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spk00: Good morning, and welcome to the Lifetime Group Holdings conference call to discuss financial results for the fourth quarter and full year fiscal 2021. At this time, all participants are in listen-only mode. Later, we'll conduct a question and answer session, and instructions will be given at that time. Please be advised that reproduction of this call in whole or in part is not permitted without written authorization from the company. 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 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 the most directly comparable GAAP measures, are included in the earnings release issued this morning and the company's 8K file with the SEC, and on the investor relations section of Lifetime's website. On the call for management today are Baram Akradi, founder, chairman, and chief executive officer, and Tom Bergman, president and chief financial officer. I will now turn the call over to Mr. Akradi to get started. Please go ahead, sir.
spk03: Good morning, and thank you for joining our fourth quarter and year-end earnings call. I am pleased to share that we had a very good fourth quarter. Our revenue was slightly ahead of guidance and adjusted EBITDA was in line with our previous guidance despite the heavy headwinds from Delta and Omicron. The timing of these COVID variants coupled with significant mask and vaccine mandate was very disruptive to membership recovery trends in December, January and early February. However, from mid-February onwards, we are seeing great momentum in club traffic and membership recovery. Our main focus for 2022 is a steep revenue growth throughout the year to levels in fourth quarter that positions the company extremely well for 2023. We made a very decisive decision to continue the offensive strategy we started in 2021 through the Delta and Omicron headwinds. We believe that these strategies have put us in fantastic position to capture significant additional memberships at substantially higher average dues. Our center growth pipeline is the most robust I have seen in nearly 30 years. Throughout the pandemic, we established a high trust level with our real estate partners by paying 100% of the required rent, resulting in even closer relationships. In addition, our partners are experiencing the very positive impact of lifetime and the financial benefits it brings as a country club in their development. We continue to see an increasing number of urban and suburban opportunities from these relationships. For 2022, we plan to open 12 new athletic country clubs and our pipeline for 2023 and beyond continues to become stronger than ever. We remain committed to further strengthening our balance sheet Earlier this year, we entered into a non-binding letter of intent for the sell-leaseback of four of our properties for aggregate proceeds of $175 million. We expect to close on two of these properties by the end of this month and the other two properties by the end of September. We continue to evaluate opportunities for additional sell-leaseback transactions. As a reminder, our owned real estate has estimated market value of more than $3 billion, which exceeds the company's current debt levels of approximately $1.8 billion. I'm looking forward to the Q&A portion of this call after Tom's remarks. Here you go, Tom.
spk04: Great. Thank you, Baram. I'll provide some additional detail on our 2021 fourth quarter and full year results, as well as our initial outlook for the first quarter and a few comments on fiscal year 2022. In the fourth quarter, total revenue increased 57.8% to $360.5 million, driven by increases in both center revenue and to a lesser extent other revenue. Total center revenue increased 56.8% to $352.9 million and was driven by increases in both membership dues and in-center revenue. Average center revenue per center membership increased to $536 from $414 in the prior year period, reflecting increased spending with our in-center businesses the continued execution of our pricing strategy, and the opening of new clubs in more affluent markets. On a same store basis, comparable center sales increased 52%. Center memberships increased approximately 30% to just over 649,000 as of December 31st, 2021, compared to just over 500,000 as of December 31st, 2020. As we discussed on the last call, on a sequential basis, we typically lose members from the third quarter to the fourth quarter due to normal seasonality related to kids going back to school and our pools closing in the fall. The sequential decline of 19,000 center memberships from the end of the third quarter to the end of the fourth quarter was in line with our expectations and included the loss of approximately 9,000 center memberships related to the closure of four small atypical centers during the fourth quarter, each of which had an expiring lease and did not conform to our overall comprehensive lifestyle brand experience. Average monthly dues per membership was $135 in the fourth quarter compared to $104 in the fourth quarter of last year, an increase of approximately 30%. This increase was also in line with our expectations. With the closure of the four small off-brand lease centers that I just mentioned, combined with the expected opening of new higher-priced premium clubs throughout 2022 and the continued layering in of price increases to our existing members, we expect to continue to grow our average monthly dues per membership throughout this year. Other revenue, which includes revenue generated from businesses outside of our centers, more than doubled to approximately $7.6 million in the quarter and was primarily driven by our athletic events business. Moving on to operating expenses. In the fourth quarter, total operating expenses were $698.8 million and included non-cash share-based compensation expense and one-time items of $327.8 million. Excluding share-based compensation expense and one-time items, total operating expenses increased 21.4% to $371 million. Center operations expense was $218.8 million and included $12.9 million of non-cash share-based compensation expense. Excluding share-based compensation expense and a $1.4 million one-time cost recovery, center operations expense increased by 33.9% or $52.5 million due to the impact of our center closures during last year's fourth quarter. Rent expense increased 15.7% to $55.3 million, primarily driven by additional sale leasebacks compared to the prior year and additional non-cash rent expense where we've taken possession of a site to begin construction. General administrative and marketing expenses were $353.6 million and included $309.9 million of non-cash share-based compensation expense and $2.6 million of other one-time items. Excluding these items, general administrative and marketing expenses increased 27.4 percent to $41.2 million, primarily due to the restaffing of our center support overhead functions as centers reopened, and additional public company expenses. Depreciation and amortization decreased 1.8% to $58.1 million, and other operating expenses were $13 million and included $4.6 million of non-cash share-based compensation expense and $0.8 million of gains related to sale leasebacks. Excluding these items, other operating expenses decreased 21.1% to $9.2 million. Our GAAP reported loss from