Greetings, and welcome to the Life Time Group Holdings, Inc. Q3 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode. [Operator Instructions]. As a reminder, this conference is being recorded. It's now my pleasure to turn the call over to Ken Cooper, Investor Relations. Please go ahead.

Good morning, and thank you for joining us for the third quarter 2024 Life Time Group Holdings earnings conference call. With me today are Bahram Akradi, Founder, Chairman and CEO; and Erik Weaver, Executive Vice President and CFO. During the call, the Company 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 and net debt to adjusted EBITDA or what we refer to as net debt leverage ratio and free cash flow. This information, along with the reconciliations to the most directly comparable GAAP measures are included when applicable in the Company's earnings release issued this morning, our 8-K filed with the SEC and on the Investor Relations section of our website. With that, I will turn the call over to Erik.

Thank you, Ken, and good morning, everyone. We appreciate you joining us this morning. We're excited to share with you our third quarter results, the full details of which can be found in the earnings release we issued this morning. For the third quarter, total revenue increased 18% to $693 million, driven by a 20% increase in membership dues and enrollment fees and a 16% increase in incentive revenue. Center memberships increased 5% compared to last year to end the quarter at more than 826,000 memberships. When combined with our digital on-hold memberships, total membership ended the quarter at approximately 877,000. Average monthly dues were $198, up approximately 13% from the third quarter of last year. Average revenue per center membership increased to $815 from $722 in the prior period as we continue to benefit from higher dues and increased in-center activity. Net income for the third quarter was $41.4 million versus $7.9 million in the third quarter 2023. Adjusted net income was $56.3 million versus $26.7 million in the prior year period an increase of $29.6 million. Diluted earnings per share was $0.19 compared to $0.04 per share in the third quarter last year and $0.26 per share on an adjusted basis compared to $0.13 in the prior year period. This was an increase of 100% versus the prior year period. Adjusted EBITDA for the third quarter was $180.3 million, an increase of 26% versus $143.0 million in the third quarter 2023 and our adjusted EBITDA margin of 26.0% increased 160 basis points as compared to the third quarter 2023. Net cash provided by operating activities increased 32% to $151 million as compared to the third quarter of 2023. For the second consecutive quarter, we achieved positive free cash flow. Free cash flow increased by $169 million to $138 million in the third quarter compared to the prior year period. While this number includes sale-leaseback and land sale proceeds of $74 million for the quarter, we achieved positive free cash flow prior to these proceeds. We reduced our net debt to adjusted EBITDA leverage to 2.4x in the third quarter versus 3.7x in the prior year period. With that, I will now pass the call over to Bahram.

Thank you, Erik, for doing such a fantastic job and let me extend my thanks to our more than 41,000 team members who made this great performance Erik just shared with you possible. I'm going to keep my remarks very short the numbers that speak for themselves. As many of you know, I am never satisfied, but I am as pleased as I've ever been with the accomplishments of our entire team over the last few years. We responded to the challenges presented over the last four years, reinventing, transforming and improving every aspect of Life Time. We elevated our brand, we've evolved our clubs and today, we're engaging with our members deeply and profoundly as never before. Our members love Life Time. At the same time, we have rewired our business and organizational structure to maximize efficiency. Today, we are, by far, the best version of ourselves that we have ever been. We offer the highest quality member experiences in the best facilities in the health and leisure industry. Our momentum has been spectacular, and it continues today. We exceeded every financial goal and every performance metric we set for ourselves: membership retention, revenue, adjusted EBITDA, free cash flow and EPS. Now that we have deleveraged our balance sheet, and we are generating free cash flow, our focus will be on continuing to deliver double-digit revenue and adjusted EBITDA growth. As you read in this morning's press release, we are raising revenue guidance to a range of $2.595 billion to $2.605 billion, and our adjusted EBITDA guidance to a range of $658 million to $662 million. We are now looking forward to take your questions.

Thank you. Now, we conduct our question-and-answer session. [Operator Instructions]. Our first question is coming from Brian Nagel from Oppenheimer. Your line is now live.

