Life Time Group Holdings, Inc.

Welcome to Lifetime Group Holdings Incorporated's third quarter 2025 earnings conference call. At this time, all participants will be in listening mode. The question and answer session will follow the formal presentation. If anyone should require operator assistance during today's conference, please press star zero from your telephone keypad. Please note, this conference is being recorded. At this time, I'll turn the conference over to Conor Weinberg, Vice President of Capital Markets and Investor Relations. Thank you, Conor. You may now begin your presentation.

Good morning, and thank you for joining us for the third quarter 2025 Lifetime Group Holdings Earnings Conference Call. With me today are Barah McCrotty, Founder, Chairman, and CEO, and Eric Weaver, Executive Vice President and CFO. During the call, we will make forward-looking statements, which involve a number of risks and uncertainties that may cause actual results to differ materially from those forward-looking statements made today. There is a comprehensive discussion of risk factors in the company's SEC filings, which you are encouraged to review. The company will also discuss certain non-GAAP financial measures, including adjusted net income, adjusted EBITDA, adjusted diluted EPS, net debt to adjusted EBITDA, or what we refer to as net debt leverage ratio, and free cash flow. This information, along with the reconciliations to the most directly comparable GAAP measures are included, when applicable, in the company's earnings release and earnings supplement issued this morning, our 8K filed with the SEC, and on the investor relations section of our website. With that, I will turn the call over to Eric.

Thank you, Connor, and good morning, everyone. Starting with our third quarter results, total revenue increased 12.9% to $783 million. Average monthly dues grew 10.0% year-over-year to $218. Comparable center revenue grew 10.6%. We are proud of the sustained growth in our comparable center revenue, driven by continued strong performance in both dues and our in-center businesses. particularly in our dynamic personal training. As a result, we have raised our full-year comparable center revenue guidance to be between 10.8 and 11.0%. We ended the quarter with nearly 841,000 center memberships, including on-hold memberships. Total memberships reached approximately 891,000, in line with our expectations. Net income for the quarter was $102 million, an increase of 147%, and includes an approximately $5.7 million tax-affected gain on sale leasebacks. This compares to a $3.5 million tax-affected loss in the prior year quarter. This quarter's net income also benefited from $16.2 million in tax-adjusted proceeds from employee retention credits received under the CARES Act. Adjusted net income, which excludes the impacts of gain and losses on sale leasebacks, share-based compensation, ERC credits, and other non-recurring items, was $93 million, up 65.2% year over year. Adjusted EBITDA was $220 million, an increase of 22%, and our adjusted EBITDA margin improved by 210 basis points to 28.1%. Net cash provided by operating activities rose approximately 66% to $251 million compared to the prior year quarter. Our consistently strong cash flow from operating activities remains a key driver of our long-term growth strategy. Free cash flow was $63 million for the third quarter. In Q3, we closed on the sale-leaseback of one property, generating net proceeds of approximately $34 million. We expect to complete between $55 million and $65 million of additional sale leaseback transactions before the end of this year. We delivered another strong quarter and remain encouraged by our continued momentum as we approach the close of a successful year. We look forward to giving everyone a preview of our full year 2025 performance and our initial thoughts on 2026 in the second half of January. With that, I will now pass the call over to Bram. Bram?

