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

Greetings, and welcome to the Life Time Group Holdings Inc. Third Quarter 2026 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Connor Wienberg, Senior Vice President of Treasury and Investor Relations. Thank you. You may begin.

Good morning. Thank you for joining us for the Third Quarter 2026 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 and earnings supplement issued this morning, our 8-K filed with the SEC and on the Investor Relations section of our website. With that, I'll turn the call over to Erik.

Thank you, Connor, and good morning, everyone. We appreciate you joining us for our Q3 business and financial update. This morning, in addition to our earnings release, we posted an earnings supplement to our Investor Relations website with additional detail on membership mix and comparable center revenue. Starting with our third quarter revenue. Total revenue increased 14.2% to $893.5 million, driven by continued strength in performance across our clubs, including higher dues revenue and strong utilization of our in-center businesses. Comparable center revenue grew 8.7%. This was above our expectations and driven by an outperformance in our membership acquisition and in-center business performance. As outlined in our earnings supplement, comparable center revenue growth consisted of 2.4% from improved membership mix, 3.0% from price, 3.0% from our in-center businesses and 0.3% from volume. In-center business growth was driven largely by double-digit growth in Dynamic Personal training and LifeSpa. As a result of our Q3 performance, we have raised our full year comparable center revenue guidance to 8.5% to 8.7%, up from 7.9% to 8.3%. Average monthly dues were $244, up approximately 11.9% year-over-year, and average revenue per center membership was $1,016, up 12% year-over-year. Year-over-year growth in average dues was driven primarily by positive membership mix trends and execution of our pricing strategy. We ended the quarter with approximately 859,000 center memberships, which reflects 2.2% year-over-year growth. As we've discussed on prior calls, we continue to actively manage our membership mix, including limiting certain memberships administered through third-party medical insurance providers, which we refer to as qualified medical memberships. Qualified medical memberships declined by approximately 21,500 or 19.6% year-over-year. All other memberships increased by approximately 39,600 or 5.4%. This strategy is working as reflected in the 13.7% increase in total dues revenue. In the fourth quarter, we expect total center membership growth of 2.4% to 3.1%. Excluding qualified medical memberships, we expect center membership growth of 4.8% to 5.2%. Moving on to net income. For the quarter, net income was $106.5 million, an increase of 4% year-over-year. Adjusted net income was $115.9 million, up 24.6% year-over-year. Net income in the prior year included tax-affected net cash proceeds of $16.2 million received from employee retention credits under the CARES Act and a tax-affected net gain of $5.7 million on a sale-leaseback transaction. Adjusted EBITDA was $256.3 million, an increase of 16.5% over the prior year quarter, and our adjusted EBITDA margin improved by 60 basis points to 28.7%. As noted in our earnings release, we increased our full year 2026 revenue and adjusted EBITDA guidance. We also increased the midpoint of our full year adjusted EBITDA margin guidance to 28.4%. Our updated guidance includes the impact of 7 clubs opening in the fourth quarter and the associated preopening expenses and early operating ramp impact on margin. Net cash provided by operating activities increased to $262.1 million, approximately 4.4% higher compared to the prior year quarter. The prior year quarter included certain nonrecurring items, primarily the same $16.2 million received from employee retention credits under the CARES Act that impacted net income. Total capital expenditures were $288.7 million, up 29.8% from the prior year, reflecting construction activity in support of our new club openings for 2026 as well as the construction of clubs planned for 2027 and beyond. In September, we closed on a sale-leaseback transaction that generated approximately $62 million of proceeds. We expect to complete approximately $135 million of additional sale-leaseback transactions in the fourth quarter. Our full year target remains unchanged at $400 million, supporting our ongoing focus on generating annual positive free cash flow. With that, I will pass the call to Bahram.

