Want to sit there? I'll sit here. Yeah. Yeah. All right. All right. Just quickly, disclaimers for important disclosures, please see the Morgan Stanley Research Disclosure website, morganstanley.com/researchdisclosures. I'm Brian Harbour from Morgan Stanley, and I'm happy to be here with Life Time. Bahram Akradi, the founder and CEO, and Bob Houghton, recently joined as CFO. We were just talking about donuts before this, so now for something totally- We're gonna work everybody out. Life Time, you know, as many of you will know, went public for the second time in 2021. One of the country's largest operators of health and fitness clubs, athletic country clubs, as we're calling them today. Which many of you are familiar with, over 100,000 sq ft, full range of sports, as well as pickleball, of course. Life Time closing in on 160 locations and over 725,000 memberships today. Yep. Maybe just a broad question to start for you, Bahram. You know, you founded the company, I think it was about 30 years ago, right? Right. Maybe just take us through the last few years where you had gone private in 2015, and then what has really changed during those six years where you were private, in your opinion, versus what the company had been then? The company was operating with the same standards, growing revenue and EBITDA every year. We weren't really getting the recognition in the public market, it made sense to take it private. Being private, particularly with Leonard Green as the lead partner and then TPG, allowed us to really focus on invention, recreation. Immediately after we went private, I worked a detailed plan for all the malls, like David Simon's and GGP's mall that's now part of Brookfield, et cetera, to basically create an opportunity to take these malls from, you know, 1.3 million, 1.4 million, 1.5 million sq ft of just retail to 3 million-4 million sq ft of mixed-use development anchored by a Life Time bringing 3,000-4,000 people. The unique thing about Life Time is our members are usually about 1.6x, 1.7 x in terms of the demographic of the general area, in terms of their income. We bring in huge numbers of people, high volume and high quality customers to the mall. As a result, we started working on a lot of deals. As of right now, Simon Property Group is actually a small investor. They have about $70 million-$80 million in Life Time. In addition to that, we have over 20 locations with them across the country where they provide us the land at no economics. They give us low cap rates. It's a win for us, win for them. After that, you know, I started working on Life Time Living concept, where when we go into apartment buildings, we can help them ramp faster and have a better rates and better attrition. We were working on all of that and basically creating new ways for growing the company. Of course, you know, beginning of 2020, COVID came and took our attention to other places. Maybe just talk about membership briefly and, you know, kind of where you are at this point versus pre-COVID. I think important to that also is just the pricing strategy. Yeah. That you've taken, right? There may be some trade-off where you want to have fewer members than you would have had previously, but if those are higher-paying, higher-quality members, that's a trade-off that you're willing to make. Maybe just talk about your strategy. Yeah. That as well as membership. That's great. When I first started the business, we built these 100 plus thousand sq ft clubs with all the amenities. We sold them too cheap, flat out too cheap, and it was basically hard to deliver the experience I wanted with those prices. We gradually tried to inch those prices up. Because we had salespeople, they were the impediment to being able to sell a higher priced membership. It was very, very sticky, that pricing that we had established. During COVID, when we started reopening, I decided we're not gonna bring back salespeople, nor are we gonna bring back promotions. Without salespeople, we could change the prices easily from today to you know, next week I can have a club sell for $10 a month more and see what happens. If we wanna go back, we can go back. We tested all those with the goal of having fewer members at the end, than in mature clubs than we used to have, with a higher average dues, higher incentive spend. Where we are at right now in some of the markets that opened super early, like Texas, most clubs are significantly above pre-COVID revenues with fewer members. I was talking to one GM in South Jordan. She's only $25,000 a month away from highest revenue she had pre-COVID with 2,000 less memberships. Mm-hmm. We have room to grow, but we have no desire to get to the same intensity of a membership per location as we had before. We will significantly exceed the dues and incentive revenues with the new strategy. We still have many of our clubs. Even April of this year, we just came up with final restrictions ending. Everybody thinks that in our business, just like retail. You know, COVID ends and things should snap back to the subscription business. It takes 36 months to ramp a club. It takes two years to ramp a club back after COVID is ended, not six weeks. Mm-hmm Like some of the other retailers. It's all coming. We're very happy with the progress, and we played strictly offense till August of this year. August of this year, we had clear visibility that by January, February, March, we're gonna eclipse the 2019 same-store sales. Therefore, we started working on a margin expansion strategy, finding out efficiencies, and we're super excited about being in phase two of COVID recovery. I do wanna get to the margin point. I guess, still on memberships, what do you think is kinda the key to driving that next leg of growth in 2023? You know, you've made some investments in programming and such. What will be key next year? Yeah. We launched four unique focuses. One was ARORA, which is our qualified. It's a 55-year-old and above age group, and 65 and above for qualified