Life Time Group Stock

Greetings, and welcome to the Life Time Group Holdings, Inc. Q2 2026 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. [Operator Instructions]

It's now my pleasure to turn the call over to Connor Wienberg, Vice President, Capital Markets and Investor Relations. Connor, please go ahead.

Good morning. Thank you for joining us for the Second 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's 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, and good morning, everyone. We appreciate you joining us for our Q2 business and financial update. Please note this morning, we posted an earnings supplement on our Investor Relations website, which includes additional detail on our membership mix and comparable center revenue.

Starting with our second quarter revenue. Total revenue increased 13.7% to $866 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 9.1%. This was above our expectations, driven by an outperformance in our membership acquisition and in-center business performance. As outlined in our earnings supplement, there are 4 components of our comparable center revenue growth.

Improved membership mix contributed 3.1% growth. Price contributed 2.9% growth. In-center businesses contributed 2.9% growth, largely driven by double-digit year-over-year growth in dynamic personal training and Life Spa. And volume contributed 0.2% to comparable center growth. As a result of our Q2 performance, we have raised our full year comparable center revenue guidance to 7.9% to 8.3%, up from 6.9% to 7.5%. Average monthly dues were $245, up approximately 12.3% year-over-year, and average revenue per center membership was $993, up 11.8% 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 860,000 center memberships, which reflects 1.2% year-over-year growth. As we've discussed on past calls, we have been managing our membership mix. Part of our strategy has been to limit certain qualified memberships, specifically those administered by third-party medical insurance providers. We refer to these as qualified medical memberships. This strategy continued in the second quarter.

Qualified medical memberships declined by approximately 20,600, down 18.9% year-over-year. All other memberships grew by approximately 30,900, up 4.2% year-over-year. Our strategy is working as reflected in our 13.3% growth in total news revenue year-over-year. We expect total center membership growth of 1% to 1.5% in the third quarter and 2% to 3% in the fourth quarter. Excluding qualified medical memberships, we expect center membership growth of 4% to 5% in both the third and fourth quarters.

Moving on to net income. For the quarter, net income was $101.4 million, an increase of 40.6% year-over-year. Second quarter net income included approximately $8.5 million of net tax-affected items excluded from adjusted net income, primarily consisting of share-based compensation. Net income in the prior year included tax-affected net cash proceeds of $9.3 million received from employee retention credits under the CARES Act, partially offset by a tax-affected net loss of $9 million on a sale-leaseback transaction.

Adjusted net income, which excludes the tax-affected impact of these items, was $109.8 million, up 30.6% year-over-year. Adjusted EBITDA was $246.5 million, an increase of 16.8% over the prior year quarter, and our adjusted EBITDA margin improved by 80 basis points to 28.5%. As noted in our earnings release, we increased our full year 2026 revenue, net income and adjusted EBITDA guidance. We also increased the midpoint of our full year adjusted EBITDA margin guidance to 28.2%.

Our updated guidance includes the impact of 7 clubs scheduled to open in the fourth quarter and the associated preopening expenses and early operating ramp impact on margin. Net cash provided by operating activities increased to $209.6 million, approximately 7.1% higher compared to the prior year quarter. Total capital expenditures were $263.3 million, up 18.6% from the prior year, reflecting construction activity in support of our new club openings for 2026 as well as the construction on clubs planned for 2027.

As of today, we have opened 7 of the 14 clubs scheduled to open this year. The remaining 7 clubs are expected to open in the fourth quarter. We still expect 12 to 14 new clubs in 2027. 10 of these clubs are already under construction. In April, we closed on sale-leaseback transactions that generated approximately $200 million of sale-leaseback proceeds, and we expect to complete approximately $400 million for the full year, supporting our ongoing focus on generating annual positive free cash flow.

With that, I will now pass the call to Bahram.

Thank you, Erik. Good morning, everyone, and thank you to our teams across the company for another outstanding quarter. Much like last quarter, we continue to see strong performance across all aspects of our business. Demand has been strong from our existing members as well as our new members. At the core of our performance is our intense focus on delivering exceptional experiences for our members. We plan to continue this strategy by delivering new desirable programs and services with the highest level of attention and care. For example, we have accelerated the rollout of CTR and Hybrid XT, our two newest group training formats.

CTR is our large group Pilates reformer class. This class blends performance-based training with the precision and the control of reformer movement. Hybrid XT combines conditioning and strength training for real-world and competition-ready performance and is paired with our UT Games hybrid athlete competition. We are seeing incredible demand from our members for these classes.

Our balance sheet and cash flow also remain exceptionally strong with the sale leasebacks completed this quarter and an additional $200 million of proceeds expected by end of the year, we expect to deliver positive free cash flow while achieving all of our revenue and adjusted EBITDA growth targets. We are currently on track to open 14 new clubs in 2026, the high end of our initial range, and we continue to see an incredibly strong pipeline of opportunities ahead. Overall, we feel very good about where we are and the trajectory of our business. We look forward to your questions.

[Operator Instructions] Our first question is coming from Arpine Kocharyan from UBS.

So really solid set of results this morning. And it's not every day you look at results and you say, actually, I have very few questions. But I do have two. First, your guidance upside for the year is flowing through at a nice 55%. So you raised revenue by about $28 million, and that's raising EBITDA by $15 million. And we're now looking at 14 club openings this year from 12 to 14 before. I know it's difficult to talk about 2027 given everything that's going on in the world. But as we think about the ramp-up of these large-scale clubs as we get into next year, anything you would like to share on revenue per member dynamics to kind of help us better understand the opportunity as it relates to actual ramp and also flow-through for next year? Then I have a quick follow-up.

You're asking -- this is Bahram. You're asking a great question. The impact of this certainty of the 14 clubs is actually more on the next year than this year because they're opening so late into 2026 that they really don't have material impact on our numbers for this year. But we have a pretty robust opening scheduled for next year as well. And we have tremendous amount of real estate deals in the pipeline that I am more excited than I've ever been. So we anticipate really, really good growth across the -- in the foreseeable future, we don't see any slowdown in the reason for anything to slow down. However, we don't usually share results or guidance for the next year. But things are -- we have nothing to look at and think that there is anything going the wrong way. Everything is going positively right now.

Great. That's helpful. In-center business contribution to same-store growth came close to about 3% this quarter, which was an acceleration from something like 2% earlier this year. And I know you're doing more in CTR and hybrid training classes and maybe on spa and F&B. With larger club footprint ramping next year, do you see this in-center business contribution to same-store growth sustaining at that 3% level as we go into next year?

Yes. So again, without -- this is Erik, giving numbers into next year, I think when we think about sustainability of that number, you're absolutely right. That number increased from 2.3 to 2.9. And it really comes down to us continuing to deliver on the experience, right? And so we've seen excellent engagement in our in-centers. We've seen it across DPT and SPA. And so to the extent that we continue to deliver on that experience, we expect the financial performance will follow.

Yes. We have to continue to look for places in our business where we have opportunity to do better than we are doing. And so this year, we are seeing great growth on the revenue from PT from SPA. We are having great process improvement in our F&B. So we're getting the margin improvement in F&B first, reorganizing certain things, menus, processes. And then we then focus on developing revenue growth strategy in F&B for 2027. Meanwhile, we're always working and developing different programs, different products that can add to what our consumer can purchase from us. So we expect similar results going into the next year very comfortably.

Our next question is coming from John Heinbockel from Guggenheim Partners.

Bahram, I wanted to follow up on that. Can you talk about the penetration from your members in things like DPT and spa, right? Because I think the penetration is still pretty low, right? DPT, I think, right, is still in the single digits. And talk about awareness, right? So the penetration and then also the awareness, right? Because I think you have not wanted to hard sell members on these services, you wanted to happen organically. So is that awareness now picking up meaningfully?

Yes. I don't believe that you can sit there and say that penetration of the personal training is low. It's been pretty consistent for years and years and years. Our clubs are realistically 50% training exercise, 50% all other things. So the social aspects of the business, which we are stepping on sort of aggressively right now, the family, the kids, the sports. So the personal training really applies to 50%, 60% of our customers. And that 50%, 60% -- so the number is like you say, okay, we have a 7% penetration at a particular month. We have a 10%, 11%, 12% penetration when you look at the larger window throughout in a yearly basis. That number is actually double the number of people who are working out in our clubs for -- come to our clubs for exercise, for lifting, for getting training.

So I don't think the number is like drastically low. The team does a phenomenal job. We have branded DPT masterfully over the last 4 or 5 years. We are getting productivity that this company has never seen from the personal trainer. We have more successful trainers than we've ever had. The reputation of the business is that this is the best place for them to come and make the most money and have been in the most professional environment. So we have significant amounts of qualified applicants. So I trust that our team will continue pathways. We also have to deliver additional programming. So part of the success of last year was dynamic stretch still growing, dynamic nutrition still growing. So these things will lend to one another. We have other things we're working on right now, which I don't want to discuss that would also bring in another set of customers and then they can expand their work. It's a constant work. Results are really, really good. And I expect the team to continue to grow that percentage.

And if I could just add one thing to that, John. Keep in mind, penetration is just one part, one metric of the story. Penetration is up year-over-year in DPT, but it's also about trainer efficiency, revenue per trainer and how much new business they're bringing in. And all of those metrics are up year-over-year. So you have to look at it holistically.

Okay. And then my follow-up, just -- maybe as you now get to 14 openings a year, maybe talk about gating factors on expansion, right? Because I think lots of landlords, right, malt and otherwise want you in their locations. So the real estate opportunities are there. Maybe more from a people standpoint, where do you think you're not comfortable going beyond just in terms of executing the experience?

John, you're trying to get information out of me. You're masterful at it. So I'm going to try to masterfully respond back to you. We have tremendous amount of opportunity more than -- like I said earlier, more than I have ever seen before. There is more developers, more large projects, more office buildings that they're reaching to us and they want to have the Life Time brand, not just the fitness center, the Life Time Athletic Country Club, coupled with Life Time Living or their development. So we have tremendous amount of opportunities in front of us. PJ is working his butt off his entire team. I'm working as hard as I can with them. We are looking to expand our growth over the next several years. I'm not going to tell you how other than 14 clubs a year for now is the limit. But we are looking for ways to have bigger development rollout because the opportunity coming our way is significantly bigger than it has been in the past.

Our next question is coming from Randy Konik from Jefferies.

I guess a question for Erik. You have, I think, a lot of the openings weighted to the fourth quarter. There's got to be some kind of opening -- the preopening kind of expenses impacting kind of weighing on the numbers, even though the numbers are much better than expected. So maybe kind of give us some perspective there on how much of an impact that's been. And then when you think about next year, just not giving us a number of openings, what have you, would you expect a change in cadence on when you open clubs next year versus this year? Just curious just because it moves the numbers around a little bit.

Yes. I mean there certainly is an impact on margin as you think about those clubs opening later in the year. You've got 7 of them that are going to open up in Q4. So whether it's 30, 40 -- there's a little bit of an impact there as we know. But we've said for next year, we're targeting 12 to 14 as well. The timing of those obviously are not all announced yet. You may have a little bit of that in the back half of the year. But again, as you've seen from our increase in our overall margin, even this year, obviously, we've increased that. And so we've been able to absorb that. But it does have a small impact as we open those in the back half of the year.

Got it. And then I guess a follow-up back to you would be, last quarter, I think the big unlock was the idea of reaching this inflection point in cash flow such that you could self-fund growth with optionality around sale leasebacks if wanting to. Just when you think about that target year, what would change to kind of -- because these numbers keep coming in better than expected. So I'm assuming the ramps are coming and also starting to ramp a little bit better than expected as well. Anything that would kind of change to kind of get that number or that year kind of pulled forward a little bit? And just remind us how you're thinking about utilizing that optionality in not next year or beyond, but like the next 3 to 5 years from now as you kind of unlock all that cash flow to either do more units or buy back more stock? Or just kind of give us some, again, parameters on how you're thinking long term on the business.

I'll take this. This is Bahram. We are going to stay disciplined to deliver what we say we do. We've committed to doing $400 million of sale leaseback this year. So we're going to first and foremost deliver that. As we get into strategies for next year, you're absolutely correct. Our cash flow is increasing each year nicely. We have more optionality than we have ever had. That's the way I have always wanted to lead to get the company financially in a position where we have a significant number of options and flexibility on managing through great times, managing through bad times. And so that requires having super, super strong fundamentals on your balance sheet. And we are there now. We have all kinds of options in front of us.

And we're going to be more clearly focused on our WACC, our weighted average cost of capital and our ROIC and with a clear focus on taking the capital that is afforded to us by shareholders and debt structures and make sure we provide great return to our investors by putting those in the right places. We are examining all different types of options for the future years. And I think you are correct to have that question, but I would probably expand on the strategy for that towards end of the year or early next year if we choose to change anything because it definitely delivers a better result for our shareholders. But right now, we're staying on course and just evaluating the options.

Our next question is coming from Molly Baum from Morgan Stanley.

Maybe shifting gears a little bit to talk about MIORA. Can you give an update on how you're thinking about the white space opportunity? And can you maybe frame the revenue or the EBITDA contribution that you're seeing from the mature locations you have open right now?

Yes. Great question, not a great answer for you right now. So it is in incubation, we have 6 or 7 locations that we are working. I have been adamant with the team that we are not going to add additional locations until we deliver what I would consider to be a perfect customer journey experience. And we do have some challenges with the technology and some of the processes around that. So we are kind of working around those challenges. Our full intention is to roll out MIORA extremely robustly.

But what I believe we need to do is we need to perfect the model and then roll out extremely fast and aggressively once we have a model that doesn't -- our clubs when we open, they open right now with a wait list, they open contribution margin positive in the second month, the third month. I mean, everything is working because we have mastered the execution of a club opening. We have some work to do with MIORA. However, I am the most convinced that it will be absolutely a massive growth opportunity. We can grow really, really fast as soon as we fine-tune these final little touch points that we have to get corrected. So numbers right now on MIORA, the 6 or 7 locations are just not material. It's really working on the customer journey.

Got it. That makes a lot of sense. And one other question I had wanted to ask. I think that you -- as we think about these qualified medical memberships, I think you've spoken in the past that you have some contract renewals coming up at the end of 2026. So how are you evaluating what might happen with these memberships, which relationships to renew, which you might be able to convert into a standard membership? If you can give some more color there, that would be great.

Yes. We're working on it. We have great partners. We have massive, massive companies, Fortune 50 companies in the country that we have great relationships with. There is a significant benefit to a certain portion of the population to absolutely love this program. We are working on the details of not doing it or not doing it. Our partners want to continue on. We want to be good partners and do some, but we have to put in all the flexibilities in it so we can absolutely control the experiences in the clubs so that the number of certain type of memberships doesn't overtake the others.

Some clubs don't -- cannot afford to have any programming around that. So we are basically rolling out a strategy with this. The discussions are going extremely well. We don't expect anything negative to happen at this point other than we will gradually have a lower percentage of our membership being qualified membership. It will continually go down as a percentage of our total membership and become less and less significant to the point it wouldn't be really worth our time to discuss with you guys or you guys with us. But we do love the population in our clubs -- in certain clubs, I think it's just a really nice program to provide when we have the capacity and they don't interfere with the bigger opportunity in the club.

Yes. And I think that's key. If you remember, these memberships have restricted hours. So in some clubs, it's a great way to fill some of that off time.

And in some locations, we just simply don't have really the ability to provide them. I mean none of the new clubs are opening with them. So you can just feel and some of the open clubs, we don't have any more direct medical program available unless they are choosing to go to a full upgrade with it. So we will manage this. It just won't be a significant piece of what's going to drive the business up or down.

Next question is coming from Anthony Bonadio from Wells Fargo.

I just wanted to start on the comp -- the 9% comp center revenue. Can you just talk a little bit more about the cadence of that growth as you move through the quarter? And then back half guidance implies some deceleration, which I know isn't new, but that's clearly gone the other way this quarter. So can you just talk about assumptions there and how you're thinking around that has evolved?

