Greetings! Welcome to the Life Time Group Holdings Third Quarter 2023 earnings conference call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. If anyone should require operator assistance during the call, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. At this time, I would like to hand the call over to Ken Cooper of Investor Relations. Thank you. You may begin. Good morning, and thank you for joining us for the Life Time Third Quarter of 2023 earnings conference call. With me today are Bahram Akradi, founder, chairman, and CEO, and Bob Houghton, CFO. During this 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 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 our Net Debt Leverage Ratio and Free Cash Flow. This information, along with reconciliations to the most directly comparable GAAP measures, are included 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. I'm now pleased to turn the call over to Bob Houghton. Bob? Thank you, Ken, and good morning, everyone. I'll walk you through some of our third quarter key highlights and metrics. Our revenue increased 18% to $585 million. The revenue in the quarter would have been approximately $2 million higher, if not for the delay in opening our Tampa Harbor Island takeover location. Also, our third quarter results last year included approximately $3 million in revenue related to two non-profitable triathlons that we sold earlier this year. The combined impact of these two items is about $5 million of revenue. Our Adjusted EBITDA increased 101% to $143 million in the quarter, compared to $71 million in the prior year quarter. Adjusted EBITDA margin increased by 10.1 percentage points to 24.4% versus 14.3% in the third quarter of 2022. Year-to-date revenue increased 23% to $1.66 billion. Year-to-date adjusted EBITDA increased 128% to $399 million, compared to $175 million in the prior year-to-date period. Center memberships ended the quarter at approximately 784,000, an increase of roughly 56,000 or 8% compared to the prior year quarter. Total subscriptions ended the quarter at approximately 830,000. Average center revenue per membership increased to $722, an increase of 9% from $660 in the prior year quarter. Adjusted net income was $26.7 million, compared to an $11.5 million adjusted net loss in the prior year quarter. Year-to-date adjusted net income was $91 million, compared to an adjusted net loss of $67 million in the prior year period. Adjusted diluted EPS was $0.13, compared to a loss of $0.06 per share in the prior year quarter. Year-to-date adjusted diluted EPS was $0.45 versus a loss of $0.35 per share in the prior year period. Importantly, our net cash provided by operating activities was $115 million, compared to $45 million in the prior year quarter, and year-to-date net cash provided by operating activities was $331 million, compared to $125 million in the prior year-to-date period. We are very proud that we have been able to reduce our net debt to Adjusted EBITDA to 3.7x by the end of the quarter, compared to 4.2x at the end of Q2, 2023, and 7.6x at the end of Q3, 2022. I will now turn the call over to Bahram. Thank you, Bob. I'm extremely proud of the entire team at Life Time for working tirelessly and passionately to achieve all the priorities that we have set for the last three years since returning from the interruption of COVID. Our first priority was to restore the number of visits and dues revenue to our clubs. We have accomplished both of these in 2023. Our second priority was rebuilding our Adjusted EBITDA margin to pre-COVID levels and beyond. At Adjusted EBITDA margin, margins of 20%-24% each quarter this year, we feel excellent for having accomplished that priority. Our third priority has been to reduce net debt to Adjusted EBITDA at a very rapid rate. With $506 million of trailing twelve months EBITDA at the end of 3Q, we have now reduced the net debt to Adjusted EBITDA to 3.7x, and we expect to be below 3x by the end of 2024. Another important objective was to increase our member engagement through enhanced programs and member experiences. Our visits per memberships are up approximately 24% through the first nine months of 2023, compared to the first nine months of 2019. Increased visits or engagement per membership has been a critical part of our strategy, and it is delivering the exact outcome we would expect. This creates stickier memberships, and we are now seeing lower attrition rates than we did in 2019. Clearly, our team is executing diligently to achieve all the priorities we have established sequentially to get us to this point. Now, our next most important priority is to be cash flow positive after all capital expenditure, without any proceeds from sale-leasebacks. The convergence of two things that I'm excited to share with you is helping us to achieve this very important priority, approximately two years ahead of what we thought is possible just a year ago. One, our strong outlook of Adjusted EBITDA performance, and two, the significant asset-light opportunities our team has been working on will allow us to deliver a cash flow positive position in the second quarter of 2024. Getting to the position of self-funding, all of the capital required to deliver double-digit growth without any sale-leaseback, has been a long-term goal, a long-time goal of the company. I couldn't be more excited to be working on delivering on this particular priority by the end of second quarter of next year. For the next quarter of this year, we expect to grow revenue between 17%-20% compared to the same quarter in 2022, with an Adjusted EBITDA margin of 23%-24%, 23.5%-24%. This will suggest revenue for the quarter of $555 million-$565 million, and Adjusted EBITDA of $131 million-$135 million. Important to highlight, we had planned several revenue-expanding initiatives to launch in