operations for the quarter was $338.3 million, compared with a loss of $79.7 million in the prior year period. Excluding the $327.8 million of share-based compensation expense and one-time items, the adjusted loss from operations was $10.5 million compared to an adjusted loss from operations of $77.3 million in last year's fourth quarter. NED's interest expense was $48.4 million and included $15.9 million of costs incurred in connection with the partial pay down of our term loan facility, including a $5.7 million prepayment penalty. Excluding these one-time items, net interest expense decreased approximately 0.7% to $32.5 million. Our fourth quarter effective tax rate was 21.1% compared with 25.3% in the prior year period. This lower effective tax rate is primarily a result of valuation allowances against our state, net operating loss carry forwards, and certain other non-deductible tax items. Our fourth quarter gap net loss was $304.8 million, compared with a net loss of $83.9 million in 2020. Excluding share-based compensation expense of $258.3 million and $12.9 million of one-time items, our adjusted net loss improved to $33.6 million from $82.1 million. Fourth quarter adjusted EBITDA increased to $48 million from a loss of $18 million in the prior year period. For the full year, total revenue increased 39% to $1.3 billion, driven by a 38.4% increase in center revenue and a 70.6% increase in other revenue. Comparable center sales increased to 35.3%, Average center revenue per center membership increased to approximately $2,100 versus approximately $1,300 in the prior year period. Our gap net loss was $579.4 million compared with the net loss of $360.2 million in 2020. Excluding share-based compensation expense of $269.1 million and $73.4 million of one-time items, Adjusted net loss improved to $236.8 million from $324.2 million. Adjusted EBITDA increased to $80.3 million from a loss of $63 million. Moving on to the balance sheet, cash and cash equivalents as of December 31st, 2021 was $31.6 million compared to $33.2 million as of December 31st, 2020. As we discussed on last quarter's call, we completed our IPO during the fourth quarter and used the proceeds to pay down $576 million of our senior secured term loan facility, including a $5.7 million prepayment penalty, with the remaining proceeds used for general corporate purposes. We also announced during the fourth quarter that we increased the size of our revolving credit facility from approximately $357 million to $475 million and extended the maturity to December 2026. As Buram mentioned, just a few weeks ago, we announced that the company has entered into a non-binding letter of intent for the sale-leaseback of four properties with an estimated aggregate transaction price of $175 million. We plan to complete the sale-leaseback of two of these properties on or before March 31st, 2022, for approximately $80 million in gross proceeds. The sale-leaseback of the two additional properties is expected to be completed prior to September 30, 2022, for approximately $95 million in gross proceeds. We will continue to consider and evaluate additional sale-leaseback transactions in the future as a tool to continue to strengthen our balance sheet and fund the attractive growth opportunities we have in front of us. As a reminder, as we continue to execute sale-leaseback transactions and incur incremental rent expense, we look at adjusted EBITDA plus the impact of rent expense as reported in our financial statements to better understand our underlying operating performance and trends. Capital expenditures totaled $328.9 million during the year compared with $265.6 million in 2020. The increase was primarily related to the higher number of club openings and properties currently under construction. We opened six new clubs in 2021. And as Baram mentioned, we plan to open 12 new clubs in 2022. Turning to our initial outlook for the first quarter of 2022. For the first quarter of 2022, we expect revenue to be in the range of $385 to $395 million. a net loss of $64 million to $60 million, adjusted EBITDA to be in the range of $38 to $42 million. This outlook reflects the Omicron impact we experienced in late December, January, and February, and the increased strategic investments we have made in the numerous initiatives Varam previously mentioned to drive membership and revenue growth throughout 2022 and beyond. Let me provide some additional commentary on how we are thinking about the year from both a revenue and profitability standpoint. We are forecasting revenue to be in the range of $1.8 to $1.9 billion. We expect revenue to accelerate throughout the year as we move further away from the pandemic, open our pools during the second quarter, and gain momentum from our new initiatives. As you think about our revenue growth throughout the year, It's important to remember that we are different than most typical gyms or fitness companies that generate the majority of their memberships in the first couple months of the year. For example, in 2019, we sequentially grew our Net Center memberships by just over 31,000 in the first quarter and 24,000 in the second quarter, totaling Net New Center memberships of just over 55,000 in the first six months of that year. For this year, With our initiatives gaining momentum, the opening of our outdoor pools, and expecting to be free of any COVID-19 mask mandates or other restrictions, we expect second quarter net new center memberships to exceed first quarter net new center memberships. A few other comments as we think about 2022. We are forecasting full year rent expense to be in the range of $235 to $245 million, or approximately 13% of total company revenue. This includes non-cash rent expense of $35 to $40 million. As we build membership revenue throughout 2022, continue to gain operating leverage on our fixed cost base, and achieve returns on the new initiatives we are investing in, we are targeting our adjusted EBITDA margin to steadily improve and be in the 18 to 20% range during the third and fourth quarters of 2022. We think this will position us well for additional margin expansion heading into 2023. Outside of the numbers, let me just start to wrap up by saying, while the timing of Omicron disrupted our business in late December, January, and early February, we believe this is temporary and have started to see encouraging membership and usage trends over the last few weeks with the removal of mask mandates around the country. During Omicron, we had nearly 30% of our centers under mask mandates and or other COVID-19 restrictions. So we are very pleased that as of March 11th, we expect all of our U.S. clubs to be free of COVID-related restrictions. Our three Canadian clubs are the only to have remaining restrictions. There is a lot to be optimistic about as we move away from the pandemic. Look forward to our summer outdoor season. and see the momentum start to build in many of the new initiatives we have been investing in. In 2022, we will continue to focus on opening premium clubs in iconic, dense urban and suburban locations, strengthening our balance sheet, making the right long-term investments to take market share, and delivering unparalleled healthy way of life experiences for our members. With that, we will turn the call back over to the operator for Q&A. Operator?