Yes, absolutely. I can take that. So absolutely right. We did see, as I talked about, an acceleration this quarter. Again, that goes back to all the things that we're doing in DCT and spa, et cetera. You also mentioned that it is normal for a -- as seasonality kicks in some slight deceleration. The big thing to keep in mind is a lot of this is in-center business growth, right? And so as we're projecting the year, if you look at the midpoint of our updated guidance, that's still 8.1%. It's above kind of what we've been communicating in terms of our long-term algo. So it's nothing more than just being prudent as we're thinking about all the summer activity and as we're projecting rest of the year.

Got it. That's helpful. And then maybe just on the events. You announced the expansion of the LT Games, also the acquisition of the Phoenix 10-K in the quarter. I guess just given the growing popularity of some of these events and competitions, as I look at the other offers out there gaining traction, can you just talk a little bit more about the opportunity set and what growth prospects could look like? And just any thoughts on like how margins, returns compare to the rest of your business?

Great question. So LT Games and Hybrid XT are sort of a yin and a yang. Hybrid XT is today, the sort of the current big driver of people wanting to come that -- do that type of a hybrid training. So the responsible thing to do, as we have always mentioned, these clubs were designed from day 1 to have the flexibility of adaptation. And so we can roll out the programs that the customers are seeking at that moment in time.

And LT Games is basically a very, very, very defined experience, very accurately measurable. It's -- I have a big vision for what LT Games can do for the company on its own and to sort of bringing the type of customer who wants to do that athletic training into Life Time to do Hybrid XT. It's sort of a thing that goes together. Ultimately, LT Games has the potential of being in a spectator competition. It's not tomorrow, it's not next year, it's going to take years for it to achieve to that, but that's the vision. And so those are the way we're going to drive those.

CTR is rolling out as fast as we can roll it out. And every class we put on ends up being waitlisted. So we are rolling as fast as we can. We're spending a little more money. We're investing more growth capital into these initiatives in our clubs because they are working extremely well. So that's where we're deploying some additional capital to capture these growth opportunities. So hopefully, that answers your question.

Our next question is coming from Ben Chaiken from Mizuho Securities.

This is Linda Chen on for Ben. We're wondering if you could go back to kind of clarifying your churn expectations for the qualified medical membership in 2027 and as well as the opportunities to convert and maybe like share some data points on the churn year-to-date and then any of the conversion into the standard membership?

We don't look at it in that fashion. We're looking at sort of our calculation of how our expectation is on total -- the average dues per membership growth and the regular and the membership count growth and the blend of the -- some of these the way you have to think about it is, for sure, the percentage of medical qualified is going to go down. As that percentage goes down, the average dues on membership goes up. There's just sort of a direct correlation with it. It's virtually not significant enough. I'm telling you like this. The numbers that we are giving you and we're guiding -- and this thing is going to be less than 2% of our dues revenue in the future years.

Yes. I mean by the end of the year, it's 3%. But it's a little too early to talk about next year. But...

It will drop down.

Yes.

It will go from the 3% to below that.

Here's what I would tell you. The large decreases we're seeing this year is we've talked about that deemphasis of that in the prior year. So we're lapping a couple of quarters now that we're lapping that dynamic. So that's why we're giving this guidance here last quarter, this quarter and then probably in Q4. So again, we're kind of lapping those 4 quarters. As we get into '27, with some of the things Bahram was talking about, we'll provide obviously more information on that. But again, it's going to be less than 3% of our total.

Total revenue.

And if we ever change anything, I mean the dues will go up. But again, it's not going to be significant. So it just -- so I think we really need to focus you guys on the -- where the big drivers will be on the business.

Our next question is coming from Eric Des Lauriers from Craig-Hallum.

Congrats again on another impressive quarter. As you look at the new club opportunities in '27 and beyond, obviously, there's lots of white space kind of across the board. But how should we be thinking about sort of larger versus smaller footprint, greenfield versus retrofit and urban versus suburban? Can you just kind of give us a sense of either the changing opportunities there or your evolving priorities?

Yes. I can't tell you -- I would never want to tell you guys, we're going to do 7 of these and 7 of those or 8 of these and 6 of those. I think the way to think about it is that these -- the pipeline is driven by both all the sites that we go find to buy, purchase a piece of land. And right now, we're in a position where we can actually pull the trigger, buy some parcels of land a bit earlier to create a land bank so we can have those ground-up opportunities laid out a little more clearly. But then the other developments, they are just -- the frothy of it right now is such that it's quite a bit.

So I can't give you a direction to say it's going to be more of these over the time or more of those, but definitely more urban locations coming as a percentage of our whole portfolio. With New York, Miami, there's kind of a big markets, growth markets with sort of a big pipeline of developments. But the question is what year they land in. Those are hard to give you guys because the larger the building, the larger the project, the larger the apartment building, the longer is the time for them to be developed and constructed and built and delivered.

So we are a very, very good spot to delivering the total amount of square footage that we want to grow per year. And as we have gone through this, it really doesn't matter if it's one type or the other because the returns after the sale leaseback or from the rentals are always the same. They're in a 30-plus range -- IRR range, which is fantastic.

That's very helpful. I think we got some kind of long-term direction in there. That's very helpful. So Bahram, you've mentioned a number of times sort of how robust the demand is for new clubs right now. Historically, I mean, at least some of your clubs have been offered attractive rent rates as developers look to kind of bring you in as an anchor tenant. Is this dynamic still at play? And if so, do you think that sort of broadly as you look out a number of years that rent rates will generally improve? Or is -- are these kind of opportunities more limited to one-offs that we shouldn't necessarily extrapolate a broad trend as we look out a couple of years?

We're always positioning our clubs at a significantly attractive rent per square foot, either through the way we build and we do the sale leaseback, the rent per square foot is significantly below what it would be naturally in the market or when we go into development, we actually put in more dollars as a tenant -- as a leasehold improvement than we would absolutely have to because we protect that lower rent for years to come. So we will continue to negotiate great rates. Real estate goes through frenzies. There's times where there's abundance of certain type of real estate in a market and the landlords are more eager to negotiate and do deals. Sometimes they are absolutely desperate because nothing else can be the catalyst for the filling up the space and our product does or brand does. So -- but across the board, I expect our rent percentages stay consistent to what Erik has kind of mapped out to you guys around that 12%.

Our next question today is coming from Chris Woronka from Deutsche Bank.

Bahram, maybe we could spend a minute talking about kind of the broader supplement space and there's been some headlines around peptides potentially getting more broadly approved by the FDA and other things. So can you maybe give us a little bit of a perspective on where you guys are on that and if you think the opportunities are perhaps increasing to monetize that?

Yes. We're all over it. We're studying it, working on it, testing it every single day. I was on the phone last night for 2 hours working on half a dozen different peptides and where they're at, what they do and who makes them and what are the pros and cons with them. And -- it's definitely -- most definitely a space that is going to continue to grow. It's going to grow substantially. We're going to play a big role in it within our facilities through MIORA and different forms to rolling that out. We have to be cautious today because it's sort of a wild, wild west with the pharmacies, the compound pharmacies who make these. And so the science is in many cases, well documented.

In some places, it's a little more sort of a believe me kind of a thing. I don't know that there is as much human research, widespread human case studies with them, but the science is sound. So we are on the cutting edge of studying it. I just caution everyone that it is very, very new, and you have to be very, very thoughtful on how you roll this out. And we are. We are -- we have Jim Loval, who is our Chief Science Officer and one of the biggest speakers in this category across the country. We're following the science and administering some of these things right now in our current 7 locations, MIORA locations. So -- but it is going to be a massive, massive growth space because the science is actually pretty sound on some of the peptides are like solid in terms of the fact that they would work.

Okay. Very helpful. And just as a follow-up, I know you got a lot of balls in the air, but on app monetization, is there anything kind of new to report there in terms of whether it's some kind of product or service or maybe an advertising revenue stream? Is there anything you're working on in the near term on that?

It's definitely not where our head is at. Our head is the technology at Life Time needs to be fully directed on delivering consistent to our clubs extraordinary experiences. And we have a long ways to go to make sure we can keep up with the evolution in technology and the AI. And so the customer can achieve what they want to achieve in our clubs, buy what they want to buy is to get the service they want as fast and as easy as they can. So this is all on me.

I launched the Life Time digital platform a couple of years back. I wanted to see that opportunity. We spent some time. We studied. I talked to some experts. And then my takeaway based on those studies is that the digital subscriptions have such a significant attrition rate that they virtually don't make sense. Now we didn't lose any money because we didn't invest money in the customer acquisition, but we also couldn't see the customer coming back on a regular basis. So instead of diluting our technology team's focus on trying to do that divide it and then try to work on the customer, we decided early this year, 7, 8, 9 months ago to put all of the focus on delivering the customer. The number of people on the digital platform are still growing naturally, but those customers are able to sign up anybody for free can sign up on Life Time app and get all those features. We're just not doing 2 different versions.

Our next question today is coming from Owen Rickert from Northland Capital Markets.

On CTR and Hybrid XT, what's the current penetration across the center base as of right now? And how much more room is there to add them to additional clubs?

Well, they're both different stages. Hybrid XT is extremely new. It's just rolling out. It's in really -- I mean, it's being executed to some level, but not to the way that we actually want to call it branded programming, maybe about under 20. And I think the -- our goal is to get to about 60 locations on CTR by the end of the year. We're moving as fast as we can. And ultimately, we will have CTR in just about every club. So I would say that 80% of the clubs, 90% of clubs will have the space to deliver CTR at some point. So it's just how fast we can map that out. And we've allocated more of our growth capital to the CTR rollout this year, but we're rolling them out. But they're not -- they're still, I would say, we're not halfway there.

And Bahram, you mentioned earlier, there's a nice waitlist for CTR, which is absolutely true. CTR also has the highest fill rate across our programming. So it's a very, very popular program.

Awesome. Glad to hear, guys. And then secondly for me, you had some repurchase activity during the quarter at a pretty solid price relative to where we are today. I guess given the stock has moved since then, how are you thinking about the pace and prioritization of the remaining capacity.

That's a great question. I'm not going to give you any answers.

Not fair enough. I thought I'd...

Next question is coming from Logan Reich from RBC Capital Markets.

Congrats on the really solid results. My question was on the in-center acceleration. It's been decelerating a few quarters now and some really impressive numbers in Q2. I guess like what is the key driver of that acceleration? I know you called out dynamic personal training as a driver, but anything else to call out maybe on the cafe. And then just within the sort of membership in-center spending, like is that coming from newer members or existing members? Or is that coming from higher frequency or higher penetration? Just any sort of color you guys can give on what's driving that acceleration quarter-over-quarter would be much appreciated.

Yes. I mean it's really coming from both new and ramping. And when you ask about what's driving that in-center, again, it goes back to delivering on our brand and that experience. And so we talked about a couple of the big drivers being DPT and SPA, okay? So that strategy is all around engagement. It's all around experience. And so what we've really focused on is the casting in those businesses to meet the demand. And we're hiring the right number of trainers, the right trainers, the right technicians, et cetera. And so our expectation is that we have the right number, they're delivering on the experience, and that's driving the performance.

Got it. That's helpful. And then just a follow-up on CCR and Hybrid XT. Just confirming those are included in the membership. So that's not an additional in-center portion of the business. And then like, I guess, just trying to think about -- sorry, go ahead.

That's correct. Those are both part of the programs designed to bring in members, keep them engaged and continue to build the revenue for the business.

Got it. So is that like a pricing opportunity for you guys to -- because I know you use a lot of different metrics and data in your pricing decisions. Like is the right way to think about it like that is just an additional component of the pricing calculation and you'll view that as like a pricing opportunity? Or is that maybe even like a member growth opportunity as well? Just trying to think about how that's going to drive the model.

Look, I think the way we have transitioned the company over the last 5 years is the new clubs are coming in at a much higher rack rate right off the get-go. And they are designed for significantly fewer memberships, 3,000 to 4,000 membership units. And they -- at much higher dues with the most robust experiences and programming. Those models are working exceptionally well, all of them. And then the -- on the older clubs has been basically transitioning from the older price point to a newer price point and adding programming and sort of rolling that out in the market by market, location by location as it makes sense. So in some clubs, you add programming and it would be part of an upgrade signature buy. It just those are in the older clubs. And all new clubs, all these programs are built in as one bundled in. But when you look at that compared to somebody trying to buy those services a la carte, one program in some studio, the value proposition at Life Time becomes so incredible that that's why the larger format clubs, new clubs with all these programs in it are hugely successful.

Next question is coming from Andrew Chasanoff from Oppenheimer.

Congrats on the quarter. I just want to build on the in-center offering conversation. Beyond DPT, you've been discussing the momentum building in CTR with waitlist forming pretty quickly. Can you give us a sense of how you're thinking about the pathway from CTR into the broader Pilates business, which I know has historically been more of a private, semi-private higher ticket offering? And then just as we're starting to think about the scale of the other in-center offerings, Cafe, Spa, MIR, as they start to scale as DPT and CTR have, how should we be thinking about the margin profiles? And if any of them are structurally higher or lower that we should be thinking about the mix as they scale?

That was one question?

Let me help you with what I can help you. So you asked about CTR being a program that would feed into the regular Pilates. That's absolutely correct. The number of people who would never go sign up for Pilates directly because it's just kind of a different experience completely, but they would go to a CTR program is significantly higher to go to CTR than to do a private training. Now a certain percentage of those people will -- a certain percentage of those folks will at some point say, I like this enough. Now I'm intrigued and then there is a natural connection. So we do plan and think through how that transition can be helped or enhanced. That was one of your questions, right?

Yes, that's very helpful.

It should, and it is helping Pilates program in certain clubs when we're executing that strategy the way I mentioned. So now what are your other questions?

My follow-up is maybe kind of more around the margin aspect of in-centers and kind of as the other aspects of in-center beyond DPT and CTR begin to scale in a similar degree, you've talked about MIORA, the spa cafes, how would you just be thinking about the mix dynamics just as the mix of the in-center offerings just widens?

Yes. Look, I think our targeted overall company EBITDA margin that we're giving you is the way I would try to do my job as mapping out what a club is going to deliver in total revenue and contribution margin, EBITDA margin. The fluctuation in the cafe and the spa margins have been de minimis in terms of overall numbers of the company. They haven't been significant because our focus for decades has been that spa and the cafe are what makes the experience become a complete athletic country club.

You can get a massage, you can get your hair done, you can get your nails done, you can get a nice meal. There are significant opportunities in the revenue growth on both categories, and we are focused on fine-tuning those and make those be additional growth drivers in the upcoming years in our overall revenue growth and in-center growth. And with those, we are working the details and the processes right now, perfecting those so that not only we get the revenue, we also get the appropriate margin to come with it. Very, very good opportunity ahead to kind of seize some of what looks like a capturable opportunity to help growing the in-center business and in-center margins.

We reached the end of our question-and-answer session. I'd like to turn the floor back over for any further or closing comments.

Thank you, operator, and thank you, everyone, for joining us this morning. We look forward to having you on the next quarter's call.

Thank you. That does conclude today's teleconference. You may disconnect your line at this time, and have a wonderful day. We thank you for your participation today.

Greetings, and welcome to the Lifetime Group Holdings, Inc. Q1 2026 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Connor Wienberg, Senior Vice President, Treasury and Investor Relations. You may begin.

Good morning. Thank you for joining us for the First Quarter 2026 Lifetime Group Holdings Earnings Conference Call. With me today are Bahram Akradi, Founder, Chairman and CEO; and Eric 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, 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 will turn the call over to Erik.

Thank you, Connor, and good morning, everyone. We appreciate you joining us for our Q1 business and financial update. Please note that this morning, we posted an earnings supplement on our Investor Relations website which includes additional detail on our membership mix and comparable center revenue.

