Life Time Group Holdings, Inc. (LTH) Q2 2025 Earnings Report, Transcript and Summary

Greetings. Welcome to the Life Time Group Holdings Inc. Second Quarter 2025 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce Connor Wienberg, Vice President of Capital Markets and Investor Relations. Thank you. You may begin.

Good morning, and thank you for joining us for the Second Quarter 2025 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, 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 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, Connor, and thank you all for joining us this morning. Let me begin with our second quarter results. Total revenue increased 14% to $761 million, driven by a 14% increase in membership dues and enrollment fees and a 14.4% increase in in-center revenue. Comparable center revenue grew 11.2%. Given continued strong performance in both dues and in-center businesses, we are raising our full year comparable center revenue guidance to be between 9.5% and 10%. We ended the quarter with more than 849,000 center memberships. Including on-hold memberships, total memberships reached approximately 899,000. Average monthly dues grew 10.6% year-over-year to $219. Average revenue per center membership was $888, an increase of 11.8% from the prior year quarter. Net income for the quarter was $72.1 million, an increase of 36.5% and includes approximately $9 million of tax-affected losses on sale leaseback. This compares to a $6 million tax-effected gain in the prior year quarter. More importantly, adjusted net income, which excludes the impact of gains and losses on sale leasebacks, was $84.1 million, up 60.5% year-over-year. Adjusted EBITDA was $211 million, an increase of 21.6% and our adjusted EBITDA margin improved by 170 basis points to 27.7%. Net cash provided by operating activities rose approximately 15% to $196 million compared to the prior year quarter. Free cash flow was $112 million for the second quarter, marking our fifth consecutive quarter of delivering positive free cash flow. We remain committed to funding our growth through net cash from operations and sale leasebacks with a target of sustaining annual positive free cash flow. In Q2, we closed on the sale leaseback of 3 properties, generating net proceeds of approximately $149 million, $139 million of these proceeds were reported in the investing section of our cash flow statement and the remaining $10 million was reported in the financing section. With that, I will now turn the call over to Bahram. Bahram?

Thank you, Erik. We had a great quarter, thanks to the efforts of our entire team. And as a result of that, we are once again in a position to raise our full year revenue and adjusted EBITDA guidance. Visits remain at all-time high with visits per membership up 5.7% versus the same quarter last year. Retention continues to stay at record levels as well with Q2 improving over the prior year quarter. We accomplished all of this while strengthening our balance sheet and achieving a BB credit rating, a critical milestone that provides us the opportunity to lower interest costs and increase earnings. As to liquidity, at the end of the Q2, we had no balance on our revolver and more than $175 million in cash on hand following our most recent sale leaseback. The sale-leaseback market remains open and attractive, and we expect to close another $100 million in transactions in the second half of the year. With the methodical and sequential progress we have made over the past 4 years, we are now perfectly positioned to shift our focus a bit. Growth is now our top priority. To that end, we're modestly accelerating the development of our new club openings from our robust pipeline and are now targeting 12 to 14 club openings in 2026. These new clubs will average nearly 100,000 square feet and will primarily be ground-up developments compared to the 78,000 square feet average of clubs opened in '24 and '25. We're excited about our continued strong performance, and the significant growth opportunities ahead, including several high potential accelerators. Life Time Digital now has 2.3 million accounts, up 216% year-over-year. We recently launched L.AI.C, our AI-powered personal health companion to digital and center access members. Our LTH nutritional supplement line continues to grow with revenues up 31% versus the prior year quarter. Our first 2 MIORA locations continue to perform well with subscription and revenues growing month- over-month. Several additional locations are slated to open in the second half of the year. In short, we are pleased with our current momentum. We are laser-focused on accelerating club growth and capitalizing on our asset-light, high-margin expansion opportunities to drive sustained revenue and adjusted EBITDA growth. With that, we will open the call for questions.

[Operator Instructions] Our first question is from Brian Nagel with Oppenheimer & Company.

Very nice quarter. Congratulations. The question I want to ask, I know it's been a topic that a lot of -- we've been discussing here for a bit now. But going back to the first quarter conference call, we discussed what may have been a softer initial trend in new member sign-ups as we headed into the summer pool season. We obviously got the numbers today. So I guess one of the question I'm asking is how from your perspective, did new membership sign-ups track through the quarter? Did they perform in line with your expectations? Did you see some type of recovery as the quarter progressed?