I have two questions. I guess, one bigger picture, maybe one smaller bit put them together. But first off, along on the bigger picture side, so of all the work on the balance sheet, your debt ratio is now at or below the targets you articulated previously. How should we be thinking about, sort of say, the growth profile of Life Time going through there, particularly as we start looking towards 2025 and new openings? And then the second question I have this is just shorter term, just with respect to guidance, once again, maybe beat the street estimates and we lifted guidance for the year. You don't give quarterly guidance now, but I guess the question I'm asking is, are you actually with this guidance increase lifting your own internal targets for the fourth quarter as well?

Okay. So, we -- let me start with your first question. Our targeted EBITDA is -- debt to EBITDA is $1.75 billion to $2.25 billion. That's the range that I think is appropriate for our company, considering the fact that we own over $3 billion of market price on real estate, more like $3.5 billion. If we didn't have that, I would like to have our debt-to-EBITDA will be 1 to 1.25 to 1.5. So, Life Time brand is such an incredible brand. It's paying such an incredible dividend. Our mindset has been the balance sheet has to match that brand. And thanks to our partners and our team, Erik, everybody, we kind of had been steadfast to getting that leverage where we want to. The other thing that I have in mind is a company that is cash flow positive after its growth capital is a different kind of company. It's the kind of company that basically has the destiny in their own hand. So, we have guided everybody or and over the $25 million to $30 million of net out of our pocket per location. And when I say that, and it's basically in our mind, sort of a large-format equivalent per 100,000 square feet is what's going to take to build. And we have probably about 100 different deals in the pipeline we're chasing right now. The pipeline looks very good for '25, looks even better for '26 and '27. And we will manage the growth so that, a, we can continue to deliver excellent results and continue to make sure we uphold our brand; and two, we are able to generate incremental $50 million to $100 million of free cash flow per year. The rest of it is intended to grow the Company. So, we have substantial free cash flow after interest, which is now going to be significantly lower after what we were able to accomplish last couple of days. for 2025 than it has been in '24 and '23. But after the interest and what we call maintenance CapEx modernization CapEx, we will have significant additional capital. We can start projects, expedite growth and still maintain that free cash flow positive. So that's really what your first question. The second question is, look, we have always guided you guys with a number that we foresee hard to miss. We want to incorporate any potential macro headwinds or anything conservatively, make sure the number we give you, Erik and I, is one that we have a very, very high level of confidence that we can deliver. It doesn't mean that's all it can be. All that means is the number we want to share with you to make sure we don't go below that.

Yes, just to add to that, the guidance, we increased it because we're obviously seeing still very positive trends in the business. And so, the implied guidance for Q4 on a revenue basis is about 15% year-over-year growth and about 16% on adjusted EBITDA. And then for the second half, it's 17% on the revenue side and 21% on adjusted EBITDA. So still a very great momentum in the business that we're seeing.

Our next question is coming from John Heinbockel from Guggenheim Securities. Your line is now open.

Bahram, I want to start with the 100-plus deals in the pipeline. How would you segregate those out, the ground-ups, right, maybe take club takeovers, your various channels, right? Residential buildings, how would you segregate that out? And then I know you talked about the 10 to 12 LOEs. What do you think is the organization's capacity can you eventually do more, if you look out a couple of years, do more than the 10 to 12? Or you would prefer to limit it to that?

No. Actually, as it looks like right now, next year could be that 10 to 12, 25, 26 right now as the way the schedule rolls out is already probably 12 to 14, and I think that number can expand. So, we have the pipeline and we're working on deals. And some of the gestations are much longer than others. And we -- the ground up obviously, are the ones that they take longer time to put together. The ones that go into the high-rise resi buildings, those take a long time, but there are deals we're working on those that they have been in the pipeline for a long time So as what I can answer you and everybody else. It's -- you have to look at our -- we're not building sweetgreens. We're building anywhere from 40,000, 50,000 square feet to 120,000, 130,000, 140,000 square feet and on a variety of different real estate opportunities. So -- and we have these deals in the pipeline, and each of them have their own schedule that it's the right timing for the developer, for us for the whole project. So, they're going to be lumpy. What I mean by that is next year could be more of clubs that their takeovers and transformations, the following year is going to be a lot more our ground up. So, what I would basically recommend to everybody is to really think about them as a blended half and half at this point. I think as we go into about three, four years from today, based on the number of conversations we're in and based on the incredible results that the Life Time living is producing for the Life Time living the owners of the actual buildings in terms of ramp consistently, we're getting about 15%, 20% more rent. Consistently, we have retention that they have never seen before is 20% attrition rate in that side of the business for them versus as much as 40 in other apartment buildings. And of course, we ramp these faster. So that has increased, and we now have five, six, seven of these locations in place so they can look at the data. It's not just a thought process. It's actually fact supporting. So, they -- we are in a lot of those discussions. So, I think as I look out four or five years out, John, I see there's going to be probably a lot more of those coming online. But for right now, I would like to guide everyone to, hey, take a look at a three-year period of 30 to 40 locations in that three-year period about half and half is the right mix of ground up versus other stuff.