Thank you, Eric. We are pleased with another quarter of a strong performance and growth. Thank you as always to our 43,000 team members. The core of our success has been our team members and our consistent delivery of the best places, programs, and performance to our members. Our growth strategy is clear. First, accelerating new club growth. Second, continues our maniacal focus on member experiences, growing member engagement, and revenue per center membership. With the balance sheet strong and our net leverage ratio below two times, we remain well positioned for our accelerated development and construction of new clubs. We expect to deliver 12 to 14 new clubs in 2026 and beyond. This is our new baseline of new club growth. We're particularly excited for the next year's new club openings. 11 of the 2026 clubs are large format. 13 clubs scheduled to open in 2026 are currently under construction, which provides great visibility for these openings. For more details on these locations, you can refer to the earnings supplement posted to our website this morning. As it relates to the second part of our strategy, which is growing membership engagement and revenue per center membership, membership optimization is increasingly important as clubs are busier than ever. As highlighted in our earnings supplement, this includes, one, improving the mix with more couples and families, and two, limiting qualified memberships in certain clubs. Our strategy is working as evidenced by average monthly visit per membership reached 12.5 for the quarter, up 5.9% year over year. Total visits are up 7% year over year for the quarter. Revenue per center membership is up 11.3% year-over-year for the quarter, and in-center business revenue is up 14.4% year-over-year for the quarter with the particularly strong growth in dynamic personal training. Our strong performance and increase to our year-end revenue net income and adjusted EBITDA guidance are direct results of our focused strategy on growing revenue and adjusted EBITDA by delivering the best programs and experiences in every club and optimizing memberships. Given the high club utilization, we expect to further manage our membership mix to continue to increasing revenue for center membership and anticipate an additional seasonal decline in membership units in the fourth quarter. Finally, a couple of updates on our growth accelerators. We now have 2.75 million non-club members LT digital accounts and expect to cross 3 million by early 2026. More importantly, we are very excited to release new features and capabilities offered by Lacey, our AI health companion for both our club members and our non-member digital subscribers by end of this year. Our trusted nutritional brand, LTH, continues to grow year over year, and we are expanding our product lines. And we expect to add four to five new mural locations in various clubs by early 2026 as we continue to see progress in our first two locations. With that, we will now open the call for questions.

Thank you. We'll now be conducting a question and answer session. If you'd like to ask a question at this time, please press star one from your telephone keypad. The confirmation tone will indicate your lines in the question queue. You may press star two 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 the star keys. Thank you, and our first question comes from the line of John Heinbuckle with Guggenheim Partners. Please proceed with your question.

Hey, Buram, I wanted to start with the In-Center Revenue Opportunity. Where do you think, because the spend is still a small part of what your customer's wallet is, where do you see the biggest opportunities? And I think about DPT penetration. How much upside is there to that from where it is today? Hello, John.

How are you? Good. Our personal training program is absolutely doing an amazing job Under the positioning, branding, DPT, the particular execution of the team all the way from the corporate office under the leadership of Ryan and then everybody who works with him, as well as the focus in the clubs from our RVPs and our lead generals all the way to the PTLs, we are executing a detailed plan and the results are incredible. There are many clubs that they're setting new records month after month. And then there are other clubs that they're basically following, seeing what's possible and executing. So I think that possibility is right there and we are very, very, very pleased with what they're doing, and my hat's off to all of them. There's still opportunity there. As we have mentioned on the other in-centers, there are our cafes and our spas, and both of them showing some strength in the execution of the certain strategies But like when we rolled out dynamic personal training, dynamic stretch, and all the different new concepts and ideas, it actually took roughly about six to 12 months before you start seeing the momentum change. And so we expect to see this momentum change early next year on the cafes and spas. So I feel like we have plenty of room there. And then, as I mentioned in my remarks, we've been working diligently on Miura and LCH, both of which have been in an early stage testing development, introducing new products, seeing how people like it. And then we're going to really put pressure on growth and marketing of those in 2026 and beyond. So we feel really, really good about all aspects of the business, John.

And then as a follow-up, right now that you're starting to get really good momentum in the club openings, how do you think about prioritizing beyond 26, you know, different channels, ground up, club takeover, et cetera? And, you know, do you have sort of a number in mind that you, in the intermediate term, you would prefer not to exceed in terms of maintaining a healthy level of execution? Yeah. Yeah.

So I think the, as we stated this morning and earlier, the new baseline is 12 to 14 clubs for right now. The pipeline is super strong. The real estate team is again doing an amazing job. And I am super, super excited about what we have on the pipeline. And the management of those you know what we you've asked and we are providing supplement material for you online so you can see a little more visibility the club openings where they're coming from we we will have variety of facilities our urban clubs are doing incredibly well everything we've opened up in Brooklyn in New York in They're all doing really well. And our suburban clubs are doing better than ever. These clubs are ramping faster and clean memberships, which matches the way we like the company being positioned from the get-go. So I don't have any. We have really, we had balance sheet restraints last year through the first half of this year. uh because we just really wanted to make sure we deliver the double b credit standards uh we've delivered that the target as i've always mentioned for the debt to ebitda is under two times and we have now a significant opportunity to grow the business we can do a bunch of grow roundups and take them to the sell-leaseback market at the right time. So we have all kinds of flexibility on growing the business, and I'm super excited about that.