early fourth quarter, and at this point, we expect to roll out in 2024. While we are not providing any official guidance for 2024 at this time, I would like to make it clear that we expect double-digit growth, both for revenue and Adjusted EBITDA, in line with our earlier expectations. All the while, more of this growth will be coming from more asset-light opportunities. Finally, we're expecting a couple of LOIs for additional sale-leaseback transactions. However, with the outlook of being able to deliver cash flow positive after all capital expenditure by the second quarter of next year, we can be very patient and diligent in negotiating the most favorable sale-leaseback terms and determining whether to execute any additional transactions at this time. We now look forward to answering your questions. Thank you. We will now be conducting a question-and-answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for your questions. Our first questions come from the line of Megan Alexander with Morgan Stanley. Please proceed with your questions. Hi, thanks for taking our question. First one, you know, maybe can you just talk a bit about your expectations embedded in the 4Q revenue outlook? It is a bit below where you'd implied previously, so, you know, is that driven by something you're seeing in membership joins or attrition or just some additional conservatism? Nope, it's not in membership or attrition. The impact is typically when we go from $585 million of EBITDA in revenue in the 3Q to the 4Q. For our size of company now, there is at least $30+ million, $35 million of revenue that doesn't exist between, you know, summer camps and other activities, summer activities. So most of the revenue drop from is all from those. So we had initially intended to roll out a bunch of initiatives that are still in the process, to sort of mitigate this drop. I don't really like to have any seasonal drops, so we're trying to find ways to add additional sales coming through programs and not services in the clubs, but like, sales of apparels and nutritionals and stuff, Dynamic Nutrition. That rollout has been delayed now to early 2024. We basically went back to the typical business. Business isn't really doing anything different than we expected. The core business is in line. Okay, thank you. And maybe a follow-up on the sale-leasebacks and some of these asset-light opportunities. Forgive me if I missed this, but I don't think you reiterated the $300 million proceeds expected this year, so- You are correct. Okay. At this point, we're waiting for some sale-leasebacks, of and LOIs to come in, and they have been delayed. The folks that have been, we've been in discussion to send those, they are still planning to send something. We're still waiting to get those. However, as I mentioned to you, clearly, at this point, the number one priority of the company is not sale-leaseback, it's not anything else. It's to actually deliver free cash flow positive after all of the capital we need for maintenance, CapEx, interest, as well as all of our growth capital from internally generated cash flow and deliver double-digit growth. That's the exact position we wanna be in. When the sale-leaseback market is attractive, we will do more sale-leasebacks. At this point, we don't need them, so we will treat them exactly as they should. You know, if they are within the... These are, these are 20 year-25 year initial terms with 20 year-25 year options. They are very, very long-term transactions. And so we're not gonna do a long-term transaction because a short-term blip on the interest rates. Okay, that makes sense. That was kind of my question there. So it does seem it's just a more of a short-term shift given the macro and rates. Oh, it's absolutely short-term. Yes, we have, we have so much. We literally have 100 asset-light opportunities in the pipeline right now. So we can continue to deliver beautiful locations, great growth for the company, without having to spend substantial amount of capital. And the cash flow of the company, the EBITDA that we have this year, the EBITDA for the, the growing double-digit for next year, it generates substantial free cash flow after interest and maintenance CapEx. It's more than enough for us to deliver double-digit top line and adjusted EBITDA growth without needing any external capital. This is exactly the ideal position for the company. You know, last year, you know, I anticipated it would take about 700 million- 750 million of EBITDA to get there with the plan. And this is, again, not including sale-leasebacks. That would have required to build those big clubs, which from ground up, not asset-light, then going to asset-light with a sale-leaseback, it would have postponed this situation to probably a couple years later. But now with the EBITDA growing faster and asset-light opportunities getting stronger, we can deliver this important milestone early next year, which I'm super excited about. Okay, thanks, Bahram. I'll pass it on. Thanks. Thank you. Our next questions come from the line of Brian Nagel with Oppenheimer and Company. Please proceed with your questions. Good morning. Good morning, Brian. First off, congratulations on another nice quarter. The business continues- Thank you. Looks very nicely here. So my first question, Bahram, and it's probably gonna be a bit of a follow-up just to that prior question. Sure. You know, we've talked a bit about for a while these asset-light opportunities, you know, and clearly this is key, you know, exploiting these, so to say, is key to you getting cash flow positive much earlier than you initially thought. But the question I have, though, is as you look at the business, you step back, is there any? If you compare the asset-light opportunities to your more traditional model, you know, in the traditional finance model, is there