seeing members -- or membership -- members come back now as COVID is abating, is there anything you can tell us --?

Let's walk through this so there is no ambiguity. We typically gain memberships through June and then we think July/August is sort of flat, and we lose significant memberships typically every year, last 10 to 15 years, in 3Q, which basically -- and September -- netting our 3Q net membership down typically. Where this year we were actually able to gain membership in 3Q.

4Q same thing. We typically lose membership every year and this year we may have membership go down slightly, but it will be significantly less drop than in the other years. Now if those mask mandates were all lifted tomorrow or next week, there's a possibility we'd actually not have that happen because we'll get a surge, as I mentioned to you.

Now when we normally gain all of our memberships throughout the year for the year, every year is in the first and second quarter, which we expect it to be an absolute robust six months. And we will significantly gain membership count.

As I mentioned, my plan, Tom's plan is we want to give all of you guys a run rate EBITDA per month by summer that matches or beats 2019 per month EBITDA. We have a very good plan on how -- very good projection on how we can get there (multiple speakers). And then by the end of 2022, we expect to have that EBITDA be exceeding the 2019 monthly EBITDA. So, that's what we see, that's what we expect to happen and that's what we are working to deliver.

Bahram, could you also just talk a bit about -- you mentioned just the digital offering. How, from a consumer standpoint, you are integrating this digital offering into what has been the physical experience of the centers?

Right. So, every customer that we have right now, of 1.4 million-plus or 1.1 million of them are regularly using our app. We are studying every day to see what they like, what they are using, make that more robust. We are streaming out of our 10,000-plus classes we teach to our clubs, to our members in open clubs, we're streaming about 500 of those.

I just want everybody to be clear that if we decide we want to stream 1,000 or 1,500 of those a week, it is just a matter of decision, it will take about a week to schedule them and get them going. So, we are -- we've been working. We have 40 engineers working on a brand-new platform so that we will transfer what you're already experiencing, which is great, into a much, much more robust platform, allowing us to have 10X, 20X more people using the programs without any sort of glitch or something.

Once that happens we expect it to be the next six or seven months. Then we will decide on two things: A, how much we put marketing power behind promoting that individually; B, does it need to be $15, does it need to be $9 or something? So, we will basically make those determinations as we get there.

But meanwhile, we see that our customer really is happy to be able to use that app when they're not able to come to club. Now they can do nutrition, they can do weight loss, they can do meditation, they can get content, they can get one-on-one training.

So, it's very, very comprehensive, robust and we are continuing to add features and every month we launch a new version. This very next few weeks we launch the next version with health talks in it, which is a podcast version of our health source delivering content that people really need to listen to. Does that help you, Brian?

No, that's great. That's very helpful. Well, congratulations and best of luck here.

Thank you.

(Operator Instructions). Simeon Siegel, BMO Capital Markets.

Also congrats on the first quarter back to the public markets.

Thank you, Simeon.

Bahram, I don't know if you just said it, but can you just let us know, so what were the total members in the quarter within the 668,000 memberships? And then Tom maybe, how much of the digital on hold decline came from the conversions back to center memberships and then how are you thinking about that rate of recapture going forward?

Yes, the 668,000 memberships come out to just over 1.3 million members. As of September 30, as you get a mix change between singles, couples and families as you transition from the June 30 quarter to the September 30, so we're just over 1.3 million members. I don't have the exact numbers of on hold of what came back to full center versus what moved out. Typically it's 80%-plus come back.

Yes, (multiple speakers) as we look at that, yes, that's probably an opportunity for you guys to convert back.

Yes, digital on hold as one of our best opportunities because we stay in touch with those members while they are on hold. We keep engaging with them, we keep inviting them on a personalized basis to come back and enjoy their club and their favorite activities, their favorite instructors. It obviously has virtually no cost of acquisition to bring those members back. So, it's really one of our short-term levers that we can use to really pull memberships back to full access or full center memberships.

To also be clear for you guys, there is a six-month window with this. So, if you go on hold you decide when you are coming back, you give us that date, or at the maximum you can be on hold for six months. So, these people automatically rotate back in.

And those members who have sort of gone to hold right now, it's roughly 80,000, 90,000 memberships on hold at this moment, these are the pros, these are the ones who really don't want to give up their life time membership and they go on hold the period that they can or if they need to. But then they really have the intention of coming back. So, they don't require a lot of arm-twisting for them to come back.

