Hi everyone, I'm Alex Perry from BofA Global Research. I am very pleased to have Life Time Group Holdings with us here today, including Bahram Akradi, Founder and CEO, Erik Weaver, Interim Chief Financial Officer, and Danny Metsky, VP of Corporate Finance. Life Time has been on quite the journey recently with a focus on premiumization and the rollout of some pretty significant initiatives, including pickleball, small format group training, and a new personal training program, among others. I'm going to first hand it over to Bahram to walk through a few slides before we go into Q&A.
Thank you, Alex. Yep, so really what we've tried to focus on is, over the last 30 years, to really focus on building a high-end leisure brand. Once the brand is completely understood and appreciated by the customers, it will allow us to have additional strategies rolled out from that brand execution extension. Our company is not like any other. It's much more like a Vail resort from a standpoint of the barrier to entry. We have about 130 of our assets are large format clubs that take at least five, six , secen years of just the time to identify the site to build out.
Once you have built that within the next 4 or 5 mi radius of that location, it's really improbable that somebody with any sort of a reasonable business acumen would choose to build similar even if they had the model, because then it just mathematically doesn't work. So we have secured many of these amazing assets over the last three decades. We also have at least another 40-50 of those types of locations under contract. So I always tell people, even if I left after all these years and I took top 20-30 people from the company with me, there is no way. There is no way to penetrate the strength of Life Time. Maybe you could take four or five locations over the next four or five years. There's no way you could put an end to it. So that is one of the most misunderstood.
I think people always look at this as think it's another gym. It's not another Planet Fitness. It's not another LA Fitness. It's not replicable model. So that's a really strong factor. The track record for the company has basically been stellar. We'll walk you guys through that. You'll see for yourself. The value proposition has never been stronger than it is today. We'll show you what we have done to start from a very, very high level of value proposition to even better. And then the proof of that is really our increased retention that we can show you guys, continued transition to a more predictable subscription business. We're going to be north of 70% of our revenue coming from subscription, a very, very, very sticky subscription.
And then the diversified portfolio of growth opportunities allows us now to achieve cash flow positive after all growth capital a couple, two, three years ahead of what we initially thought we could do. I'll walk you guys through all of that. So the brand is so incredibly coveted. Most of our clubs, they're either on waitlist or more clubs will go on waitlist by April, May time period. I'll anticipate having at least half of our clubs on some form of a waitlist by May, June of this year. The landlords looking for Life Time as a solution. The residential builders are looking for Life Time as a solution to amenitize their buildings. So it's really a coveted brand that allows us to roll out our brand extension opportunities very, very nicely. The footprint is pretty much across the country.
As I mentioned to you guys, very difficult to replicate these assets. I have zero concern that somebody can come in and replicate what we have, not at least in my lifetime. Long-term track record of revenue growth. You got to see this for yourself. In 2000, there was a massive real estate problem. No issue. We got through it. 2008, we were able to grow revenue, EBITDA, EPS. In 2009, 2010, we dealt with great recession with great performance. All the way through any challenges, Life Time has been able to bulldozer through, build revenue and EBITDA and margin growth. So there's a period of time that you see there's a drop. This is when we had government shutdowns and restriction was literally tied our hand behind our back. We were not freed up 100% to kind of run our business normal way till April of 2022.
And the moment we had been given the opportunity to run the business without restrictions or other things, we were able to get 2023. We obviously surpassed 2019 in every measure: revenue, EBITDA, margins, every single part of the business. Double-digit growth with healthy margins. The company is now so well positioned to continue to deliver low double-digit growth. And I'm talking 10, 11, 12% growth on top line revenue and EBITDA for the foreseeable future and with an EBITDA margin that will range in the 23.5%-24.5% range. Strategic moves we made were basically to transition more of our business to more visits. More visits per customer creates much, much stickier customer. This is super important for you guys to kind of understand. We keep hearing people bringing examples of I was talking to a super smart investor.