Thank you, Erik. Good morning, everyone, and thank you to our team members for their incredible work and dedication. Our third quarter results were above our expectations across the business, including dues, memberships and our in-center businesses. We are seeing very good results from our new initiatives like CTR, Hybrid XT, LT Games and LT Social. Our members are engaging with our clubs more than ever as average monthly visits per membership reached 13x in Q3, up 4% year-over-year. Opening new clubs remain our most significant growth opportunity. We're on track to open 14 new clubs this year, the high end of our initial range. We also expect to open 14 new clubs in 2027, nearly all of which are already under construction. And we have great visibility into our pipeline beyond that. The quantity and the quality of the development opportunities in front of us have never been better. Our outlook remains strong. We closely monitor visits, joins, retention and in-center spending. And we continue to feel very good about what we are seeing across the business. While we remain mindful of the macroeconomic environment, we believe we're in a very good position to perform in various economic conditions, given the strength of our premium business and our balance sheet. Our net debt leverage ratio is 1.3x. We have more than $900 million of liquidity, and we expect to deliver another year of positive free cash flow. The financial strength allows us to continue investing in our clubs, pursue attractive growth opportunities and deliver strong revenue and adjusted EBITDA performance. We look forward to your questions.

[Operator Instructions] Our first question comes from Randy Konik with Jefferies.

So I guess, Erik, for you. What I noticed was interesting in the quarter is that when you take out the qualified medical memberships, membership growth was up 5.4% in the quarter, and that accelerated from 4.2% in the second quarter and then also -- which also accelerated from 3.7% growth in the first quarter. And then you just guided, I think, 5% growth per membership at the midpoint for the fourth quarter. So can you kind of unpack that a little bit? Because it seems you're getting some acceleration there. And would you think about that mid-single-digit membership growth being somewhat sustainable over the medium term? And are there items of lower churn impacting that number? Are you seeing higher members per membership impacting that number? It would be really helpful to unpack that because you're seeing that acceleration from a low single digit to a mid-single-digit type of growth rate.

Yes, you're welcome. Yes, exactly. You mentioned membership mix. We continue to obviously see that improve, but we got a couple of things happening in our membership. As you know, this year, the number of clubs that we're opening in the size, they're larger. And so as we open more clubs in Q4, we've got 7 in Q4. So a growth rate that is getting closer or above 5% is long-term sustainable. And that's going to continue to hold next year as we plan to do 12 to 14 clubs as well. So that's exactly right. You're seeing kind of that acceleration as we look at that absent the impact of those qualified medical.

Super helpful. And then maybe just one other here. If you go back to the guidance you gave a couple of quarters ago, where you said you put that line in the sand and said, "Hey, listen, we're generating -- we're going to be big enough when we have these units open to generate $400 million of free cash flow by 2030" -- 2030, yet the quarterly revenue and EBITDA performance seems to be coming in better than expected or at least what we're modeling and very balanced. So do you think about that time line kind of accelerating a little bit versus 2030? How should you -- how do we think about that? And then when you think about deploying those cash, those free cash flows, maybe remind us of what you're thinking about in terms of builds or other options, dividends or share buybacks or stuff like that, that we should be thinking about in the business?

Yes. I would still point you to 2030. I mean that is our kind of current forecast. Again, we've got flexibility in how we get there. As you know, we're doing 12 to 14 clubs. We've got the opportunity for ground-ups and some of those more urban builds. But at this point, our trajectory, we're still pointing to that 2030. Now it doesn't mean that along the way, we may have opportunities to accelerate that. But in the event that we do, obviously, we will update that. But I would continue to point you to 2030. I don't know, Bahram, do you want to add anything there?

I think as we look through the next several years, with the strength of the cash flow generated from the business itself, together with our very, very low leverage that we have right now, continued growth in the asset value that we still own the fees for the buildings. I think the options are going to be significant. And we will look at, obviously, 2 things. We look at the cost of the capital and then what the return on investments are. And we basically choose the lowest cost of capital to grow our business. We'll maintain that flexibility and then we'll make the decision according to what's best at any given time.

Our next question comes from John Heinbockel with Guggenheim Partners.

This is Jake Nebosch on for John here. Two for me. The first one, the average in-center revenue per member has been sequentially accelerating pretty meaningfully since the start of the year. And just curious, what is driving those gains? Any seasonality factors to consider here, such as anything with relating to the pools? Or is it largely still related to personal training?