Perfect, thanks. And then if I can just -- one more. How do you guys think about the breakdown of membership dues versus in-center revenues going forward? Thanks.

Historically we've run about 63% to 65% of dues to total center revenue. In the future I still think it's going to run into the upper 60%s, so call it that 68% to 70% range given the dues price increases that we've taken, and the rebound of the in-center business revenue at a slightly slower pace than our dues recovery. So, I still think we're looking at the upper 60%s for dues as a percentage of total center revenue.

Perfect. Thanks a lot, guys. Best of luck for the rest of the year. And congrats again.

Dan Politzer, Wells Fargo.

Congratulations on the offering. Bahram, I just want to circle back and make sure I understood it right on your commentary on the fourth quarter and the membership. It seems like there's a bunch of different dynamics that you place in terms of you have mask mandates and then the typical seasonality in the fourth quarter versus the third quarter and you are against the backdrop of an improving recovery getting back out. So, how should we frame the recovery trajectory over the next couple quarters in terms of your memberships?

Yes, so I think that's probably the most important piece of the whole equation. 4Q typically is a -- every year 4Q is a membership drop for Life Time. It's just a normal seasonality, people drop back out of this pool season on September and October, some come to November. And then in December sort of flat, we don't really gain or lose memberships. It's not a typical year. And then we robustly, and I mean massively, 10,000, 12,000 net memberships or more month, it goes through the first quarter and second quarter. That's a normal year.

This year there are massive amounts of people sitting on the sidelines still from COVID and all the club closures. So, there is an abundance of what I would say customers to be grabbed. They are going to look for the best programs and services across on their interest. So, we expect to get enough additional access membership count by the mid-summer -- by early summer. But the mix of dues we expect to basically get to the point where we can beat the 2019 dues numbers and EBITDA numbers on a monthly run rate EBITDA basis.

So, it's just really all going to happen maybe -- typically right after Christmas is when we start seeing a massive demand coming in to the membership sign-up. And this will be more robust as like are May, June, July -- April, May, June was more robust than the past years. This year from December to June will be way more robust than other years, because there is more people who are just waiting on the sidelines.

Guys, we see it every day. We are confident of this. People are tired of doing stuff at home alone. We don't think they will give up, not everybody will give up their home workout, but they definitely will do some home -- those people and some they go back to their clubs to get some of that community and some of the differentiation that they can get only in the large athletic clubs. So, that's what -- we expect to have a really, really robust seven to eight months ahead of us.

Yes, I would summarize the same thing. In the fourth quarter it's going to be choppy with all the COVID restrictions and mask mandates coming and going. We are closing those four small off-brand clubs I mentioned. That will take away 9,000 memberships, so we'll adjust for those when we look at the quarter to make sure we are on an apples-to-apples basis.

So, short-term I think it's choppy, but I think what's important is we understand the business so well. We have teams really aggressively working on marketing campaigns now so we can really position ourselves well going into the Black Friday and then the holiday season in December, and really making sure that the marketing engines are running at all fronts as we hit the first of the year next year when consumers are really focused on fitness and their wellness (multiple speakers). So, a lot of work being done really now -- really right now.

Got it. And then just for my follow-up, in terms of the real estate supply-demand dynamic, what are your conversations like with real estate partners in terms of cap rates and I guess appetite for sale-leasebacks for some of your developments?

Well, that's really robust from that standpoint. We are definitely looking for record low sale-leaseback cap rates, but there is no shortage of ability to get as much of this as we want to get done in that 5 cap rate range, 5.25, 5.5. I think we can get as much as we want to get done. If we want to get it done at 5 or maybe touch less, we've got to work a little more slow with it, more methodical.

But the plan is to continue to look at that market. Rates are attractive and demand is high. On the new front we have -- as I've mentioned to you, we have more robust -- we are really the only capable company today to deliver what the landlords need, whether if they are resi or mall, with a high-end customer experience that Life Time delivers. So, we are in more discussions than any period I remember in the history of the Company.

I think it's a good reminder, Dan. Braham and I are committed to reducing leverage in this Company and we have over $2.5 billion of owned real estate. So, as sale-leaseback rates become more attractive we'll continue to look at opportunities --.

