Life Time Group Holdings, Inc. (LTH) Earnings Call Transcript & Summary

Greetings, and welcome to Life Time Group Holdings, Inc. First Quarter 2025 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Connor Wienberg, Vice President of Capital Markets and Investor Relations. Please go ahead.

Good morning, and thank you for joining us for the First Quarter 2025 Life Time Group Holdings Earnings Conference Call. With me today are Bahram Akradi, Founder, Chairman and CEO; and Erik Weaver, Executive Vice President and CFO. During the call, we will make forward-looking statements, which involve a number of risks and uncertainties that may cause actual results to differ materially from those forward-looking statements made today. There is a comprehensive discussion of risk factors in the company's SEC filings which you are encouraged to review. The company will also discuss certain non-GAAP financial measures, including adjusted net income, adjusted EBITDA, adjusted diluted EPS, net debt to adjusted EBITDA or what we refer to as net debt leverage ratio, and free cash flow. This information, along with the reconciliations to the most directly comparable GAAP measures are included, when applicable, in the company's earnings release issued this morning, our 8-K filed with the SEC and on the Investor Relations section of our website. With that, I will turn the call over to Erik.

Thank you, Connor. We appreciate you joining us this morning. Starting with our first quarter results. Total revenue increased 18.3% to $706 million, driven by a 17.9% increase in our membership dues and enrollment fees and an 18.7% increase in our in-center revenue. We continue to see strong revenue growth in our clubs opened within the last 12 months, which are outpacing their anticipated revenue plans. In addition, we are seeing strong comparable center performance. Comparable center revenue was 12.9%, which increased from 11.1% in the prior year period. We continue to see robust comparable center revenue due to: first, an increase in our membership dues revenue, which is primarily a result of a full quarter benefit of legacy member price increases taken in the previous year. We took virtually no legacy price increase in the first quarter. And on average, legacy members continue to pay approximately $30 per month below our rack rate. And we also realized a benefit from new members joining at higher dues rates, replacing members who were paying a lower rate. For example, if we lose an existing member paying monthly dues of $178 and gain a new member at a current dues rate of $208, we realize a net revenue benefit. Second, our ramping clubs continue to perform to our expectations. And third, we continue to see strong performance in our in-center businesses, particularly in our dynamic personal training. With our strong first quarter, we raised our guidance for our comparable center revenue to be between 8.5% and 9.5% for the full year as we normalize towards our long-term revenue growth targets in the following quarters. Center memberships increased 3.0% compared to Q1 last year to end the quarter at more than 826,000. When combined with our on-hold memberships, total memberships ended the quarter at approximately 880,000. These membership totals are in line with our strategy. As noted in our earnings release this morning, we are focused on our member experience and adding memberships with higher revenue and visits per membership. In addition, retention continues to pace at record levels, and our in-center businesses are performing exceptionally well. Average monthly dues grew 11.8% year-over-year to $208. We continue to open locations in premium markets with strong demand and higher dues rates. Average revenue per center membership was $844, an increase of 13.3% from the prior year quarter. Net income was $76.1 million, an increase of 206%, and adjusted net income was $88.1 million, an increase of 189% from the prior year quarter. We received an income tax benefit of $14.6 million related to the onetime exercise of stock options by our CEO, which is now factored into our updated guidance. For the remaining quarters of fiscal year 2025, we expect net income to benefit from reduced interest expense as a result of entering into the fixed interest rate swap of under 6% on our term loan fee. Adjusted EBITDA was $191.6 million, an increase of 31.2%, and our adjusted EBITDA margin of 27.1% increased 260 basis points versus the first quarter 2024. Net cash provided by operating activities increased approximately 103% to $184 million as compared to the first quarter 2024. This increase was largely a result in income from operations as well as timing of cash interest in the first quarter 2025. For the fourth consecutive quarter, we achieved positive free cash flow. Free cash flow was approximately $41 million, and we had no sale-leaseback proceeds in the first quarter. We have signed a letter of intent for the sale-leaseback of 3 properties for approximately $150 million, which we expect to complete in the second quarter. Before I conclude my remarks, I will give a brief comment on how we look at our exposure to tariffs. We have completed a review of key areas of our company that could be subject to tariffs, including construction, equipment and retail, and we currently do not expect there to be a significant impact. As tariff policies are still evolving, we are diligently monitoring the situation to assess and respond as needed. After a strong first quarter, we have deleveraged our balance sheet to a net debt leverage ratio of 2.0x. We have clear visibility into our cash interest expense for the next 3 years, having fixed the interest rate on our entire term loan to below 6%. And with over 30 years of operating experience, we believe we are well positioned to navigate any macroeconomic conditions. With that, I will now pass the call over to Bahram. Bahram?