Thank you.

The next questions are from the line of our PNIC coach, Aaron, with UBS. Please receive your questions.

Hi. Thanks so much for taking my question. You raised comparable center revenue guide, and what that implies for Q4 is actually nicely ahead of expectations. But there is this near-term debate among investors about sort of average member percentile growth and how that ties to your revenue same-store growth trajectory, essentially really going back to the question of price and ability to take price as investors are increasingly more worried about macro. Is there any way you could give an update on your current thinking on how you maximize revenue without leaning too much on percentile membership, which I think you're sort of trying to control more? And then I have a quick follow-up.

Let me take a little bit of that and give it back to Eric so both of us speak to this. The focus of the company has been brand and member experience. Deliver a brand that is unmatched. Deliver a brand that the customer wants it and wants to be a part of it and does not want to get away from it. When we went public a second time, our materials suggested repeatedly we're focused on memberships from 90 days old to 90 years old, and basically trying to provide incredible programming for all of these people. When we came right out of COVID, clubs were at about 40%, all clubs, about 40%, 50%, 45% of the membership capacity of the clubs. So we basically took in of through all the programs, all the different types of memberships that we bring in to have enough traffic in the club, enough swipes in the club to make sure you run the programs. As the clubs have reached this optimum level of utilization. So many of the clubs are operating at the very, very parking lots are full, clubs are busy. So now in all of these clubs, the opportunity is in membership optimization, which basically means you manage to get more revenue per membership. Sometimes that means you focus on getting full-blown members, family memberships, which very, very high average use, and you select to restrict the number of memberships you get from third-party discounted programs. So we are constantly going to manage the total experience of the customer. We're constantly going to manage the brand. We're constantly going to manage the growth of revenue on EBITDA. And that is really what the company is focused on. It's a little less focused for center membership units because that is going to fluctuate with depending on club by club based on the position that club is at at.

Yeah, and just to add to that, you know, Bram talked about mix and he talked about engagement. You know, if you see in the supplements that we provided, you can see there's that shift happening where we're getting, you know, more couples and families. And so, that with the increased utilization is requiring fewer memberships for those clubs to reach the desired utilization. In fact, if you look forward to next year's pipeline and the year after, those clubs are actually getting business planned with units somewhere in the range of 3,500 to 4,000. And so again, it's just a testament to the utilization and that improving mix requiring that smaller base.

Many of the new locations are basically positioned in a way that they're ramping so fast with just the full price paying type of memberships that we basically do not open it up for restricted memberships or qualified memberships or, you know, third-party paid memberships. So that really what I want to tell you guys, we are going to continue to emphasize revenue growth and EBITDA growth in every single club.

And one last comment on that. As we, you know, we hit those targets, you know, we're still papering those things to do plus 30% cash on cash return. So the unit economics are still extremely attractive and in some markets, you know, can be better. So just wanted to call out that that's all part of our growth algorithm.

That is very, very helpful. Thank you. Just a quick follow-up. You know, you mentioned all centers you're targeting to open next year. are mostly under construction currently. Whether you're at the lower end versus the high end of that range, what is that a function of? Is it just sort of construction timelines making it to next year or kind of more tied to, say, leaseback cadence that you're looking at for next year?

Yeah, we're pretty comfortable that 13 of the 14 are for sure. And one club may end up you know, a month earlier or a month later. And we're just making sure that what we're telling you is accurate. But the goal has been 12 to 14 clubs. And, again, as I mentioned, 13 of them are pretty firmly in the pipeline. It's going to take some monumental event for them not to come out during the year.

Very helpful. Thank you.

Thank you. Our next question is from the line of Brian Nagel with Lampenheimer Company. Pleased to see you with your questions.

Hey, guys. Good morning. Great quarter. Congratulations.

Thank you. Thank you.

First of all, stepping back, obviously we're seeing the numbers today and your commentary is extraordinarily positive, but just given the concerns out there amongst investors about consumer dislocations, so the question I want to ask is, as you're looking at your business, are you seeing anything, anything geographically income cohort that would suggest some type of weakness or growing weakness in your consumer base?