Yes, I can take that. Yes, exactly right. When you look at our comp, last quarter, we had a great comp this quarter, same thing. And a large part of that continues to be the success that we're seeing in our in-center businesses, right? So -- we put out that supplement that kind of broke down that comp and in-center was 3%. So that's exactly right. We're seeing great in-center business penetration there and average dues and acquisition retention, so -- exactly.

Perfect. And then just a follow-up for me here, and you kind of alluded to it before, but with the '27 club pipeline almost complete and rolling through '28 now, just curious if you could talk to us about your current thoughts on the size of the opportunity and the components from ground up to urban developments. I know you briefly mentioned that a little bit before, but just curious if you can elaborate on that.

I'll take that. This is Bahram. As I mentioned in my prepared remarks, the quantity and the quality of opportunities in development for us in the pipeline really has never been better. I don't really want to pigeonhole the company in exactly how many of what type of clubs we're going to deliver in a given year. And the only reason I don't do that is the size of the clubs that we are doing are significantly large buildings, whether if we go into an existing project into the brand-new building that is being built and we're included in that project or we're doing ground up. The timing of these things can move around significantly based on acquisition, approvals, site work, et cetera. So we are very confident right now that we can deliver the higher end of the 12 to 14 for the foreseeable future. And with that, we're super excited with the opportunities that we're seeing. And we're also having a lot of incoming requests for international growth as well on top of what we are addressing to you right now just in U.S. And those significant additional opportunities are ahead of us when we have the opportunity, the time to invest in going into those markets and start exploring what we can do there. But right now, the last concern I have is lack of growth opportunities. It's just we are -- we've never seen anything better.

Our next question comes from Arpine Kocharyan with UBS.

I appreciate it. So my question is overall consumer picture has gotten maybe a little bit weaker or at least perception of it is that it has softened a little bit. But your results today show acceleration. More importantly, if you look at average revenue per center member is accelerating as well nicely. And this is before larger clubs really get into the same-store comp. Before we think about acceleration from here, could you maybe talk about the sustainability of this revenue per center member growth, particularly as it relates to kind of the newer clubs coming online? And specifically, if you could talk a little bit about other places you see room for improvement for in-center spend and how you execute on it?

All right. That's a great question. We have significant variance between the execution level of our in-center businesses within our 200 -- roughly 200 locations that we have right now. So without concerning ourselves too much about the outside macroeconomics, we have significant opportunity to focus on improving those particular locations where they have significant opportunity in front of them. So I really like to focus the investor and our team members on taking the opportunity when the opportunity is right in front of you. Hiding behind macroeconomics isn't something we're going to do now or we're going to do later. But we're really not seeing any impact from the macroeconomics. We are watching it, as I mentioned in my remarks. We're not ignorant to it. We are paying attention as closely as we can, picking up as much information as we can from all sources we trust. And with an eye on that, we're working on what are the things we can do better inside of our control. And there's quite a bit of opportunity still there. Many of our clubs are executing exceptionally well, not only in creating that desirability for the customer experience for the facility that which brings them the subscription and the dues. They do exceptional job in in-centers, whether it's personal training, Cafe, Spa, Kids. And some are mediocre. And we have the opportunity to go within and sort it through, and we do it every single week, every single month and figure out where we can go and improve our performance. And I still feel very comfortable that we have significant opportunity within our capabilities and our execution.

That's very helpful. And my follow-up is related to the leaseback market in general, the transaction environment given rising rates. And maybe just if you could talk to the depth of the market right now and whether some of these kind of core factors like rates affecting you much.

I can take that. Yes, I mean the cap rates don't move one for one like with the 10-year as an example. And so we're still getting attractive rates as it relates to sale-leasebacks. And so yes, the availability is obviously still there. So we're still able to get those at rates that are attractive.

The rates are still very similar to what they have been historically. And the difference in the few percentage points in the like 20 basis points, 15 basis points on the cap rate absolutely is insignificant in our total numbers that we will deliver. It's just -- it's not significant at all. It won't play a factor in our numbers.

Our next question comes from Brandt Montour with Barclays.

This is Elizabeth on for Brandt. So I wanted to ask, I know part of your strategy has been this ongoing membership optimization and the continued reduction in qualified medical members. I'm wondering how much more runway do you see here, both in terms of where you think that membership base ultimately settles out and over what time period? And then maybe as a follow-up to that as well, as you think about like the general contributors to membership mix in your comp center growth, how do you think about the relative contribution from each of those individual buckets, whether it's expanding into more affluent markets, members for membership, legacy churn, et cetera?