Since Tom is not looking at those construction numbers like I am, I would say that number is more like -- market, and he's talking about what we have on the books -- gross book value. Today that real estate is worth well in excess of $3.5 billion. You can't replace it.

Got it. Appreciate all the color. Thanks so much, guys.

Chris Carril, RBC Capital Markets.

So, maybe just following up on Simeon's question earlier about in-center revenue. Just curious about how those sales and demand for those services trended during the 3Q and perhaps what you're seeing in October. And just how you're thinking about near-term opportunities for the in-center revenue growth going forward here.

The opportunity -- we are fine-tuning menu items on the café. We are working on transformation in the personal training. Lots of great activities moving on. Our expectation is all of those are going to grow systematically with the memberships growing back to the much higher level than they are right now. As the clubs get closer to their full traffic, those revenues grow.

So, what I want to emphasize to you guys is that we have markets where the traffic, membership count and utilization, all of these things are pretty much right up back up to what they used to. PT is one that drags a little bit compared to others. We have expected that from 1.5 years ago. We think that the PT has to be reinvented, in-person PT to kind of get to the point that it would do the similar revenues and margins as we used to have in the past.

Therefore we have come up with other ways, as I mentioned earlier in the call, that we make up for that EBITDA that the PT is not going to generate from the other programs that we have implemented, either consolidation of some of the roles, some of the other savings. So, we expect to achieve those similar EBITDA from the clubs at this point with a lower, maybe about a 30% to 35% lower PT revenue than it was there.

Now if we can figure out the path to reverse that and have the PT go back up, then that would be all incremental marginal revenue and margin for the Company. But everything else is going to get back to where it was and beyond in terms of revenue and margin, both cafés, markets, all of those. And we have implemented a lot of really, really interesting programs.

We have twin programs for the kids between a 9-year-old to 13-year-old which we didn't have before. We are seeing great traction for those classes. And so, we've been reinventing nonstop the last 12 months as we have had a chance to get reopened. And we have some really, really good new findings in the things that are working and we're just rolling those out more robustly.

Got it. Thanks for all the detail here.

Brandt Montour, JPMorgan.

I also want to echo congratulations on the offering. Most of my questions have been answered. I have one question, in the spirit of repositioning of the brand to the higher end and you talked a lot about pricing. I know the pricing will be one of the major levers there.

But we didn't really talk about the wait lists at your clubs and I know it's come up in the past and I know it's not a big thing. But is that something that is prevalent at most of your clubs? Are there a lot of situations where wait lists are growing? Is that a lever for you in terms of repositioning the brand and exclusivity of the brand?

Yes. So, what we had launched very robustly is a wait list program for opening of new clubs and we have significant visibility to how those clubs are going to perform when we would open them up. We're still doing exactly the same approach, same method. The clubs will get to -- again, with this new strategy we're going to have more clubs that are going to get to that point where we have to figure out how to create a wait list for them.

The challenge with having 150, 160, 170 of these is that you have to manage and then you have that high-end membership where people buy the top-tier membership so they can go to any club. You've got to figure out how to not let them go to a certain club. So, that's been always a challenge. So, the way we try to manage that is adjust the price.

So, as an example, we opened Biltmore at $159, we went to $179, we went to $199 and I'm just moving it up to $219 a month. This is in Arizona. So, we can basically keep adjusting the rack rate up until we can balance the membership in the club precisely where we want to. Does that help you?

That's exactly what I was looking for. That's it for me. Congrats again.

Ladies and gentlemen, we have reached the end of our question-and-answer session. So, I'd like to pass the floor back over to management for any additional closing comments.

So, thank you, Jesse. I want to thank all of you guys once again. I want to thank all the new shareholders that stepped in and helped us achieve this transaction. I want to thank our existing shareholders and partners who have been with us for quite some time and they stepped up and bought even more. They have great confidence in the Company.

We are committed, as we always have been, to deliver to our customers, to our shareholders and to our team members. And we will do all we can to make sure you guys have a fantastic investment with us. So, with that I want to thank you guys. Tom?

Thank you for joining us today. Really appreciate everybody. Talk to you soon.

Bye. Thank you, Jesse.

My pleasure. Ladies and gentlemen, this does conclude today's teleconference and webcast. Once again, we thank you for your participation and you may disconnect your lines at this time.