any other offset, so to say? Is there any other, you know, thing, something we should consider with these asset-light opportunities, you know, just despite them just as the name would imply, using less capital? Yeah, there's a couple of different things with those, Brian. First of all, you know, sometimes it will take a few more clubs to deliver the revenues of, you know, some of the other ones. And so we, we will probably end up having more clubs opening, some of them large, the similar size that are big, big, big clubs that we, you know, do ground up, and some of them will be smaller. We have some clubs where, you know, they're pretty much brand-new clubs, it's all funded by landlords, you know, upfront. And then, but at the end, we are also continuing to secure our locations that have been working on for a long time to do the ground ups. So as you sort of shift the growth a little bit, you can see that in 2024, we can deliver double-digit growth. We can pay down some debt, particularly in the 3Q, 4Q. There's just nice cash flow coming in, just pure, pure cash flow after growth capital, everything included... And then as this EBITDA grows and then free cash flow grows, we can even literally fund fund some of the big boxes, ground ups, all from internally generated cash flow. However, I just want to be clear, the company is committed to the sale-leaseback sort of a proposition. It's we're not backing down from doing sale-leaseback. It's just timing. You know, at this point, you know, we just have to take a look and see if these LOIs come in, considering the fact that interest rates ultimately are gonna go back down, or, you know, they're gonna assume that, you know, we're gonna have a rate for 40 years, 50 years locked up based on today's rates. That's just asinine to go ahead and do a deal based on that. You just... And particularly when the company has the ability to hold off and do those sale- lease backs in the same condition. I have been adamant we're not gonna pay ransom for sale- lease back, and we don't have to. So that's sort of the... You know, I really see the company being in an amazing position. You know, the it seems like every time we have an earnings release and we grow revenue, we grow EBITDA, and we grow margins, the focus goes on what people can pick on that would be negative. There is nothing negative about our business. I'm proud of our team for, you know, rocking and rolling with every objective that we put forward. And regardless of what the street thinks, Brian, the company has set sequential priorities and knocked them down one after another. And that's what I'm most proud of with our company, is the fact that everybody is just executing what's right for the entity. That's very helpful, Bahram. Appreciate all that. And if I can just ask one follow-up. So you called out in your comments the, I guess, I would say, better member utilization of the facilities, which is obviously another huge positive here. The question I have is, are you seeing that across the chain, or there are particular areas where that's truer? And then, and I know you don't want to talk specifically about churn, but I guess we've got to think that we talked about this for a long time, that if your members are utilizing the facilities more frequently, they're far less likely to churn then, so there's a big financial positive. That's correct, right? That both of those are. First of all, your first question, it's universal. When we, when we came out of COVID, I expected attrition rates with the, with having no promotions, having more programming, having more signature programs. I expected that attrition rates would be lower than 2019. To my, you know, surprise, it was consistently higher, but it was coming down. It was, you know, it was higher than 2019, and but it had a trend that showed it was getting better, better, better. And then we started seeing, roughly about July, August of this last year, that the attrition rate sort of started kind of dropping below the 2019 levels. Now, 2022 and 2023, we had a shift in student memberships, where we used to put them on, you know, automatically put them on hold for them and not count it as attrition. In 2022, we basically did, you know, it did away with that policy and just to let them decide to either keep their own membership or drop out and then come back and join. That effect of that was $500,000-$1 million a month of incremental dues, positive, but on paper shows the higher attrition. Comparing apples and apples, when you take that anomaly out, compared to 2019, our attritions have been lower almost every month the last three, four months, and what we're forecasting for the next two, three months as well. It's really the outcome that we're looking for. But we are seeing consistently, significantly more visits per membership, as I mentioned, 24% through the first nine months, and that's dramatic. That's a huge shift. The level of engagement of the customer is so much higher that we should expect to see lower attrition, and finally, we're seeing it. That's very helpful. Again, congratulations. Nice work. Thank you. Thank you, Brian. Thanks, Brian. Thank you. Our next question comes from the line of John Heinbockel with Guggenheim Securities. Please proceed with your questions. Hey, Bahram, let me—I want to start with how is Dynamic Stretch progressing, right? Is that... Do you think that's still a $50 million opportunity next year or something like that? And then, is there anything else, I know nothing maybe that big, any other services or top-line initiatives, other than the retail stuff you talked about- Yeah. coming next year? No, we- Yeah. Dynamic Stretch, I think, is a $50 million opportunity next year. The answer is yes. It's a part and parcel with... You know, the rollout of that, it actually helps our trainers engagements