All right. I'm going to take this on and give you a answer that I can best formulate for you. I start with the end. It's really, once again, not going to play a significant factor. It has never been a huge part of our dues revenue. It is a member sector that we would love to serve in a reasonable fashion. Over the last 4, 5 years, some of our partners, insurance companies have been extremely good partners, and they have been also very realistic on what our particular situation is and what we can do and what we can't do. We have been in negotiations with most everybody. We're in a very, very good place and getting as much flexibility for our side to handle this type of population at the time in our clubs that it does not create capacity issues for the other members. So it is a delicate situation. It's not significant in numbers. It's delicate in terms of how we want to treat all folks as they want to come in and enjoy the Life Time facilities. And we want to try to serve the best way we can without impeding on other types of memberships. So it's a delicate management. We are extremely focused at making sure we're doing the right thing by all constituencies and yet buying as much flexibility in how we handle this. Ultimately, as a percentage of our total membership numbers, these numbers will continue to decline, but very, very slowly from here going forward based on our negotiations. As far as the relative dues as a percentage of our total dues, it's also going to continue to be reduced to almost de minimis -- diminishable number. It's just not something we have a concern. Again, it's all about making sure we take care of our customers the best way we can.

Yes. And to your comp -- the second part of that question, the way you're going to see that materialize in the comp is, right, some of that -- you're still going to see a mix component of that being part of the comp, but you're going to start to see volume increase as you start to see the 12 to 14 and some of the larger format clubs. So that's the way it's going to play out in the comp set.

Our next question comes from Brian Nagel with Oppenheimer.

Nice quarter. Congratulations again. So the first question I want to ask or topic, is pickleball. So clearly, we've talked for a while about pickleball being a significant effort and driver for Life Time. There's been some news out there lately or recently of maybe some failures within the broader pickleball market. So I guess the question I want to ask is maybe twofold. One is an update on what you're seeing with your pickleball in your centers, member engagement and such. And then secondarily, as you have these potential financial dislocations out there, does that create or help to create more of a market share opportunity for Life Time given your managing the business much better?

Brian, this is Bahram. I'll take this one. Look, the failure of some of these pickleball-only facilities franchise-based it's not a surprise. It was clearly my expectation from the get-go. Developing a racquet sports business that is strictly based on that particular racquet sport, strictly squash clubs, strictly racquetball clubs, just entirely tennis clubs or pickleball facilities. There's no difference. They are difficult economically to work. Life Time concept has always been creating an environment that basically gives you all things under one roof. So I don't -- we haven't been too concerned about those people coming, and we're not too concerned about them going. Many of the locations they have are not the type of real estate we would put a pickleball court in because they're inadequate spaces. They are not enough the right spacing. And it's not something that we're going to jump in and try to go take over to run them. So we have an incredible success with the way we are executing our pickleball. Our customer appreciates the entire facility, everything else they get with pickleball, the quality and the attention to detail that we provide for every aspect of our business. So -- and actually, the business is performing very, very strong still for us. So I don't think these entities coming and going is a function of this -- anything wrong with the sport. It's really a function of people coming into it half-cocked without enough information, without enough due diligence and they just roll out a bunch of franchise facilities. And of course, they -- a lot of them will run into trouble. There's nothing more to read into it.

No, Bahram. That's very helpful. I appreciate all that context. And then the second question I have -- the follow-up question I have, and I guess a follow-up to some of the prior questions. But you mentioned -- or Erik, maybe as you mentioned, spa is a driver of maybe some of the outsized expansion we're seeing now in in-center revenue. So I guess maybe we can just dive a little deeper on that. I mean what is happening with spa? And how should we think about the runway here from your efforts with the spa business?