Thank you, Erik. We had a great start to the year, and the business has continued to perform well. We have raised our revenue and adjusted EBITDA guidance, but only modestly, in recognition of the uncertainty in the macroeconomic environment. Our focus in the near term is to maintain a very strong balance sheet position and positive free cash flow as we grow the business. Our clubs continue to experience increased traffic with many at or near optimal levels. Visits in our comparable centers are up 4.7% versus the first quarter of last year. Many clubs are using waitlist as a mean to protect the member experience. The large majority of our first quarter membership adds were full dues paying customers. This strategy is reflected in our results, including record visits per membership and retention, record in-center performance and revenue per membership and record total revenue and adjusted EBITDA. We have a robust pipeline of club growth, and we expect to deliver 10 to 12 clubs per year. We will continue to use cash flow from business as well as proceeds from sale-leasebacks to pay for our growth. We will maintain the strength of our balance sheet and our current debt levels while growing revenue and adjusted EBITDA. This aligns with our focus of achieving and maintaining a strong BB credit. We are well positioned to operate in any macroeconomic conditions. We're also pleased with the progress in our 3 additional growth areas, including LT Digital, which has already over 2 million subscribers, MIORA and LTH. With that, we are ready to take your questions.

[Operator Instructions] And our first question comes from the line of John Heinbockel with Guggenheim.

How broad now -- how many clubs have waitlists? Where can that go? Can most of them have them? I know you -- on cases, you've charged like a country club like join fee. How broad is that? And then, Bahram, the question is -- I know the waitlist, you're trying to limit traffic because you've got capacity on visitation. I guess, there's no good way to increase capacity in a club, correct? It sounds like you can do an easy remodel and accommodate more members. So is there anything to be done on that front?

Let's handle this once and for all, because I'm sure this will be the #1 question for everyone. We are extremely pleased with all the statistics of the company and everything working the way we want to. We have experienced this year an increased level of visits. We still also measure number of swipes or number of visits per clubs and number of visits per clubs were up over a very healthy number in the past last years. We have opportunistically focused on shutting down any sort of a membership that would come with some -- any kind of a discount from a third-party payers in some clubs, some of their new clubs don't have any opportunity for sort of the Aurora memberships. And we really have gained the memberships we wanted to gain as members who were joining with the full dues paying customers. So the focus of the business has been, as always nothing changed, is manage the clubs, adapt the clubs so that we deliver the ultimate experience. The clear indication that our strategy is working is that we are basically getting the highest revenue per memberships, we're getting the highest in-center revenue. Our in-center revenue, as Erik mentioned, in the first quarter of this year outperformed the in-center revenue of last year same quarter as a percentage of our revenue. So I think the only strong message that I can give you guys is that we are executing the strategy we've always executed, member point of view first. And when the clubs feel like they're being pinched, the peak hours of the clubs are like at the point where your experience might start getting pinched, we basically put the club on a waitlist, and we definitely have the opportunity to take that waitlist both ways. It's waitlist for the people who join and pay the full dues or a waitlist for the people who'd join through the third-party insurance programs, and we basically execute one or the other or both. And this year, we definitively took steps to make sure more of the memberships we gained in the first quarter came from full dues paying customers rather than the third-party customers. So that's really the only major issue in this -- and the major point in this call. Otherwise, everything else is basically moving exactly -- this moved exactly the way we wanted it, and so is everything else in the business.

Let me transition right to the club pipeline because that also you add more clubs that takes pressure off the existing locations. So the pipeline, we're getting visibility on that. You talked about 10 to 12. What's the organization's capacity to do more than that, right? Because I think the opportunities you're going to get from landlords and ground up would exceed 10 to -- eventually exceed 10 to 12. What's your capacity to do more than that, if you could?