I liked him a lot yesterday. He was talking about Topgolf or Dave & Buster's. We have nothing in common with these businesses. We are 70%+ subscription. Our customer is using the club 12, 13 times per month. They just aren't going anywhere. They're not going to. This is their life. This is their social community. This is their habits. This is their exercise. This is their nutrition. They're not going anywhere. So every move we made this last four or five years was a move to focus on creating that visits per club, that engagement. And those visits per club result in more membership. And how we changed the equation, we deliberately decided to go to fewer memberships per club than we used to do in the past. That's leveled off now, and we are in an equilibrium from here going forward.
Memberships should grow as we grow more units. But we traded this proposition. We brought in fewer members, having them use the club a lot more, where the visits per club pretty much caught up with the high levels of 2019 by the back half of 2023. So mission accomplished. We got to where we wanted to by that time. Now, the price per membership has become the misunderstanding. Everybody thinks we achieved all of our success because price, price, price. They're wrong. The price per visit was actually increased over the last several years, less than accumulated inflation. So the actual value proposition went from good, great, to even better over the last four or five years. And if the result of that is not understood by any other measure than retention, in any subscription business, retention is the most important KPI.
We are now delivering in 2024 the highest retention in our subscription in the history of a company with the great track records we've had. And that retention will only get better in the years to come. So 2025 will be better than 2024. The business model that we are executing now is the most homogeneous, higher-end leisure brand that is in subscription business. It's the best execution of everything we've done in the last 30 years, and results are speaking. We have the highest EBITDA margin. We have the highest revenue per sq ft. We have the highest engagement, highest retention. So when you look at this, this is exactly what we have laid out for that: optimize membership levels, enhance the member experience, expand programming. We are now at a point where we are able to put more and more clubs on waitlist.
As we put the clubs on the waitlist, the customer becomes stickier. They're less likely to give up their membership because they won't be able to get back in. We have maximum control on where we put the pricing in. And as retention goes up, we have a smaller leak in the loss on the side of the bucket. And that makes it so much easier to manage our membership and our revenues and our margins. So this is the most predictable business model, as you can see on what we've done with our historical financial results. And it's just now in a better position than the pre-pandemic. This is showing you the collective moves. We moved a bunch of our businesses just much like Vail Resorts did with the Epic Pass.
We took a bunch of businesses where people were paying for small group training as a personal training on a one-off basis for court fees, for tennis, for pickleball. We created a Signature Membership. It's more like an Epic Pass. It basically gives them access to all things bundled inside the membership and moved more of the revenue into the much more predictable approach, which is really what has helped us achieve the results we're achieving. So the last piece that I want to walk you guys through is what we have been telling the street. This year, as I mentioned to you guys, in the next three to four months, we anticipate crossing over to cash flow positive after paying for all of our growth capital as well.
How we're doing that is that in the past, six, seven, eight years ago and back, we had really one way to grow our business. The traditional way was to buy eight, 10, 12 acres of land, take that piece of property, build the club, make it so it's basically enough members to pay the operating expenses and be able to pay the rent, and then we took it to the sale-leaseback to make it become asset-light. Today, when we created the solution, as you guys read in Wall Street Journal with David Simon, we basically put Life Time as the anchor that transforms the mall. So we get great economics from any of the mall owners to put our facility on the mall. We don't pay for the land. We don't pay for parking. We don't pay for infrastructure.
They give us some capital upfront, and then we put the rest of the capital in. So it starts capital light, but still the big box model. The other approach is residential units. The three most important KPIs in resi business are rate per sq ft, ramp, how fast they ramp, and the third piece is retention. Now, with four, five, six locations with Life Time Living, we have proven we dramatically improve all three of those KPIs for resi buildings. So today, I would be basically underestimating if I told you we're in 20, 30, 40 discussions with people who are planning to build high rises to make those become Life Time Living brand. Life Time goes in as an amenity.
We get great economics for that piece of real estate so that it becomes serviced both as amenity to help them have better KPIs, and we get really, really low rent for what we deliver. So that's another way to grow. Office buildings are going to need a Life Time solution in order to revamp their businesses. We're talking to office owners who basically need to give us 50,000, 60,000, 70,000, 80,000 sq ft to create the amenity. And then we are taking over other facilities that they have not had the programming to support the changes that they didn't have those concepts. They don't have the branded programs. So we take over those fairly inexpensively. So when you look at this, now at least half, 60% of our portfolio comes through these opportunities.