Yes. Brian, good to hear from you. This is Bahram. As I mentioned during the last call, a single month is really no indication of anything. And I just had to emphasize that I covered that with you guys. The back half of the quarter, basically, it was just timing, the members that planned to come maybe slightly slower the first half of the quarter to come in, but they came back in. And so we were able to finish the month -- the quarter super strong and make up for the little slow that membership sign-ups in the first 40 days of the quarter, and it just all made it up naturally. We didn't have to do anything in particular to do that.

That's very helpful, Bahram. And then my follow-up question, again, we're seeing the numbers today, but just any further commentary on your efforts or your abilities to further monetize that membership. And we talked kind of quarter in, quarter out about selectively lifting dues versus rack rates. Are you seeing anything change in that dynamic whatsoever?

No. I think the business, as we both have mentioned, is very, very solid. Memberships are strong. The customers are using the club a lot. They are engaging in all in centers. And we just -- at this point, we're cautious the first half of the year, as I mentioned to you guys because of the macro picture, not because of tariffs or anything like that. We just wanted to know that there isn't going to be a sort of a meltdown. And we also were focused on getting our BB rating and getting a strong balance sheet. So the company can really bulldozer through any condition. If it's great, we'll go faster. If it's tough conditions, we're going to do great in that condition as well. That's been the strategy. Now we have the strength in the balance sheet. We have the BB. Leverage is low, and we can see continued opportunity to grow the business faster and faster while we maintain the leverage or even have it go lower. So I really don't have anything to look at and be concerned about just day-to-day operation and take advantage of all the growth opportunities ahead.

And just to kind of maybe put a quantitative point on that, Brian. I mean if you look at our revenue per membership for Q2, it's up nearly 12%. So I think our ability to monetize that has been very effective.

Our next question is from Alex Perry with Bank of America.

Congrats on a strong quarter. I just wanted to talk a little bit more about the unit guide commentary. I think you sort of narrowed the unit guide from 10 to 12 units this year to 10. Was there a timing shift sort of into next year that sort of leads you to accelerate the growth next year? Did the time line of openings sort of get elongated based on build schedules? Just trying to sort of square up the unit guide this year versus next year.

Yes. So I think, as we mentioned, the '24, '25 was more of a collection of some of the clubs that they're going into existing spaces, great locations, opportunistic, but not sometimes in markets like New York, Florida, they're a little smaller than 100,000 square feet because they're more urban and then some conversion clubs. We were also focused on really watching the spend on the balance sheet to make sure we sort of get to that exact level that we wanted to make sure the company sits financially. So all of those kind of resulted in the number of clubs that are coming up being closer to that 10 number. And sometimes they just shift a little bit, construction takes a little longer. Now we also have spent quite a bit of time over this past 4 or 5 months on construction to make sure we get better bids, better construction numbers, which we have been getting them now. It's super important. And so -- and then with all of those things set, we are aiming to deliver, like I said, 12 to 14. And obviously, we're hoping to get the 14 clubs opened for the next year. So I think that's really the key, and we have a huge pipeline. There's more deals coming in. So we should be able to continue to grow. As I mentioned earlier, the balance sheet also points out to the fact that we can do this growth and continue keeping this low leverage point that we have achieved now.

That's really helpful. And then just my follow-up is on memberships. What is sort of the expectation for the back half in terms of membership? Should it sort of follow the normal seasonality curve that we see? Have you seen the really strong, what it sounds like good strong exit rate out of the quarter in terms of gross adds sort of continue here as we move through July?

Yes. We're going to continue. Obviously, in Q3, we've got our typical seasonality. If you look back at last year, memberships went down 6,000. But I will say, if you look at last year, there was a little bit of some of our new builds kind of masking maybe a little bit of that seasonality. So in 2023, we had 7 clubs, 600,000 square feet. So they would have been in year 2 of their ramp last year. And last year, we opened up 4 clubs with about 300,000 square feet. So you're going to -- last year was maybe a little bit light because we had more clubs in their second year of ramp. So the expectation is that, yes, Q3 will come down. We won't have the benefit of having as many clubs in Q3 this year, maybe 50% less square feet. So you need to take that into account.