primary. That business is significant growth. I mean, like at more than 100% on annual basis right now. The second one was a small group training- Mm-hmm Where we changed the model. Where you used to come into our club, pay the $150 a month of dues, but if you wanted to do something like Orangetheory Fitness or various boot camp, you would have to buy that as a separate add-on. you know, it was clunky. We changed everything to what we call a Signature Membership. Basically it's one monthly dues, and all those small group training classes are also included, like your large group classes. That business is growing. pickleball is on fire. We've had at least 175,000 unique visits to people using the pickleball. We are by far the largest provider of pickleball as we are in tennis and swimming and other stuff. It's one that I think allows Life Time to gain at least 50,000-60,000 net memberships next year. Mm. We basically have implemented all of those. We don't spend money in marketing, we don't spend money in sales, we have no promotions. Everything is focused on delivering the product that makes people wanting to come to the place. The other thing that you've commented on is just your average revenue per month per member, which is, I think, approaching about $160. Do you have in your mind where, you know, where that goes over time or how we should think about that? That's interesting question. For right now, today, you know, every month roughly, but basically it's about $190 for the new members signing up. Mm-hmm. We sell 1,000 memberships in a day. It's about a $190 average. The outgoing members are roughly about $160. We have members who are paying less than the rack rate, but they've been with us for five years, 10 years, 15 years. They do get legacy rate increases, but not all the way up to the rack rate. Every time somebody drops out and somebody new comes in, it's worth $30. In addition to that, as we add the. Over time, that $160 is gonna get up to $190, $190 is gonna get to $200. Okay. I think since it's a consumer conference, we have to talk about recessions at least a little bit. You've steered this business through several, right? I think the question is just, you know, your observations as to what happens to membership spend per member attrition during those periods. Also I think just talk about some of the demographics of your membership and how you think that Yeah. This is a loaded question. I want to take it in two parts. Part One, typically in the past, all but exception of Great Recession 2008, whenever there was recessions, we lost a few members because the money was tight. We gained maybe just slightly more members because they had more time. They now were, you know, they were getting severance pay, but they had extra time, the cheapest pastime. My expectation is that a mild recession won't impact our business, Planet Fitness or anybody else. Having said that, Life Time has a four-year timetable. When we open a club, it takes year one, year two, year three, year four, we get the full revenue and dues. In 2019, right before we got shut down, about 81% of our clubs were mature, and then about 6% or so per year one, year two, year three, that they had time to ramp. Today, about 80% of our clubs are in year two and three. Mm We just started coming out of the closure. Whether there is a 1% or 2% impact from recession for retail businesses, I still expect significant growth for Life Time. If there was no recession, it would've been 18%. If it's recession, maybe 16%. We're gonna grow regardless. We expect the headwind. Mm-hmm. We don't think there's not gonna be any headwind. Even with that headwind, our numbers are gonna significantly grow, revenue and EBITDA. Do you see members pull back a little bit on what they're spending on in-club? Maybe they don't give up their membership, but they pull back? Well, our pricing strategy now puts us clearly as the top 5%, 10%, 20% of the population is coming to us. The rest of them are going to the middle-level prices or to Planet Fitness-like clubs. We haven't seen anything, nor we have any excuse to tell you that if something's not working, it's because of the customer feeling pressure. We're not seeing it. Okay. Not yet. Makes sense. You mentioned kind of margins, and, you know, last quarter you discussed some rationalization of G&A, some rationalization of in-club expenses, and then you have a 30%-35% EBITDA margin target that, you know, I think you talked about wanting to hit next year. Maybe just tell us more about what specifically you're kind of doing to get to that and what reinforces your confidence in that. Typically, every given year, I would challenge my executive team to come back and try to give me, you know, all these things you wanna do, what are the things you're not gonna do anymore, right? We didn't do that for the last three or four years. Last three or four years, I said, "No defense, just play offense. Mm-hmm. There is three to four years worth of opportunities to go back and see what are the things there's no need for them to be done. They don't add any value. We've been cleaning up, rewiring the business completely for a more of an ownership mindset for our club managers and our department heads. We have eliminated nothing from the clubs. It's actually added more classes, more services, and we have taken everything that was layers between the clubs and the corporate office, taken everything out. There is just literally middle-level management stuff that has been taken out. I'm not certain that those were adding any value other than, in my opinion, more confusion and just messages getting more diluted or convoluted as it was delivered. We've been adjusting and cleaning and I expect to have a much, much more efficient machine coming into January of 2023. Is that when you think those will be visible, or are you mostly past those changes at this point? Everything has been done. We chose deliberately not to try to take a one-time charge or