They're all asset light, and we can mix and match so we can deliver that double-digit growth on revenue and EBITDA while we maintain free cash flow going forward. So this has been a big objective. Most big funds are going to be apprehensive to invest in a company that has more than three times debt to EBITDA. We obviously were in a great place before COVID. COVID made the debt to EBITDA go bananas. So the number one focus has been to get that down. I am very, very proud of our team from right here. Erik, Danny, and everybody else has been a number one focus. And we are confident that this year, we'll finish the year with under three times debt to EBITDA with an ongoing focus to get it closer to 2.5 by the end of 2025.
I know that this would not be a factor going forward. That's pretty much my whole presentation. I don't want to repeat anything, give you a chance to ask questions or them ask questions.
Perfect. That was very thorough, Josh. So, Bahram, it appears that Life Time's more trying to evolve and identify as a premium leisure company. I didn't hear you mention the word fitness a lot, which likely sort of expands your TAM. You've rolled out pickleball. You sort of moved into a new pricing tier. So what is driving this, and how do you see this evolving?
Yeah. So I look at my own pattern, my family's pattern, and use of Life Time. Fitness is probably 10%-20% of the reason we use Life Time. Leisure, sports, tennis, pickleball, programming, Miora, all those haircuts, all those beach clubs, those are the reasons we are using the facility. It's a leisure company, and it's complete confusion for the investor. They either compare us to retail, which we have nothing in common because of so much of the business on the subscription, or they compare us to Planet Fitness, which is not a bad business. It's just a very different business. They're a non-use model. And all of those categories, they're focused on fitness.
We are focused on creating a second home for people, a place that they belong, they socialize, they communicate, they come in, they entertain, they get entertained, and they're getting all of the health and fitness needs. It's more, again, from my perspective, I believe we have a stickier Vail Resorts, right? They're using the club 12, 13 times a month. I mean, it's the last thing I can think of giving up. So we need to continue to explain to people why we think of this as a leisure business, high-end leisure brand that is in subscription as a business. And hopefully, over time, that will just be accepted broadly by all people. But that's the way we look at ourselves and who we are looking to comp against, who we're looking to compete against in terms of not directly.
I mean, we're not in direct competition with Vail, but in terms of, "Can I catch their revenue? Can I catch their EBITDA?" And that's really what we are looking at. Yes?
Sorry. Yeah. Bhram, thank you. So picking up on the comparing yourself to Vail from this side of the room, right, for investors sitting in these seats, the value proposition for an investor for Vail has been the amount of cash flow they return to investors. The second has been over time. This is probably less so now than it was before, but there was also a big real estate transition, right? The value of the real estate ended up being sort of returned to shareholders in a pretty creative way. So you're not free cash flow positive, I guess, or you're not? I don't know. So if you're going to get comp for Vail, at some point, you got to be able to return a lot of cash to shareholders.
So what will be sort of the catalyst or the event that will sort of make that transition where you can consistently sort of churn out cash?
Brilliant question. Let me walk you through. So again, I just referred to this so you guys have a little background on what I've done. Much like you, I invested in the market. I was an investor in a company called NOG. You can look it up, NOG. And I had to go in as a shareholder activist, turn the company around. And my model to fix that, it was 6.7x debt to EBITDA, and damn near bankrupt when I walked in. It does $1.3 billion-$2.5 billion of EBITDA right now, $600 million-$700 million of free cash flow. We're doing dividends, and we're buying stock back. Both, that's the way we're giving money back. That's my intent for Life Time. Being a public company and a small cap, just shoot me. We got caught in this environment because of COVID.
Once we were past that, and I don't want to keep coming back to that, this is a transition year where we know hopefully, by 2025, we'll never have to talk back about that again. But the idea is bigger and stronger. This company has the runway to $3 billion, $4 billion, $5 billion of revenue with a 24%-25%, 23%-24% EBITDA margin on an ongoing basis. So mid-second quarter this year, we flipped cash flow positive. We still own about $3.5 billion worth of real estate, fee-owned real estate. Some of that makes no sense to do sale-leaseback ever because our basis in it's so low, okay? I kind of like to keep that portion of the real estate as a security blanket forever. It generates good margins for the company on an ongoing basis.