Look, as you can appreciate what I am proud of with our team and again it's really all about our team from the very very top level executive team all the way to the people who run the clubs it's just an incredible passionate passionate commitment to delivering a place that people want to go to and enjoy as we look at the company's history over 35 years we have opened clubs in a variety of markets. And right now we are largely opening in a more affluent markets. When the memberships were, you know, $39, $49, $59 a month, you know, there were markets that were well suited for that. And they're not really well suited for $290 to $350 a month memberships. So the interesting thing, Brian, is that all the clubs are making money. All of our mature clubs collectively are making more money than they were making in the past. So all the execution that we have put in place is working. The consumer that goes to Lifetime chooses Lifetime because of all of its differentiation. And that exists in Omaha, Algonquin in Chicago suburb, it does also in New York and in Florida and in California. But do we manage all of these the same? We have the same strategy to be the best provider, but it takes different type of programming and techniques to try to continue to manage each and every one of those locations. We are not seeing any new trends. We're not seeing anything different than the past in terms of how the customer responding to what we are delivering right now. We keep thinking that that might change and we keep hedging and embracing. What if times got tougher? So we have strategies laid out, but we're not seeing anything at this point. Eric?

Yeah, no, I would reiterate that. I mean, we've talked about DPT, you know, new business revenue in September was, you know, the highest for that quarter. Same thing in our spas, revenue per technician was up and our group fitness classes on average were up 7.6%. So by all indications, we're seeing exactly what Ron was talking about.

That's very helpful. I appreciate all the detail on that. My second question, just with respect to capital allocation. So it's great to see now we're ramping new center growth. You talked about the 12 to 14 for 26, and most of those now under construction and such. So the question I have is, to what extent, especially with at least some ideas, the stock underperforming, languishing relative to some very strong fundamentals, to what extent are you thinking about potential, using capital potentially to buy that stock here?

Yeah, so I'm gonna respond to that. Number one objective here is to remain extremely strong on the balance sheet so the company has all kinds of options in any kind of environment, okay? But if the environment gets tough, we wanna be in a win position. Environment gets stronger, we wanna be in the win position. And based on where we are today, we are still adding, even if we do 350, 400 million of sell-leaseback next year, we're still adding net asset value. We're still building more new assets, new club development, more money spent than that, then we are taking the sell lease back. So basically, the company continues to get stronger. So at some point, this is a board discussion to decide, you know, should we be buying some stock back? That's definitely on the table for discussion at the board level. No decision has been made at this moment. But All options are on the table, the company is super strong, and that's exactly what we like. We like to have this opportunity to basically go one way or the other if we need to. The main focus right now is to step on growth and make sure we have the ability to keep delivering these clubs, and as I mentioned, 11 of these 14 clubs are ground ups, so they're taking substantial amount of capital to build them. We're gonna continue to invest in our programming and remodernizing the clubs to make sure all clubs are adapted to all things people are looking for in total health and wellness today. So we just like the flexibility, but every option is on the table.

Thank you very much. I appreciate it. Thank you.

Our next question comes from the line of John Baumgartner with Mizuho Securities.

Good morning. Thanks for the question. Good morning. First off, Bram, I'd like to ask about relative value as you see it, because fitness industry dues are moving higher across multiple concepts for the first time in years. And I'd imagine that some of these concepts, the boutiques, the studios, their prices are increasing, but the offerings aren't really evolving much to match that. So I'm curious, are you seeing anecdotally anything that's pushing some folks or stimulating more interest from folks to trade up or into lifetime because of that value gap? I realize the number of members isn't necessarily your main KPI focus, but have you seen tipping points historically in that relative value versus other concepts where you capture more market share of that sort of high quality engaged consumer that you prioritize?

Yeah, we're totally seeing that happening in our clubs. I mean, when you look at our urban markets where there are many studios offerings, we're really not seeing any impact. Nobody's leaving Lifetime to go to studios. But on the reverse, we do see the reverse of that taking place. So overall, despite the transitioning of the company to the super high end, which was part of our multifaceted strategy after COVID, to completely reposition the company to the highest level and the best programs being delivered under one roof, everything's working. Really, the clubs are, as evident by the utilization of the clubs, the clubs are having more utilization than they've had ever before with significantly, and I mean significantly, sometimes literally 50% of membership count of what they used to be at 2019. And so the utilization is the higher. The customers are using the club a lot more. They're seeing the value in the business. They appreciate the brand. They see the differentiation. So the strategy is working.