something. Mm-hmm. Everything will be done through the pipe, all cleaned up by January 1. January 1 will be a clean slate going forward. Have you made changes to staffing or class schedules in the clubs at all? Class schedules, the number of classes are increasing. We're adding more small group training classes. We're just as many packed classes as you can. We are, you know, basically, again, most of the changes are in managerial roles, not in front line. Mm-hmm. It's hardly nothing in the front line. Is there still anything you're concerned about just in terms of, like, labor inflation or any other inflationary cost pressures at this point? You know, I don't know how the world expects there is not gonna be inflation when the governments around the world print, you know, 30% more money than ever existed. It's gonna have to get washed out somehow, and it's gonna get washed out with higher prices. The question is, it's a little bit spoiled behavior in U.S. because our dollars oil trades with it, so it's a delayed reaction. If you printed 30% more money in any other country this month, next month, everything will be 30% higher. I think it's gonna settle. We have taken all those hits. We've taken the payroll increases, the labor increases, the hourly. We've taken all of that, and I think all of these things are taken into consideration in our forecast of what we're gonna do next year. Okay. Maybe just to talk about development a little bit. You had targeted 10 plus club, new clubs per year at the time of the IPO. You'll do more than that this year and it sounds like next year. Maybe just comment on, you know, what's driving some of that strength in. We aren't in a rush to start a new club, but we are more focused on making sure our pipeline for growth is packed, and we have nearly 100 deals in the pipeline. There's no concern of us being able to produce the new growth for ongoing years to come. Mm-hmm. In our business, unlike some other smaller, you know, boutiques or retailers, the gestation time for our clubs are four, five, six years, so we have clear visibility for the future. However, we have, as I mentioned earlier, we have so much dry powder in our growth coming out of our existing clubs, that if 2024 we only open eight clubs and open 14 clubs in 2025, none of that moves the needle. Like, this is what I'm saying to you. Our focus is balance sheet. My goal, his goal, our organization right now is In my opinion, we have a first-class brand. We have a first-class product, first-class experience. Our balance sheet needs to catch up. We need to get our EBITDA doubled from where it is today over the next year, 18 months. We need to get our Debt-to-EBITDA adjusted. Considering the fact that we have near $3 billion worth of owned real estate still, we get to about a billion and a half, $1.6 billion of debt. EBITDA needs to be, like I told you, double where it is today, and the Debt-to-EBITDA will be adjusted. That's the number one focus for me right now, to make sure next year we close the year with balance sheet being as attractive as the brand and you know, the experience as a Life Time at the same time. Given that, do you think it would make sense to open slightly fewer clubs next year? Okay, so the clubs that are opening next year, they have been in the pipeline under construction. They're largely funded already. Doesn't make any sense to slow those down. Right. The clubs that would open in 2024, 2025, we own in many cases, we own the land, we have the permits, and we can start construction today, but we are deliberately taking more time to bid. Like, just today, I was talking to the construction team, where the results came back from one of the city's hot markets for real estate. For three months ago, we took the numbers, and the price is now flat for the first time. They haven't been going up, up every month. I think another three months, four months from now, you're gonna see some construction prices starting to come down. Mm-hmm. That's the time you make your purchase rather than rushing into them. We're not, we're not in a tizzy to having to do a certain number of delivery. The most important thing I emphasize is managing our balance sheet, to be a much better position. You have had somewhat of a shift to newer markets. You're in New York now, for example, and you've continued to open in New York. Where will some of the focus be for those newer clubs? Will it continue to be in some of these newer markets for you? Part of what we invented during the private time is the vertical model and in partnership with the apartment builders, big real estate entities. If you guys go to Dumbo, that's a $1 billion-plus building with CIM, and Life Time is basically the engine behind that whole resi and condo unit. We have lots of those deals in the pipeline. The nice thing about those things are they're pretty much already sell these back. I mean, they're, you know, they're already leased upfront from the landlord, so they're lower capital investment and attractive deals because we are doing something for them, helping their business go faster, so we get an anchor treatment on our rents. Mm-hmm. Quite a bit of the deals in the future, probably 50% of our deals not in a given year, because it could be lumpy, but in a, like a five-year window, half of our deals are gonna be either funded by apartment owners or malls. Mm-hmm. Which is just repurposing real estate. Right. Exactly. Existing mall. Yeah. Maybe just talk, while you're on that topic about Life Time Living and Life Time Work, which was, you know, certainly part of the story you told at IPO and, you know, what do you think about those businesses currently? Same as we said in this, in the, on the Life Time Living, we wanted to prove the concept that when we build a Life Time Living brand, we get higher rent per square foot. Mm-hmm. We're getting about 180% rent per square foot in Las Vegas on the unit we built to demonstrate the model. People love living in that campus. It's