Probably $700 million-$800 million- $1 billion of that $3.5 billion real estate is easily monetizable and sale-leaseback. When we get to this point where we really don't need the sale-leaseback to be cash flow positive in the second quarter, when we do sale-leaseback, we have to recycle that capital. So either we expedite the growth some, or we start doing return to shareholder. It's a little premature right now for this company to go smaller. I still need to get bigger and stronger. But as soon as we get to the right point so we maybe do some share buyback, and dividend would be probably a year, two years out before we start doing dividends.
If you looked at it, five years from now.
Yeah. Five years from now.
Yeah. If we were looked at five years from now, would the idea be that this is it returns cash to shareholders both in terms of repurchases and dividends in a meaningful way?
I own millions and millions of shares, and I am dying to get dividends on my share like I'm getting on NOG's shares. So it is definitely, absolutely the plan. We will absolutely get this company to a mid-cap plus double B credit and then start returning cash to capital, very, very small dividend to start with, one that I can sustain on an ongoing again, if you want to look and see what my strategy is here, go back and study NOG for the last four, five years. And then we can see exactly what my game plan is here.
Thanks.
Great question. I appreciate it.
So, Bhram, you've spoken a lot about higher retention of your members. You put a slide up that sort of showed them higher visits to the club. Do you see these two as correlated? And you talked a lot about the strategic initiatives that you implemented with pickleball, small format group training. What are the next leg of strategic initiatives in place? What should we be looking for in 2024 to keep that retention and those visits high?
Yeah. So right now, the focus is on just giving you guys some example. We developed the brand DPT for personal training and dynamic stretch. We are now in the final two to three month stages of all the products coming out, the LTH products. Some of it we've all had for a long time, but rebranded nutritional products, fish oils and magnesium and multivitamins, etc. But we are rebuilding the engines to actually get that business doing what it should be doing, which is 5x, 10x the revenue and the results that we have right now. But we have that. We have Miora, which is basically all of the longevity programming that we're putting together. We have one location. It's the test tube right now downtown Minneapolis. Its results are going fantastic. We have more demand than we have supply.
So we're rapidly trying to hire MDs and PAs to kind of accommodate all the demand that is coming and then the natural rollout of that into every major market that we have clubs. So the idea is to build a brand that is trusted by a high-end, affluent customer base and then provide them. It's not complicated. You ask the customer what they want. They tell you. And it's that simple. And if you deliver to them what they're asking for, they keep coming back. The more variety of services a family membership is using in the club kids are in swim school. The lady is using the spa. They're doing the MediSpa in Life Time. They're doing personal training. It is so many different of their life that they're never going to go away. It's the same thing you guys do with the banking.
You make sure that you have the checking account. You do this. You do that. You do as many different things for the same customer so your customer never leaves you. And that's what we've been doing with Life Time. It's not a gym. It's not just a workout place, just a place you go do your lift or you do stair master. It's not sticky. You can do that anywhere.
Yeah. So you talked about Miora as one of the big initiatives for this year. I think you have it in one test center in Minneapolis. You've talked a lot about the café business as well and how sort of underpenetrated you are within your café business. Can you maybe talk about what you're doing for the café business? How much does the café make up as part of the in-center business and where this could go with the food and beverage revamp?
It's a great question. So let's go through what we faced with and so you understand the sequence of what we're doing, what we're doing, when we're doing it. When we came back from COVID, the clubs were down to 40% membership and 40% visits. So we had to rebuild the visits. So swipes was the number one goal. Then that meant that we get the swipes. 8, 10, 9, 12, 13 swipes becomes one membership. So we build the membership. We build the revenue. Once we build the revenue, we went to fix the next big part of our business, which was PT. We had to reinvent PT to something that cannot be replicated online. So it's very dynamically, interactively engaging. And right now, we're having the best month since COVID. And it's just growing. So it's reached to where we want to.