As the gestation of these clubs is longer, I can tell you that 10 to 12 for '25 is just the right number. For '26, we have the opportunity to do 10 to 12. We have the opportunity to do more. We are very, very carefully studying all the impacts of different scenarios that can happen with the economy. As you guys might have heard, right now, this is the first time that some of the new homebuilders are having a tough time moving inventory. That type of an impact is a positive impact for us in the sense that once the -- some of the construction, I mean this is spotty by market by market. Some markets, because of government contracts like Phoenix, et cetera, they're not impacted. Most markets, you'll be able to do the construction significantly better if you take the time to rebid before you have started construction. So we are methodically going through where the opportunities are, and we can continue to deliver 10% to 12%. And if the economy gets robust and the volatilities settle down that we are dealing with, we can step on the gas and do more. So otherwise, my approach -- our approach is to focus on having a balance sheet that allows us to take advantage of the opportunities that will arise if the economy is tough or opportunities arise if the economy is robust. It's sort of a mathematical hedge so that if it's heads up, we win, if it's tails up, we win. And with that -- no, I think I have given you a very clear answer. For '26, we could deliver more clubs if we want to.

The next question comes from the line of Brian Nagel with Oppenheimer.

Nice quarter. Congratulations. So first question I want to ask, Erik, you talked -- in your prepared comments, you mentioned just the pricing. And clearly, as we see every quarter, I mean, Life Time has done a great job of monetizing memberships. So the question I have is with regard to the actions you took in Q1, if I heard you correctly, you didn't raise dues on legacy members. So I want to make sure I heard that correctly. But was that planned and how should we think about that effort going forward?

Yes, that's right. We didn't take a lot of legacy pricing in Q1. That was our intention. We're obviously monitoring the macro very closely. And so a lot of what we saw was legacy price increases that were from last year, and those members are lapping a full quarter, right? The other important impact to understand is the churn. So when somebody attrits out, right, they attrit out at a lower rate typically. And so then the new member joins in at a higher rate. And so that was really the -- most of the -- what we call pricing benefit that we saw in Q1. So not a lot from legacy in this quarter.

Yes. We have had a schedule, and when we roll out legacy price increases, that was not planned out for the first quarter. It was planned out for second quarter for April, May, June. We are doing exactly -- executing exactly our plan. We, as I've mentioned to you, it's extremely sophisticated programming, AI-driven on how we do this. We're -- that's not something we're going to get into the details of that with anybody, but we are still experiencing best retention rates than we have ever experienced in the history of the company. We're still having better retention than last year. And second quarter -- from second quarter of last year forward, we had our very, very best retention, and we're still doing better than that at this moment in time. So all indication that the micro adjustments we are making on day-to-day, it's all working, Brian.

That's very helpful. And then my second question, recognizing you don't provide quarterly guidance anymore. We obviously have the updated annual guidance. But -- so you reported results for March. I mean we're into the -- I guess, now the -- we're into the kind of the pool season. I mean any comment on how you're seeing member sign-ups or member activity as the pools get ready to go for the season?

Yes. I think it's too early to make any indications on that at this moment in time. The overall -- the in-centers are performing extremely well at this moment. And there are days of the week and timing of the week. So it's too early to actually get into the -- how that's moving, but it's just pretty much right in line with what it has been.

The next question comes from the line of Alex Perry with Bank of America.

Congrats on a strong quarter. I just wanted to talk about the guidance a little bit. So how much of the sort of same-store center raise was 1Q flow-through versus higher expectations in 2Q through 4Q? I think the guide implies a slowdown in comps in sort of the remainder of the year. What's the driver here? Is that just an element of conservatism? And then have you seen any impact to your business to joins or cancels as we've seen consumer confidence soften a bit here as of late?

No. I think the -- what we are seeing right now is a stronger retention and a strong in-center spend. That means the customer who is inside of Life Time is extremely happy. They're having more visits into the club. They're using the clubs more. They're doing their in-center purchases, and they are staying with us longer, okay? That's all positive news. The memberships coming in per sort of -- which is extremely small piece of our business that, when you think about 1 month's worth of new membership sales versus last month versus the overall revenue impact, it's very, very, very small. We are seeing a sort of a customer who is a little more thoughtful about the timing of when they join, maybe they wait a little longer before they start. We are seeing some of that conservative in that, but that is such a small piece of our business that I don't think it has an immediate impact on our numbers. But I think that if that type of a situation continues where you have customer holding back for the next 12 months in a row, then you're going to see a little more impact on the business. Therefore, our guidance is guarded for this potential macroeconomic volatility, customer sensitivity sustaining for a long period of time. Does that answer your question?

That's perfect. And then just -- my follow-up is just on tariffs, I guess, like the net exposure here, is it like 0? Are construction equipment costs not going up for you? Do you source any of the fitness equipment out of China or any of the tariff regions right now? Are you seeing price increases on any of that? Do you just -- it sounds minimal, but could you just maybe walk through that?