with the customers. It helps the pickleball customers. I mean, it's just, it's just, it's really, it's a great program. I am pleased with the progress we're making with it. However, I think the big rollout, you know, the big impact is gonna show up in 2024. And then, look, we have been very sequential in our priorities. And right now, the club's core business is solid, you know, that has been caught up. Obviously, you know, like I said, the membership, so our swipes, you know, people visiting the clubs in month of August, you know, we basically almost in the mature clubs, pretty much caught up with the number of visits in those mature clubs. This is not per membership, this is just total visits in to 2019. These are all great sequential progresses we've made. Part of the other thing that we've done during this shift last 3 years- years, we have shifted more of our personal training revenue, which was a small group, into subscription business, which is all coming in dues with all the signature programs. So when you start looking at the overall picture, clubs are end up hitting same number of visits or more. They are having lower attrition rates. The dues revenues are significantly higher than their big margins are better than they've been. So I feel like all of those things are working. And now, with about 150+ billion impressions a year, it's now opportunity for Life Time, sort of to start expanding on, all right, how do we use our brand, our network, and eyeballs, what other products and services customers can buy from us? So it's just now time for inventing and rolling out new initiatives to continue to grow the top line and the bottom line for the company out of the same square footage. Okay, great. And then back to the whole path to free cash flow. Right. So what, you know, what do you think is an acceptable cap rate? My guess is probably in the mid-6s. You know, what's the prospect for adjustable cap rates? I think that was something you guys were considering. And then lastly, you know, to sort of get to, you know, free cash flow positivity next year, it looks like CapEx has to be down around $400 million, give or take, by my math. Is that way off? When you talk CapEx, you're talking maintenance CapEx and growth CapEx combined? Total. Yep, total. Yeah. We can fund more than that. It'll be probably $450+ million, that we can. And more than $300 million of that will be for growth capital, building clubs, remodeling facilities, you know, that we take over, or finishing our portion of the leasehold improvements with the clubs, the locations the landlord is building, the building out and handing over to us, or we're taking over the space. So- Yeah. There's plenty of capital to be cash flow positive, after all growth capital. Okay, thank you. Thanks. Thank you. Our next question has come from the line of Chris Carroll with RBC Capital Markets. Please proceed with your questions. Hi, good morning. So, yeah, Bahram, you've talked a lot about just the rewiring of the business and the cost structure. But as you're about to lap some of the step-up in margins that you saw in the Q4 of last year, can you expand a bit more on how you're thinking about the next opportunities for potential margin expansion and EBITDA growth here going forward? Yeah. So as I mentioned in my remarks, I think the 23.5%-24% EBITDA margin is sort of what I think the numbers... Can we do better? I, you know, possible. I just don't wanna, you know, I don't wanna get anybody ahead of their skis with that. I think the key now is just to continue to grow the business. You know, we, we get-- We have quite a few clubs that they are now just gonna be ramping, you know, through, through the, you know, the newer clubs that we've opened. The overall, the business is going to, you know, grow more like it's recovered from COVID in 2024, and then just the natural growth of same store plus the new stores, and that's what we've always talked about, doing a double digit top line and bottom line growth. But yes, I think... You know, we're not gonna have 101% EBITDA growth quarter-over-quarter, you know, over $107 million that we posted last fourth quarter. But it'll be a nice growth. I mean, it'll be still a very substantial growth, as we've kind of marked it up to $131 million-$135 million. So, you know, I'm proud of that. I mean, that is significantly higher than what the numbers had been just before coming in today for the fourth quarter EBITDA. So the team is continuing to perform. I mean, the business is performing, team is performing, and not having any major concerns about anything here. Yeah, Chris, it's Bob. Just to add a couple points to that. You know, we'll open eight clubs in the back half of this year, so we'll get a nice ramping benefit from all eight of those clubs next year. And then, because we've rewired the corporate office, that won't grow nearly as fast as revenue grows next year. So those will be a couple of contributors to our EBITDA dollar growth in 2024. Got it. Okay. Thanks for all that detail. And then, I guess for my follow-up, can you maybe talk a little bit about what you're seeing from your more recent club openings in terms of demand levels, pricing observations, any detail around what you're seeing in those recent openings will be great. Thank you. Most of the clubs have been opening ahead of our projections in our dues revenue, substantially more. Frankly, the you know, just very quickly, cash flow positive, contribution margin positive at the club level, you know, some significantly faster than our previous models. I mean, when we look, when we look back into 2019 and back versus what-- how we are opening clubs right now, they are sometimes contribution margin positive in just literally second or third month, which is pretty nice. I mean, they're doing... They're, they are