So we've sequentially fixed we needed to fix the margins. We fixed the margins. We took a margin expansion. So we basically have done all the important sequential deals. So now we come down to the parts that are important. They just weren't as important, those other things. Café and a spa for Life Time has never been built to be the most profitable part of the business. It was always built to create a distinction between an athletic country club and a fitness center. But our café team, because I had no time to get after it and nor interested to get after it till the beginning of this year, basically, they had played defense. It was defense, defense, defense. So if you went to the cafés, not uninspiring, same food four years later, reduced menu. So we have completely changed everything. We have brought the creativity, the freedom.
It's going to take all year before you're going to see financial impact from this. The way it happens is you see 5 clubs right now. They're doing 4x the average. So there's those rabbits. Then the beauty of our company is that we have 170 locations. 150 of them have cafés, right? So you can implement best practices. That's what we do. That's what these guys do every week. We bring in top 25, bottom 25 cafés, spas, PT, everything. Then we basically go through what makes the top 25 top 25, what makes the bottom 25, and then we do rapid corrections. This year, we will correct. By end of the year, we have corrected both spa and the café. Will it have an impact this year? It's not necessary. That's not in our numbers.
By next year, that will start becoming momentum for 2025.
Yeah. Now, I wanted to talk a little bit about pricing. It's been a pretty significant part of the story. Last quarter, I think average monthly dues were up 13%. What's sort of embedded in the guidance this year in terms of pricing? And maybe talk about how that compares to what you're expecting in terms of membership growth.
You guys want to take it?
Yeah, absolutely. I mean, in terms of pricing, I mean, I guess all the pricing that we've taken to position ourselves, I mean, that is largely over. I think in our existing clubs, we look at that, and we think we're still going to get some benefit from members that are coming off and then coming back on. But in our existing centers, we're expecting probably 6%-7%. But then, of course, we have our new clubs. But again, I think it's important to highlight that the pricing, really, when you look at it on a per visit, it is still a fantastic value considering all the different amenities that you get as opposed to going to just an Oranget heory or something like that. So we feel pretty good about where we're positioned.
$17 million right now per month is the difference between if every member paid the rack rate versus what they're paying; it would be $17 million a month. There is no plausible way we would ever take that all at once because it would be a brand suicide. We want our customer to love the brand as they do. So they get a letter. They're saying, "Hey, the club now is $279. You're paying $219. We value you. We're going to take you from $219- $229." They're elated. So we're both getting the value. So we can do some legacy pricing. And as Erik mentioned, some members are dropping out. The new members signing up, signing up at $279. So every churn is helping us about $30-$40 a unit. And otherwise, there is the legacy price increasing very, very methodically. So I see a 3%-5%.
It's going to be bigger than that this year, but in the future, next step, 2025, 2026, 3%-4% dues growth on a same-store basis is just natural flow-through of the gap between what the people are paying right now and what the rack rates are. It's fairly easy. That helps you.
Perfect. I wanted to talk a little bit about the club opening plans for this year. How many of the clubs that you're opening this year are sort of asset-light versus your large-format locations? And what is the square footage outlook in 2024 compared to 2023?
Yeah. This is another one of those areas that I think we have a poor job from our side of creating the story. It makes it difficult for you. It makes it difficult. So what we're working on conceptually is coming back and making an easier solution, which is what we call Large-Format Equivalent (LFE). So the plan is to roll out that. That's about 100,000 sq ft. And so the way we're planning to sort of guide you and the investors, we're going to deliver between 8-12 Large-Format Equivalents per year. The question you're going to ask, if people have asked, is, "Are they going to make different monies? The small clubs versus the urban clubs, suburban clubs, the resi clubs?" We go after the same exact rate of return. We're looking between 35%-40% IRR, fully leveraged.
So if we do it after sale-leaseback or if it was one of the other kinds, we're looking for a high return. On a purely total invested capital, we won't ever do a deal less than a 15% IRR. When you look back historically, say, "Okay, well, did you went to business plan for these? Did you do it?" In almost every case, the answer is yes, with the exception we were wrong twice. We spent more money than we thought we're going to spend, and we got more revenue than we thought we're going to get. The rate of return has always been that number that we wanted plus. Always, we deliver on that. Take that into consideration. It's always been done. The rate of return is the same.