Look, there are -- for the most part, on the big purchases, we are not seeing -- I mean, it's like a 0.5%, 0.4%. And the big purchases as an overall impact it doesn't have a huge impact. T-shirts, we buy for our athletic events, which is -- I mean, it's just -- these are de minimis numbers in terms of the Life Time's total revenue, EBITDA. You are seeing some things coming in like 30%, 40% higher, but those things don't just -- don't matter to us. And we're talking about buying $60,000, $200,000 worth of T-shirts that we use for athletic events. So it's just not -- we are not a company that is heavily impacted directly by these events. And there are all the type of things we are doing on continuation of value engineering and how we're designing our new prototypes that we have, a dozen of them that we basically choose which one works in what market. We're continually working on having flexibility to either use the steel or concrete when we build those. We have both types of plans. I mean we are working to make sure we mitigate any of those impacts. And at this point, I can tell you we are super comfortable that we can bring in the new boxes in at or better prices than last year despite changes in that. Furthermore, it's two-way street. If the economy does actually get a little more headwind, you hit recession, housing slows down, the contractors who basically before like this is the price, take it or leave it, I have too many jobs, they basically start begging for work. And then you can basically get them to do the work for 5% overhead and profit instead of 20% overhead and profit. So we can manage that. I don't believe we are in a position to worry about those type of things. We just -- we are going to continue to work on how to -- we basically mitigate any of those impacts. And as Erik said and I said, we have been anticipating for 2 years, we've been wrong about the headwind, sometimes we're going to switch from tailwind to headwind. And we have been preparing and preparing and preparing and preparing for what if we switch from sort of a tailwind economy to a headwind economy. And our strategy is to win in either kind, okay? And so based on our strong balance sheet, we just mentioned $150 million of sale-leaseback, definite agreements to basically close by this year -- by this second -- in the second quarter, debt levels are at $1.5 billion without that -- the cash coming in. So our growth is going to be funded pretty much entirely with either proceeds, taking the money from sale-leaseback and putting it right back into newbuilds, or we just basically from the substantial free cash flow the company is generating on its own. So we feel like being in a super, super strong financial position allows us to basically negotiate better, get more deals, get better deals, be the game changer for the residential buildings. So we feel like we are stacked correctly for any kind of a wind, head or tail.

And Alex, I know you mentioned equipment as one of your questions specifically. So we don't source that from China. Most of our equipment comes from Italy and Sweden. And so given the size of what we do with those vendors, they have not passed on, and we do not expect any tariff impact there so.

Perfect. That's incredibly helpful. Best of luck going forward.

Thank you.

The next question comes from the line of Megan Alexander with Morgan Stanley.

I wanted to start with a question on the balance sheet, and then I do have a quick follow-up just to one of Alex's questions. You took your leverage target down. You're now talking about under 2x versus 2.25 last quarter. You're going to get some sale-leaseback proceeds here in the second quarter. And leverage is already at 2x. So it should be pretty easy for you to stay under there. And Bahram, you talked about wanting to have a strong balance sheet to give you some flexibility. But I guess, theoretically, let's just say the macro remains volatile and maybe it doesn't make sense to accelerate club opens. How does the strategy around capital allocation evolve? And do you start to think about other uses of cash like something like buybacks? Or would you rather just sit on higher cash balances and lower leverage and build some ammo for when things settle down?

Yes. Definitely the latter. I don't -- we don't -- we are not going to -- we're not Amazon. We're not Apple. We're not JPMorgan. We're a very strong good-sized mid-cap company. We need to be thoughtful about our balance sheet and make sure that works to our strength. So we're going to have -- we're going to have the ability, at least with half of our development, which is the ground up to start a couple of months later if we want to. We have the ability to start -- we would start faster because we have the permits. So we want to have the full flexibility to basically navigate through how the world shakes up in here. So I feel super strong. I'm just telling you, I feel really, really, really strong about how we are positioned right now. We basically have put the company in a situation where we have every option. So we don't need to start as many, and we have the ability not to. So if you have something just massively wrong, we're still going to grow revenue. We're still going to -- like 2009, we're still going to grow EBITDA. We're still going to grow EPS. And we can be in an extremely well tucked-in defensive position. If things go robust, then we can step on it and go faster on development and build out. I don't know what else I could tell you guys other than based on our feel of what is straight ahead, we want to be in full control of how we manage our balance sheet. I absolutely want to achieve a BB from the next one from either S&P or Moody's to get the company to that BB status. That's super important. It's been my next big objective. And we're putting the company in a position where we can get that and stay in that position as we go forward.