consistently beating the business plan for us. Great. Thank you. Mm-hmm. Thank you. Our next questions come from the line of Kate McShane with Goldman Sachs. Please proceed with your questions. Thanks for taking our questions this morning. Just as a follow-up to one of the previous questions, some of the initiatives that you had planned for the end of fiscal year 2023 for revenue, is that then rolled into Q1, or is it later into 2024? And then our second question is just around membership fees. Can you talk a little bit more about what you're seeing with response to higher membership prices? And as we look into 2024, how are you thinking about additional rate increases on your legacy memberships? Yeah. So great, great, great questions, Kate. First, I expect to roll these things out early. Now, there are a number of things that we have to tie in, and that's why the delay is. We are reworking our digital offering and then creating the online business, which is the products, apparel, nutritional products, Dynamic Nutrition, all and our athletic events, our Athlinks business, all tie into one seamless engine to make it super easy for our customer. What we are not doing great right now, Kate, is we aren't taking advantage of all the different connections we have on all the different programs we have, and we make actually purchasing things almost difficult for our customers. So there's an essential work being done to systematize all of that. So once you're in the app, you can make easy transactions. If you go to one of our athletic events and you want to buy the t-shirt associated with that, it would be a lot easier than it's happening right now. So there's a, kind of, a work being built, and as I talked about being sequential, I mean, the priorities that we had to get us to the point of 500+ million of EBITDA, trumped all of these, these types of work. That was the number one priority. Now that we are there, we're working on these things. So it, it, it will continue to, you know, to... I, I hope it's the first quarter, but at the latest, it'll be second quarter, of 2024, that we would have those machines all tied up together and then pressing the opportunity for the customers. We're not focused on doing anything different than we've done. Any product that we put out there has to be absolutely the best. You know, it has to be having the right, right why. And then as far as your second question, the way the prices were established for the company was a function, as I've said repeatedly, was a function of delivering the right experiences in the clubs. And COVID, while had many pain points for our company, also allowed us to sort of have a clean slate and really make some wholesale changes that was much tougher to make, and adjusting the price positioning of the clubs was one of those major things. For the most part, most of the clubs are in the right price point, in my opinion. I think maybe 20%, 25% of our clubs will have further opportunity to have the rack rate up a little bit, in the next 6 months-12 months. But the bulk of the price changes have been made, and we really like the way the balance of revenues coming from that, the engagement of the membership from that. We really like you know, the experience that the club can provide based on we're really curating, all right, this club should have 6,500 memberships, not 9,500 memberships. But at 6,500 memberships, we'll have, you know, more engaged customers. So all of those have been balanced out. I would say probably 80% of the work is complete. 85% is complete. You know, it'll be going to the markets that we have been behind in executing our own play with excellence. So, we have to deliver the experience the customer is super thrilled with, and then you have the price opportunity to adjust the price, because that's become secondary. But the bulk of the price adjustments have been made. The difference is now, so we still have a significant amount of members who are paying below that rack rate, which we have repeatedly also explained we would not be taking them up to the full rack rate all at once. You know, it'll be just, you know, a little bit over years, and that creates loyalty with them, lower attrition rates, also provides revenue growth opportunities to the club. Thank you. Mm-hmm. Thank you. Our next question has come from the line of Dan Politzer with Wells Fargo. Please proceed with your questions. Hey, good morning, everyone. Hi, Dan. Hey, Dan. Hey, I wanted to talk on a little bit of the center OpEx. That sticks out to us and just that it's been the biggest driver, I think, to your earnings beat the last several quarters. You know, this is an environment we keep hearing about rising costs across our companies that we cover. So I guess, how are you thinking about OpEx and managing costs into 2024, either on a dollar basis versus 2023 or a per center basis, but I know this could be a little bit noisy given your evolving mix of new centers ramping and asset-light conversion. So any kind of high-level thoughts as 2024 and you know, more on the cost side? Yeah, I think the... Dan, I, I think what you're saying is, are we expecting the cost of operations increase, right? Is that what you're asking? Yeah. Whether it's labor, whether, you know, insurance, you know, marketing, any in terms of your center OpEx, right? Because that's just, that's driven a lot of the upside, at least relative to, to where we value. So as we think about going forward, maybe the puts and takes, as you think about- Yeah ... how the cost environment's been pretty much a challenge across the board here. Yeah, I don't really see any specific unusual thing. I think traditionally you would you expect, you know, labor go up 1%, 2%, 3%, something like that, and that's part of just the inflation, inflationary factors, normal inflationary factors. But