And then maybe as a follow-up on that, right? So, I think about the incentive revenue spend, right, per month per member is -- I think it's like $75. It certainly in theory, it could be higher than that, right, if people are engaging with all your offerings. But I think you've also not wanted to do a hard sell there. How do you think about expanding that wallet share over the next several years? Is there anything you want to do differently to accelerate that? Or it just happens naturally.

Yes. So, there are two, three categories. One, we have really done a nice job. My team has done a nice job with DPT, with our dynamic personal training. And that has been growing really nicely. But despite that, you have clubs that they're doing $5 million a year in DPT and you have clubs at similar-sized clubs doing $2 million. So, we have always opportunity to go through risk practices to the top 25, bottom 25 clubs in terms in each category, Cafe, Spa, PT, Kids. We do that routinely. And then as more things are going really well, we have more time to focus on the areas where there is more opportunity. And that's exactly what's happening at Life Time. So, I think there's still substantial opportunity to execute better across the board. And when I say that is there is some clubs are doing amazing exceptional performance in PT or in food or in Spa and then there are clubs or not. So, we have -- in aggregate, we have room to do better job with our F&B we have aggregately room to do better job with Spa and even with PT. Those are the three big drivers of in-center. Of course, kids is also one, but we do a pretty good job with that. Now MIORA, which we talked about a while back and I told you guys to not get excited about it, it's important, you still don't get excited about it. My goal was to deliver a customer journey that is fantastic. We've done that. Then the goal was to create a profitable unit business model. we are doubling our revenue right now, sometimes by the week, sometimes by the month-over-month for sure is doubling September over August, October over September. And once we…

Your next question is coming from Megan Alexander from Morgan Stanley. Your line is now open.

Wanted to just maybe touch on the change in the leverage target around 2x. You're talking about at that midpoint versus the 2.5-ish prior. Can you just talk about the thinking around that a bit for us?

No. I think you might have misunderstood. Our target was to get to -- we're committed to get to the three beginning of the under three, which is a critical point for so many investors, but many investors, some of the large, large bulge bracket investors basically said, hey, three is okay. We really don't want to even engage until it's really under 2.5x. We believe the Company is a strong BB credit. Thank God, regardless of Moody's or S&P wanting to wait another quarter or two before they actually give that in a corporate rating. The investors held us by giving us the rate that matches a strong BB. So, we are very, very grateful for what we were able to accomplish this last week. But the target that I believe makes a company a strong BB is exactly the numbers I told you. It needs to be under 2x debt to EBITDA. For sure, if you don't have enough real estate assets, what gives me the comfort to be between 1.75% and 2.25% is the fact that our entire debt could be completely retired by just doing $1.5 billion sale leaseback. So, that is what allows me to say, okay, let's go between 1.75 to 2.25 target. And that number is easily going to -- we're going to be -- our estimate Erik's estimate right now is we're going to be under 2.25 by end of the year, which gives us at least one more step down on our revolver. So, we just feel like that's where we want to be. We want to have a brand and a balance sheet that they're both excellent, and we get the cheapest cost of capital. But it doesn't, by no means, Megan, it's going to restrict our growth opportunity. We can grow inside of that envelope as much as we really feel like the growth opportunities are there.