Starting with our first quarter revenue. Total revenue increased 11.7% to $789 million driven by continued strength and performance across our portfolio, including higher dues revenue and strong utilization of our in-center businesses. Comparable center revenue grew 8.6%, slightly above our expectations. As outlined in the earnings supplement, components of our comparable center revenue were as follows: improved membership mix, which contributed 3.5% growth. This includes changes in membership types, the replacement of lower dues memberships with higher dues memberships, which we refer to as churn and continued expansion of clubs into more affluent, higher use markets.

Price contributed 3% growth. This includes legacy membership dues increases and changes to the new join price of clubs within the previous 12-month period. And in center businesses contributed 2.3% growth due to continued strength in utilization of our in-center businesses, particularly dynamic personal training.

Volume contributed a negative 0.2% to comparable center growth. This was driven by a reduction in qualified medical memberships, which I'll discuss shortly. As expected, comparable center revenue growth continues to move towards our long-term target of 6% to 8%. Average monthly dues were $230, up approximately 10.5% year-over-year, and average revenue per center membership was $930, up 10.2% year-over-year.

Growth in average dues was driven primarily by positive membership mix trends and execution of our pricing strategy, as I just described. We ended the quarter with nearly 838,000 center memberships, which reflects 1.4% growth. As we've discussed on past calls, we have been managing our membership mix. Part of our strategy has been to limit certain qualified memberships, specifically those administered by third-party medical insurance providers. We refer to these as qualified medical memberships.

These memberships have significantly lower average dues. In Q1 2026, qualified medical memberships represented only 3.4% of our total dues revenue. We expect this to be approximately 3% by the end of the year and continue to represent a smaller proportion of our dues revenue over time.

In the first quarter, qualified medical membership declined by approximately 15,000, down 14.9% year-over-year, while all other memberships grew by approximately $27,000, up 3.7% year-over-year in total, resulting in 11.9% growth in total dues revenue. Due to further year-over-year reductions in qualified medical memberships, we expect total center membership growth of 0.5% to 1% in the second quarter, 1% to 1.5% in the third quarter and 2% to 3% in the fourth quarter.

However, we expect membership growth, excluding qualified medical memberships of 3.5% to 3.8% in the second quarter and 4% to 5% in both the third and fourth quarter. With this strategy, we expect to deliver revenue growth of 10% to 12% for each quarter and the full year.

Moving on to net income. For the quarter, net income was $88 million, an increase of 15.8% year-over-year. First quarter net income included approximately $8 million of net tax affected items excluded from adjusted net income, primarily consisting of share-based compensation. Net income in the prior year benefited from approximately $1 million of net tax affected items, driven primarily by $12.6 million of income tax benefits resulting from a significant exercise of stock options by our Chief Executive Officer, ahead of their 2025 expiration, partially offset by share-based compensation.

Adjusted net income, which excludes the tax-affected impact of these items was $96 million, up 27.4% year-over-year. Adjusted EBITDA was $227 million, an increase of 18.3% over the prior year quarter, and our adjusted EBITDA margin improved by 160 basis points to 28.7%. The primary factors for our margin expansion included greater leverage on our center operating costs and corporate G&A, an overperformance of dues revenue and timing of sale leasebacks.

Of the 160 basis point margin expansion, approximately 30 basis points relates to employer payroll taxes associated with the CEO's option exercises incurred in Q1 2025. As noted in our earnings release, we updated the midpoint of our full year adjusted EBITDA margin guidance to 28%. This guide includes the impact from a majority of our clubs that are opening in the second half of 2026. And the associated preopening expenses and early operating ramp impact on margin. Net cash provided by operating activities increased to $199 million, approximately 8% higher compared to the prior year quarter.

Total capital expenditures were $260 million, up 82% from the prior year, reflecting construction activity in support of our new club openings for 2026 as well as the start of construction on clubs planned for 2027. As of today, we have opened 5 of the 14 clubs scheduled for opening this year. The remaining 9 clubs and the number of the clubs scheduled for 2027 opening are under construction. In April, we closed on sale-leaseback transactions that generated approximately $200 million of sale-leaseback proceeds and expect to complete approximately $400 million for the full year, supporting our ongoing focus on generating annual positive free cash flow.

With that, I will now pass the call to Bahram. Bahram?

Thanks, Erik. Good morning, everyone, and thank you to our teams across the company for their outstanding work this quarter. As Erik mentioned, we continue to see strong performance across all aspects of our business. We're not seeing any impact from the broader macro environment at this time.

Demand has been particularly strong for our new clubs, including 4 clubs we just opened in the last 30 days. They're all performing extremely well. Our real estate pipeline continues to be robust. And we expect to continue growing both revenue and adjusted EBITDA in the low double-digit range. I'm going to keep my prepared remarks very brief as the results of our business speak for itself. But I would like to focus and provide clarity on our positive free cash flow outlook.

Last week, we announced the close of $200 million of sale leaseback and raised our full year sale leaseback target to $400 million, delivering positive free cash flow in 2026. We expect to deliver growing positive free cash flow each year going forward, while selling only a portion of our fee-owned real estate assets built in any given year, resulting in an increase to the value of real estate portfolio that could be used at any time as additional liquidity. All of this puts us in a very strong position with very low leverage, robust and growing operating cash flow and a significant portfolio of real estate assets. We will continue to invest in our existing clubs, take advantage of our white space by opening new clubs and thoughtfully return capital to our shareholders.

With that, we will open the call for questions.

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

When we look at what we know about right, it looks like another year of suburban ground-ups very significantly. How do you think about beyond '27? Do you think '28, '29 look like '26 and '27 in very much? And then what's your thought on takeovers. You had done a bunch -- you haven't done many in a while. I don't know if you like that use of capital. What's your thought on that that type of project.

Great question, John. Great to hear from you. The market is incredibly exciting ahead. We have some amazing club openings, nonsuburban an incredibly amazing urban markets. We've been dying to get into these with significant-sized clubs. Interestingly, right now, our urban clubs are performing with incredible return on invested capital as we go into those into leases and we put some leasehold improvements, the returns are incredible. They ramp exceptionally well. And the suburban clubs have never been better.

Like what we are opening right now anywhere suburban, semi suburban is the best results I have ever seen in for the years. So we're just excited. We're excited about all the sites in the pipeline, whether they're in a super, super hot urban markets where we are going to be part of larger developments, and we've been negotiating on some of these things for 5 years, 6 years, 7 years, I mean they just -- they take longer. So they're closer to the other side. And then we have a -- we still have a growing number of suburban prototype opportunities as the demographic shifting into markets like we just on Monday opened the club in Akatio. It's a second location in Gilbert, Arizona, not only that one, all 4 clubs, incredible results.

But there are -- that market 5 years ago, there was nothing there. And right now, it's one of the hottest market. So we have continued to explain, we are not having a concern about an outlook where we're going to run out of opportunities to build urban semi-urban or suburban clubs. I don't -- that is the last thing on our list of concerns here, just amazing opportunities, and they're all performing exceptionally well.

The most important thing that I think is just misunderstood about this business is the return on -- the cash-on-cash return doesn't matter which way we do it. When we go into these clubs, into a lease with our leasehold improvement dollars in, we are always north of 30% in aggregate. And when we are doing our clubs and take them to sell leaseback we do that or better.

So I just don't -- it doesn't really matter to me. If it doesn't matter to me at all. if it's more suburban or urban or what markets right now, they're all doing exceptionally well. Hopefully, that answers you and others in regards to that.

Maybe as a follow-up to that, has that changed your -- that success to maybe lack of competition in some respects, has that changed your view on what the whitespace opportunity is whether it's -- I think at points you've said 600 maybe or more than that. In your mind, has that increased? And if so, by how much do you think.

Fortunately or unfortunately, I think, is going to be way past your time and my time, John. I don't think we are concerned about running even -- we do 14 clubs a year. I don't see when we're going to get to the point where we have a hard time. And we have been looking at so much opportunity in the United States that, that always makes us ponder taking the time to engage in all the requests to go 10 hours, 20 hours, 30 hours away on an airplane to get to the international demand that there is for our brand.

So that's because the amount of opportunity here in North America is enormous. So there is really no concern. I think that we've always said 450, 500, I don't think we see any -- I don't think we see any window that is going to be smaller than that probably is going to continue to grow.

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

Congratulations on a very nice quarter. And also very much appreciate the press disclosure on numbers, -- so -- thank you. So the question I have -- the first question, we've talked about this before, but in the release again today, you talked about within the inset of offering a dynamic personal trading has been a driver there.

So the question I want to ask is how do you look at the current penetration of DPT -- where is kind of the slack there -- and then with regard to membership and the disclosure we gave today, as you continue to sort of say, upgrade these memberships in these clubs, does that, in a way, give you more opportunity in DPT assuming that these nonqualified members are more likely to uptake that.

Let me just first give credits to our entire DPG team from every DPT themselves all the way to our Senior Vice President who runs that. They do an amazing job that the brand of dynamic personal training has been understood. The quality of our trainers are exceptional -- we are continually seeing an increase to the number of productive dynamic resonate trainers. And the execution is exceptional. And we continue to see more opportunities. And you're correct, as we are executing our new brand positioning, which we have been in progress for the last 3, 4 years, positioning Lifetime as an acolyte country club with the exceptional desirability where the price is really not a factor.

The kind of customers who are coming to us they're not talking about the price. We're not promoting. We're not advertising. We're not giving a 3 month for them to join. They're just coming in and wanting to be part of the lifetime brand and experience. when those members also engage in in-center businesses way easier than the ones that you pull in of trying to give them a 3 month or 2 months or something like that to get them signed up. Lifetime has never been in a better position, brand. We have never been in a better position, and it's entirely because of the change in the positioning of our company and our brand over the last 4 or 5 years.

Yes. And if I can just add to that, Brian, Bahram talked about a number of trainers as we look to serve the demand. As we look across the portfolio, they're up -- trainers are up low double digits and new business is actually up even more. So again, that just speaks to the increased demand that Ron is talking about.

That's very helpful. And then my follow-up question, different topic. But thanks for the commentary on the cash flow dynamics here at '26. But as we look at that CapEx number, either what was closed from Q1 or guidance for '26. I mean, how should we think about that relative to the clubs that you're opening in '26. In other words, me, how much of that growth CapEx that you earmarked, so to say, is actually associated with clubs beyond the current year.

Yes. So that's a great question. But we kind of Erik has covered this multiple times. It's roughly half and half, about half of the capital that we are -- we launched this year as a new club growth CapEx, half of it was the clubs are opening in 2026 and half are the clubs that they're starting -- we have already started construction. We bought the land for -- mostly for '27 and some of the '28 even. That's going to be always the case with the way we build our business, these are -- this is what the advantage of lifetime business is the incredible moat that is around this company that also don't think has been appreciated because it takes such a long time to develop these things and it takes stamina and capability.

For us, it's a routine process. We are investing in 2026, 2027, 2028 and maybe even some beyond at any given time. The interesting thing that I just really wanted to cover is that we are in an amazing financial position as well as our brand position. We have very, very low leverage significantly below my maximum target of 2x debt to EBITDA. That's flexibility. We have zero balance on our revolver. We're sitting on several hundred million dollars of cash. We build every year more than $400 million, $500 million, $600 million in what I would call fee-owned sellable assets. So if we sell $400 million of that, this is not the portion of the CapEx that goes to leasehold improvements.

This goes into the assets we buy the land, we build, we own the fee that it goes into the pool of fee-owned real estate assets that we can sell and add and think of it as additional liquidity.

Over the next 4, 5 years, our expectation is that, that number will continue to grow even after -- if you kept building 14 clubs a year constant, if you build that constant, if you build that you're going to do $400 million a year constant. These are just make it simple assumptions for clarity for people. We will be adding to the value of our net sellable assets fee-owned sellable assets,[indiscernible] assets. And we will be adding to our free cash flow from '26 on every year.

Our long-range plan shows by roughly about 2030. That free cash flow will be more than $400 million, which basically will give you an option I don't want to sell any of my real estate. That's not really how we're thinking about it. Our assumption is we're going to continue to sell that number, roughly that. And then otherwise, now we have an extra $400 million of free cash flow, and we have added. We're not trading our real estate assets to be cash flow positive. We are adding to that. We're cash flow positive. We're growing that -- and that puts us in a position we can start thinking about all different ways of return of capital to the shareholder.

Hopefully, this creates really, really nice clarity for everybody.

Your next question comes from the line of Arpine Kocharyan with UBS.

So you raised revenue for the full year by about $20 million and EBITDA is going up by about $15 million. That is a very healthy flow through as we think about incremental revenue upside. So maybe if you could go through drivers of that. But more importantly, your underlying members seem to be growing in that 4% to 5% range, which is definitely healthier than what meets the [indiscernible] right, with the qualified down double digit, the blended number.

Can you maybe expand a little bit more how you think about member growth in light of revenue optimization versus just chasing volume, sort of your updated views on that? And then I have a very good follow-up.

Yes, I can take the flow through there. Yes, on the revenue, we're seeing extremely strong performance in our dues line, which, of course, as you know, most of that is going to fall that's going to flow through to the bottom line. And we're also seeing continue to see strong performance in DPT, which, of course, has a little lower margin than Dues does.

So that's how kind of that relationship dues and flow-through is coming in. And what you're talking about on the membership mix versus volume is exactly the strategy as we kind of laid out instead of just chasing raw volume, it's all about the membership mix. So that means number of members per membership, that has a higher LTV. So that's a better outcome for us, both from revenue and just strategically.

And if I can add to that another way for you guys to think about. We are really prioritizing revenue, quality of that revenue, quality of membership, the ability to do in-center business retention, we prioritize those, and of course, all of that results in the EBITDA pass-through. And that the mix that he's talking about is naturally taking place. It's been a continued quarter-after-quarter result of changing the positioning of the company are -- we were very, very decisive. We wanted to create a brand that the desirability brings the customer who is not price sensitive is experience sensitive.

That's taken us 4 or 5 years, and we're still getting some churn through that. We love our older customers as we love the young ones and the middle age ones, all of them. However, as time goes on, we're going to see that some transition from that into more direct memberships also add to this mix shift that he's talking about. At the end, all we are working on is what does a club do in revenue? What is it doing a contribution margin? And how is the retention, what's the experience? And the focus that the team has on executing that is delivering these results.

That's great. And then just a quick follow-up on buybacks, just really quickly. You have a $500 million of authorization and you just raised sale-leaseback target even before reporting today. Could you just give your broad take on how you think about capital allocation at this point as far as buybacks go, and where the stock is and the potential to be a little bit opportunistic.

Well, I think that we are going to definitely use our authorization here as long as we see the stock below a fair value to us, we're going to be able to take advantage of that opportunity and buy some shares back.

Yes. Ultimately, as I mentioned, as the cash flow grows, we're going to be analyzing with our Board and capital allocation committee on how to think about different ways to deliver return on capital to the shareholders. But right now, we have this vehicle in place, and we're definitely going to be looking at the share prices and at the right times, we're going to take the opportunity to buy some of the shares back.

Your next question comes from the line of Randy Konik with Jefferies LLC.

Look, I think the theme I'm getting from this is appreciating the continuous growth of quality of the product, the experience and the membership. So I guess for Bram, to you first, kind of maybe give us some perspective on some of the product services and amenities you're thinking about over the next few years and some of the ones in existing that are existing today that you can see adding more penetration into the centers and for your members? And then I guess then for Erik, have you kind of looked at revenue per membership into -- in different quintiles -- and are there any kind of interesting dynamics between what you see in the first quintile of revenue per member ship versus the fifth? And how you can try to grow that fit quintile or fourth quintile to get it closer in spread to what you're seeing with the first quintile of spending in their highest-performing membership kind of members.

Can you give us some perspective there, guys?