right now we're not seeing, you know, we're not seeing any major challenges or problems. There's no employee challenges. There's no shortage of employees. There is more people applying to get work than they have in the past couple, 2 years, 3 years. The number of people applying for personal training jobs have doubled. So we really have no excuses for that. At least we don't. Okay, great. And then another kind of follow-up question on just the conversions. As you think about next year, I don't know if you've given a number, you know, specifically in terms of new units. I think we'd usually pencil in 10-12. But I think as we look in the website, I think maybe two of those are asset light and seven are, you know, the big asset heavy type build. So, wanted to see if you have an expectation for number of new units next year and maybe the mix. And then similarly, how we should think about, you know, the evolving change in, you know, whether it's dues per membership or mix of in-center revenues versus the other ancillary services as you shift to more of these asset light conversions. Yeah. No, when, when we talk about asset-light, you know, we're not, it's not, these are not a different business model. Dan, I appreciate you asking and, and, and giving us the chance to clarify this. We're not planning to deliver a different experience or a different product or different price point with the asset-light. It's just that, they're just asset-light. We're taking over other assets, remodeling them to deliver the life time experience. The landlords are bringing us assets and giving it to us, and they're giving us significant TIs to take those assets. We think with the pressure on the real estate market, there's gonna be a lot more of those coming up rather than a lot less. With that, we are not intending to deliver a different price point or a different experience. I'm, again, I'm so glad you're asking so that it's—there's no confusion here. It's just gonna be still Life Time, it's still the same price point, still the same, you know, margins. Everything's the same. It's just we don't have to plop a huge amount of money upfront on our own. And look, again, I look at this company, obviously super long-term. Three, four years from now, our EBITDA will be such that will allow us to build all of our ground-ups out of internally generated cash flow as well. So, so I—and, and, and we still are committed to sale-leaseback. When the interest rates, you know, subside, start going the other direction, I think we'll have the opportunity, and we immediately will take into that. At that point, if we take the sale-leaseback proceeds plus our internal generated cash flow, it's gonna be way more cash flow than the company needs. So it's either one of the two things: reducing debt substantially more, and that makes sense to a point, and then I will go to the board and ask for a share buyback plan put together, and we have the ability to do that as well, when it makes sense. Right now, I just want to be clear, the next important priority for me and the rest of the company is put Life Time in control of its own destiny, and that is what we have in our foresight for the second quarter of next year, to be cash flow positive after we pay for all of our growth. You know, I really appreciate the questions. I really, you know, want to think that the questions you guys ask creates more clarity. It helps you guys build your models. But for me and Life Time, we are just being sequentially getting done what's important for the company, and we're in a really great position right now. Got it. And then just... Sorry, just to clarify, was there a number of units for next year we should be penciling in? Is that 10-12 still a good number? Yeah, 10-12 is good. Just as I mentioned before, it, you know, it may. I wouldn't change your model because we need to provide more color for you guys, Dan. You know, it may take few more of these clubs to generate, you know, the same revenue growth. It may take 14 of them, but we are. I was very clear on my remarks, we're not in a position to provide guidance for 2024 at this point, but there will be. For the time being, you can plan at least 10-12, and there might be more, but I wouldn't say that those, if we did 14, it doesn't mean you will ramp up your revenue or your EBITDA. It just means some of these are gonna be 60,000 sq ft assets or 80,000 sq ft assets, so they take more of them to accomplish what 120s do. So, it's just, it's just a more flexible way of growing our top line and our bottom line. Understood. I appreciate all the color. Thanks, guys. Thank you. Thanks, Dan. Thank you. Our next questions come from the line of Simeon Siegel with BMO Capital Markets. Please proceed with your questions. Thanks. Hey, guys. Good morning. Good morning, Simeon. Bahram, to the last question, because I think this might be helpful. Could you help differentiate from asset-light models where you plan to partner with a third party who might be doing more of the heavy lifting and you collect a very high margin flow through, versus what I think sounds like might be really just getting opportunities to run the same existing approach to clubs you do, but getting lower costs because you get the benefit from other underperforming locations? Does that make sense? No, I want you to ask that one more time. I couldn't quite hear you. It was- Can you differentiate... So, so the last one sounds like perhaps you're getting really good terms from underperforming assets from others. So, so the asset-light is the same model we know you for, but coming at it with a good basis, as opposed to maybe when we had talked about living and work and, and other models where you could, from an asset-light perspective, partner with someone, and it's, it's, it's not-- it actually might be a little bit of a different