Lifetime is working. You mentioned relative value. I mean, if you look at the relative value for, you know, we're seeing more couples and families. If you look at, you know, our pricing model, there's still significant value proposition there when you think of all the amenities that come with a membership. And when you compare that to, you know, a studio or what have you, all you need to, you know, one or two studios, it's not long before, you know, that's going to be in excess of, you know, what a couple membership would be. So the value proposition is still very, very strong. And that's what we're seeing.

Great. And in my follow-up, back to LTH Nutrition, I think the strategy there is for more of a phased rollout. But I'm curious, Bram, your perspectives following the Consumer Reports investigation into the contaminants and supplements, especially the protein powders, does that lead you to revisit how you build this business? I mean, is there an opportunity to lean a bit harder, especially with non-lifetime households, to leverage your third-party purity testing and kind of grow or market this business a bit more aggressively or differently?

It's a brilliant question, and that's exactly the strategy for 2026. So here is what we have been doing. We did not own a lifetime nutritional brand. Some company had this before we established the name Lifetime until last year. So if you look at our materials, you see we actually had the opportunity to buy that brand and that create the opportunity to make sure that the LTH and Lifetime brand can basically be synonymous, which we haven't been able to execute in the past. So that was one strategic move. The second piece is to basically take our product offering and make them look more unified because a lot of the work we did with Lifetime started by looking at the nutritional space and seeing how the lack of regulation in nutrition space has created so many products that actually do not have the proper manufacturing, the proper third-party testing, which is expensive, so people just don't do it, and basically they have either not the stuff that they claim they have in their product or they have contamination. So our strategy in the company has been, will remain forever. For 30 years after I'm gone, the strategy will remain to be the best. If we're not the best, don't do it. If we're not the best provider, don't do it. So we basically put a significant amount of energy in making sure every product is formulated correctly, We test them. Look, there are, as an example, when you think about protein powders, there are certain vegetables you eat that they own heavy metals. So basically, heavy metals are going to come in through different foods that you eat. Now, the key is to make sure you have incredibly safe minimal amount of that if there is any in them. And we basically have some of the absolute best, cleanest, and we test them. So to your point, what we needed to do is we need to kind of get everything lined up, make sure the packaging becomes more consistent. That's all on the way throughout the end of this year, early next year. And test the success of the product. I mean, our nutritional products like our dream for sleep, I can tell you personally, it is absolute home run. We launched it, it immediately is doing great. And so there's some level of methodical development and testing and feeling out what products are working, repackaging. And then the strategy for 2026, as I mentioned before, is to completely and entirely press on. And maybe spend some, you know, we're not spending a lot of money on marketing as you guys have known. And then maybe it's time to start spending some dollars on marketing. But we're probably three, four, five months premature to basically getting there. Right now, we're seeing all the growth within our facilities, our facilities, team members and members are recognizing the superiority of these products, the trust that they can have for the brand, and we want to make sure we test and examine that, use lifetime as the beta before we go to the outside world.

Thanks, Brown.

Thanks, Eric. Bye-bye. Our next question is from the line of Kate McShane with Goldman Sachs. Please receive your questions.

Hi, good morning. Thanks so much for taking time Our questions, these questions kind of verge a little bit into 2026, so I'm not sure how much you can answer at this point, given that you're not giving guidance. But we wondered, of the 13 clubs that you have under construction, we know there's a nice list of them in the presentation today. We just wondered what the breakdown was between new and existing markets, and if there was a little bit more in the new markets, what does it mean for marketing spend into 2026? And then just our other question, unrelated, was just about expenses in general, what you're maybe seeing or expecting on the labor side of things as you go into 26 and newer markets.