spk00: Thank you. And I'll be conducting a question and answer session. If you'd like to be placed into question queue, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing star 1. One moment, please, while we poll for questions. Our first question today is coming from Simeon Siegel from BMO Capital Markets. Your line is now live.
spk08: Thanks. Good morning, everyone. Hope you're all doing well. A quick question. Tom, how much of the digital on hold decline came from conversions back to center memberships? Maybe how are you thinking about that digital on hold rate of recapture? And then could you just speak to the average monthly price paid per membership this quarter versus prior levels? It would be great to dig into a little bit more of what you guys are seeing with the price lifts and what you'd expect going forward. Thanks.
spk04: Yeah, thanks, Simeon. Good morning. To start with, you know, typically we get about 75% to 80% of our digital on-hold members come back to Access over time. That time period that people are going on hold, we continue to see shorten. So we're down to about an average of around four and a half to five months hold period. So we continue to do a nice job of converting on-hold members back to Access members. On the pricing front, Baram and I are very happy overall with the trends we're seeing on acquisition and the price changes we made. We continue to be pleased with it overall across the country. We didn't have as large of an increase. from Q3 to Q4, as we didn't open any new higher-priced clubs during the fourth quarter. But we did see a slight increase as we started to take a little bit of legacy price member increase. And we are very well positioned now, as we think about the 12 clubs that we opened here in 2022, they're opening up at over a 20% premium price. to where the existing price for those clubs in the market are. So as we open up the new clubs here in 2022, as we continue to layer in legacy price increases, we expect to continue to see our average dues per membership grow throughout the year and in the year somewhere in that $150 to $160 range.
spk03: Yeah, additionally, Simeon, we're making some additional sort of maneuvers here with expectation that that length of time people are in digital will shrink from four and a half, as we're sat right now, to about three months. That will take probably another five or six months of transformation, and then we'll be, by the average of three months, we're gonna shave another month and a half out of that. The average dues that we are selling memberships every day is somewhere in the 165 to 185 range, depending on the day of the week, whether it's more families joining, more singles joining. And interesting thing is, when we went public and we shared this with you guys, at the time, the difference between people dropping off and people coming in was about $20, $25 a membership. And right now, We are more like $35 to $40, and when you compare it, this is between coming and going, and compared to like the first portion of this month, the membership sales are about 150% on average dues of where they were in 2019. So same number of memberships brings us actually 150% more in dues revenue, reoccurring dues revenue, you know, going forward. So the trends are really, really amazing. They're great.
spk08: That's great. And then if I can have one follow-up, I think even since the last time we spoke, there's just been different conversations going on with Connected Fitness. Do you guys want to share any new learnings you have with your digital, but then also are you seeing people come back from Connected Fitness. So just any color or your perspectives there.
spk03: Thank you. Yeah, Simeon, I think there are some people, I think it's a smaller population than the bigger population, contrary to the common belief maybe a year and a half ago, that are going to use digital only. You know, we see every day people coming back every single day and they're just so, you can see the smile on their face, they're happy, they're thrilled to be back with the social community, get their workout, they recognize the quality of the workout is never the same when it's at home. Having said that, they also love the transformation of our company to the Omni. So they have everything they possibly want, all kinds of classes on demand, We're going to continue to increase the number of our streamed classes, high quality. We have 25 amazing studios developed in our own clubs and we're simultaneously teaching and doing these classes streamed. It's all working with the Meditation with the health source, with the health talk. So the app is so comprehensive in terms of healthy way of life that we basically, like I mentioned before, we've been working on the back engine behind it, the platform. And sometimes in the 3Q, we'll be in a position to take that and invest in trying to take it two masses, two different channels. But the business, in my mind, largely is omni. It's not purely physical. It's not at all purely digital. So we're positioned amazingly well. Great. Thanks so much, guys.