model. So is that- No. Is there a differentiation there? Right. So that, that's a great question, Simeon. So the asset-light discussion in the Life Time Work or Life Time Living, is that we are basically using our brand, our 150 billion impressions, our IP, our management system, more like a Marriott or Hilton model, and it's just more of a license fee, management fee. That's the asset-light version of that. For the clubs, the asset-light right now, it's gonna break down to two categories. We have discussions, and we have nothing worth anybody modeling anything with. If we do anything internationally, and I'm not talking Canada, but outside of the 2 hour-3 hour flight time, we more likely would do those similar to the Life Time Living, Life Time Work, Hilton, Marriott model, asset-light, use our IP. For U.S., our contribution margin, our business model is so powerful that we wanna run these companies. I'm not suggesting we would never do a management deal. If it makes sense, we do it. But for the most part, Life Time's locations are actually owned and operated Life Time, whether this is through a lease or owning the facility. So your question, how this asset-light is coming, you know, we're buying buildings today for less than the cost of just land. These are older clubs, and then we put the money into remodeling them. They're gonna be a 100,000 sq ft facility for significantly less capital than we would have done if we had gone from ground up. So, and or sometimes landlords who have had other tenants who have not performed, they're taking those assets away, and they're coming to us. The fact that we treated all the landlords, and I've been saying this repeatedly, absolutely, properly during the, you know, time that people were not paying rent, we paid all the rent. And that Life Time's brand and reputation is allowing landlords come to us and make deals with us, that they're completely asset light for us, but we, we—it's no different than we had built, the rest of our clubs. Does that, does that answer your question, Simeon? Yeah. Perfect. No, great, great, explanation. So thank you. And then just quickly, Bob, one quick one around the change in CapEx reporting. Is that, is that just a 2023? I'm sorry, is that a change to how you're approaching CapEx spend or just how you're reporting it, given the comments you've made around waiting to see how the environment shifts in this year? No, I wanna be clear. I wanna have full flexibility of how we shift capital to take advantage of all the opportunities ahead properly and still deliver the Life Time's standard of making sure everything is like new, whether if they're 10 years old, 20 years old, 25 years old. But that flexibility is what we don't... I don't wanna create confusion for you guys. And if I wanna take $50 million from one bucket into the other, back and forth, it's just not, it's not worth getting people confused over. So we're just gonna report the total capital on growth and maintenance CapEx as one going forward. So Simeon, just a reporting change, not a change in how we deploy. Perfect. Wanna make sure of that. All right. That's great, guys. Thank you, and best of luck for the rest of the year. Thank you. Thank you so much. Thank you. Our next question has come from the line of Robbie Holmes with Bank of America. Please proceed with your questions. Oh, good morning. Hey, Bahram, a couple of questions. The first is, can you give any commentary on kinda how 4Q membership trends are versus expectations? Have you seen any changes or hesitancy related to student loan repayments or anything like that? How do I see memberships going? So look, we don't have a huge change of expectation from our membership, and that's due to the fact that new membership sales in our company really don't change the outcome of, you know, the net membership is what you're looking for. You know, you have a little lower attrition, you could sell a few thousand less memberships in a month, but then lower attrition will set - it's just really your net membership. And right now, we feel like, you know, we have been just right on forecast on our targeted dues revenue for the quarter. To be clear, it isn't like people are pouring in to sign up, so I don't know what you guys are seeing from your other, other services or businesses. It's moderate. It's not horrible, it's not great, it's just steady. But the beauty of our business is that it's this strong subscription base, and every given month of sales, new sales, is what? 1/36, 1/3, 1/40 of the total impact on our total revenue or EBITDA. So it's really less important. The net membership is the key, and we're doing well with that. Gotcha, that's helpful. And then my one of my other questions was just the center operations costs are running, you know, sort of flattish this quarter. How are you kind of holding the center operation costs per, you know, per average center, kind of flattish with the swipes going up? Hmm. That's a, that's a great question. So our center cost fluctuates because the type of revenue that comes in. So in the summer months, we have great revenue and a great margin of summer camp. We have great revenue, but not great margin out of our increased activity on the pool deck. So you basically have a lot more customers coming in, but we have massive amount of lifeguards. And so, you know, I think if you try to dissect it, you know, month- by- month, it's not even the same, the three months of a particular quarter, if that's helpful at all for you. Like, third quarter, July and August are more the same, and September is totally different. So when you look at it in a three-month basis-... We are delivering, the team is delivering better than the budget is in terms of what I can tell you. So the numbers are on the top line and the bottom line are, you know, on the top line is as