Let me start by giving you. We have CTR in the rollout right now. We are only in 30, 40, 50 locations, targeting to about executions, maybe we can beat that by end of the year. We're working as fast as we can to roll those programs out we are launching hybrid XT, that's just at the infancy got tons of potential. Dynamic stretch has got significant opportunity going forward. We are working on lifetime health and wellness hub, which basically aggregates the opportunity for people to come to the most qualified registered dietitians in the country to basically get direction about where they go in a world where people are advertising all kinds of things, and some are fantastic, and some are snake oil.

So I think we can be -- the authority to help people navigate through all that information. And then, of course, channel number there is Tamura to lifetime health LTH products, our personal trainers, dynamic stretch, CTR classes, whatever. So I -- we got so much that is into their thinking and strategy and rollout. Some are further along the way. They've been proven. It's just a more rapid rollout and some are at the earlier stage where we're still fine-tuning the model before we put into a heavy rollout plan. We are busy, I don't -- I mean we're not running out of ideas or concepts on how to improve what we run. And I have said this repeatedly, Adaptation is a necessity of survival, Lifetime has demonstrated over the last 35 years, how we adapt.

This team is poised to adapt as fast as necessary to deliver the best experiences for the customer that is relevant to the customer in today's world. In 5 years, these customers are going to want different things. I can't tell you exactly what that is. All I can tell you is whatever it is, we will have adapted and delivered it to them as they desire.

Yes. And then on your second part of your question there, I would say exactly what Rob said, we're always doing things to add value to the memberships at all levels in all quintiles. But I guess I would just point you to what we're doing around our qualified medical because that is the biggest opportunity. When you look at our ability to -- because our clubs are busy, right? So where can we make the most impact to improve average dues and increase in center utilization, it's exactly what we're doing with those qualified medical.

Your next question comes from the line of Chris Woronka with Deutsche Bank.

So I also appreciate the expanded disclosure, especially around those qualified memberships, I think, super helpful. Maybe just go one step further a little bit. I mean, when you guys are evaluating a new club and you're looking at different locations, you're underwriting, I mean, how important is a metric like membership per club that you could put in there versus what kind of does do you think you can get? What kind of ancillary do you think you could get, what kind of engagement you get? Just trying to kind of put a button on the idea that members per club is the most important metric to look at for you guys on development because I don't think that it is, but if you guys would like to opine on that, that would be terrific.

It isn't. This is where I want to be clear, that has been the, I think, the gap between what we keep trying to explain to the Street and is being misunderstood -- what I care about is we spend x amount of dollars on a facility. We want a rate of return on that. That demands we want to be looking for a certain amount of revenue and a contribution margin out of that. The -- when I launched this company, I have said this 100 times, we've envisioned comprehensive delivery of all experiences under one roof. And we sold it way too cheap. That caused actually a contrary outcome to what was -- what I wanted. I wanted this exceptional experience in the clubs. We couldn't get it with 11,500 memberships in 100,000 square feet club. We just couldn't get it. it wasn't there.

So mistake was -- it was too cheap and the vision of delivering exceptional quality just would not work with that much volume. Today, every time we do a business plan in the last 2, 3, 4 years, and this is why I want to avoid giving you guys a number. We thought we do these clubs for like 5,000 members instead of 10,000 and then what it really boils down to is that the number is actually a lower number that brings in fetches a higher revenue and higher margin and better experience.

So what's happening is we are -- the way we have our position, the demand for our business and the amount of people in a wait list, we generally end up launching a club at a higher price than we had initially in the business plan. Therefore, it's just an easy mathematics. It's fewer memberships, but we end up with better revenue, better margin, better results, better experience. So we are curating 100% of that experience. And that is the magic to winning to make sure the experience remains wow. And as long as we deliver that, the numbers will work. And so we don't want to emphasize membership. I want to emphasize revenue and EBITDA and our margin pass-through. And I couldn't be more pleased with what our team is executing with that results speak for themselves.

Yes. Thanks, Bahram. That's a very, very helpful answer, I think, hopefully, for folks here. As a quick follow-up, I know at one point, there has been talk on the app or monetization, things like advertising, other forms of revenue generation. Maybe can you spend just a minute on where some of those initiatives are? Is that still on the table?

Not in the near term. The reality of AI and the way AI is advancing in such a fast pace -- our focus has been delivering, again, the best. Right now, there are features of our lacy that I think if you experienced it, you will be impressed in terms of like a workout generator, answering any questions regarding health and wellness. It's way more in depth -- we are continually executing the same strategy to deliver something exceptional on that.

But our main focus is delivering the best experience inside of our clubs, we want Lacy to be that navigator for the customer to help them find what they want to find. One of the challenges for our company is that we offer so many things. And often, if you are doing one service, it's easy to create an app that gives you the great experience for that one business. We're delivering 20, 30 different businesses inside of umbrella of lifetime.

It becomes way more complicated even if the components are good for people to even find a navigation. So Lacy is lifetime AI companion. It's your AI companion to help your experience get better. And right now, we are singularly focused on making sure that experience. The subscribers are growing still at 100,000 rough and tough additional subscribers month.

At some point, we will focus on how naturally start thinking about benefiting from that. But right now, we're getting more members coming through from our 3 million, 4 million people on that list it's easier for them to join the club, and we're seeing that starting to kind of get ramped up. So we will find the wins as long as we stay focused on delivering something exceptional.

Your next question comes from the line of Stephen Grambling with Morgan Stanley.

I guess in order to not necessarily surprise investors, I think everyone appreciates the focus on ROIC and your confidence in the new clubs hitting very healthy ROIC. But as we think about some of the KPIs perhaps over this year, thinking through whether it's members per club in center spend, margins as they ramp, any reason to believe that these will be different than what we've seen historically or relative to what's in the pipeline?

Yes. I mean, from a margin perspective, no, I mean you take the revenue per membership and the growth that we've seen there. We expect that to continue. That's obviously an important KPI for us.

So no, nothing that I could point you to, to suggest that we're going to have anything significantly different from kind of what we've been showing with our existing KPIs.

I think our execution right now, as I mentioned, is best ever is like the term we hear when we're going through our analytics best results ever best results ever across so many aspects of our business -- we're just -- our opportunity is to look at individual clubs to see within a particular club what is the embedded additional opportunity. But systematically, if you look at the entire system, results are fantastic. And I think we don't have a reason to believe they're going to do anything is going to deteriorate any shape or form.

No. But I do think it's worth reemphasizing. We already covered this when you talk about a number of memberships per club. Ron covered it, but I think it's worth emphasizing as we open these new clubs, we're doing so with fewer memberships to reach our desired call it, utilization. So when you look at that metric today, it's roughly 4,400 per club. The trend that we're seeing is, again, intentional as part of the clubs that we're opening at the number of memberships we're planning.

Your next question comes from the line of Anthony Bonadio with Wells Fargo.

So I just wanted to ask about EBITDA margin. It looks like another all-time high there in Q1. Can you just talk about what drove the performance you saw there and I know you've historically pushed...

Erik drove that performance. Erik.

Well, I can speak to it. I didn't drive it. Yes. I mean so it was a good quarter. Like we mentioned, I mean, we saw -- obviously, I talked about does, and that was a portion of the flow-through center ops margin, as you saw, improved as well. I mean that was just really great execution from the business in expenses across the board, really. And we -- the timing of sale leasebacks and the overall rent that we executed later in Q2 all of that really combined, whether it was G&A or center ops, we got leverage and scale.

Yes. I want to add. I think actually, I want to give credit to our team starting the year with all the uncertainties in the macro, our focus was making sure we execute the customer experience at the highest level however, don't waste any dollars anywhere that doesn't need to be wasted. And so the team has executed exceptionally well. And I think the -- I always try to caution -- the Street is not asking for more, more and more because this is the Doomsday for public service public companies on a long-term basis is that you keep trying to squeeze more and you cannot pinch the customers' experience or the team members' experience.

We are in a phenomenal place, we are in a great place. We have some additional clubs opening significantly more. We've got 9 more clubs to open. There are some preopening expenses with those, albeit the clubs are performing so well, many of them starting did a contribution margin positive in the second month. But still, from an EBITDA standpoint, they can have some margin compression. But for the most part, again, I cannot see anything that's ever executed in better across the lifetime.

So I'm proud of our team, but don't expect more.

Got it. That's helpful. And then maybe just on the consumer, can you just talk a little bit more about the demand side of the equation? It seems like in-center spend growth remained strong in Q1, reads on the high income consumer remained good. But there's also been a lot of headline fatigue out there -- just any thoughts on whether appetite to spend has changed at all in that cohort would be helpful.

Absolutely zero. We're not seeing any any negative pressure. I have expected it. I have thought this macro cannot deliver this. But right now, we haven't seen -- as of right this second, we haven't seen anything. It is the customer, the demand is strong for the clubs. Again, we're doing this without hardly do any marketing spend. It's just naturally coming to us. And the in centers are doing great, and we're super weight lists are substantial for our new clubs. And so we're just basically navigating through giving people the desired service or expectation, and it's just -- it's all working extremely well.

Your next question comes from the line of Eric Des Lauriers with Craig Hallum.

Congrats on the very strong results here. You've already touched on it, but just wondering if you could expand on that improving membership mix. How much runway do you have here before we sort of reach kind of a new normal balance of members here? And just kind of how long do you expect this to be a tailwind to your overall dues here?

I think that as you look at our business, we still have roughly, I want to say, 2/3 of our membership that they're paying somewhere below the rack rate. And we've gone through this. And we expect to see some pass-through as some of the older legacy paying customers drop out because they move or something happens and we get a new customer replacing that.

No additional membership count, but we get more dues from that. As of right now, we don't have any immediate change in the outlook. I think it's going to continue. But eventually, it will slow down. But right now, it is still.

Yes. The thing I would point out is we highlighted in our Q3 supplement, where we really began deemphasizing the qualified medicals, right? And so that's why we kind of gave that guidance over the next couple of quarters to kind of help as we see Q2, Q3 and even into Q4. But as we get into -- we're opening up the larger -- opening up the clubs in -- and as you look at those qualified medical as a proportion of our total membership mix, that's going to continue to become smaller and smaller.

So I think when you talk about it, when is it going to be maybe a little more pronounced, again, I'd take you back to the guidance we gave for Q2, Q3.

Awesome. That's very helpful. And then overall, just looking at the sort of, I guess, macro category horizon here. It's great to hear earlier comments that you even have 14 clubs per year, the saturation point is basically not even on the horizon. You've got an extremely long runway. How do you view the competitive dynamics in the space between sort of overall growing pie, increased demand for premium fitness, third places, et cetera. And then your ability to sort of increase your size of the pie. I mean seems like there's great tailwinds on both sides. I'm just sort of wondering how you view this kind of longer-term outlook here and your positioning within that?

It's a great question. I don't and I've kind of often said this. If I took off on my own and I brought some of the best people with me, we couldn't put a dent into a lifetime. You're looking at a couple of hundred locations that they are open this year. We have another 50 to 75 AD facilities in the pipeline. These things take several years of gestation and massive amount of dollars, an incredible amount of detail to execute the complexity.

The competition for a to lifetime will not be a head on operator that can execute the complexity, the scale, the size, and the brand recognition of lifetime, you will have to compete with somebody opening sort of a recovery space. Somebody opening up a stretch play, somebody doing a yoga place. I mean -- or some combination, we really don't feel like any concerned that there is going to be somebody taking on this model, good luck if they want to try it. But we're just kind of executing, flowing through the opportunities we have. It's not a real concern. I just don't think it's real.

The next question is coming from the line of Logan Reich with RBC Capital Markets.

Congrats on the solid results I want to ask first just on how visits per member or anything you can share on retention was trending in the quarter? I know it's been an area of strength for you guys. Just curious if you can provide an update there.

Yes. The visits for membership is up. Retention is absolutely great. I mean, it's just -- the more they use the club, the less they are likely to want to drop out -- so all those metrics are working in our favor right now.

Got you. That's helpful. And then I wanted to ask on the on hold memberships. That number actually declined on a year-over-year basis for the first time I think it was 23%. Just any color there on what that -- what drove that decline on a year-over-year basis?

Yes. I mean there's really nothing there. I mean that number is -- I think it went down maybe 3,000 or something in that range. But from time to time, you're going to see that fluctuate as people come on or off hold, but there's nothing in there to point you to a trend or anything like that.

Our next question is coming from the line of Owen Rickert with Northland Capital Markets.

Congrats on another pretty unbelievable quarter. Just quickly for me. Can you guys talk about the vision behind this new lifetime innovation hub and how you see it influencing future member experiences, potential ancillary revenue opportunities and maybe the broader long-term growth strategy there?

Well, look, if you don't have innovation hub, you need to go home. You need to be thinking about how to innovate and how to -- and our company has all been directed to be thinking about how we can navigate through what is the new ways we can serve the customer, whether the new products, new services, that people are sort of seeking and then how do we create an engine to deliver what's being asked for.

But is part of the things we're talking about, the delivering -- coming up with rolling it out and executing that. And the dynamic stretch which happened a little before that, now hybrid XT. So we're constantly working on doing those things. And then the next piece is, like I told you, is that building this lifetime health and wellness hub and try to create a whole sort of a robust registered dietitian center that basically can navigate people through all different aspects of our business.

So we're working on all different types of things at all times. Now we still got tons of runway in thinking about what else we need to add to the clubs, how do we transform the clubs. So people continue to come in as the place they want to stay in, whether for entertainment to work, to eat to meet other people or exercise and get their hormone replacement done. I mean all of those things are endless opportunities for us to innovate through.;

Awesome. Got it. And then secondly for me, just on MIORA maybe can you just tell us how many locations you're currently in? And is the long-term vision there still about 1 to 3 per region.

Look, I think with that, what we are doing right now is we're in massive, massive sort of period of making sure we fine-tune the customer journey to an exceptional experience. My belief in this space is that it is going to be a main sort of the main street in terms of what people are going to want to engage in and then once they get on it, they'll probably -- there's really no way to get away from it. They want -- they would want to do that. It's being done in mom-and-pop clinics across the country.

So it's a huge opportunity for us. And for a clinic of a couple of providers, one lifetime location has all the customers they would need and more. So can we have a more in just about every club eventually? The answer is yes, just like we have personal training in every club. But we just got -- we got a crawl walk run. We need to sort of kind of do that with the complexity of the medical aspects of it, the HIPAA compliance and all the rules and regulations around it, it's a little more complex than rolling out the dynamic threat or CTR.

So we got to make sure we execute that exceptionally well, but I am an incredible believer in the potential of MIORA. And myself and our senior VP that is in charge of that with me, we're all over it in terms of making sure we have a model that we want to roll out much faster in the next 12 to 24 months. We're working on it, and I'm really excited about it.

Our next question comes from the line of Noah Zatzkin with KeyBanc Capital Markets.

Just looking at Slide 5 in the supplement, kind of conceptually in terms of the building blocks for the comp, when I think about maybe 2 or 3 years out, -- is it the right way to think about it that the membership volume piece kind of reverses as a headwind maybe related to qualified memberships kind of no longer churning off but membership mix might come down a bit? And then just in terms of membership price and in-center business, any thoughts around kind of those building blocks over the next couple of years, too?

Yes. I'll take the price 1 first. I mean we've kind of -- we've given our long-term algorithm and we've kind of stated in there as we look at the pricing component of that roughly 2% to 3%. So I think that's a very sustainable part of this model. And yes, you're right, like as we work through kind of some of these membership dynamics with qualified, right, the -- those things kind of work themselves out. And in your matures, you're basically, call it, flattish, and you're getting your growth from your ramping in your new clubs.

So I think that's a directionally fair expectation.

Got it. Really helpful. And then maybe just one on GLP-1s. I wanted to get any updated thoughts there in terms of that being a tailwind to the industry. Anything you guys are seeing around maybe benefit to new adds as well as retention. Any thoughts there would be helpful.