Yes. To respond clearly is that we're not seeing anything that shows any sign of weakness. All we see is the seasonality of execution. It's just a normal seasonal ups and downs. In fact, things are going extremely well. And you asked about this quarter, I want to make it clear that we do not want to make a practice of commenting on mid-quarter things going forward like I did last quarter. I'm going to make a comment now, but I hope that in the future, nobody asks mid-quarter questions. But the first half -- the first part of this quarter is following the same trends of the last half of the quarter before. So things are very, very good, but I want to make sure we are very clear. We don't want to get into Q&A about the mid-quarter stuff, if it's okay with you guys.

Our next question is from John Heinbockel with Guggenheim Securities.

Bahram, I want to start off with how you think about managing the pipeline, right? I think that would be helpful for everybody, right? When you look out '26 or even maybe thinking about '27, how many projects are kind of in the pipeline? You think about doing 12 to 14, there's sort of 15 to 20 or 20-plus candidates or maybe more than that kind of floating around in case some slip. And then when you think about the timing of that, what you can do with, let's say, takeovers, malls, right, stuff that has a shorter time horizon, how quickly can you move on that if you wanted to move up a couple of projects?

I love this, John. I think this is the constant challenge that you have in a public world is getting chasing your tail. We have always done the right thing for the company. The right thing for this company is use the strong cash flow that we're generating and put it to work. We have -- at all times, the real estate team is working to have between 85 to 100 deals in the pipeline, then that's the number that we are managing. We can step on the gas, try to expedite start-ups and constructions when all things make sense when -- just like right now, the business is strong, in-center is strong, dues is strong, ramp is strong in the new clubs and then the balance sheet is strong. So now is the time you basically say, okay, now can we expedite some of these deals in the pipeline. But at no time, John, we're going to risk just trying to push a number out just because then you end up doing things that are not long-term benefit of the company. But I do not see a reason why we can't continue to deliver the growth numbers that we have guided you guys to that light double-digit top line revenue is what our target is, and we see a clear path to delivering that.

Maybe as a follow-up, right, when you think about the maturation of -- I know every club is different, but a maturation sort of process here. I think the idea, right, wasn't it -- you want to sort of start out with, I don't know, 2,200, 2,300 members, right? So the staff is new, the members are new, they got to kind of feel it out. And then you grow from there pretty rapidly over a couple of year period. Is that still the idea because the brand awareness is larger, the wait lists are bigger. You could certainly open up stronger than that. But are you sort of still significantly restraining your membership acquisition for the sake of experience?

Well, you have to because it when you open a brand-new club with 50% memberships on that first, call it, 3 to 6 months as the natural capacity of the club, just with 50% more membership, the club feels as busy as a couple of years down the road when you have twice as many members. Now why is that? Because the members are all new. They are using the club not as efficiently for themselves. I mean, as time goes on, the members dissipate themselves accordingly. Some like to go into the busy times of the club. They like that busy. They like the social aspects of the club being busy. They come at that time and they're okay with the club being busy. Some don't like it, they start finding shoulder times where the club is less busy. So it's just a natural process that will take place in a club with -- the worst thing you can do is just get greedy and try to open a club with too many members and make that initial experience be awkward and strange. And we don't want to do that. We don't need to. We're delivering the numbers that we're telling you we're going to guide you to by just managing the experience at all times.

Our next question is from Chris Woronka with Deutsche Bank.

Bahram, maybe you can add a little bit of color here. This is somewhat of a follow-on to the last question. I mean I think one of the things that sometimes folks get confused about or lose sight of is the effect that the waitlist have on your member growth. So maybe you can add a little bit of color on -- I don't know if you want to give us a number what you would look at on a, I guess, member growth outside of clubs with waitlist or how that impacts things, but I think that would be super helpful to put things in perspective.

Yes. I mean I can take that, and Bahram can add to it. But again, we look at waitlist similar to how we look at enrollment fees. Waitlist is, just to be clear, is not intended to be really a KPI. It is one of the tools that we use to manage the member experience. And we do that -- we look at traffic. We look at hours of the day for a particular club. So a club may come on a waitlist, it may come off a waitlist. Again, it's a means for us to be able to manage that member experience. And so again, look at it more that way as opposed -- and again, similar to [indiscernible] and even in some ways, similar to price. just one of the tools that we leverage, if that's helpful.