good as what we had expected, and the bottom line, slightly better, as you can see in the results. But there are really like a fourth quarter. The revenue mix shifts. Now we have about naturally, like I said, $20 million-$30 million less revenue. That is, it's a summer revenue that doesn't exist in the fourth quarter. And so what we are balancing is to try to give you guys, you know, with all the different moves we make, that steady 23%-24% EBITDA margin, but that all comes in different forms and shapes. Got it. That's very helpful. Thanks so much. Mm-hmm. Thanks, Robbie. Thank you. Our final questions will come from the line of Chris Worwanka with Deutsche Bank. Please proceed with your questions. Hey, good morning, guys. Thanks for squeezing me in. A lot of ground covered already, but really wanted to, I guess, revisit the kind of, you know, conversion angle in a different way, which is, you know, you've talked a lot about why it makes sense strategically and financially, but is there any way to... I think there's confusion in the market about what this really means for you guys. I mean, is there any way to, you know, ring-fence it in terms of this is what a conversion club ROI is or payback period? I mean, I think we can conceptually get it directionally, but is there any way to put numbers around it to kind of, you know, show folks how, you know, how powerful it is? Yeah. I mean, it's gonna take a little work for us to create, you know, 12 examples for you guys of clubs. I mean, there are clubs that we have built through conversion, that they have better returns than some of our best ground ups. And then we have ground ups, you know, that they're better than some of the conversions. But if you look at them in aggregate, if you take a look at all the clubs, if you look at Life Time today, these are, these are people think these are new stories. There's just no new stories. It's just, it's just the pace of it. In 2006, the company had, I don't know, 20 clubs, 30 clubs, and I took over 6 clubs or 9 clubs at one time. Massive change to our size of company. These were much bigger clubs, and they take, sometimes they take a little longer, sometimes they take shorter. But today, when you look at it in a long-term view, every one of those clubs are amazing assets, and everybody will think of them today as one of our ground ups. They don't think of them as something new. So you just got to think about the fact that we open a club, X amount of square footage with the programs that we have, STRIKE and ULTRA Fit and GTX and Alpha and all the same programs. Whether or not that box was this box or that box or, how the outside of it is, the inside programming is all the same. And then it's the cost of, okay, how much money do you have to spend and how long in advance, and before you get the first $1 of revenue? And these types of takeovers, they just have a quicker turnaround. You get to revenue and EBITDA from them faster than you do when you go buy a piece of land and takes you 3 years-4 years before you have revenue coming from all those dollars that you spent over that period of time. So the right way to think about Life Time, honestly, is as a portfolio. You know, we're big enough today, at 170 locations, to look at this company as a portfolio. We manage a portfolio of assets, and it's the job of the entity and the executive team and the management of the company to sort of deliver a steady growth of revenue and EBITDA and memberships, while we uphold the quality of our brand, so it can gives us the opportunity for other ways, using our brand to grow revenue and to have expansion there. Frankly, I think the results will speak for themselves, and I'm proud of what the team has delivered the last three years. And we expect to continue to grow revenue and EBITDA at a very, very nice pace, despite whatever soft landing or hard landing that the market will offer. So, what I have thought is the most important thing, based on our assessment of the higher interest rates and the impact and different sides of the economy, and as I've mentioned to you guys, the difficulties that I think the real estate market is gonna see, we wanted to get to this cash flow positive after all of the capital we need for the growth, a sooner, sooner time than later, and I'm just really, really happy where we are at with that. ... Okay. Thanks, Bahram. And if I can, just a super quick follow-up. I mean, you've talked in the past about potentially, I guess the right word is, franchising some of your concepts or licensing some of your concepts, not locations, but Dynamic Stretch or something like that. Is that still on the table in terms of generating some, you know, some 100% fee-based income? I would just tell you that Life Time is completely open-minded to benefit from the programming and the power of our brand, but we're always gonna protect the brand. So we're not gonna jump into what sounds great and have somebody bastardize. But Dynamic Stretch, ULTRA Fit, many of the programs we have could become a franchisable model at any given time we decide to do it. They are amazing programs with great success, and there is no way we couldn't do those as good as anybody else. So that's a possibility, but it's not in a straight line in the game plan of the company at this moment. Okay, great. Thanks. Thank you so much. Thank you. We have reached the end of our question and answer session. I would now like to turn the floor back over to Bahram Akradi for closing comments. Well, I appreciate everyone. Great questions. Hopefully, we provided the right color for you guys. Looking forward to be with you guys again in three months. Have a good day. Thank you. Thank you. This does conclude today's teleconference. We appreciate your participation. You may disconnect your lines at this time. Enjoy the rest of your day.