Me, I'm going to take this question for you. It is going to be a home run win for all exercise facilities across the country. It is an absolute no-brainer science it will make people lose weight, so they're going to be happy and celebrating there.

It's going to kill their muscle mass, which then is going to kill their bone density, which is going to be an absolute issue for them. It will be an epidemic if it's not handled correctly. I believe that the doctors, the pharmaceuticals will continue to improve their education to people that they need to do this along with weight-bearing exercise.

So I don't believe the net outcome. I can say from the 40 years of experience that a lot of times, people have not come to the clubs to exercise because they feel self-conscious, they feel like they're overweight. They don't want to go in because they feel like they're fat. I think actually now, they're going to be able to feel like, "Oh, God, I'm comfortable going in but they absolutely and positively need to combine exercise with GLP. We're going to -- in Miura, we're going to -- basically, we are telling people come in and get your GLP here. But what we're doing is -- if you look at the history of what we -- if you look at the results of what we are delivering with people who are coming to us through Morato do GLP, they actually are not losing muscle mass. Because we're combining that with the proper regiment of nutrition exercise, that is going to help every health club operator long term. It's a zero concern. It's a wrong bet, thinking that GLP is going to hurt the Health Club business.

Your last question comes from the line of John Baumgartner with Mizuho Securities.

Maybe first off, Erik, I wanted to come back to your outlook for membership growth. Placing the qualified membership to the side -- can you speak to the mix from that bucket of all other memberships? I realize there's some noise from the mix of club locations, more locations in urban areas now. But -- what are you seeing broadly in terms of families versus singles and the influence of programs like Pickleball on drive membership growth?

Yes. I mean, as we look across directionally in our mix, when we take the number of couples and families as a percent of our mix, that continues to increase. So when we're talking about improved mix, we're talking about more members per membership. That trend continues. We're talking about our mix of clubs that are opening in locations that have higher average dues.

So again, those trends are all part of kind of that mix story, and those are continuing.

Okay. And then, Bahram, in terms of your programming, exiting COVID, I think a lot of the programming investments seem to focus on enhancing your offerings of classes that we're they were available outside of lifetime in the specialty boutique segment and doing it better and giving members more for their money. But now I look at CTR, hybrid XT, which seem more specific or exclusive to lifetime and your ecosystem that you're building. And I'm curious the extent to which this is maybe a new angle in your strategy to I don't know, maybe lead more and more visibly than maybe you have in the past with classes that are different than what's available outside of lifetime and that you can leverage to drive new members going forward?

Yes. Look, we are navigating through a couple of hundred clubs, new and brand new coming in and existing clubs -- and then we work on specialization efficiency. We look at the spaces that we have. We look at how they're being used, the services the customer -- the services the customers are receiving and so it takes a tremendous amount of thought process on how to change the space from one program to the other. And then really the longevity of the program that is coming versus the longevity a program that maybe is being deemphasized.

So it's a complicated equation that we are working on, but there is tremendous opportunity for us to think about these programs and how we can accelerate our growth through different channels. I'm not going to get into too much detail on that. But right now, I am most excited about how well we are rolling out these different programs and how well they're being sort of accepted or covered by the members.

Altogether, what we're looking for is maximizing the visits in a club and a spread throughout the day as much as possible throughout the week, so that the club gets a steady utilization but doesn't create sort of a discomfort for too much traffic at one given time. It's -- it's quite a bit. Hopefully, I answered your question, but we're not out of ideas in terms of how to kind of roll out new programs is navigating through all that we are delivering at 1 given time in a club.

Does that help, John?

John is no longer in queue, sir.

I guess it did.

There are no further questions at this time. I'll turn it back to management for closing remarks.

Thank you, operator, and thank you, everyone, for joining us this morning. We look forward to having you on the next quarter call.

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

[Audio Gap]. Please note, this conference is being recorded. I will now turn the conference over to Connor Wienberg, SVP of Treasury and IR. Thank you Connor, you may begin.

Good morning. Thank you for joining us for the fourth quarter and full year 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 and 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'll turn the call over to Erik.

Thank you, Connor, and good morning, everyone. As always, we appreciate you joining us for our business and financial update. Starting with our fourth quarter results. Total revenue increased 12.3% to $745 million, driven by continued execution in our centers, including higher average dues and utilization of our In-center businesses. Average monthly dues were $223, up approximately 10.8% from the fourth quarter of last year, and average revenue per Center Membership was $882, up 10.8% from the prior year quarter. Comparable Center revenue grew 9.9% and was in line with our expectations, reflecting strength in our Membership Dues and In-center business performance.

We ended the year with over 822,000 Center Memberships. Including On-hold Memberships, total Memberships reached approximately $873,000. Net income for the quarter was $123 million, an increase of 231%. Fourth quarter net income benefited from approximately $45.6 million of net tax affected items that are excluded from adjusted net income, as they are not reflective of our ongoing operations. These adjustments primarily included proceeds we received in partial satisfaction of legal claims and employee retention credits as well as adjustments for net gains on sale leaseback transactions and share-based compensation.

Adjusted net income, which excludes the tax-affected impact of these items was $77 million, up 28.4% year-over-year. Adjusted EBITDA was $203 million an increase of 14.5% over the prior year quarter, and our adjusted EBITDA margin improved by 50 basis points to 27.2%. Net cash provided by operating activities increased to $240 million, approximately 47% higher compared to the prior year quarter. This included $59 million of nonrecurring proceeds from partial satisfaction of legal claims and employee retention credits.

For the full year 2025, total revenue increased 14.3% to $2.995 billion, driven by a 13.9% increase in Membership Dues and Enrollment Fees and a 15.1% increase In-Center revenue. Comparable Center revenue grew 11.1%. Relative to our initial guidance in 2025, the outperformance was driven primarily by our Mature Clubs, which in aggregate, reached and exceeded our expected levels of performance faster than we had anticipated. We believe this outperformance from our Mature Clubs is largely complete coming into 2026.

In 2026, we expect full year comparable Center revenue growth of approximately 6.3% to 7.3%. We expect a continuation of the quarterly trends we saw throughout 2025, starting the year at a higher comparable Center growth rate and gliding downward as the year progresses. Average revenue per Center Membership was $3,531, up 11.7% from the prior year. Net income increased 139% to $374 million and adjusted net income increased 62.3% to $326 million. Adjusted diluted earnings per share increased 51.6% to $1.44 compared to $0.95 per share from the prior year. Adjusted EBITDA increased 21.9% to $825 million and adjusted EBITDA margin increased 170 basis points to 27.5%. Net cash provided by operating activities increased to $871 million, approximately 51% higher compared to prior year. This included $94 million of nonrecurring proceeds from partial satisfaction of legal claims and employee retention credits.

Total capital expenditures, net of construction reimbursements were $892 million for 2025, this included $657 million for growth capital expenditures.

Looking forward to 2026, we expect to invest between $875 million to $915 million of growth capital. It is critical to underscore that over half of our growth CapEx in 2026 will be for Clubs opening in 2027 and beyond as we have been accelerating the number of new clubs versus prior years. This increased investment in growth CapEx is driven by both the greater number of club openings this year and the next few years compared to 2025 and 2024 as well as the increased size of our clubs. We are nearly doubling the amount of square footage we are opening in 2026 as compared to 2025 and 2024. Of our 2026 clubs, we have opened 1 and the remaining 13 are under construction. As these owned clubs open and begin to ramp, we expect to recycle the invested capital through sale-leasebacks over time.

In addition to growth CapEx, we anticipate $140 million to $150 million of maintenance capital expenditures and $130 million to $140 million for modernization of existing clubs, technology and corporate investments. We anticipate funding our CapEx through cash from operations, sale-leaseback proceeds and cash on hand. For 2026, we expect to do a minimum of $300 million of sale leasebacks. One final note. With our increased growth capital spending, a larger portion of our interest expense will be capitalized this year as compared to 2025. For 2026, we expect to capitalize between $33 million and $35 million of interest expense. With that, I will pass the call to Bahram. Bahram?

Thank you, Erik. Good morning, everyone, and thank you for joining us. First, I want to recognize and thank all of our team members for their continued passionate execution of our strategies. 2025 was another great year of achieving our objectives and exceeding our financial goals. Many of our centers operated at or near optimal levels with average of 12.5 monthly visits per membership for the year, 4.8% higher than in 2024, and approximately 122 million visits in aggregate, 7% higher than in 2024, with revenue per center membership up 11.7% year-over-year.

We generated substantial cash from our operations, and we exceeded our margin objectives. In 2025, we achieved a 27.5% adjusted EBITDA margin, 130 basis points above the midpoint of our initial guidance set in January of last year. We also exceeded our balance sheet objectives. We ended 2025 at 1.6x net leverage well below our 2x target. These milestones were instrumental in achieving another year of record revenue and adjusted EBITDA and a BB credit rating, which helped reduce our cost of capital. Reflecting on the current state of the company, in aggregate, our mature clubs are operating at optimal levels. Our new and ramping clubs continue to perform extremely well. Together, clubs are generating substantial cash flow from operation. The sale-leaseback market is robustly open, and we have a very strong balance sheet.

As a result, we have a step into 2026 with exceptional financial flexibility. Currently, we expect to open up to 28 clubs across 2026 and 2027 to be funded primarily through operating cash flow and a robust sale leaseback market. Next, we are very excited to announce a $500 million share repurchase program, which has just been approved by our Board of Directors. We intend to utilize this program opportunistically while diligently managing our leverage ratio to stay at or below our 2x net leverage target. This is a significant milestone for Life Time. Our repurchase program reflects our confidence in the predictability of our business model and our ability to generate cash invest in our future growth and drive shareholder value.

Before I close my remarks, I would like to emphasize that the success of our company has been the result of unwavering focus on our member point of view. We remain committed to optimizing a member experience, revenue and EBITDA on a club-by-club basis. This is what has delivered our success to date and what will ensure our future success. With that, we will open the call for questions.

[Operator Instructions] Our first questions come from the line of Brian Nagel with Oppenheimer.

Congratulations on another nice quarter, nice year.

Thank you so much, Brian.

The question I want to ask, as we look into '26 now, there's been a lot of success with for a while now what you're doing inside the centers with the programming and such. What do you see the biggest opportunities as we go in '26? I know we've talked in the past about some of the changes you've made in the cafe or in some of the training programs. But really, what do you think -- what's the biggest opportunities here?

Yes. So Brian, this is Bahram. Our business is always evolving. The customer is the more affluent, more in tune with health and wellness customer who is basically a pro at utilization of this type of services. They're looking for the new proven methods for being healthier and engage in the clubs in whatever is the current way that people get involved in health and wellness. We are always focused on modernizing, updating evolving the facilities to make sure lifetime is always the best provider of all things people are looking for at the highest level of our customer experience. So we're constantly working on developing new formats, changing the floor in a way that the members are now wanting to use the facilities, and then we are working on all different aspects from our cafes to spa, personal training, small group chaining.

Again, the introduction and rollout of MIORA, we're basically constantly adapting, and that's what it takes for any company to continue to basically build the revenue and EBITDA and continue in their journey of basically being the place that people want to go to. We have tons of things we're working on right now. Lots of opportunities to do things better. And we have just launched this year that sort of the work on the cafes to try to improve the speed and the quality of what people want. And a lot of great progress early on is sort of happening, and we expect this all to continue.

Personal training is doing great. [indiscernible] is doing great. Our new MIORA locations are launching pretty strong. So we just have a whole host of things we're working on. But the -- in big picture, everything is working exceptionally well. Members are using the club at the highest level we have ever seen. Clubs are packed. They're operating at near optimal levels of utilization per day or per month based -- or per year as you look at how much visits a club can take and deliver great quality. So we're as happy as we can be.

That's very helpful, Bahram then my follow-up question, just with respect to the new center opening. So I guess the last on this one. I mean, you opened a number -- or a number of centers later in '25. So if you could just comment upon the initial performance of those? And as we're looking at these '26 openings and realize -- I think you said one is open, but obviously, there's still a lot more to come. Is there anything you can glean so far from anything you're doing with the presale activity?

Yes. All I can say to you is our clubs are now opening stronger than ever and ramping faster than ever. Some clubs reach literally contribution margin positive, the first full month of the cooperation, which is pretty incredible. We're very, very happy. As a result, we are opening as many clubs as we can as both Erik and I mentioned in our remarks and in the earlier. This year we'll open more square footage of clubs that we opened in '24 and '25 and '27 should be no different than '26. So we're really, really excited. We have an amazing pipeline of more dynamic, exciting locations that are going to come in the future years after '27, '28 and beyond. So we couldn't be more pleased with where things are going right now.

Our next questions come from the line of Arpine Kocharyan with UBS.

I was hoping you could give a little bit more detail on the unit economics of the new clubs you're opening this year, obviously, much larger square footage with expanded amenities. As we think about revenue per member trends as well as kind of member mix as we go into the back half of the year, do you expect any changes to the typical seasonality of the business in terms of quarter-to-quarter member growth? And I apologize, it seems I blended two questions in one. But first, I want to ask about sort of the unit economics of the new clubs and then any help on the mix of members that we are looking at for the back half of the year?

Yes. What you should expect is as we are opening new clubs, A, these clubs don't have any discounted program available in them. So there is no discounted membership in them. The membership prices are higher, the model for the new clubs are significantly lower members, number of members using the club significantly more, and they're paying a much higher rack rate. This model is actually way more efficient than what we used to do in the very, very past, and we've been adjusting the older clubs gradually to match the performance of the new clubs -- and so the memberships are expected to grow altogether because we're opening all the new clubs. However, again, they're performing extremely well. And while we don't see any specific ups and downs for the seasonality other than the fact that we are basically getting more members using the club more often they are paying higher dues in average and using the club more. So it's exactly the model we're looking for. It's an engaged -- it's a super engaged membership model instead of a non-used membership model. And we are basically operating at optimal levels of that right now.

Yes. If I could just add some quantitative there. When you look at our kind of existing clubs, if you just take an average membership per club it's $4,500, $4,600. So when you talk about our new clubs that we're planning those at membership levels, $3,700 to $4,000. So we are building those with fewer memberships because, again, we're assuming a better mix there. So but seasonality to your question, no changes in expectations around seasonality.

That's super helpful. And then just a quick follow-up. Could you remind us the rack rates you currently have and what's running through the system? Sort of what that delta looks like, just a refresher.

What was the question again?

Can you say that again?

The rack rate you have and what's running through the system and what that difference looks like today?

You're talking about like the delta between the rack rate. Was that your question?

Exactly.

Yes, that's only increasing. We are -- as I -- what I want to do -- this is a good question I want to do it for benefit of everybody listening. Our clubs are operating at incredibly optimal levels. Parking lots are packed, people are coming in, they're using the club in every place and all parts of the club. So what now we are reaching with so many clubs are at that level, we basically want to optimize the membership so that we are making sure the customer experience in no shape or form deteriorates. As we do that, we are basically getting a higher realization of the membership, higher use and we are allowing basically fewer memberships in the club. When the visits are -- when the visits to the club are basically at the saturation level -- and the members you have are paying more, right, then you are using the club more. That makes it -- that you can have maybe a fewer less members for that optimal deal.

Therefore, the only way you can do that is really raise the membership prices. And we are doing that really to protect the customer experience. It's just where we need to do it. It's not across the whole system, it's club-by-club strategy, and we are raising market-by-market, club-by-club, and as we take those rack rates up, then it basically increases the amount of dollars, this is between the legacy customer and that. And as we raise the legacy customer prices, that reduces it. But I think right now, it's still relatively in that 17 million to 20 million.

Yes, it's 19.5 million exactly.

And that hasn't really changed, because the last few years, as we have kind of done both, we've been raising the rack rates. At the same time, we've been getting some of the members getting some legacy price increases. So that number has kind of stayed between that 17 million and 20 million per month.