Those are great questions. Let me take the first one for you, Kate. When we build the ground-ups, In any market, new or old, it makes no difference. They work exactly the same. If you think about lifetimes, how long it's been in existence, and 30-some years, and the amount of loyal customers who love lifetime. But let's say they move to San Diego, and now we have nothing in San Diego. When we open clubs in new markets, they are just as robust as opening another club in Dallas. So I don't see right now any sort of a difference. We haven't seen. We're seeing great success and similar success in new markets as well as the established markets. And then as far as the expectation of wage growth, look, I believe that as the cost of living increases, wage growth is absolutely a given. So we basically model all of those things into our, while we're not going to give inner quarter guidance or 2026 guidance, the team is very, very incredibly thoughtful, led by Eric and the rest of his financial team, our president of Club Operation, PJ, and all of our analysts. We are working diligently on thinking about what are those items that can cost more, what are the things we can do to mitigate if there is opportunity to like hedge on the energy or this or that. So our team is doing an amazing job. Credit goes to all of our team, like in our insurance, healthcare insurance is managed amazingly by our team. None of that credit, zero goes to me. Everything is going to the team, is doing a maniacally great job on all aspects of the business. But it's given. I mean, as you see cost of chicken going up, as you see all the different inflationary costs to the consumer, I think the team member who works in the club also needs to have a pay increase in order to get through life. And that's all planned for.

Yeah, and I would just add to that, to your point, we'll give 2026 outlook here at the end of January. You know, as far as labor expenses in our centers, you know, those have been trending roughly around, you know, at the level of CPI, 2.5%, 3%. And, you know, we wouldn't expect that to be any different. You know, Bram mentioned utilities, of course. You know, utilities with energy demand, there's always going to be, you know, potential for increase there. But we do a number of things to hedge and rate lock in a lot of our markets. So I would say we've managed exposure nicely there. And of course, R&M, supplies, COGS, those things will always be subject to regular inflation. But for the most part, I think we've done a nice job of managing a lot of those risks.

And I want to add a comment. Look, I talk to investors all the time. Our environment is dynamic. Our world is dynamic. Things change. Sometimes they change slowly. Sometimes they change fast. rapidly and you need to constantly be ready for adaptation and this team is doing an amazing job of thinking about adapting as necessary and we're very very very proud of what the team has been executing uh over the last several years with that we'll just deal with the future as it comes

Our next question has come from the line of Eric Deloyers with Craig Helm. Please receive your questions.

Thank you for taking my questions, and congrats on another very impressive quarter here. I wonder if you could expand a bit more on dynamic personal training. You know, I've certainly been a driver of in-center growth for a few quarters now. Could you just expand a bit on what changes have been driving that growth? And then maybe even more importantly, how should we think about capacity in terms of continued growth in DPT? I mean, do these personal trainers have a lot of capacity to add new clients? Are they pretty much booked throughout the day at this point? Just kind of help us understand a bit more how to think about the capacity for continued growth.

That's a really, really complicated question. The response isn't going to be something you like. There are some trainers who are booked solid. They don't have another hour to sell. So their opportunity is to adjust their price up a little higher and charge a little more. Sometimes they do. And sometimes because of their loyalty to the customer base they have, they don't. It's their call. Some trainers are new. They come in. We have a great opportunity right now with the Lifetime brand, the DPT, the clubs to attract really, really, really solid people for that business. We have an incredibly robust program for them. The top performers get compensated extremely well, taken care of really well. and we're continually adding to the number of productive trainers at a very good pace. Some clubs are doing PT, dynamic personal training, revenues that are record-breaking month after month, and some clubs have opportunity to do significantly more than what they're doing based on their particular location and their membership base and their dues base. So it's a managing, and it's not the simple answer for the whole company as a whole. It's club by club, location by location, trainer by trainer.

That's helpful, and it certainly sounds like there's room for this to continue to be a growth driver, though I appreciate that it certainly varies center by center. Next question for me, just on the decision to expand to more locations, Can you comment on what you're seeing from the few that you have open now and just expand a bit more on that decision? Thanks.