spk08: Best of luck with your head.
spk00: Thank you. Thank you. Our next question today is coming from John Heimbacher from Guggenheim. Your line is now live.
spk02: Hey, I want to start with in-center revenue and your thoughts on the cadence of recovery, particularly personal training. And then, you know, sort of as part of that, right, you've talked about investments inside the center. You know, are those investments greater than you thought, you know, maybe six months ago? In particular, I think about getting, right, the roster of personal trainers higher. ramped back up to closer to where they were in 2019?
spk03: John, that's a great, great question. And I think the business has changed dramatically in some fronts over the last 24 months. The most heaviest impacted is personal training. And we have... We have the clear strategy. I've been back in the clubs myself to see that personal training, the way it was being done, you continue doing it exactly the same way as you were doing it in the past. I think your numbers are going to be 50%, 60% at best. Reinvented to a path that there is a clear distinction between the personal training that you can do with a hands-on trainer versus somebody sending you a workout through an app and say, okay, follow this routine. Those have to be so different in execution that the value of an in-person physical training has to be, I mean, they're not even in the same orbit. It shouldn't be comparable. We have made all the adaptations Our intent is to get our personal training revenue beyond, per club, beyond where it was in 2019. We have a clear plan. I'm not gonna get through the details of it here at all. We are working fast and we are growing substantially with a goal of growing our PT revenue double digit month over month from where it is today. You know, it has to be 10% plus growth month over month and all system is set up. Can it be done? Yes. Does it need to be a new imagination of how that training has to be? The answer is absolutely. And we have it all laid out. We've been investing heavily in sort of going through creating that differentiation, doing the training, right now, and I see us being able to achieve that and be in a position by end of this year, so we wouldn't have to talk about any excuses going in 2023, and we would give you guys, our investors, an amazing, robust experience for the customer and amazing numbers for you guys. The other revenue centers, SPA, Our tennis program is already above and beyond 2019. Cafe and spa, which are two big ones, we will definitely surpass the 19 revenues, and same with kids. So, again, we played, John, we played hard, hard defense for six months. We went to defense from March of 2020 till October of 2020. Then the executive team and myself focused on turning the company, focused on how we would have to reimagine and reinvent all those things that needed to be, not to get you back to where you were in 2019, but to get you plus 10%. We have been investing heavily, working day and night. We've been putting these programs in place. And it's taken the last... you know, 12 months literally for these things to be imagined, created, put into the system, start working them, debugging them, and then having them start paying some fruit. Right now, we're seeing the growth in every space based on the work we've been doing playing offense for the last 12, 14 months rather than going back to defense. And what I'll see is Right now what our expectation is is that the fruit that comes from this is going to continue to improve month over month. So we are very, very bullish on what we're going to be able to accomplish for you guys and also deliver the most amazing experiences. one that is significantly and more homogeneously better than the best we ever did, all in the next six months. I mean, we see this all kind of coming together very, very rapidly, looking for 20% growth, quarter over quarter plus, and then we really need to get this company to not 100% of 2019, we need to get this company to, you know, it needs to be 110% and more. Tom?
spk04: Yeah, just to add on a little bit, John, you're absolutely right. We've been making investments, as Varam said, to go on the offensive in order to drive revenue growth and accelerate revenue growth. So part of that is, you know, we're at 2,700 personal trainers today. Pre-pandemic, we were at $3,700, $3,800. So we're investing and rebuilding our personal training business to hit those revenue growth goals that Baram laid out there. We've also made big investment into class schedules that have really robust class schedules. And as the membership volume grows, we've got that fixed cost base now established. So as we grow our dues and revenue from here, we'll be able to start getting a lot of leverage from on both our personal training base as well as our overall club operations expense.
spk02: One quick follow-up, just in terms of your capacity, right, on the club opening front, right? So I think the thought was maybe 10 or so a year after 22. The gaining factor, I imagine, is people, right? If you can do sale lease tax, it's not capital. It may not be real estate anymore anymore. Is that the gating factor, and can the organization do a lot more than 10 or 11 a year, or you'd like to hold it to that?
spk03: Yeah. Look, I want to sort of balance the expectation in here, but let me just walk you through. As we mentioned to you guys, these villages that we have developed, Lifetime Living, Lifetime Work, Lifetime Athletic, Country Club, combined all in one, We generally, very, very generally, we are not the developer of the apartment building. However, those, the results that we have from that is one of some of the most disruptive transformations for an industry. We have So many conversations are going on where we basically are going to be developing these very, very large urban athletic country clubs as part of these kind of live, work, play developments. And so our expectation is we're going to get at least a dozen clubs opening per year going forward for the foreseeable future. And then there are other opportunities, John, that is going to happen in the next three, four, five, six months here that I think gives us potentially a chance to pick away on some really good locations in other forms. So my expectation of 12 clubs per year is basically unchanged. Maybe it will be more based on all the opportunities we see, but it won't be less.