Okay. Great. Awesome. And then just a follow-up on the response to Alex's first question, Bahram, you said you're seeing a customer, I think you said that's more thoughtful on when they're joined, maybe waiting a bit longer. Can you just expand a little bit maybe on when you started to see that? Clearly, there was a lot of -- there's been a lot of volatility over the last couple of months. Was that something you started to see with some of the stock market volatility we saw in the March, April time frame? And are there any markets in particular where you're seeing it more than others? Just hoping you could expand a bit more on that comment?

Yes. It's a dynamic situation, Megan. We have clubs that they are on a waitlist and even -- and they're operating at such a maximum level of output from visits to in-center revenue, EBITDA margins, everything. And so there are some natural limitations on how many more people you can take in. So they're on a waitlist. So we're managing that the best way we can. There are clubs where I've always said there are some clubs that they have the extra capacity. And so when we're looking at the macro picture, we see that April and May, that new member sign up, which is, again, a de minimis number for our total picture is slightly softer than it has been the last couple of years. So -- but that's partially because clubs are more full. Retention is higher. We're not losing as many people. When you don't lose as many people, you don't have as many opportunity for rejoins. So at this point, it's not something to have a huge concern about, but we got to shake this out through really Memorial Day in June to see how that shakes up. So for right now, I think everything is just fine.

The next question comes from the line of Kate McShane from Goldman Sachs.

You mentioned a few times that people are using the clubs more and there's higher in-center spend. And so we are wondering if there's a way to tell if you're just capturing more share of wallet and more share of time too? Is there a way -- do you think that it's coming from other health and wellness activities? Or do you see this behavior as incremental? And then you called out the dynamic personal training as one of the higher growth areas of in-center revenues, but we wondered if you could speak to the growth in other offerings?

Yes. So spas and cafes are doing better than they were doing last year. They're not doing as good as I want them. We haven't still implemented all of our strategies in all the clubs. We're just -- we're basically going location by location, trying to improve the offering. The personal training -- dynamic personal training, dynamic stretch is one of the first things that we implemented 3 years ago to transform how that business is done because as I mentioned during IPO, I didn't believe that business as it was before, it would actually have the ability to kind of get its legs back under it. So we changed it to a program where truly it has an incremental value. So -- and we have been -- we've been working an amazing execution of strategies. And I believe that the win on the personal training, which is substantial, is really just due to the function of all the things that we have been putting in place, and we're getting the benefits, the fruits of our groundwork that we've been putting in the last 2, 3 years, okay? We still have opportunity to continue to improve in cafes and spas quite significantly. I don't -- I'm not, by any means, thrilled with what we are -- even though they are better than last year, I want to be clear, there is significant more opportunity for us to execute better. That's within our control and not -- it has nothing to do with the macroeconomic, and we got to work on that. The customer who comes to Life Time wants to interact with us. They want to do more things with us. All we have to do is deliver to them the type of things they want in a high level and they spend the money. And we aren't -- and they love the brand. So I mean, it just -- it's a constant repetition of they love the brand, they travel around Life Time. And when the economy gets a little -- as I've gone through this with all of you guys, when you get through a recessionary period, you -- customers start pulling back on spending on big spends, right? So they have more time. As they have more time, they use the stuff they own more. They're going to spend more time in the clubs. They're going to utilize that membership better. And that extra utilization means better retention for us. And so we are well positioned for an economy that is growing or an economy that might be in recession for 2, 3 quarters.

The next question comes from the line of John Baumgartner with Mizuho Securities.

First off, on programming, given the uncertainty in the consumer, do you see a situation similar to COVID where you take advantage and sort of accelerate programming here, you throttle back a little bit given the uncertainty? And in terms of the programming you're offering, any highlights you can offer in terms of anything new rolling out over the next 12 months, whether it's recovery, cold plunge, whatever it may be?