That's really helpful. Makes a lot of sense. And maybe just a follow-up on that. I think you said you could do as much as $1.5 billion of sale leasebacks. Obviously, the sale leaseback proceeds have come in better this year than what you were talking about to start the year. Is that still mostly opportunistic? Are you starting to see cap rates that are closer to what you'd like to see? And how are you thinking about kind of the market for sale leasebacks as we head into 2025.

Yes. Fantastic question, Megan. So, it's going to be incredibly robust. We are already getting inbound sort of conversations from our partners that they like to have couple of hundred million dollars, $100 million worth of sale leaseback that if we can out provide the assets. So, let's think about it this way. If we were to build 10 ground-up facilities that could take as much as $600 million of capital, all in. What we keep telling everybody, and we keep reiterating is $25 million to $30 million. So, if you take that number, take even the $30 million off of it on 10 of those that's $300 million, $350 million. The other portion of it is recycling clubs that we have already built, if you know what I'm saying to you. So, we have right now at least half a dozen clubs, we built just in the last year or two paid for all of the ground up very, very amazing assets, large format, super large. We still own all the real estate. We haven't taken those to sell these back. So, when the incoming offers are attractive. And I think by middle of next year, we will see sell leasebacks based on our credit more favorable than the best sale leasebacks we've ever done. And I expect us to do about $250 million to $300 million worth of sale leaseback on an annual basis. Take that money and recycle it so that the net invested capital in each new ground up is no more than $25 million, $30 million. Does that make sense?

Next question is coming from Chris Woronka from Deutsche Bank. Your line is now live.

So Bahram, when you talk about the -- some of the, I guess, club takeovers or conversion opportunities, right, that are separate and distinct from the new builds. When you look at those existing assets, is there -- obviously, you're solving for an ROIC, you're solving for some kind of free cash flow yield ultimately. Do you tend to think you'll be more surprised on revenue upside or in the case of an existing center or something like that or a takeover? Is there more opportunity to just get a better, whether it's rent or to existing club better operating models? Is there any way to think about which opportunity means more to you?

Not at all. I'll give you just two examples. One club has been opened in Tampa. One, we took two clubs last year and the last year, we took on from the landlord basically gave it to us with in great TI package one in Tampa, one in Detroit -- in Atlanta. The Tampa Club just opened this year and this summer, August, I think, and the Atlanta facility will open in November. Both of the incredible deals, it starts as a lease. Landers providing some additional TI dollars. We go in and we got those things out. When we take a club out from somebody else, many times, it's just like a new build. The benefit is you already have the right zoning. You already have that location is approved for a club business. So, it's just -- it cuts through some challenges, but we literally designed it -- redesign it from a get-go. And sometimes we we're getting is really a piece of land. We're getting a shell and the fact that it's already zoned for that use. But then it's completely rebuilt from scratch like a brand-new club. Now because you have the zoning, you have the curb and gutter, you have all that instead of taking 40 years, it takes a year or 18 months to do so. Then we expect it to deliver exactly the same type of return. Our business plan isn't going to go into these things and be excited about it if it has a lower rate of return than the other things we do. And that rate of return, generally speaking, is in that 30% to 40% IRR on a net invested capital basis. We always look at these the same way. And so, there are other -- and then there are some that are strategic, you might take over some assets because it's extremely strategic. You're intending to do something with Tennis or Pickleball or some other deal that it blends in. But I really just want to make your work, all of your work, easy enough is that if you can about how we are guiding you with the $25 million, $30 million net invested capital per large format equivalent, really what we need to maybe try to help you guys with best is to try to give you a schedule of opening as soon as we can commit to it for how many hundreds of thousand square feet per quarter is probably the better way to go about it. Otherwise, it is really, really hard to create a model that anticipates, "Oh my god, in a 26 you're going to get 12 all ground-up clubs. And 27, you might get something a little bit different. So, it's just -- we will try to manage that and simplify it and give you guys a way to model much easier.

Okay. That's super helpful. And yes, we'd certainly appreciate any color on that. I have a quick follow-up, if I could. And that just on the LTH, the brand, branded things you'll be doing. Is there any way to put together a framework now for how big that opportunity is? And how do you measure it? Is it going to be based on per revenue you ultimately generate per digital member plus in-center member? Or how are you going to know that you've reached the full potential whenever you do?