a different customer. It's not the same customers shopping for the last $100 cheaper apartment. They rent faster, they have a higher rent per square foot, and they have lower attrition. It's exactly what you want if you're building. We wanted to prove that, as a result, getting the objective was to get the apartment builders to call us and say, "I wanna build 1,200 apartments here in Florida. We want you to be the engine behind it." We have lots of those deals in the pipeline. The mall deals, as I mentioned to you, is we already have, with constant work we're doing with them. Life Time Work, the results are exceptional when the Life Time Work is attached to the Life Time. Nobody can. You get a Life Time Work membership as you would do in one of these co-shared co-working places, and then, but you get the club membership also included. Mm-hmm. It's a no-brainer. We have great economics. Our levered return, because those are all leases, matches our levered return with our. It's better, slightly better than our core club. Mm-hmm. It's never gonna be like a, like a WeWork. We're not gonna do hundreds of those. We're gonna do them only when they make sense adjacent to one of our clubs. There's gonna be a few a year coming in. They just add to the overall growth. That's Work. Right. The Living is to get more locations. Right. Do you have a sense for how many of those you would do per year? How many? The living locations. I think in the future, I think three, four per year of our clubs opening up will open in conjunction with a, with a living arrangement. It'll be lumpy for the next, like I said, two, three years because gestation time is so long on these things. Mm-hmm. We're working a lot of deals. Yeah. Okay. You know, you alluded to this just from kind of a financing. I guess the first question we should maybe just ask is, you know, balance sheet. Where do you want to take your leverage to? Maybe talk about how that will be a focus over the next couple of years. Without any real estate owned, no real estate, which is in the picture for Life Time because we have so many assets that the value of the asset, the book value doesn't make sense for us to sell them. If you had no real estate, I think 1 x Debt-to-EBITDA should be the target. With the amount of real estate we own, we like to have that Debt-to-EBITDA be under 3 x. Mm-hmm. We have a clear path to get that done. You have already announced a number of sale-leasebacks to that point, but how many more could be feasibly done if you look at the existing plans? We halted the idea of selling the buildings that had a huge gain. Mm-hmm Once we could see that over the next three years, we're gonna generate enough pre-tax income to chew up all of the net loss carryover. We're still gonna do sale-leasebacks and make sure our balance sheet stays where we want it, is we're gonna do sale-leaseback on newer clubs and the ones we're going to be built. That way, we're not gonna take any gains, right, that then we end up having to pay taxes on our income. It's just a shift of which assets we sell. Mm-hmm. We sale-leaseback. The idea for the company is capital light going forward. We went to a capital light model when we went private. It's the plan to stay on capital light going forward. Your expectation, it sounds like, is that any new club where you own the land and building would be sold off? Absolutely. Yeah. Better yet, I know we hope to execute a couple of deals early next quarter, where they basically are the sale-leasebacks is executed when we start construction. As we look over the next few years, is it safe to say that you will fully self-fund new construction when you incorporate those proceeds, and then there may be some access that you can reduce leverage with? Is that your intent? That's correct. Okay. Great. Maybe just let me ask about some of the, you know, the newest clubs. I think, curious about what you see there from a membership perspective, a revenue perspective, an engagement perspective. How do those compare to some of your older clubs today? Yeah. Whether if it's Frisco or West Palm Beach, the new clubs that we're opening right now, the prototype clubs, they are basically beating any past records. The memberships membership dollars are ramping the fastest. Mm-hmm 'Cause we get, as I told you, we used to sell them too cheap. We would get a lot of members, but we weren't getting as much dues as we could possibly get from them. These clubs are ramping extremely fast. We are not seeing anything that says a new club opening is less attractive than it used to be before. It's more attractive. Mm-hmm. Do they differ substantially, though, or do you think there's stuff that you've done deliberately to make those successful? Anything in terms of design or programming? Yeah. It's all the above. I think the clubs are much more refined. The experience is more curated. The fact that it's not sold, it's just bought, that itself is dramatic, both economically for us, and it's a better experience for the customer. And then all the programs. I mean, if you want the best tennis that's Life Time, you want the best pickleball that's Life Time, you want the best swimming, I mean, we literally create a collection of the best experiences in health and athletics. They just, the clubs sell themselves. What markets would you? I think you're in 26 states, maybe it's a little more today. What markets would you like to be in that you're not in today? Yeah. I mean, it's a, it's a interesting question because we have one club in Salt Lake City. We need to have five, six. We have, you know, 14 clubs in Dallas, but we have with 6 million people, we have 20 clubs in Minneapolis with 2.5 million people. I mean, if you look at across the country, the only market that we are close to saturation, the only market is Minneapolis. Every other market is wide open. Okay. Great. I think that's all the questions I had. I'll leave it there. Thank you guys. We appreciate it. Thank you so much. Thank you.