We don't want that to become a KPI for you guys. I think it's a mistake to chase that. I have been probably redundant and maybe I don't want to sound disrespectful in any shape or form, but I do want to be clear. The reason we have built such a strong brand over 30-some years is because we have focused on the customer experience at all times, right? So our focus is to create a brand that is cool, a brand that is the place people want to go to, a brand that the experience is coveted. And that is our key focus on execution. And sometimes we need to implement a wait list to make sure that doesn't get out of control. Sometimes we need to pull it off the wait list, not because of the demand is different, but we may have execution issues on responding to the people and the experience actually gets worse because the club -- particular club isn't executing on addressing the people on the waitlist correctly. So we are managing a lot of things. And if you, the analyst, buy side or sell side is trying to take cues out of that, it honestly can just mislead the group. And so we are focused on being cautious right now with you guys is not giving you responses that creates unwanted KPIs. This is not -- it should not be a KPI.

And what I would point you back to is 2 things. We said visits per membership 12.7. That's the highest it's been. And if you look at just total swipes across the system, they're up 7.9% versus prior year quarter. So the clubs are busy.

And really feel right. That's the most important thing.

Our next question is from Eric Des Lauriers with Craig-Hallum Capital Group.

Congrats on a very strong quarter here. First one for me, just on the average revenue per membership, obviously continues to demonstrate very robust growth, approaching $900 a quarter. Just curious how much room you see for this figure to continue increasing without materially impacting retention? Are you guys seeing any signs of fatigue among any demographics or geographies? And just overall, how do you assess whether you're kind of approaching a wallet share limit with members?

No. I mean, based on the results that we just posted, both in swipes, as Erik just mentioned, dues revenue and in-center execution, we are not seeing any weakness in any part of our business and anything with the customer at this point.

All right. That's great. And I guess just kind of as a follow-up there. So you called out in-center, personal training, obviously, cited as one of the drivers of that growth. Just curious if this is sort of typical seasonality where personal training kind of picks up heading into summer? Or is there something structurally -- something structural that you see kind of causing the increased utilization of personal training or perhaps other in-center offerings?

It's the fundamental of the programming and the creation of dynamic personal training and the execution of our team. There is constant methodical planning of programs, and it is not a seasonal thing. In fact, summer months typically aren't necessarily the big months for people coming inside. Our swipes are strong, which is really indication of the clubs working the way we want it to work. And then the personal training is strong, and that's due to the programs that our team are executing. It's not seasonal.

Our next question is from Owen Rickert with Northland Securities.

Can you guys -- kind of building off the last question, but can you comment on some of the in-center revenue trends and initiatives that are going on? I know [DPP] and some other membership engagement events like the pool parties are crushing it. But what else is working well? And then are there some areas you can see some improvement with going forward?

Look, the couple of areas that we have been working on is LTH. Clearly, we are focused on building the absolute best nutritional lines -- line of products for everything from [AMPM] men, women, multivitamins, performance vitamins to everything that has to do with hydration or sleep or proteins, different kind of protein isolates, et cetera. We're working on that. We have always been focused on building the best product, as you guys know, we don't cut corners. We don't deliver second best. We are making sure the product is sound from a science standpoint. It is exactly what the people need. They doesn't have anything that they don't need, they shouldn't have in it, and it tastes good and performs well. And all of our indication right now is that this LTH line can continue to grow, and it has been growing in the clubs substantially, as I mentioned in my remarks, year-on-year. MIORA is one that we have taken 2 locations. We have been seeing month-over-month sequential growth. We see those -- that business model maturing to exactly what we hoped it to be. And therefore, right now, we are hustling to get at least 4 to 6 additional MIORA locations launched this year and then gradually grow that business. So that's going well. The spa and F&B, both have quite a bit of additional opportunities, and we're working on execution on both of those to make sure that we continue to get the extra growth that we can get out of those businesses and deliver the right experiences for our customers. So when they come to clubs, they get what they want. We are working on L.AI.C. L.AI.C is really a big vision. It's a vision of bringing to the customer a whole picture of their health rather than just workout or just nutrition or just sleep. The vision of L.AI.C is to bring in just like a Life Time Club is the whole ecosystem of health and well-being rather than just a club -- like a studio of some sort. The L.AI.C is the AI companion for you with the vision for it is to help you assist you with all aspects of your health and well-being. Where are we at with it? We just launched L.AI.C, the first, what I would call version is going to do maybe 2 or 3 of the 30 things extremely well. And over the next couple of years, we continue to expand on what L.AI.C can do for you exceptionally well. But then ultimately, it will deliver a whole picture of health viewpoint for you based that is personalized for you, based on your past, based on all the reservoir of information that Life Time has put together over the last 32, 33 years. So it's something really special. It takes a lot of work. It takes -- it's a big vision, takes a long time for it to get there, but we're making solid progress with that literally every 30 to 90 days. And then that will -- actually will help LTH, will help MIORA, will help the clubs. It literally will help the whole ecosystem. Vision for that is millions and millions, not 2 million, but tens of millions of people using Life Time Digital and they see whether if they're members or just simply subscribers. And so those are all the extra things we're working on in addition to adding -- ramping up the club opening and square footage growth. And so lots at work, and it's all working pretty well at this point.