Yes. No, I think you might want to look at companies like Thorn. Look at the top four, five high quality and I'm going to give some props to Thorn because I take a bunch of their product myself other than my products are just generally either LTH or Thorn. But there are other really great brands, take a look at really, really high-quality brands, high-quality production, which is very rare to come by. Very hard to trust nutritional products because they're not regulated like the drugs are, and that's why I take about 80 supplement pills a day. I'm not going to put anything in my body that is not tested for what it is. So, we have been -- we've had this discipline for 20-plus years to produce the absolute best products. We didn't really didn't have enough scale to really put energy behind it. But now, I emphasize with the Life Time subscription growing at 100,000 subscribers a month. Athletic event is growing. Our partnerships is growing. The brand is 130 billion, 140 billion impressions, and it's going to keep growing -- now is the time to sit we can build the business that 5 years, 10 years could be easily a $500 billion supplement business. And so, and nobody has a better right to win in that space than Life Time. So my long term, not 2024 or 2025, my long-term vision is, yes, we haven't built a $0.5 billion business out of that than I really have not achieved my vision with that thing. And it's not just about money. There is a place where we really can do some incredible good for the society because there just aren't that many supplement lines, that you take and you take it to a lab, you have them tested, and you're going to find half the stuff that stays in there, it's not there or they're not in the quantities they say it's there.

Our next question today is coming from Michael Hirsch from Wells Fargo. Your line is now live.

At your Investor Day, you announced your long-term target of 4% to 5% growth from fully ramped centers. 2024 exceeded that. So, I'm just wondering how should we think about this for 2025?

So, Michael, this is Bahram. I'm going to start taking those 40 pills with my shake and give a chance to Erik to give you some good state. Erik, come on.

Yes, we're still benefiting a little bit this year from some of the pricing, but the 4% to 5% is still what we're modeling long term. So, for next year and going forward, that's going to begin to normalize into that 4.5% range.

Okay. And then as my follow-up, I know you mentioned 10 to 12 openings for 2025. You had opened two new centers during the third quarter. and then the Atlanta location in November. So, I'm just wondering, was there anything specific in 2024 that led to around seven new openings versus the 10 to 12 targets?

Yes, we've had some delays in projects getting pushed back. Well, I can say, again, you got to look at this in a multiyear rather than a year by year. Because as of right now, 26 looks like we make up for everything in 24 and more, all with big humongous clubs. So, it’s getting delayed into the 20 -- but they're still coming. And we have a pretty good opportunity to get some additional deals done, it's not done yet, 100%, but we are working on some additional growth potentially yet for '25. So, it's really irrelevant because we -- as we've told you, we've been very, very methodical about delivering the numbers that we commit to you in terms of top line and bottom line. and then keep enough latitude for how we execute that on our own. And we've known -- we have so much -- and we've told you, we have so much momentum in our core business that we could manage to slower openings right now to make sure we are capturing that in-center opportunity and the two-growth opportunity in the entire portfolio. By the time it drops down to 4%, 5% whenever that is, we will then have to have a very, very robust new club opening and additional growth like MIORA or LTH and LTH partnership to continue to deliver that double-digit growth, which is a strong desire of the Company. But we'll figure out a way to deliver what we commit to you.

Next question is coming from Alex Perry from Bank of America. Your line is now live.

I just wanted to go back to the guidance raise a bit. What gives you confidence to lift the guide and maybe sort of dissect the pieces for us? Is it you're seeing less membership churn than you would normally, seasonally, see? Are you baking in higher expectations for pricing, which continues to be a tailwind for you? Just maybe go through some of the pieces that led to the raise.

Yes. This is Erik. So, a couple of things here. We're still seeing really great flow-through from our membership does. So that's one big piece. In retention, as you mentioned, continues to be very strong. You also probably saw in our release, our same-store sales, was north of 12%. And another big driver of that, and Bahram talked about it earlier, was our DPT. So, we continue to see very strong demand in DPT, which is a big driver of that. So, all of those things are, again, as we've talked about, just the consumer, continuing to show strong demand gives us absolute confidence in being able to raise that guidance.