Our next questions come from the line of John Heinbockel with Guggenheim Partners.

Bahram, I want to get your thoughts on two topics. One, onetime initiatives right? Because I think you've only got those in a handful of clubs. Do you think the experience merits that? And if so, and how broad could you apply that?

And then secondly, DPT has grown, the sessions have grown 18% the last 2 years. How sustainable is that? Because I think the penetration rate is still very low. So is that -- the -- can the penetration improve? Can you keep growing DPT almost 20%?

Yes I want to give credit to our team across the corporate who leads that category as well as our folks in the clubs. We have a very, very robust plan for DPT this year as well, their plans that they presented to us is very, very robust.

Yes, we expect DPT to continue to grow. And in some clubs, the revenues are, by far, the biggest revenues and margins we have ever seen in the history of the company. And in some other markets, we still have the opportunity to add team members at leaders into those facilities, to kind of get those going. But we are super, super happy with where it's at and with its potential and the game plan that we have on hand for continuing to improve the Personal Training Program throughout the year.

Okay. And maybe just as a quick follow-up for either you or Erik. When you think about the openings in '27, what does the composition look like in terms of the ground ups? It looks like that's going to be pretty heavy. And when you look at that -- the CapEx budget, fall in or growth, either one. Is this an elevated year? Or are we going to be -- as we roll forward kind of at a new higher level but we're also going to have $300 million, $400 million of sale leasebacks a year.

All right. It's a great question. We have a significant number of ground-ups in 2026 and 2027. So those are basically -- we are investing substantial amount of CapEx that is sort of '27 and beyond clubs. And so -- but then I am super comfortable with that because our -- as always, our ground-up clubs perform, I mean, so predictably above expectation that they ramp fast, and they are ready to go to the sale leaseback market, allowing us to kind of pair the new clubs with the older clubs that they have too much that the carried book value is really low. So the tax value is low so we can adjust those and not pay taxes on the gain and loss -- can try to even it out. So it allows a significant opportunity for having more sale leasebacks. So those are all great.

Now when you look into '28 and beyond, we are working on a host of -- the real estate team is working on a host of super exciting facilities, but they -- a lot of those sort of really big facilities for the markets, the urban markets they're going into that basically are landlord basic -- paying the bulk of the way and we are putting some leasehold improvement in there. But it really works itself out because we are now dramatically increasing the amount of owned assets in terms of dollars, which we can take those two sale-leaseback and/or we're doing big beautiful clubs in high-rise buildings or sort of the urban markets that they come in a lease form to begin with. So I don't believe we will have any issue generating enough cash to pay for things, take it to sell leaseback, recycle that, and then we're also having the extra capital available for share buyback as well.

Our next questions come from the line of Kate McShane with Goldman Sachs.

We wanted to focus on the expense side a little bit. You've done a really great job in managing both the inflation, I think we've seen across labor, but also with other expenses such as health care costs, which we're seeing other companies struggle with a little bit here over the last couple of quarters. Could you maybe talk a little bit about your expectations for '26 when it comes to these couple of line items and how you continue to manage it?

I'll take it and then Erik will add on to this. We are fully aware of the headwinds that it comes from payroll increases and supply increases. And we have had those completely in mind and in our plan in a very comfortable fashion in the numbers that we put forward for the guidance of this year. I'm going to turn it over to Erik, but we are continuing to work on managing those best way we can. Yet, I want to be totally in terms of like repeating myself, customer experience member experience has been the #1 driver of building a brand that is completely and entirely loved by people who have been -- I run into people who have been a member, they moved, and all they say how they miss their Life Time, they missed their Life Time. They want to go somewhere near the Life Time. So -- we don't want that to change. So we're focused on delivering that quality, but we have talked through these challenges. I want to turn over to Erik.

Yes, absolutely. On the labor side, I think we've done a nice job. We've talked about the increases we've seen 2.5% to 3%, pretty consistent with what others are seeing. I think like everybody else, we've seen supplies and some of those expenses, we see some of those increase, but I think we've also done a nice job of working with our suppliers to mitigate and offset a lot of that. So that's off to our procurement team. And then on the health care cost side, we've done some nice things around managing that risk through our captive. And generally speaking, we've got a pretty healthy employee base. And so as we look as our health care costs, they've been actually very -- we've managed those very well. So all to say, we're seeing some of those same pressures, but we've done, I think, a nice job of mitigating.

And again, it's in the numbers. Look, we have anticipated this increase is coming. So when we're establishing the budget right? We basically put all of those at a level that we feel comfortable we can deliver.

Our next questions come from the line of Eric Des Lauriers with Craig Hallum.

Congrats on another strong quarter here. Wondering first, if you could expand on your comments around optimizing membership mix. Just curious what levers you have to pull and how we should think about the potential impact in '26 versus some of the out years here?

Yes. I mean some opportunities we have operating, we kind of talked about it in the beginning in our comments, just the club is being busy, and the traffic. So it's an opportunity for us to continue to manage the member experience, right? So just optimizing -- especially in clubs where we have very, very high traffic. We've talked about discounted memberships and continuing to optimize there. So a lot of our clubs we continue to have the ability to do that. And so we're going to continue to run that play through 2026.

And as you -- our expectation is the number of members on the sort of the discounted third-party pay will decrease as we will have a more direct membership activity. And we feel that, that's the best way to manage the experience and make sure that we get more revenue and more EBITDA out of the clubs at the same time. So the three things that we juggle with is member experience. improving our revenue, improving our EBITDA, and we have a clear path on how we can continue to do that.

All right. That's very helpful. And then a clarifying question for me. So you mentioned new clubs have been ramping more quickly contributing to profitability more quickly. You also have a greater number of large format centers opening up in '26. Should we think about this sort of faster ramp as applying to large format centers as well. Is there anything to kind of call out with respect to the ramp with the large mix of large-format centers here?

Look, the message there should be taken like this. Every club we're opening right now, we're seeing incredible success with those clubs. That gives us the sort of a super confidence to continue to expand on our development plan. So that's fantastic. As far as the to caution that I would give you guys on last year, I remember having this conversation and I told you guys don't go beyond 25% EBITDA margin because we want to invest we want to continue to invest in the member experience and upholding our membership experience as well as the brand that has been the major, major part of the company's success.

I have no [indiscernible] about our just guiding you guys again that the EBITDA margin we're giving you is is phenomenal, in my opinion, it is not to be taken lightly at these levels. And we want to make sure people don't get ahead of themselves in terms of keep wanting to push that number and then expecting us to deliver more. We have zero desire to disappoint you guys or The Street or anybody else. So our goal is to make sure we -- but we also don't want to disappoint our member at the expense of a shareholder or a shareholder at expense of the members. So that's a balancing act that we have to do and we are on it every day. But the clubs are ramping faster, they just get to that saturation point sooner. That's all there is to it. But everything is performing extremely well.

Our next questions come from the line of Molly Baum with Morgan Stanley.

I guess, I have one near-term question and one longer-term question. So for the first one, the near-term question, can you speak to maybe trends you saw in January and maybe year-to-date from like a new member churn, a member engagement perspective, did you see any impact from weather or any nuances that you'd call out from member behavior so far this year?

You are so clever, but I am more clever than you. I told you guys don't ask the middle of the quarter questions. That's just inappropriate for us to answer. All things are going really good. It's no problem.

All right. So then maybe shifting to the longer-term question. I know last quarter, you had talked about expectations to see, I think, up to 3 million digital members to start 2026. So I guess my question there is, are you seeing opportunities to increase conversion of those members into full paying members or any other monetization opportunities from retail, Life Time Nutrition. Can you just comment on maybe the digital and retail landscape and what opportunities you see there in them?

That's -- that's a great question. That number is roughly about 3.3 million subscribers now. So it's continually growing. We have adjusted our strategy on the LT Digital. And the focus is significantly more on using [indiscernible] to enhance the actual member experience, kind of dues-paying member, the subscribers will now get access to the same pretty much app, less reduced than the past for -- that you get similar experiences as the regular member gets, would effect they just can't get into the clubs with it. But this allows them when they want to come as a guest or something, they can see the schedule, and then it makes it easier for us, just like you asked to take that membership one step closer for them to deciding to sign up. And yes, we are seeing improvements in that strategy.

Our next question is come from the line of John Baumgartner with Mizuho Securities.

Maybe first off, I wanted to ask about programming opportunities and in-center revenue. I think over the past 12, 24 months, we've really seen consumer spending very resilient for kids and children. And based on the industry data that we've seen club memberships for children or I guess minors, they're also among the highest price that are out there. So I'm curious, aside from the swim programs, how underutilized do you think your model is for monetizing kids' programs? Whether it's sports-specific training, intra-weight lifting, what's the opportunity to ramp that contribution as you plan your next phase of investment?

Yes. Look, I think having been involved in doing this for as long as we have, we have obviously tried and tested all types of things. And we continually see opportunity to engage parents and kids into more programs. And that business has been a nice growth opportunity for us and a great engagement great retention sort of the program in the business.

As far as the expanding into additional services, we've tried -- and there are pros and cons with those a lot of times. This is basically a challenge of what space you use at what time. And do you they have other programs? So we are -- we are doing that fine tuning what we can do to maximize the space that we have being used for a variety of different things as much as possible. So it's not the only category that we can grow the in-center. We have opportunities to grow in centers on all fronts from a spa to cafe to training, et cetera, and we're doing all of that. And including kids, we're always looking to see how we can but they're more involved, more engaged and give them real value in what they perceive, is it what they're getting.

And just a follow-up on the EBITDA margin. The approach there is very clear, under promise, over deliver. And I'm not so much curious about how high margins can go. But if we think about the Investor Day in 2024, the algo was more of a kind of a low to mid-20% margin. It's migrated up the last couple of years. I guess I'm more curious, relative to plan, what's sort of broken positively for you? Is it more modest incremental expenses? Is it upside for mix or larger utilization of the in-center offerings? Just trying to get more of a sense of your confidence in the margin floor and its sustainability there?

So you're correct. We suggested 23.5% to 24.5% if my memory is correct on the Investor Day. And then I told you guys don't go beyond 25%, and we have outperformed the clubs matured faster. So remember, at the time, we had a lot of our clubs in a re-ramp stage, similar to ramping. Today, majority of the clubs are fully, fully re-ramped. I don't -- I mean, in aggregate, I'd say, consider it fully re-ramped. So now we have new clubs opening -- and those new clubs have to ramp. They're ramping nicely. They're ramping better than our expectation. But all in all, I think there is a limit to how much you want to push the margin.

Now it may -- and here's what I want to say. It may be a quarter we give you more than 27.5%. I just don't want that to become the standard of the model because I do not want to have the pressure on this company to do things that will damage the company on a long term. So we want to guide you guys conservatively. And we want to make sure we guide to something we don't disappoint. But I think 27.5% EBITDA margin is an incredible margin, and I would build as many clubs as I possibly could old when I have a model that produces that. So do I want to take risk of damaging our experience with the customer. The answer is no.

Our next questions come from the line of Owen Rickert with Northland Capital Markets.

Congrats on another great quarter and year. Can you update us maybe on how -- what you're thinking about how MIORA is performing? How many clubs are you currently operating in, member adoption, visits. Anything you could update with us there and maybe the ramp throughout '26 and '27?

Yes. I was going to say, yes, MIORA, last year, we had 2 locations opened. We've got now 7 or 8 locations open. And so again, for us, just rolling those out this year, we wanted to make sure that we had really kind of nailed that operating model. And -- so we've opened those new locations in great markets. We're super excited about them, and they are ramping at our expectations.

Yes. We are -- some -- and to be fair on that, we've had obviously some challenges with some of those openings with some nick-nack things left over on construction or permits or something like that. But the ones that they have opened fully with no hiccups as such, they are ramping faster than our original models, and the rest of them will catch up. As we are designing spaces for the future clubs, we are always kind of planning the place we're going to execute Mira in, which basically is at the queue that this is the one program that we have tested, and I believe it's going to work extremely well and it's expected to be in every single market, not necessarily every single club but accessible to every single customer within a club that they're in or a club or something else to close enough to them. It is a very, very well-performing versus the plan business that we're rolling out. I'm confident it's here to stay as long as it's done correctly, and we're working on all aspects of that.

Awesome. And then maybe secondly for me, how is LT Health performing the supplement business across both in club and digital channels? And maybe what should we be monitoring there for 2026?

Yes. For 2026, I think the growth strategy is in clubs, mostly. We are rolling out a more robust plan on how to make sure our club members have better visibility to the LTH than the superiority of the quality of that product versus other products being marketed and sold and then use that as a platform to take it outside of the lifetime walls in 2007 and beyond. So right now, it's working extremely well against the strategy we are currently driving -- as far as the digital space, it's mediocre. It's social.

It's not -- it requires more education for people, more direct education, understanding why LTH products are more superior because once again, we're not cutting any corners on what needs to be put together, the testing everything that needs to go into a product you can trust and actually works. And so it takes a little more work in terms of educating the customer and that's why done through our professionals in the club, the PTs and the group fitness people, cafe folks, it's -- we're getting great success out of growing that very nicely year-on-year.

Our next question comes from the line of Logan Reich with RBC Capital Markets.

I just had to -- the first one is on the rack rate versus the average member dues. I know you guys are talking about that. Delta has been relatively consistent. Just strategically in longer term, is there a level for that delta you have in mind that the business should run at? Or should that delta converge over time? And then second question is just on the '26 guidance on the same-store sales. Can you just help us think about how the composition of member growth versus pricing versus consenter growth contemplates into the guidance?

All right. Let's start with your -- the latter part of your question. We want to go with the rack rate. Look, for right now, we are basically analyzing on a club-by-club basis, where we need to set the price in that club and then consequently in that market in order to maximize the experience and make sure the brand stays in the exact position, which is a top brand in the market. When we are doing that sometimes you just basically almost are forced to take the price of $10, $20, whatever you have to. And that's what we exercise we're going through. When does that end?

I don't know. It's not ending right now. We're still reaching those type of [indiscernible] where we have to raise that rate when we raise that rate, we'll get the gap, and then we like i said, when we do the legacy price increase, then that gap gets closer. My expectation is sometime in the future, that number will shrink should shrink because it's not our expectation that the rack rates will continue to go up at the level they have been going. But right now, we're not seeing any immediate change in those numbers. On the second question, I'm going to turn it over to Erik, and then I'll add on to it.

Yes. I mean you kind of touched on it in terms of the delta and what that ultimately when it closes. It's really a tough question to answer because it's really dependent on the pace you you increase your rack rate. But you have to remember, part of -- when we lump things or call things pricing, part of it is when a member turns out at a lower rate, you're getting the benefit of that arbitrage. So it's not like necessarily a direct pricing increase, if you will.

So when you think about that, you have to kind of break it up into those two pieces. Legacy will continue to be part of our pricing strategy as we go forward. it's just hard to definitively say when that gap closes. I don't see a world where it's ever closed. I mean, that's part of the kind of the retention play, having members pay under the rack rate. And so that will continue. Does that help?

Very helpful. And then just on the '26, just how to think about composition of comp between member growth, pricing, however, how you guys define it and then in center growth?

So revenue per membership is going to increase. That's part of that growth. The membership count, we've guided to roughly...

Membership growth, we haven't given a membership guide, but we will see growth that exceeds 2025. Again, we're not guiding directly to it.

But we're going to see an increase in that number from '25, and then the rest of it will become part of the in-center growth, the increase in revenue per member broken into us as well as in centers. So again, we are continually focusing on optimizing the revenue and EBITDA of the club, which comes through optimizing the membership experience.

Our next questions come from the line of Chris Woronka with Deutsche Bank.

Congratulations on the year. Just one question for me today. Bahram, there's been a lot of focus I think, in the industry around you guys have a higher-end consumer, hiring product service offering. There's been some issues at the lower end. So my question is, do you think about potentially leaning into even the higher end of the market, and we've heard that high-end consumers are still looking to spend their money. So is there any thought or any plans for kind of any kind of white glove type service. And I don't know if that -- what that might include in terms of transportation or special things. Is there any thoughts to try to tap into even the highest end of your customer? .