spk00: Thank you. Thank you. Next question today is coming from Brian Harbor from Morgan Stanley. Your line is now live.
spk06: Yeah, good morning, guys. Could you just maybe to follow up on that, could you remind us how some of the work, co-work locations and living locations factor into your expectation for 12 this year?
spk04: Yeah, and that 12, that's a 12 club count, John. In addition to that, we'll be opening up, or Brian, sorry. In addition to that, we'll be opening up three additional lifetime work locations this year. Yeah, we're actually very pleased with how the lifetime work is performing for us. We'll also be opening up our second, or actually our third lifetime living location this year in Henderson, Las Vegas. But the 12 that we speak about is pure athletic country club resorts.
spk03: And the results on the livings, again, we, at this point, the asset that we own, which was creating the concept, is Henderson, and it's doing amazing. We'll start moving people in sometime in June, hopefully by June 1st. And we're looking really, really forward to demonstrating one that we have designed ground up. But for the most part, everything we're using that developers come to us, they want to have their apartment building be branded lifetime living because of the differentiation we bring into the format, the higher rents and the faster ramp up, which is a complete game changer for them. and is providing all kinds of additional opportunities for us going forward, mostly in the fact that gets us either additional income on the sites where we have additional land, and they're going to buy that land from us and build apartments. We get the management fee. We get additional memberships, like our location in King of Prussia or Parker, Colorado, or it provides the opportunity to have a better economics for the club that we're going to be building as a part of the whole ecosystem.
spk06: Okay, thanks. And maybe just another question on membership sign-up. You talked about that nice pickup since February and expectations for 2Q. What have you seen that reinforces confidence in that? Have there been above-average you know, normal seasonality joins over the last few weeks? Do you think that, you know, the second quarter of this year could be kind of above normal seasonality? I'm just curious, kind of some of the specifics of things that you've seen.
spk03: I'll give you the best I can do in terms of the specifics, and the short answer is yes, robustly yes. Second quarter will be amazing. We basically gain... significant net memberships in every January partially with the fact that we've always done promotions every two or three days so we really are very very promotional prior to 2019 in January but we're not doing any promotions we're do letting the the quality of our services and programs and our athletic country clubs kind of do the job and it's working extremely well But January, we have had better, so we ended up sort of under heavy, heavy mask and vaccine pressures pretty much most of December, all of January, and then first, I would say, 10 days of February. Then we saw momentum shift. But in February, we actually did more net memberships than January, which has never happened before. In March, we are starting much better than February. Of course, that would be better than January. And the numbers are extremely, extremely promising. The trends are very good. It gives us the confidence to basically... focus everybody on our expectation is delivering no less than what we were expecting delivering in the fourth quarter when we went public. Basically, we think we will recover the impact of the Delta and Omicron coming together and sort of having the government closures and mandates and vaccines, which was very, very disruptive. We are going to make up for all of that by by the fourth quarter.
spk04: yeah and brian i i would just add you know we had we had 44 clubs 44 45 clubs under mask mandates in the fourth quarter and into january and parts of february as we saw those in february starting to get peeled back we saw a really nice increase uh in club usage and our swipe activity and you know even last week we saw about a four percent increase week over week in club usage so we've clearly in the back half of february and first two weeks of march here seen a really great momentum in the usage of our clubs. And, you know, just to give you some examples, in Chicago, the mask mandates came off on February 28th. Since then, the first two weeks of March here, Chicago is leading the pack here on us on membership recovery. So we can just see as all these mask mandates and vaccine passports and restrictions, you know, February was better than January. March is starting off to be better than February. And that gives us a lot of confidence that in the second quarter of this year, we'll actually outperform on net membership gains compared to the first quarter, as well as I expect the second quarter membership change to exceed what it did in 2019 as well.
spk03: And I want to make sure this is understood. This is no whining, no complaining. I just want to state the facts. I had basically repeatedly told people if it was just a COVID, you know, maybe the impact of the virus would on us would have been about 10%. And the remainder 50, 60% of drop in our revenues and it was basically all government interventions. It's the closures, vaccines, masks, all the different pressures they put restrictions that they put on our type of business. It's interesting when you look at our day-to-day, week-by-week data across the country, states that did not do any change in their policies, i.e., let's say Texas, during the height of Delta ramping into, kind of budding into Omicron, those traffics dropped maybe 8%, 7%, 9%. just as a result of the virus itself. And now they've recovered. The clubs that were government invention, the municipality intervention with it, with very hard closures and that, those could have been as much as 20, 30% damage to the swipes and traffic. With this last week now, We are seeing the highest swipe activity, the most traffic we have had since the beginning of this pandemic, and we're seeing improved trends day by day. Do we expect to be at 100% of traffic by the summer months? Absolutely. And we're going to have that traffic at much higher dues.