Yeah. So the decision, you know, we kind of set the bar a year or two ago is about 10 to 12 club openings, balancing that with some, you know, acquired clubs that had a great opportunity to kind of convert those And all of that was to sort of balance two things at the same time, the club growth and the balance sheet to the safe, safe, you know, double B level credits. We were just kind of delivering on two objectives. You know, we achieved our double B credit, you know, a year ahead of what would have been expected. I'm proud of the team for executing that 100%. And then as soon as we did that, the focus was come back, look at our pipeline, and see what could be expedited, and then take that into the equation. And that was the change. And now, as I mentioned to you, the balance sheet is strong. Our number one priority is growth. We had a significant amount of, we told all the investors over and over in 23, 24, 25, we had significant opportunity to grow all of the clubs, re-ramping a lot of clubs because they had lost. And with a clear understanding at some point, the clubs will get to a high level of utilization, and then you need to sort of get your growth coming in from new center growth. And so that is now part of the plan to grow the new center. As I mentioned, we have been working on our digital strategy as well. I know we didn't spend a lot of time on it, but I am super, super excited about the work our team is doing to deliver an amazing experience for AI to make the life of the member significantly easier with basically a pretty robust unveiling of the features that come in late December, January, February of this year, is how we can do things so much easier for our customers in the club through AI, as well as what AI can do for digital subscribers who are getting all of this for free, and the reason we're doing that is to make sure the Lifetime brand is reached to people who are within our club vicinities and the people who are outside of that. And then, of course, we hope to establish opportunities with a much easier way for people to share a link on, hey, why you should take Lifetime's protein powder versus others, and then the people can just click and purchase that. So there's a lot of different works being done that basically is established to help the overall growth of Lifetime as a healthy way of life, health and wellness, full service of all aspects of healthy living, healthy aging. Additionally, you know, our MIORA offering, which is the longevity, you know, we have been at the sort of R&D stage for the last year. The results have been exactly in line with what our expectation is, is we need to establish the relationships, get the doctors, bring them into the facilities, and then get the providers, which are the nurse practitioners or physician assistants, get them fully trained, and then take them through our approach of metabolic code and do that program. That program is going really well. It's right on schedule. We're expecting to open four to five additional locations in different markets in the next 90 days and then roll those out and then it starts rolling that out much more aggressively by the end of 26 into many many many more markets so we're going to continue to look for ways to adapt the business to what the customers are seeking make the adaptations necessary to provide that make the adjustments in positioning the company into the market, so it's the highest premium product in the market, and sort of address the customer who wants that quality and they're not willing to sacrifice the quality for anything. And that strategy has been working as evident to your results, and we're going to continue to stay on that strategy until we see a need to come up with something different. Right now, we don't.

That's all very helpful. I appreciate the color. Thank you.

Our next question is from the line of Owen Ricker with Northland Securities. Please see if there are questions.

Hey, Brian, Eric. Thanks for taking my question here. First, where do lifetime living and lifetime work fit into your roadmap going forward? And maybe how should investors think about their contribution to growth over the next several years?

That's a great question. Lifetime work actually, you know, from the separately unique locations that is specified lifetime work, you know, they're working, they're working just as good as our clubs are working. They're not really a big factor in the overall number. However, the opportunity there remains asset light When we can fit them in right next to the club, adjacent, we have similar success. Waitlist for them, they work great. What's interesting about that is that we have kind of launched the Lifetime Work Club Lounge, which is basically a more expanded opportunity within our existing clubs, just part of the membership. And it's really interesting to see how well that works. And we continue to make adaptations in existing clubs that just helps the regular membership. Lifetime Living, it is clearly a superior performance in terms of we have six, seven locations that basically have lifetime living. Every single one ramp faster, every single one of those will have a higher rate per square foot, and every single one demonstrates better retention than regular apartment business. So it's truly a disruptive plan. It benefits from the 200 billion of lifetime impressions per year. And so We are working, though, on either ways to provide the capex for that that is more or less off Lifetime's balance sheet and using the Lifetime's balance sheet and cash flow for building our regular business, which has a massive IRR after Seldy SPAC or sort of a fully leveraged as you guys know, it's a great IRR. The apartment business, even if we are 25% superior to the apartment business, which so many times we demonstrate that, it's still extremely below the IRR of our club operations. Therefore, what we are working very, very diligently on is having a different vehicle that basically does not use Lifetime's money to build it. Now, we're working with a lot of partners who are building the apartment business to name their apartment Lifetime Living, and we just got the financing all in place, and the location in Paradise Valley is a very minimal investment from Lifetime. Most of it is outside capital. but it'll be right behind and attached to our Paradise Valley location, which will open ahead of the apartments. So it is definitely on a development plan part of Lifetime to continue to grow the full campus of the Lifetime Living, Lifetime Work, Lifetime Club, the Capital structure, the cap stack of that is very, very different than the cap stack for just a club business.