Absolutely, yes. We have been working on bundling more programming, yet just sort of more to come on that. But yes, we have been seeing that there is a certain number of member ships that they are wanting to spend more at a more, to your point, white club service, more bundled approach easier for them to transact. That's correct.

[Operator Instructions] Ladies and gentlemen, thank you. This does now conclude our question-and-answer session. And with that, I would like to turn the call back over to Connor Wienberg for closing comments.

Yes. Thank you, everyone. Thank you, operator, for joining us this morning. We look forward to speaking with you again next quarter.

Thank you for your participation. This does conclude today's teleconference. Please disconnect your lines at this time, and enjoy the rest of your day.

Greetings. Welcome to the Life Time Group Holdings Inc. Third Quarter 2025 Earnings Conference Call.

[Operator Instructions] Please note, this conference is being recorded. At this time, I'll turn the conference over to Connor Wienberg, Vice President of Capital Markets and Investor Relations. Thank you, Connor. You may now begin your presentation.

Good morning, and thank you for joining us for the third quarter 2025 Lifetime 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 will turn the call over to Erik.

Thank you, Connor, and good morning, everyone. Starting with our third quarter results. Total revenue increased 12.9% to $783 million. Average monthly dues grew 10.0% year-over-year to $218. Comparable center revenue grew 10.6%. We are proud of the sustained growth in our comparable center revenue, driven by continued strong performance in both dues and our in-center businesses. Particularly in our dynamic personal training. As a result, we have raised our full year comparable center revenue guidance to be between 10.8% and 11.0%. We ended the quarter with nearly 841,000 center memberships, including on-hold memberships, total memberships reached approximately 891,000 in line with our expectations. Net income for the quarter was $102 million, an increase of 147% and includes an approximately $5.7 million tax-effected gain on sale leasebacks. This compares to a $3.5 million tax affected loss in the prior year quarter.

This quarter's net income also benefited from $16.2 million in tax-adjusted proceeds from employee retention credits received under the CARES Act. Adjusted net income, which excludes the impacts of gain and losses on sale leasebacks, share-based compensation, ERC credits and other nonrecurring items was $93 million, up 65.2% year-over-year. Adjusted EBITDA was $220 million, an increase of 22% and our adjusted EBITDA margin improved by 210 basis points to 28.1%. Net cash provided by operating activities rose approximately 66% to $251 million compared to the prior year quarter. Our consistently strong cash flow from operating activities remains a key driver of our long-term growth strategy.

Free cash flow was $63 million for the third quarter. In Q3, we closed on the sale-leaseback of one property, generating net proceeds of approximately $34 million. We expect to complete between $55 million and $65 million of additional sale-leaseback transactions before the end of this year. We delivered another strong quarter and remain encouraged by our continued momentum as we approach the close of a successful year. We look forward to giving everyone a preview of our full year 2025 performance in our initial thoughts on 2026 in the second half of January.

With that, I will now pass the call over to Bahram. Bahram?

Thank you, Erik. We are pleased with another quarter of strong performance and growth. Thank you, as always, to our 43,000 team members. The core of our success has been our team members and our consistent delivery of the best places, programs and performance to our members. Our growth strategy is clear: first, accelerating new club growth; second, continued our maniacal focus on member experiences growing member engagement and revenue per center membership. With the balance sheet strong and our net leverage ratio below 2x we remain well positioned for our accelerated development and construction of new clubs. We expect to deliver 12 to 14 new clubs in 2026 and beyond. This is our new baseline of new club growth. We're particularly excited for the next year's new club openings. 11 of the 2026 clubs are a large format. 13 clubs scheduled to open in 2026 are currently under construction, which provides great visibility for these openings.

For more details on these locations, you can refer to the earnings supplement posted to our website this morning. As it relates to the second part of our strategy, which is growing membership engagement and revenue per center membership, Membership optimization is increasingly important as clubs are busier than ever. As highlighted in our earnings supplement, this includes one, improving the mix with more couples and families and 2 limiting qualified memberships in certain clubs. Our strategy is working, as evidenced by average monthly visit, per membership reached 12.5% for the quarter, up 5.9% year-over-year.

Total visits are up 7% year-over-year for the quarter, revenue per center membership is up 11.3% year-over-year for the quarter, and in-center business revenue was up 14.4% year-over-year for the quarter with the particularly strong growth in dynamic personal training. Our strong performance and increase to our year-end revenue, net income and adjusted EBITDA guidance are direct results of our focused strategy on growing revenue and adjusted EBITDA by delivering the best programs and experiences in every club and optimizing memberships.

Given the high club utilization, we expect to further manage our membership mix to continue to increasing revenue per center membership and anticipate an additional seasonal decline in membership units in the fourth quarter.

Finally, a couple of updates on our growth accelerators. We now have 2.75 million non-club members, LT Digital accounts and expect to cross 3 million by early 2026. More importantly, we are very excited to release new features and capabilities offered by Lacy, our AI health companion for both our club members and our nonmember digital subscribers by end of this year. Our trusted nutritional brand, LTH continues to grow year-over-year, and we are expanding our product lines. And we expect to add 4 to 5 new [ mural ] locations in various clubs by early 2026 as we continue to see progress in our first 2 locations.

With that, we will now open the call for questions.

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

Bahram, I want to start with the in-center revenue opportunity, where do you think -- because the spend is still a small part of what your customer's wallet is -- where do you see the biggest opportunities? And you think about DPT penetration, how much upside is there to that from where it is today?

John, our personal training program is absolutely doing an amazing job under the positioning, branding, DPT, the particular execution of the team all the way from the corporate office under the leadership of Ryan and then everybody who works with him as well as the focus in the clubs from our RVPs and our lead generals, all the way to the PTLs. We are executing a detailed plan and the results are incredible. There are many clubs that are setting new records, month after month. And then there are other clubs that they're basically following -- seeing what's possible and executing. So I think that possibility is right there, and we are very, very, very pleased with what they're doing and my hats off to all of them, but there's still opportunity there.

We -- as we have mentioned on the other in centers, there are our cafes and our spas and both of them showing some strength in the execution of the certain strategies, but look, when we rolled out dynamic personal training, dynamic stretch and all the different new concepts and ideas, they've actually took roughly about 6 to 12 months before you start seeing the momentum change. And so we expect to see this momentum change early next year on the capes and spas. So I feel like we have plenty of room there. And then as I mentioned in my remarks, we've been working diligently on MIORA and LCH, both of which are -- have been in the early stage testing, development introducing new products, same people, how people like it. And then we're going to really put pressure on growth and marketing of those in 2026 and beyond.

So we feel really, really good. about all aspects of the business, John.

And then as a follow-up, right, now that you're starting to get really good momentum in the club openings. How do you think about prioritizing beyond '26 different channels, ground up, club takeover, et cetera. And what -- do you have sort of a number in mind that you -- in the intermediate term, you would prefer not to exceed in terms of maintaining a healthy level of execution?

Yes, so I think the -- as we stated this morning and earlier, the new baseline is 12 to 14 clubs for right now. The pipeline is super strong. The real estate team is again doing an amazing job. And I am super, super excited about what we have on the pipeline. And the management of those, what we -- you've asked and we are providing supplement material for you online, so you can see a little more visibility to club openings where they're coming from. We we will have a variety of facilities. Our urban clubs are doing incredibly well. Everything we have opened up in Brooklyn, in New York and -- they're all doing really well, and our suburban clubs are doing better than ever.

These clubs are ramping faster and clean memberships which matches the way we like the company being positioned from the get-go. So I don't have any -- we have really -- we have balance sheet restraints, last year through the first half of this year because we just really wanted to make sure we deliver the BB credit standards, we've delivered that. The target, as I've always mentioned, for the debt-to-EBITDA is under 2x. And we have now a significant opportunity to grow the business we can do a bunch of round ups and take them to the sale-leaseback market at the right time. So we have all kinds of flexibility on growing the business, and I'm super excited about that.

The next question is from the line of Arpine Kocharyan with UBS.

[indiscernible] comparable center revenue guide and what that implies for Q4 is actually nicely ahead of expectations. But there is this near-term debate among investors about sort of average number per center growth and how that ties to your revenue, same-store growth trajectory, Essentially, we're going back to the question of price and ability to take price as investors are increasingly more worried about macro. Is there any way you could give an update on your current thinking on how you maximize revenue without meaning too much on percent or membership, which I think you're sort of trying to control more? And then I have a quick follow-up.

Right. Let me take a little bit of that and give it back to Erik, so both of us speak to that. The focus of the company has been brand and member experience, deliver a brand that is unmatched deliver a brand that the customer wants it and wants to be a part of it and does not want to get away from it. When we went, [ public ] second time, our materials suggested repeatedly, we're focused on memberships from 90 days old to 90 years old and basically trying to provide incredible programming for all of these people. When we came right at COVID, clubs were at about 40%, all clubs of 40%, 50%, 45% of the membership capacity of the clubs.

So we basically took in through all the programs, all the different types of memberships that we bring in to [ brave ] enough traffic in the club, enough swipes in the club to make sure you run the programs. As the clubs have reached this optimum level of utilization. So many of the clubs are operating at very, very parking lots are full. Clubs are busy. So now -- in all of these clubs, the opportunity is in membership optimization, which basically means you manage to get more revenue per membership. Sometimes that means you focus on getting full-blown members, family memberships, which very, very high average dues and you select to restrict the number of memberships you get from third-party kind of a discounted programs.

So we are constantly going to manage the total experience of the customer. We're constantly going to manage the brand, we're constantly going to manage the growth of revenue and EBITDA. And that is really what the company is focused on it's a little less focused for center membership units, because that is going to fluctuate with depending on club-by-club based on the position that club is at.

Yes. And just to add to that, Bahram talked about mix and he talked about engagement. If you see in the supplement that we provided, you can see there is that shift happening where we're getting more couples and families. And so that with the increased utilization is requiring fewer memberships for those clubs to reach the desired utilization. In fact, if you look forward to next year's pipeline and the year after, those clubs are actually getting business planned with units somewhere in the range of 3,500 to 4,000. And so again, it's just a testament to the utilization and that improving mix requiring that smaller base.

Yes. Many of the new locations are basically positioned in a way that they're ramping so fast with just the full price paying type of memberships that we basically do not open it up for restricted membership -- restricted memberships or qualified memberships or third party paid membership. So that the really -- what I want to tell you guys, we are going to continue to emphasize revenue growth and EBITDA growth in every single club.

Yes. And one last comment on that. As we hit those targets, we're still papering those things to do plus 30% cash-on-cash return. So the unit economics are still extremely attractive and in some markets, can be better. So I just wanted to call out that that's all part of our growth algorithm. .

That is very, very helpful. Just a quick follow-up. You mentioned all centers you're targeting to open next year are mostly under construction currently, whether you're at the lower end versus the high end of that range, what is that a function? Is it just sort of construction time lines making it to next year or kind of more tied to sale-leaseback cadence that you're looking at for next year?

Yes. We're pretty comfortable that 13 of the 14 are for sure. And one club may end up a month earlier or a month later. And we're just making sure that what we're telling you is accurate. But the goal has been 12 to 14 clubs and I guess I mentioned, 13 of them are pretty firmly in the pipeline there is going to take some monumental event for them not to come out during the year.

Next question is from the line of Brian Nagel with Oppenheimer Company.

Great quarter. Congratulations. For my first question, a just stepping back, obviously, we're seeing the numbers say and your commentary is extraordinarily positive. But just given all the -- given the concerns out there with amongst investors about consumer dislocations. So the question I want to ask is you look at your business, are you seeing anything, anything geographically income cohort that would suggest some type of weakness or growing weakness in your consumer base?

Look, as you can appreciate, what I am proud of with our team. And again, this is really all about our team from the very, very top-level executive team, all the way to the people who run the clubs, is just an incredible passionate commitment to delivering a place that people want to go to and enjoy. As we look at the company's history over 35 years, we have opened clubs in a variety of markets. And right now, we are largely opening in a more affluent markets. When the memberships were $39, $49, $59 a month, there were markets that was well suited for that. And and they're not really well suited for $290 to $350 memberships. So the interesting thing, Brian, is that all the clubs are making money. All of our mature clubs collectively are making more money than they were making in the past.

So all the execution that we have put in place is working. The consumer that goes to lifetime chooses a lifetime because of all of its differentiation, and that exists in Omaha in Algonquin, in Chicago suburb. It does also in New York and in Florida and in California. So -- but do we manage all of these the same. We have the same strategy to be the best provider, but they take different type of programming and techniques to try to continue to manage each and every one of those locations. And so we are not seeing any new trends. We're not seeing anything different than the past in terms of how the customer is responding to what we are delivering right now.

We keep thinking that, that might change, and we keep hedging and embracing what if times get tougher, so we have strategies laid out, but we're not seeing anything at this point. Erik?

Yes. No, I would reiterate that. I mean we've talked about DPT, new business revenue in September was the highest for that quarter. Same thing in our spas, revenue per technician was up, and our group classes on average were up 7.6%. So by all indications, we're seeing exactly what Bahram was talking about.

That's very helpful. I appreciate all the detail on that. My second question, just with respect to capital allocation. So it's great to see now you were ramping new center growth. You talked about the 12 to 14 for '26 and most of those now under construction sets. So the question I have is, to what extent especially with at least some ideas, the stock underperforming languishing relative to some very strong fundamentals. To what extent are you thinking about potential using capital potentially to buy back stock here?

Yes. So I'm going to respond to that. We -- #1 objective here is to remain extremely strong on the balance sheet. So the company has all kinds of options in any kind of environment, okay? Environment gets tough, we want to be in a win position. Environment gets stronger. We want to be in the wind position. And based on where we are today, we are still adding even if we do $350 million, $400 million of sale leaseback next year. We're still adding net asset value. We're still building more new assets, new club development, more money spent than that, then we are taking to sell leaseback.

So basically, the company continues to get stronger. So at some point, this is a Board discussion to decide should we be buying some stock back. That's definitely on the table for discussion at the Board level. No decision has been made at this moment. But all options are on the table. The company is super strong. And that's exactly where we like it. We like to have this opportunity to basically go one way or the other if we need to. The main focus right now is to step on growth and make sure we have the ability to keep delivering these clubs. As I mentioned, 11 of these 14 clubs are ground ups. So they're taking a substantial amount of capital to build them. We're going to continue to invest in our programming and remodernizing the clubs to make sure all clubs are adapted to all things people are looking for in total health and wellness today.

So we just like the flexibility, but every option is on the table.

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

Thanks for the question. First off, Bahram, I'd like to ask about relative value. As you see it, because fitness industry does are moving higher across multiple concepts for the first time in years. And I'd imagine that some of these concepts, the boutiques, the studios, their prices are increasing, but the offerings aren't really evolving much to match that. So I'm curious, are you seeing anecdotally anything that's pushing some folks are stimulating more interest from folks to trade up or into lifetime because that value gap. I realize the number of members isn't necessarily your main KPI focused. But have you seen tipping points historically in that relative value versus other concepts where you capture more market share that sort of high-quality engaged consumer that you prioritize?

Yes. We're totally seeing that happening in our clubs. I mean when you look at our urban markets where there are many studios offerings, we're really not seeing any impact. Nobody is leaving a lifetime to go to studios. But on the reverse, we do see the reverse of that taking place. So the -- overall, despite the transitioning the company to the super high end, which was part of our multifaceted strategy after COVID to completely reposition the company to the highest level and the best programs being delivered under one growth, everything is working. Really, the clubs are -- as evidenced by the utilization of the clubs, the clubs are having more utilization that they've had ever before with significantly, and I mean sometimes literally 50% of membership count of what they used to be at 2019.