spk00: Great. Thank you, guys.
spk03: Mm-hmm.
spk00: Thank you. Next question is coming from Brian Nagel from Oppenheimer. Your line is now live.
spk03: Hi, good morning. Good morning, Brian.
spk01: So my questions are a bit of a follow-up to some of the prior questions, but Baram, as you're merging together too, so as you're seeing members now return to clubs, particularly as these COVID pressures or mandates are abating, is there anything different? Is there anything noticeably different how people are returning, how they're how they're utilizing the club, or is it basically getting back to what it was pre-pandemic?
spk03: I see the happiest faces we've ever seen. People don't recognize how their life has changed, and not for the better, while they're being more secluded. And I mentioned to you guys again, there is no match. I have, as you would possibly imagine, some of the best equipment and space in my home for workout. It's never the same. My workout at home isn't nothing close to my workout in the club, number one. Number two, the reason I go to the club is that what we have been focusing on, Brian, brings something that makes me want to take the time to explain this. We have been working, as we've told you guys over and over, to try to create this athletic environment country club experience. And when you come to the club and you see the social fabric of what's happening in our clubs as an athletic country club, and not that there is no other. Lifetime has nearly 30 to 35 million square feet of indoor and outdoor tennis and pickleball and pools. You cannot see, you cannot have an experience like Lifetime by any other path, and nobody can do that. We give the people ability to travel around the country, go to the beach club. You know, I was this weekend in Coral Gables. The remembers from Syosset and East Coast coming to Coral Gables, Havana Nights. Our total experience is so robust that the people have been sort of gotten so afraid of COVID. They just stayed home, their routines changed. When they come back, they're just thrilled. Meanwhile, we did not let this crisis go to waste. And I want to say this again so that we have very candid conversation. COVID is the only thing ever in the history of this company, coupled with all the government decisions, to take us from every year adding revenue and EBITDA to the company. It was the only time that we went the other way. But when there are crises, you do not sit on your butt and say, oh my God, look how bad it is. You think about what's the opportunity. Opportunity here for us to really examine in this path of taking these clubs from really large 100,000 square feet, category killer, what I would say big, big multi-purpose gyms to complete our transformation to this national athletic country club that gives you something that no other country club can. You can play pickleball anywhere in the country. You can play tennis anywhere in the country. You can go to a beach club anywhere in the country. So what's happening right now, our members come and tell us that experience is amazing. They're traveling, and they're making sure the route of their traffic, if they're driving from Midwest to Florida, they're going by lifetime locations and having the specific hotels picked up. So we've taken this as an opportunity to absolutely homogenize every experience to the highest level of athletic country club, more like a four-season execution. We have member concierge in the club and salespeople. things have really improved. Members are thrilled. We have continued to invest in the clubs, not only physically, but programmatically as well. So we have different programs. We have more options. And so far, every reaction is they are either floored that And people come to us and say, we're so amazed the way you guys have handled this. We are more grateful. We're more thankful. So it's really amazing. All I can say to you, I don't see any negative trends. All I see is positive trends.
spk01: I appreciate all the comments. Congrats. Thank you.
spk03: Thank you.
spk00: Thank you. Our next question today is coming from Robbie Holmes from Bank of America. Your line is now live.
spk05: Oh, good morning, guys. Thanks so much for all the callers. It's been really helpful. I have just a few follow-ups. Just, you know, one of them maybe, Bram, would just be as you are recovering people, how much of that is totally new members, you know, to lifetime? And when you see these new members coming in, where are they coming from? And then also just one other follow-up related to this. So it sounds incredible that you're seeing the seasonality kind of shift. after you kind of had to miss the window normally because Omicron. Are you, as you move through the year, are you thinking of some new marketing initiatives that, you know, to sort of, you know, offset the fact that Omicron kind of ruined the normal window in January?
spk03: That's a good question. So typically prior to COVID, we would basically have 21 to 24, 25% of our membership being people who had dropped out and then they come back as past members, they want to rejoin. Right now, that number is more 35% of our membership. It's natural because there are people who are been sitting out for a period of time and then they just get up and come, you know, at some point, something brings them in. And then to your question about Do I feel like we need to do marketing to get there? When we do need it, we will put it in because we're not going to fail our own objectives and goals that we have for the year. But at this point, all of our energy has been to create the best reasons for people to to fill the need having to get up and come to Lifetime. And those are at least a half a dozen very, very specific initiatives that we have rolled out in the last several months. And we're focusing on programs, classes, routines, making things easier, giving the most amazing experiences, creating the most social programs, and all the money, rather than spending it on advertising, we're actually spending less money in advertising or marketing than ever before, and we are getting more results, more memberships, and more average dues. And simply, we're seeing no Complaints, no mention of the price changes. People are coming back to a club that was $89. Now they're paying $119 or $129. And there isn't a singular question, why is this this much? It's literally just rolling right in. So all the churn is going to benefit Lifetime because we were so, so, so underpriced. And we still have tremendous pricing power, even from where we are putting the rack rates right now, we have tremendous pricing power from here forward based on the fact that once you go to the direction of customer coming into you because of the experience, the price just doesn't matter. When you are focusing on price and promotion, then the price does matter. But right now, all of our strategies are working robustly. They're not just working, they're working robustly.