Awesome. That was super helpful. Thanks, guys, and congrats on another great quarter.

Thank you. Thank you. Our next question is from the line of Molly Baum with Morgan Stanley. Please receive your questions.

Hi. Thanks so much for taking our questions. I just wanted to ask two quick follow-ups on the new club opening for next year. So the first of which is I know you highlighted that you're going to be opening larger clubs next year. Are there any important considerations that, you know, we should keep in mind from a margin standpoint or maybe from a new club standpoint as we think about 2026 versus 2025?

Yeah, I mean, for those clubs, I mean, those are going to have, you know, margins that are going to be, I would say, you know, relatively similar. We do expect those clubs with the larger square footage, though, on a per average basis will have higher average revenue per club. So that would be one expectation to keep in mind.

These are what you should look for. Higher average revenue, lower membership count, as Eric mentioned, in our new business model for the new clubs, we don't need more than 3,500 to 4,000 memberships to achieve the best outcome, the best optimal returns. And then you should also expect that you know, we are going to press you guys on not keep calling for more EBITDA margin. You know, we are, you know, last year we started at 25%. We told you not to model beyond that. You asked, can you do better? We said, we don't say we can't do better. But now we got to consider that as we get into the next year, opening 13 or 14 new clubs, you know, there will be a, you know, there would be a negative, margin from those at the early stage of the opening. So we feel really, really good about where the business is at, as strong as we've ever felt. Just want to make sure that we guide you guys correctly with all of that. But those clubs should do really, really well.

Yeah. And you probably saw in the supplement, the average size is about 95,000 or 94,000 for next year. So just so you guys can model that into your models. Because look at 2025, it was roughly 66,000. So that's an important point as you're doing your model.

Got it. Thanks so much. And then just quickly on my follow-up, when you think about the balance of using sale leasebacks versus self-development for new club growth. How are you thinking about the implied interest rate on leases versus using that on the balance sheet? Is there an opportunity to improve your lease terms going forward, or does it ever make sense for you to keep the stores on the balance sheet with your lower cost of debt? Thanks.

Yeah, it's a little bit of both, right? I think when you're looking at these clubs after sell leaseback, the IRR are significantly better on the capital does remain in the business. On the other hand, you know, we do have a low financing charge and I expect that our cap rates will start coming back down, you know, and we will be expecting to do sell these back with better cap rates as the interest rates starts coming down. But your question is a thoughtful question, and we definitely will analyze those decisions as we go forward, just balancing that out.

Yeah, I mean, the obvious objective there is the cheapest cost of capital, right, whether that's a simple leaseback or sub-six debt.

Thank you.

Thank you. Our final question is from the line of Chris Rawonka with Deutsche Bank. Please proceed with your questions.

Hey, good morning, guys. Thanks for squeezing me in and appreciate all the details so far. Just had one question, which is, you know, for Rob, if you continue to open new clubs, you know, new builds especially, but maybe this applies to some conversions, is there anything you look at with respect to design? And maybe not necessarily from an efficiency standpoint only, but also from a, you know, customer perspective. you know, what customers are looking for? I mean, do these centers need to have more, you know, whether it's some of the sport courts or more room for training or whatever it might be? Is there any element of the design and construction process that, you know, is going to change over time and what the impacts might be? Thanks.

Yeah, look, all large club formats from 30 years ago have been designed with, you know, maximum flexibility to offer, you the programming that is necessary for the time. And we've done those transformations that you guys have seen. And nobody has a crystal ball to know what 10 years or 15 years from now will look like. So whenever we work on a design, and I was working for hours last night on design with my team, you have to think about as much flexibility as you can. And that's all you can do. You can basically plan for that. Hey, what can we change? What if things, you know, change what you do with that space? And that's an ongoing work. It is not something for next year or for last year. That's been going on for 30 years. It's going to go on for the next 30 years.

Okay. Understood. Appreciate it. Thanks, guys.

Thank you. Thank you. At this time, this concludes our question and answer session. I'd like to turn the floor back to Conor Weinberg for closing comments.

Yeah, thank you, everyone, and thank you for joining us this morning. We look forward to having you on the next call.

This will conclude today's conference. Thank you for your participation, ladies and gentlemen. You may have a wonderful day. Please, you may disconnect your lines at this time.