What we need to do to simplify it is just give you a way to do your modeling. That's this large-format equivalent that you're going to roll out. About 8-12 per year. Whether or not it comes out of the resi development, it comes out of a mall development, it comes ground up, we have enough deals in the pipeline to deliver between 8-12 large-format equivalents per year for you for foreseeable future.
I don't know if you said it, but I think the LFE is really around 9,800,000 sq ft. I'm not sure if you said that, but that's how that kind of maps for you.
Yeah. 100,000 sq ft.
Yeah. Okay. Perfect. We have about five minutes left, so I wanted to just scan the audience and see if we had any questions out there. All right. So you do a lot of things in your box, right? You're running cafés. You're giving swim lessons. There's saunas, right? There's just a lot of stuff that happens inside that box. How do you leverage that across your entire network? Meaning, if you're going to run 179 cafés, at some point, does it make sense for you to do that? You become a small restaurant operator, or do you bring third parties in to run some of these amenities that you have inside the box? Maybe they're different or.
You're asking brilliant questions. I'm not buttering you up, but these are great questions. They're complex questions. So I thought about that. I worked in restaurants when I was in engineering school, and I swear that I would never own a restaurant. And then now we have 170 of them. So it's a challenging deal, but I thought initially that we would lease them out to third party. And that's how I started the business. What happened is I wanted to elevate the business, and they wanted to pinch pennies. If we do it with okay, you do it with Starbucks. If they did 100 locations inside of Life Time, it'll be a rounding error to them. Therefore, it won't be a focal point. So my job is to create a country club for you, right? A country club, not a gym. So let me give you a great club.
Coral Gables does almost $200,000, $170,000, $180,000 in the food, right? And so they made $30,000 of contribution margin a month, right? If they maintain 100 more memberships, 100, because the experience of the F&B is so great, generates $40,000 a month. So all of the spa and café is really focused to create that distinction from a gym to athletic country club and deliver the stickiness that I want you to have. So if I'm disappointed in them, it's not because of number. I'm disappointed because I don't want to eat their food. So what I'm fixing right now is making sure the experience is like the one you would find in these markets. So right now, Florida reports directly to me because I am working closely with each lead general to make these innovations, right?
The cafés are killing it, all four of them, in this market because we've given them the freedom to deliver that exclusive experience for the customer. They're making money, and they're doing big numbers. So the focus has to be always from the member point of view. The moment you lose sight of who are you here to serve, right? I'm here to serve our customers. The reason we have that success in our historical background is because we never stop thinking about the customer point of view. And so again, those elements are designed to deliver the best experiences, right? Okay.
I wanted to ask a little bit more about waitlist and enrollment fees. So I think currently, you have 20 clubs on waitlist. I think you said you expect to have half the clubs on waitlist by the time post-season comes around. What is the opportunity there? I guess, well, the first question is, what are the characteristics of the clubs on the waitlist? What makes them in such high demand? And then what is the opportunity there? Would you consider taking more price too? You obviously have a supply-demand imbalance. So would you consider taking more price at those clubs?
Yes. And one of the things I've always wanted to do with a country club mindset is you want to have an enrollment fee. And because of some of the past events, we had walked away from that to open the door for the subscription to come in. But as we get closer to this period, a little more enrollment fee. It's not the dollars from it. It just makes the membership way more sticky and make the exclusivity. So we have the ability to add pricing only because we can really dictate the positioning of the club. And I think probably 60-70 clubs reach the volume of business to traffic per day, right, that you should almost have them on a waitlist. That's how we're getting there.
Just to add on to that, when we talk about retention, those clubs that are on waitlists have significantly lower or higher retention than the clubs that aren't on.
Yeah. I think a lot of efficient, high retention. Yes.
Is it fair to say that as a club goes onto a waitlist model that you start to implement enrollment fees, and that's sort of how that?
All the clubs that they're on waitlist right now, they also have enrollment fee. And so as the clubs go and this summer, when we have this come up, enrollment fees coming, right, for the school pass, they're not going to go away.
Perfect. Well, that's perfect timing. I think that is all the time we have today. I want to thank Lifetime for a great presentation. Thanks again.
Thank you, guys. Thanks a lot.
Thank you.