spk05: That sounds great. Thank you.
spk00: Thank you. Next question today is coming from Dan Pulitzer from Wells Fargo. Your line is now live.
spk07: Hey, good morning, Baram and Tom. Thanks for taking my questions. So just, wouldn't it hit on some of your recently opened centers? If you could talk about the ramp there, maybe any data points or color you can provide, you know, especially the ones in the higher cost of living areas, such as Coral Gables or NoHo. And also, similarly, do you still expect kind of a four-year ramp there to reach a normalized revenue, or do you think that there could be maybe some upside? Thanks.
spk03: No, I think they'll ramp in three years or less. We used to give – I remember from the time Robinson and I used to be here and talk about this. We talked about clubs getting to 90% of their membership capacity within four years. Right now, I think we get to the 90% membership capacity definitely short of 36 months. Our systems are so much more robust in – creating the wait list for a club prior to... We had 9,000 people on a wait list for our Frisco club we just opened. That club will reach a million dollars of dues faster than any time in the past. That's a million dollars of dues in a given month. So we are seeing amazing, amazing results in our other club we just opened in River North in Chicago. If you guys ever get a chance, to go to any of these clubs. I strongly recommend you guys take the time. You will see the level of this sort of a high-end athletic country club field, the social fabric, the distinction of all the amazing programs. They come to life in a way that they just naturally work. They don't need anybody to sell it. They don't need any marketing for them. They're just coming. But the ramps are going to be closer to the 90% of the capacity of the club, I think, will happen all in short of three years.
spk07: Got it. Thanks. And just for my follow-up, in terms of your guidance, I know you guys gave a lot of helpful color. We are coming out to somewhere around EBITDA or the mid-500 range based on your commentary. I mean, is that just – obviously, a little bit is from a little bit softer first quarter, but Can you just talk about maybe the puts and takes to that versus maybe your prior guide and when you were kind of going through the process of going public? Thanks.
spk04: Yeah, I'll start. It's really just the temporary delay due to Delta and Omicron of pushing the recovery back, you know, one to two quarters. So from a strategy standpoint, from an execution standpoint, everything we're trying to do, Dan – we're still working extremely hard. And as Ram said, our goal is to drive this to get the revenue levels back in the second half of the year so we can get back on track of where we thought we would be pre-pandemic. So to me, it's really just the really Delta Omicron impact, no change in strategy, no change in execution, and all the new initiatives that we've been investing in will start to take hold here in the second quarter as we really see an acceleration of memberships and then hold on to them throughout the rest of the year.
spk03: And the most critical number that I am driving, the most critical focus number is where the jumping off is from 2022 to 23. So I will not sit still until I know we're going to beat the you know, the numbers we had in our projections for December of 2022 for, you know, we had, when we went to met with all of you guys, we're going to do everything pretty confident with execution of our plans. We will beat those numbers for December of 2022. Now why that's important, because as you guys know, two thirds of our revenue is subscription. And if you have that subscription robustly ahead of where you wanted it to be, that will repeat itself going forward into the following year, month after month. So all the strategy here is focusing on, as I mentioned earlier in the call, to get the revenue of the company to 100, then 110%, then 120% of 2019 revenue. Now part of that is we need to have bigger revenue, and we will, on every single club than we used to have because costs are higher, obviously. Utilities are higher. Payroll is higher. So you really have to have a bigger revenue to make up for those. We have a solid plan to get there. And then you also have the additional clubs that are opening up. So hitting 2019 revenue is nothing to brag about. We're going to get there. We're going to go past that. But the most important thing for everybody is to focus on the fourth quarter because the fourth quarter is when we have to, and Tom and I, the rest of the management team, is bent out of shape to make sure we will recover every impact of what happened in the first two, three months of the year, December and January, February, we recover for that and make sure almost as if it didn't exist by the time we get to the fourth quarter results.
spk04: And, Dan, just to close it up, you know, what gives us really a lot of confidence is those parts of the country where we've seen less restrictions and mask mandates, such as Texas, the Heartland Mountain regions, you know, we're recovered in that 90 to 100 percent in February type of ranges. So that gives us the confidence as the New Yorks and Chicagos and the other parts of the coast, you know, have eased up now here in February that we're going to recover those clubs to that same percentage as rapidly as we can.
spk03: We'll expect to have at least a dozen clubs to be surpassing 2019 dues numbers by end of March. And those are, just like Tom said, those are the markets that they were the least restrictive to us. So as you go back, the markets have been more restrictive. It doesn't mean they don't come back. It's just going to take longer, but but hopefully now through the summer with much steeper recovery on those markets. And we are seeing some of that trend as well, by the way.
spk07: Understood. Thanks so much. Appreciate it.