I'll take it again with this one. Look, it's all about execution. We -- if you go back and sort of check back the past remarks over the several years, we came back out of COVID with a strategy to focus on our swipes getting the subscription built, building our dues, of working on our basically efficiency of wiring of the company to create the margins. And then the next important priority was DPT, our Dynamic Personal Training run by our superpower here, Ryan Sonnenburg, that basically has really transformed the personal training. And that has been really working and building and building and building. Sequentially, the next 2 areas of focus were then spa and the cafe. The cafe is the strategy to go in and basically streamline, simplify execution so we can execute everything that we do, do much better -- that has helped us with the margin improvement this year because we are streamlining and with expectation that we will grow the revenue in the cafes next year. The spa, the team has done a phenomenal job of increasing engagements and bringing additional talent, recruiting the best spa talent into locations, and we're seeing nice growth. So we are basically sequentially picking the areas that we need to improve, and spa has been one of those that has been showing up in revenue growth very nicely. And we still have much more runway to go with the spa, and we have significant runway to go with the cafe. And so those are both areas of focus right now with some early work paying proper dividends, and there's plenty more work to do in both areas.

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

Congrats on another strong quarter here. First one for me, just a bit of a follow-up on the in-center revenue. So obviously, some nice progress improving the mix of qualified medical memberships. And I know that the sort of difference in revenue generation mostly comes up in the dues for qualified medical memberships. But wondering if there's any material or significant difference on in-center revenue spend from those members to call out as we kind of think about that mix continuing to decrease?

No. I mean nothing there. And quite honestly, a lot of those qualified medical memberships, they tend to swipe less, and they're obviously maybe even a little more less engaged in the in-center businesses. So it's actually a net positive for us in that regard.

Okay. That's helpful. And then last one for me, just a bit more of like a kind of macro qualitative question. So obviously, consumer sort of focus on fitness has increased a lot over the past handful of years. As you guys continue opening clubs in new markets and kind of increasing your depth in existing markets, just curious what you're seeing from an overall market share perspective? Like how much do you kind of view this membership growth as kind of the growing pie overall versus members switching to Life Time from other clubs. Just kind of wondering how you're sort of viewing that more longer-term kind of market share opportunity for you guys?

Yes. I don't know that Bahram, do you have a different perspective here. But we don't -- a lot of our consumers that we have in our clubs don't obviously overlap with some of the high-volume, low price. But what we see is we're going into more high-end markets, our members are willing to spend more wallet share on health and wellness. And so we obviously expect that to continue. The trend in the industry, obviously, to continue, and we expect to see that play out in all the markets we're going to.

Yes. The only thing I can just emphasize is that deliberately since coming back from COVID 2021, 2022, we have consistently focused on placing the company at the top end of the K band shape for the consumer. We have consistently felt that we were not seeing any impact from the consumer getting the macroeconomic pressures. And the customer who is coming to Life Time is coming to Life Time fully because of the desirability of what we deliver to them. And that particular customer is not I don't think they're shying away from buying things still. So we're not seeing any impact.

Our next question comes from Jon Keypour with Goldman Sachs.

So I just wanted to talk about in-center revenue a little bit more. Obviously, in the comp, we've seen an acceleration in the last 3 quarters. I'm just wondering if you guys expect for that to continue in 4Q or it's a seasonally smaller quarter. I'm not sure if you're expecting a drawdown there. And then if you can point to maybe the drivers of that sequential improvement. It sounds like it's DPT and spa, but just any more color on like DPT attachment? Is that going up? Is it higher frequency? Is it pricing? Just exactly what's driving that?

You're very clever. As I've said, we tried not to make mid-quarter comments, but I'll refer you back to what I said earlier, we are not seeing any impact from anything. So our results are still following the same trends that we've had in the past. Again, there are seasonality into the summer months with the pool beach clubs, but taking that seasonality out, everything is still exactly the same.

Yes. And we've kind of said that it's kind of been the same kind of thing quarter-over-quarter. As it relates to DPT, we're adding more trainers. Their efficiency is going up. It's another quarter, we don't give penetration, but we did have an increase in penetration. I mean you can take this across the in-center business as you look at the number of swimmers we have, that was up double digits. So when we talk about the overall execution and the experience, when we do that, it obviously heightens the level of in-center business engagement. And that's what we're seeing, continue to see.

And are you seeing the same kind of trajectory in both in the comp centers as well as new centers with that DPT attachment and revenue generation.