Alex, to speak to you with a little more color. We have told you or and over, we told all of you guys that we are seeing the best retention. When I say the customers love Life Time, they really do love Life Time. We have the best retention I have ever seen in the history of the Company in 34, 35 years. And on top of that, it's really like -- it looks like it could be like even better than that in 2025. So, we're -- at this point, retention. Again, it's not a number we're going to continue to give, but I have given it during the presentation with the debt guys. So, I just want to -- we're going to finish the year north of 70% in retention. And for anybody who really understands this business, there is no more important metric than that retention, just no different than our partner business. It's really strong. And the brand is resonating with the customer, and it's giving us additional opportunities where we're working to kind of create more products for that. But that's the reason. The retention is really the key. And it results into the dues. And once you have a strong dues, everything else will follow.

Perfect. And then just on pricing, are you expecting the same level of year-over-year price lift as we move into the fourth quarter? And then as you think about your pricing structure for next year, as we move into 2025, will you likely reset prices even higher to start the year given the membership demand you're seeing?

Look, I think we have largely repositioned the Company to where we want to be. We want to be the athletic country club destination. It's not a gym, it's people's third place, second place as we see with our customers. They're now using the facilities just about on average every other day. So that is another reason for the strong retention is this engagement that is at an all-time high, and we are working strongly on actually, okay, what can we do right now to deliver even more exceptional desirability in every aspect of our business. That's really the strategic work that is taking place today with me, Parham, President of Club Operations, Real Estate, and then everybody, all the RVPs and all the lead generals. So, as we roll that out, where we see that getting that demand at the level that we are creating gives you pricing power. And then the way to adjust the price is really a function of clubs have 3,000 visits a day. At that level, we really don't want any more visits in that club per day. It's busy throughout the day. Now the key is, okay, maybe there is an enrollment fee. We're now starting more locations. We started with just a few. Now we're looking at other locations where we have to raise the enrollment fee from a few hundred box, $300 to $1,000, $500 in order to manage that type of club. The clubs that they are sitting at 55,000, this is a large format location equivalent. 55,000 swipes, 60,000 swipes in a month, they have room to get more memberships. So, there's not necessarily -- we've got to get that club yet to 70,000, 80,000 people going to. So, it's club-by-club location by location. We have opportunity right now.…

Next question is coming from Alex Fuhrman from Craig-Hallum. Your line is now live.

Great. Bahram, you alluded to this in what you were just saying, but it looks like over the past couple of months, just in September and October, you've taken up the new member price at a pretty meaningful number of your clubs here. Does that mean we should expect see you starting to kind of reach out to new members over the next couple of months in those clubs now that the gap between what they're paying and the rack rate is expanding?

It's a good question. No, it's not just those clubs. So, we go through, I think, probably seven, eight times a year. there are three, four months that we skip, but there's like 40,000 or 50,000 or 30,000. Whatever the program, the AI is suggesting members will get that lovely due increase letter. And we have like very systematic categories. It can be -- it's not hitting all members of five clubs or all members of four. It basically goes across the whole membership platform. 500,000 people are paying the low rack rate as an example or 600,000 people being in the low rack rate, it will sort through those -- so these guys signed up six months ago. They're paying below the rack rate. They're not going to get dues increase right now. We don't generally give dues increases more than once a year. So, there is a very, very sophisticated AI algorithm that we have developed over the last, I want to say, seven, eight years and it's gotten significantly better. And I've seen the best version of it this year over even last year, we're right now we hardly see any incremental attrition when those 30,000, 40,000, 50,000 letters go out or the notices go out, we hardly see any incremental attrition out of it. So, we have fine-tuned that extremely well.

Next question is coming from Owen Rickert from Rockland Capital Markets. Your line is now live.

Congrats again on another phenomenal quarter. And it sounds like the vast majority of clubs are very high performing. But as we take a look at some of the clubs in the portfolio that may be not as high performing, what's the goal of these? Is it renovation of the club, getting new equipment, providing more offerings? I guess just all in all, how do you look at these locations? And what is the plan going forward with these ones?