spk00: Thank you. Next question is coming from John Baumgartner from Mizuho Securities. Your line is now live.
spk09: Good morning. Thanks for the question. I guess maybe first off, I'm curious, just getting more specific as to how inflation is impacting business at the margin. What are you seeing in terms of labor availability and wage pressures? How is that tracking relative to your views maybe back in October? And then second, just given the acceleration of broader inflation here around the economy, how is it, or is it, I guess, evolving your views on pricing power relative to what you were thinking last summer? I mean, it sounds like, Brian, it sounds as though right now you're not seeing much elasticity, but how are you thinking about an incrementally stronger pricing power sustaining at this point?
spk03: Yeah, I have no concern about pricing power for us. We have always sort of underpriced too many things from membership to some of the in-centers and food, et cetera, in our clubs. But now that we are focused 100% on this super high-end delivery, as I mentioned, homogeneously, And we continually test. No decision you make is going to be like sending a child to the moon. If you're wrong, what happens? Nothing happens. If you price something $2 more than you should, if it doesn't work, you bring it back down $2. So we have a dynamic pricing strategy here. We test and see where we find. We don't want to make the customer feel like we're nickel and diming them. We don't want to make the customer feel like we're taking advantage of them. But the customer completely understands that. where the cost of, you know, every cost of the food has gone up and the payroll has gone up. They don't care. They don't care as long as you're giving them the right product and the right service. So as far as our advantage, our brand is so loved by our team members, by members. We have the least issues with staffing than others. I hear from any other business owner. People want to work for a lifetime. You know, 16-year-olds, 17-year-olds, for $5 less an hour, they would much rather work for a lifetime than they would work for McDonald's or somebody else. So we have the least amount of problems. We have some issue, but it's not monumental. It's not something we cannot overcome anymore. because of the quality of our brand. But we expect to see probably $10,000 to $15,000 a month per club, additionally due to the payroll increased cost and the hourly staff. However, we did these transformations, like we mentioned to you, transforming the membership sales, member services desk, and the front desk, all into this member concierge. With that and our credit card fees, kind of a policy that we have put in place, we basically are looking at clubs that they're now catching up to where the dues was before, between what we've taken out versus what we have to spend more in, by the time we have the PT in the right kind of matching revenues and margins, we're going to be able to produce the same kind of margin despite all the challenges in the labor, cost of goods, et cetera. So we feel really, really good.
spk09: Well, thanks for that. Just along those lines in terms of, meeting consumers' needs. I'm curious, in light of your announcement regarding the Aurora program for the active adults, your prior demographic efforts have been concentrated on programs for younger cohorts, kids and teens. But can you discuss this program a little bit more? What are you seeing from that demographic that drives the initiative? To what extent do you think it can enhance membership growth relative to just sort of, I guess, being a tack-on offering at the margin for existing members? And when you think about your programming across generations, Where do you see the largest opportunities for growth and the largest paybacks moving forward? Thank you.
spk03: That's a great question. So this is an activity that was taking place in our clubs sort of episodically. We have some relationships with a bunch of these companies who pay for this active age group, 55-plus people. It's sort of the community, but, you know, there is the programs that, you know, the companies, insurance companies are paying for 65 year and older, like a silver and fit, et cetera, or silver sneakers. We were doing those, but we weren't doing them in a sort of a holistic approach with a branded programming and bringing a sort of a texture. So the Aurora Club, is an opportunity to double and triple that population, program them specifically in the hours of the club where we have the best opportunity to bring those people in, where the club is being the most underutilized. But how we're doing it is by really building this two, three, four, five hours of programming, social and academic, different kinds of activities from pickleball to swimming to this to that. We bring in all of those coupled with social hours, so social coffee, that's the deal, and then fully branded. So we've been working on it for half a dozen months, formulated the brand, went out to this market, did the research, talked to all these people. see what they like, what they don't like, how we can, and then we work the program so it does not interfere with other programs we want to deliver in the club, but basically uses the opportunities we have to increase the traffic and the revenue, swipes and traffic. So everything we're driving here is swipes, subscription, and revenue. Swipes, subscription, and revenue. And this is one of the six programs we are running. to kind of make sure we achieve the objectives we have. And so far, it's going fantastic.
spk00: Great. Thanks, Tom. Thanks for your time. Thank you. Thank you. We've reached the end of our question and answer session. I'd like to turn the floor back over to management for any further or closing comments.
spk03: We're grateful to all of you guys, the attention, the focus. We're excited to take the remainder of this year. And as I mentioned, the focus is not on revenue recovery. The focus is on steep revenue growth, both recover and then get way past beyond. We appreciate the support. We're looking forward to see you guys on the next call, which I think the results will be significantly in line with the kind of growth expectations we have. So thank you, Tom.
spk04: Thanks, everybody. Have a great day. Talk to you soon.
spk00: Bye. Thank you. That does conclude today's teleconference and webcast. You may disconnect your line at this time and have a wonderful day. We thank you for your participation today.
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