Yes. So we have been on a steady execution. I was just talking to our regional VP for Texas and like that so far in that market's 30-plus clubs, 7 clubs have converted to cold plunge. We're putting recovery in and we're putting in work launches. So we have a steady planned, in our budget, sort of the modernization and CapEx, and we're executing on those. And those are really, really great adds to our business. As far as the other question you had regarding programming, we're obviously always working on what are the programs that naturally are losing steam and people aren't participating naturally in as big of a format. And then there are other ones that people are sort of kind of going and leaning into. As I've always told you guys, modality of exercise, how you achieve your fitness, your wellness, your health, that is more like a fad. People will do -- everybody goes crazy about spinning and you can't teach enough spin classes. Then all of a sudden, it changes, goes to some other form and spinning starts kind of getting weighed down. So we have always designed and adapted the clubs to move and adjust those fads and then Life Time is a big part of people's lifestyle. We positioned Life Time as part of your life. You're using it 10 times a month, 12 times a month, 14 times a month. It is how you live. And within that, we keep adapting what insight there that we need to adapt to keep our customer with us for -- as we have customers who have been with us for 30 years, 20 years, 10 years. And that is the approach that we take on running the business. So it's constant adjustments and constant adaptation.

Okay. If I think about how that ties into the P&L on the center operations expense this quarter, there was some nice leverage. I think that's the lowest it's been seasonally for a number of years now. And I know it's a line that you want to give yourself flex to reinvest back in terms of guidance. Was there any timing benefit this quarter? Or are we starting to see some sort of a rollover where the return on incremental investment is better relative to history? How do we think about that line in the context of the broader guide, especially given I think the EBITDA margins implied for the rest of the year are pretty solid relative to Q1?

Yes. I think full year, I think our guidance implies, I want to say, 27%. So yes, I think what we're seeing is a couple of things. We're seeing the flow-through from the additional membership revenue and also some of our in-center businesses, particularly our PT, as that continues to grow, that also has a flow-through margin. So there's nothing -- to answer your question directly, there's nothing in terms of timing or anything like that. It really is kind of the strength of the model we've built and that additional flow-through.

[Operator Instructions] And the next question comes from the line of Owen Rickert with Northland Securities.

Can you guys just talk a bit more about how LT Health or LTH is performing over the past couple of months? There were a decent chunk of press releases during the quarter on this growth initiative. Maybe just provide us a bit more color there and kind of what you're seeing going forward?

Yes. So the strategy there is to grow LTH to the most trusted nutritional brand that exists. So we are working on building the product lineup and make sure it is absolutely the best. One of the things about nutritional products is that there isn't any sort of a regulated vigorous testing for them. We have always, for 20 years, tested our products to make sure they have the right ingredients, the right efficacy. So I -- as I take -- I just took my 40-plus supplements that now I normally take in the morning while we were having our call. And we want to make sure what's in them, they're the best and it's the right product. We had a significant growth, like a 40% plus month-over-month in March. We expect to see LTH grow substantially over the years. And then we are diligently working on LT Digital and L.AI.C, our AI companion. And that is moving exactly on our timetable right now. We're not behind. We expect to deliver an AI option for health and wellness, not for just building a workout, not just for meditation, and not just for taking classes. I mean the entire ecosystem that Life Time offers physically will be offered digitally, and we're continuing to work. We opened our LT Digital studio this week -- next week in New York to be able to generate more amazing content there. So -- and all ties in together between that and LTH and MIORA. MIORA is right on schedule in terms of the execution, the growth of the -- few places that we have opened. We have scheduled openings for at least half a dozen more throughout the rest of the year, and then we will expand and start speeding up. So we're still looking for basically rollout of additional revenue opportunities that they're asset-light. And those are all in the works, and we look forward to them.

Great. Super helpful. And then just quickly, does -- do the LT Health products have any tariff exposure?

The LT Health? Yes. I mean, look, there are -- obviously, with some of the ingredients there. There are some potential risks there. Again, we don't think it's anything that's going to be material, but we continue to monitor that.

Yes. And we are -- based on everything that we have done, there is at least going to be half a dozen months before we get to the point where we might have to feel an exposure from that. So between now and then, our strong belief is that something will be worked out. As I've said before, I'm not in disagreement with our administration that the government -- that the U.S. needs to be treated with more respect and a more fair trade. However, I think having tariffs is basically nothing short of just an additional friction for the growth of the economy worldwide. So I am not an expert on which way it's going to go. All I can say to you is that our expectation is that it will level off, and we are well insulated for our core business and for these type of things, all we have to do is execute better than other people. That's it.

Ladies and gentlemen, there are no further questions at this time. I'd like to turn the call back to Connor Wienberg for closing remarks.

Yes. Thank you, operator, and thank you, everyone, for good questions. We're looking forward to next quarter.

This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.