Yes. So, look. Internally, what we are running is a comprehensive business plan is in the works right now for every single location of the Company, every single location. What is the vision for that particular location? What's the opportunity? Where we add to that opportunity? What are the things we need to do? Do we need to change programming? Do we need to change facility do we need to add? Do we need to make some changes in the leadership of the business? It doesn't really stock or end at one of those. It's a comprehensive analytical plan, full detailed business plan for every location. So, we know what is the ultimate opportunity of that, at least this time in that. And then we will go appropriately execute all those things. So, it's more -- it's a phenomenal question. I'm just not going to give you the exact answer. The only thing I can tell you is that we have a very, very robust strategy process in place that basically evaluate that and then we go systematically execute against it.

Next question is coming from Logan Reich from RBC Capital Markets. Your line is now live.

I just had one on the incremental flow-through, maybe this one is for Erik. Just on the marginal flow-through of revenue to EBITDA, it looks like it's been running around 30% to 35% over the past several quarters. And obviously, I know you guys aren't sort of guiding us towards margin expansion. But just given the incremental flow-through over the past several quarters, I guess, I'm sort of curious what would be the puts and takes potentially driving that incremental flow-through down such that margins would be in the similar range? It looks as though you guys would get some fixed cost leverage. But obviously, there's some puts and takes in there. So maybe you could just walk us through those?

Yes. I mean one of the things that we've really said is we want to make sure that we're leaving ourselves enough room to kind of reinvest back into the centers as we need to. So, as we look into Q4 and forward, we're doing things to make sure that we're making those clubs like and making sure that all the repairs and maintenance and all that, keeping it in that like new condition. So that's going to be one of the things that we're investing in. But again, on the flow-through, we're continuing to see it on the do side, as we mentioned before, Bahram talked about retention. So, we get a lot of flow through from that. And so that's one of the main drivers. And then as I mentioned on the DPT side, that's also been very, very strong for us, especially in the third quarter.

The caution that we are wanting to issue is that we guided you guys to 23.5% to 24.5% on EBITDA margin from beginning of the year. And the question was asked, why can't you? You guys are all smart people you look at the numbers. So why can't you do more? So, we said we didn't say we can't do more. We just don't want to have you go tweak your models and keep ratcheting it up. There is no reason for that because number one goal of mine as the visionary founder of the Company is to make sure the brand continues to elevate and not goes backwards. And therefore, just like Erik said, we like to guide to a number that we don't disappoint. Now I would suggest hey, don't take it much higher than 25% EBITDA margin. Now we want to invest into our brands, into our programming, into our facilities to make sure the clubs are modernized. They're like new. The team members are getting the proper adequate education. They get proper incentives. And if we have more than takes all of those -- doing all those things, then we let it pass through, but I think the wise thing to do is to keep that margin, the range that we guide you guys to. And I don't know how many companies actually are delivering 25% EBITDA margin. I don't know that this is a win that -- it is a game that anybody can win. If you keep ratcheting those expectations up higher and higher or higher eventually, the Company starts doing wrong things to achieve this ludicrous expectation. So, I guide super strong to all of you to maintain that 25% -- don't get overexcited as we grow the -- some of the challenging areas, the Spa, Cafe, when they grow, they're going to actually drag the margin back down. Now, the total -- the club is going to make more money. But the margin is going to get pressed because they will never deliver 25% EBITDA margin. So, it's a better engagement. The more people are doing the cafe, the more people go to the Spa, the better it is for more engagements, you get more dues, which is great. That's a great margin. The negative side of it, the margin on those businesses are very low.

We reached the end of our question-and-answer session. I'd like to turn the floor back over to Founder and CEO, Bahram Akradi for closing remarks. Please go ahead.

Thank you so much. I really appreciate all of you, analysts, investors. We are really, really happy about the accomplishments this year. We feel like we're in a really, really great position to go into the fourth quarter into next year. And looking forward to continue to deliver what we promised to you. And I couldn't be more grateful to the Life Time team for literally just passionately delivering and giving the results that you guys are seeing. So, with that, I'm going to thank you guys, and have a great day.

Thank you. That does conclude today's teleconference. You may disconnect your lines at this time, and have a wonderful day. We thank you for your participation today.