And so the utilization is the higher. The customers are using the club a lot more. They're seeing the value in the business. They appreciate the brand, and they see the differentiation, so the strategy is working. Lifetime is working.

Yes. You mentioned relative value. I mean if you look at the relative value for -- we're seeing more couples and families, and you look at our pricing model. There's still significant value proposition there when you think of all the amenities that come with a membership. And when you compare that to a studio or what have you, all you need to -- 1 or 2 studios, it's not long before that's going to be in excess of what a couple of membership would be. So, the value proposition is still very, very strong, and that's what we're seeing.

Great. And then my follow-up, back to LTH Nutrition, I think the strategy there is for more of a phased rollout. But I'm curious, Bahram, your perspective fall in the consumer reports investigation into the contaminants and supplements, especially the protein powders, does that lead you to revisit how you build this business? I mean is there an opportunity to lean a bit harder, especially with non-lifetime households to leverage your third-party purity testing and kind of grow or market this business a bit more aggressively or differently?

It's a brilliant question, and that's exactly the strategy for 2026. So here is what we have been doing. We needed to -- we did not own lifetime nutritional brand some company had this before we established the name lifetime until last year. So if you look at our materials, you see, we actually were -- had the opportunity to buy that brand and that creates the opportunity to make sure that the LTH and lifetime brand can basically be synonymous, which we haven't been able to execute in the past. So that was one strategic move. The second piece is to basically take our product offering and make them look more unified because a lot of the work we did with Lifetime started by looking at the nutritional space and seeing how the lack of regulation in nutritional space has created so many products that actually do not have the proper manufacturing, the proper third-party testing, which is expensive.

So people just don't do it. And basically, they have either not the stuff that they claim they have in their product or they have contamination. So our strategy in the company is -- has been, will remain forever for 30 years after I'm gone, the strategy will remain to be the best to if we're not the best, don't do it. If we're not the best provider, don't do it. So we basically put a a significant amount of energy in making sure every product is formulated correctly. We test them -- look, there are -- as an example, when you think about protein powders, the -- there are certain vegetables you eat that they own heavy metal. So basically that heavy metals are going to come in through different foods that you eat. Now the key is to make sure you have incredibly safe minimal amount of that, if there is any in them. And we basically have some of the absolute best cleaners that we test them. So to your point, what we needed to do is we need to kind of get everything lined up, make sure the packaging becomes more consistent. That's all underway. Throughout the end of this year, early next year and test the success of the product. I mean, our nutritional products like our dream for sleep, I can tell you personally, it is absolute home run.

We launched it. It immediately is doing great. And so there is some level of methodical development and testing and we're feeling out what products are working, repackaging. And then the strategy for 2026, as I mentioned before, is to completely and entirely press on and maybe [indiscernible] spend some -- we're not spending a lot of money on marketing as you guys have known, known. And then maybe it's time to start spending some dollars on marketing. But we're probably 3, 4, 5 months premature to basically getting there. Right now, we're seeing all the growth, within our facilities, our team members and members are recognizing the superiority of these products, the trust that they can have for the brand, and we want to make sure we test and examine that, use lifetime as a beta before we go to the outside world.

Our next question is from the line of Kate McShane with Goldman Sachs.

These questions kind of verge a little bit into 2026. So I'm not sure how much you can answer at this point that given that you're not giving guidance, but we wondered of the 13 clubs that you have under construction, we know there's a nice list of them in the presentation today. We just wondered what the breakdown was between new and existing markets. And if there was a little bit more in the new markets, what does it mean for marketing spend into 2026. And then just our other question unrelated was just about expenses in general, what you're maybe seeing or expecting on the labor side of things as you go into '26 in newer markets?

It's a great -- those are great questions. Let me take the first one for you, Kate. When we build the ground-ups, in any market, new or old, it makes no difference. They work exactly the same. The -- if you think about lifetimes, how long it's been in existence and 30-some years and the amount of loyal customers who love lifetime. But let's say they move to San Diego, and now we have nothing in San Diego. When we open clubs in new markets, they are just as robust as opening other club in Dallas. So I don't see right now any sort of difference. We haven't seen. We're seeing great success in similar success in new markets as well as the established markets. And then as far as the expectation of wage growth, look, I believe that as the cost of living increases, wage growth is absolutely a given.

So we basically model all of those things into our -- while we're not going to give inter-quarter guidance or 2026 guidance, the team is very, very incredibly thoughtful led by Erik and rest of his financial team, our President of Club Operation, P.J. and all of our analysts we are working diligently on thinking about what are those items that can cost more, what are the things we can do to mitigate if there is opportunities to hedge on the energy or this or that. So the team is doing an amazing job credit goes to all of our team, like our insurance -- health care insurance is managed amazingly by our team. None of that credit 0 goes to me. Everything is going to the team is doing a maniacally great job on all aspects of the business.

But -- it's given. I mean as you see cost of chicken going up, as you see all the different inflationary cost to the consumer, I think you -- the customer who -- the team member who works in the club also needs to have a pay increase in order to get through the life. And that's all planned for.

Yes. And I would just add to that, to your point, we'll give 2026 outlook here at the end of January. But -- as far as labor expenses in our centers, those have been trending roughly around at the level of CPI 2.5%, 3%, and we wouldn't expect that to be any different, Bahram mentioned utilities, of course, utilities with energy demand, there's always going to be a potential for increase there. But we do a number of things to hedge and rate lock in a lot of our markets. So I would say we've managed exposure nicely there. And of course, R&M supplies COGS, those things will always be subject to regular inflation. But for the most part, I think we've done a nice job of managing a lot of those risks.

And I want to add a comment. Look, I talk to investors all the time. Our environment is dynamic, our world's dynamic. Things change, sometimes they change slowly. Sometimes they change rapidly and you need to constantly be ready for adaptation. And this team is doing an amazing job of thinking about adapting as necessary. And we're very, very, very proud of what the team has been executing over the last several years. With that, we'll just deal with the future as it comes.

Next question is come from the line of Eric Des Lauriers with Craig-Hallum.

Congrats on another very impressive quarter here. Wondering if you could expand a bit more on dynamic personal training, certainly been a driver of incentive growth for a few quarters now. Could you just expand a bit on what changes have been driving that growth? And then maybe even more importantly, what kind of -- I guess, how should we think about capacity in terms of continued growth in DPT. I mean do these personal trainers have a lot of capacity to add new clients? Are they pretty much booked throughout the day at this point? Just kind of help us understand a bit more how to think about the capacity for continued growth?

That's a really, really complicated question. The response is not going to be something you like. There are some trainers who are booked solid. They don't have other hours to sell. So their opportunity is to adjust their price up a little higher and charge a little more sometimes they do and sometimes because of their loyalty to their customer base they have, they don't. It's their call. The -- some trainers are new. They come in. We have a great opportunity right now with the lifetime brand, the DPT, the clubs to attract really, really, really solid people for that business. We have an incredibly robust program for them. The top performers get compensated extremely well taken care of really well, and we're continually adding to the number of productive trainers at a very good pace.

Some clubs are doing PT dynamic personal training revenues that are record-breaking month after month. And some clubs have opportunity to do significantly more than what they're doing based on their particular location and their membership base and their dues base. So it's managing and is not the simple answer for the whole company as a whole, it's club by club, location by location, trainer by trainer.

That's helpful. And it certainly sounds like there's room for this to continue to be a growth driver, though I appreciate that it certainly varies center by center. Next question for me. Just on the decision to expand new more locations. Can you just comment on what you're seeing from the few that you have opened now and just expand a bit more on that decision?

Yes. So the decision -- we kind of set the bar a year or 2 ago is about 10 to 12 club openings balancing that with some acquired clubs that had a great opportunity to kind of convert those. And all of that was to sort of balance 2 things at the same time. The club growth and the balance sheet to the safe, safe BB level credits, we were just kind of delivering on 2 objectives. We achieved our BB credit a year ahead of what would have been expected. And I'm proud of the team for executing that 100% and then as soon as we did that, the focus was come back, look at our pipeline and see what could be expedited and then take that into the equation. And that was the change. And now, as I mentioned to you, the balance sheet is strong. Our #1 priority is growth. We -- we have a significant amount of we told all the investors over and over in '23, '24, '25. We have significant opportunity to grow the -- all of the clubs reramping a lot of clubs because they had lost. And with a clear understanding at some point, the clubs will get to a high level organization and then you need to sort of get the -- your growth coming in from new center growth.

And so that is now part of the plan to grow the new center, as I mentioned, we have been working on our digital strategy as well. I know we didn't spend a lot of time on it, but I am super, super excited about the work our team is doing to deliver an amazing experience for AI to make the life of the member significantly easier with basically a pretty robust unveiling of the features that come in late December, January, February of this year, is what how we can do things so much easier for our customers in the club through AI as well as what AI can do for digital subscribers who are getting all of this for free.

And the reason they're doing that is because the reason we're doing that is to make sure the lifetime brand is reached to people who are within our club vicinities and the people who are outside of that. And then, of course, we hope to establish opportunities with a much easier way for people to share link on, hey, why you should take lifetimes protein powder versus others and then the people can just click and purchase that. So there's a lot of different works being done that basically is established to help the overall growth of Life Time as a healthy way of life, health and wellness, full service of all aspects of healthy living, healthy aging.

Additionally, our MIORA offering, which is the longevity we are -- we have been at a sort of R&D stage for the last year, that results have been exactly in line with what our expectation is -- is we need to establish the relationships, get the doctors, bring them into the facilities and then get the providers, which are the nurse practitioners or physician assistants. Get them fully trained and then take them through our approach of metabolic code and do that program. That program is going really well. It's right on schedule. We're expecting to open 4 to 5 additional locations in different markets. In the next 90 days and then roll those out and then it starts rolling that out much more aggressively by the end of '26 into many, many, many more markets. So we're going to continue to look for ways to adapt the business to what the customers are seeking, make the adaptations necessary to provide that, make the adjustments in positioning the company into the market. So it's the highest premium product in the market. And sort of address the customer who wants that quality, and they're not going to -- sacrifice the quality for anything. And that strategy has been working as evident to your -- our results, and we're going to continue to stay on that strategy until we see a need to come up with something different. Right now, we don't.

Our next question is from the line of Owen Rickert with Northland Securities.

First, where do lifetime living and lifetime work fit into your road map going forward? And maybe how should investors think about their contribution to growth over the next several years?

That's a great question. Life Time work, actually, from the separately unique locations, a specified lifetime work, they're working. They're working just as good as our clubs are working. They're not really a big factor in the overall number. However, the opportunity there remains asset-light when we can fit them in right next to the club, adjacent, we have similar success, wait list for them. They work great. The -- what's interesting about that is that we have kind of launched the Life Time Work Club Lounge, which is basically a more expanded opportunity within our existing clubs, just part of the membership and it's really interesting to see how well that works. And we continue to make adaptations in existing clubs that just helps the regular membership. Life Time living -- it is clearly a superior performance in terms of -- we have 6, 7 locations that basically have lifetime leaving every single one ramp faster every single one of those will have a higher rate per square foot and every single one demonstrate better retention and regular apartment business.

So it's truly a disruptive plan, it benefits from the [ 200 billion ] of lifetime impressions per year. And so we are working on either ways to provide the -- CapEx for that, that is more or less off Life Time's balance sheet and using the Life Time's balance sheet and cash flow for building our regular business, which has a massive IRR after sale lease back or sort of fully leveraged, as you guys know, it's a great IRR. The apartment business, even if we are 25% superior apartment business, which so many times, we demonstrate that, it's still extremely below the IRR of our club operations. Therefore, what we are working very, very diligently on is having a different vehicle that is basically does not use lifetimes money to build it.

Now we're talking with that, we're working with a lot of partners who are building the apartment business to name their apartment Life Time Living, and we just got the financing all in place and the location in Paradise Valley is under -- it's a very minimal investment from Life Time. Most of it is outside capital. But it right behind and attached to our Paradise value location, which will open ahead of the apartments. So it is definitely on a development plan part of Life Time to continue to grow the full campus of the Life Time Living, Life Time Work, Life Time Living Club. The capital structure, the cap stack of that is very, very different than the cap stack for just the club business.

Our next question is from the line of Molly Baum with Morgan Stanley.

I just wanted to ask 2 quick follow-ups on the new club openings for next year. So the first of which is I know you highlighted that you're going to be opening larger clubs next year. Are there any important considerations that we should keep in mind from a margin standpoint or maybe from a new club brand standpoint as we think about 2026 versus 2025?

Yes. I mean for those clubs, I mean, those are going to have margins that are going to be, I would say, relatively similar. We do expect those clubs with the larger square footage though, on a per average basis we'll be -- we'll have higher average revenue per club. So that would be one expectation to keep...

These are what you should look for. Higher average revenue lower membership count, as Erik mentioned, our new business model for the new clubs we don't need more than 3,500 to 4,000 memberships to achieve the best outcome, the best optimal returns. And then you should also expect that we are going to press you guys on not keep calling for more EBITDA margin. We are -- last year, we started at 25%. We told you not to model beyond that. You asked -- can you do better. We said we didn't say we can't do better. But now we've got to consider that as we get into the next year, opening 13 or 14 new clubs, there will be a there would be a negative margin from those at the early stage of the opening.

So we feel really, really good about where the business is at as strong as we've ever felt. I just want to make sure that we guide you guys correctly with all of that. But those clubs should do really, really well.

Yes. And you probably saw in the supplement the average size is about [ 95,000 ] or [ 94,000 ] for next year. So just -- so you guys can model that into your models because look at 2025, it was roughly [ 66,000 ]. So that's an important point as you're doing your model.

Got it. And then just quickly on my follow-up. When you think about the balance of using sale leasebacks for self-development for new club growth, how are you thinking about the implied interest rate on leases versus using that on the balance sheet? Is there an opportunity to improve your lease terms going forward? Or does it ever make sense for you to keep the stores on the balance sheet with your lower cost of debt?

Yes. It's a little bit of both, right? I think the -- when you're looking at these clubs after sale leaseback, the IRR are significantly better on the capital does this remain in the business. On the other hand, we do have a low financing charge, and I expect that our cap rates will start coming back down and we will be expecting to do sale leaseback with better cap rates as the interest rate starts coming down. But your answer -- to your question is it's a thoughtful question, and we definitely will analyze those decisions as we go forward, balancing that out.

Yes. I mean the obvious objective there is to keep us cost of capital, right, whether that's a sale leaseback or sub-6 debt.

Our final question is from the line of Chris Woronka with Deutsche Bank.

Thanks for squeezing me in, and I appreciate all the details so far. I just had one question, which is for Bahram, as you continue to open new clubs now builds especially, but maybe the supplies to some conversions. Is there anything you look at with respect to design and maybe not necessarily from an efficiency standpoint only, but also from a customer what customers are looking for. I mean do these centers need to have more -- whether it's some of the sport courts or more room for trading or whatever it might be? Is there any [indiscernible] design and construction process that is going to change over time and what the impact might be?

Yes. Look, all large club formats from 30 years ago have been designed with maximum flexibility to offer the programming that is necessary for the time. And we've done those transformations that you guys have seen. And nobody has a crystal ball to know what 10 years or 15 years from now will look like. So whenever we work on a design and I was working for hours last night on design with my team, you have to think about as much flexibility as you can. And we -- that's all you can do. You can basically plan for that, hey, what can we change what if things change what do you do with that space? And that's an ongoing work. It is not something for next year or for last year. That's been going on for 30 years is going to go on for the next 30 years.

Thank you. At this time, this concludes our question-and-answer session. I'd like to turn the floor back to Connor Wienberg for closing comments.

Yes. Thank you, everyone, and thank you for joining us this morning. We look forward to having you on the next call.

This will conclude today's conference. Thank you for your participation, ladies and gentlemen. You may have a wonderful day. Please, you may disconnect your lines at this time.