Our next question is from Logan Reich with RBC Capital Markets.

Congrats on the strong results. I wanted to ask one on pricing. I mean your retention is at all-time highs, swipes continues to improve. And I know you sort of take that all into account when you're looking at pricing. But can you just give any sort of color on what pricing you took on legacy members in Q2? And then what's sort of your outlook for the rest of the year? I think the implied same- store sales for the second half of the year is around a 350 bps deceleration. So I'm just wondering if there's anything specific we should be looking at in terms of the deceleration? Or is there just some conservatism baked into the guidance?

Yes. I mean, as you know, we always have some level of conservatism baked into the guidance. But we did raise the comp sales from 9.5% to 10%. It certainly wouldn't be unrealistic for us to hit or go north of that. But -- as it relates to pricing, we typically do take legacy pricing Q2, Q4. And so consistent with our strategy around pricing, we did do that in Q2. I would still point you to the fact that we still have quite a bit of embedded pricing, right, in our legacy. We've talked about that before. So nothing really, I guess, what I would call different or unusual that wasn't really aligned with how we were thinking about our pricing strategy. And then again, related to comps, we feel great about the raise and our ability to hit that.

Great. Super helpful. And then just a follow-up. It's sort of been asked a couple of different ways. Maybe I'll take a different approach at it. Just on the unit growth pipeline beyond '26. I appreciate the color on the 12% to 14% for next year. And I recognize you guys are very careful around making sure the new centers open successfully. I guess what are the sort of things you guys need to do to continue accelerating the pipeline maybe beyond the 12% to 14% range and '27 in the years beyond?

Yes. Look, as the company gets bigger, to maintain that 10% plus top line growth, we also need to continue to deliver more growth, more new club growth. There are many ways that, that can manifest itself. We have a pipeline so solid right now and the real estate team is just adding to it, not losing any sort of a steam on that. So it's hard to just come and give you guys a number for '27. But you got to expect that it's at least 10 to 12 clubs a year that we've said before. And when we can deliver more, we deliver more than that.

Our next question is from Molly Baum with Morgan Stanley.

This is Molly, on for Stephen. And I just want -- I know you talked a little bit about the maturation process of new stores, but I just wanted to ask a follow-up to that one. Can you talk a little bit more about how the same-store sales compare in your most mature markets versus those that have maybe been open for less than 3 years? And do you expect that new club waterfall to change at all given the opening of larger stores? Or just any detail about your expectations going forward?

Look, once again, we are seeing growth across the board with our programming and with our dues growth, it's not isolated to any group. It's across the board. The overperformance is across the board in the system. So that's pretty much the level of color that I'd like to provide. We don't want to get into additional metrics. Yes. So -- but I can tell you it's across the board is how the clubs are performing. It's in the older clubs. They're doing extremely well. New clubs are doing well and ramping clubs are doing well.

Yes. And just to add that, you guys kind of know our ramping profile. And some of those markets and some of those clubs, they do kind of ramp quicker than some of our historical builds. And to Bahram's point, there's nothing really regional. As I look at the same-store sales in our various businesses, I mean, PT, aquatics, spa, kids, they're all up versus the prior quarter. So it's nothing really regional. It's just everything across the system that's driving that growth.

There are no further questions at this time. I would like to turn the conference back over to Connor for closing remarks.

Yes. Thank you, operator, and thank you, everyone, for joining us this morning. We look forward to the next call with you.

Thank you. This will conclude today's conference. You may disconnect at this time, and thank you for your participation.