Life Time Group Holdings, Inc. 2026 Q3 Earnings Call

Good morning. Thank you for joining us for the third quarter 2026 Life Time Group Holdings earnings conference call. With me today are Bahram Akradi, Founder, Chairman, and CEO, and Erik Weaver, Executive Vice President and CFO. During the call, we will make forward-looking statements which involve a number of risks and uncertainties that may cause actual results to differ materially from those forward-looking statements made today. There is a comprehensive discussion of risk factors in the company's SEC filings, which you are encouraged to review. The company will also discuss certain non-GAAP financial measures, including adjusted net income, adjusted EBITDA, adjusted diluted EPS, net debt to adjusted EBITDA, or what we refer to as net debt leverage ratio and free cash flow.

This information, along with the reconciliations to the most directly comparable GAAP measures, are included, when applicable, in the company's earnings release and earnings supplement issued this morning, our 8-K filed with the SEC, and on the investor relations section of our website. With that, I'll turn the call over to Erik.

Thank you, Conor, and good morning, everyone. We appreciate you joining us for our Q3 business and financial update. This morning, in addition to our earnings release, we posted an earnings supplement to our investor relations website with additional detail on membership mix and comparable center revenue. Starting with our third quarter revenue. Total revenue increased 14.2% to $893.5 million, driven by continued strength in performance across our clubs, including higher dues revenue and strong utilization of our in-center businesses. Comparable center revenue grew 8.7%. This was above our expectations and driven by an outperformance in our membership acquisition and in-center business performance.

As outlined in our earnings supplement, comparable center revenue growth consisted of 2.4% from improved membership mix, 3.0% from price, 3.0% from our in-center businesses, and 0.3% from volume. In-center business growth was driven largely by double-digit growth in Dynamic Personal Training and LifeSpa. As a result of our Q3 performance, we have raised our full-year comparable center revenue guidance to 8.5%-8.7%, up from 7.9%-8.3%. Average monthly dues were $244, up approximately 11.9% year-over-year, and average revenue per center membership was $1,016, up 12% year-over-year. Year-over-year growth in average dues was driven primarily by positive membership mix trends and execution of our pricing strategy.

We ended the quarter with approximately 859,000 center memberships, which reflects 2.2% year-over-year growth. As we've discussed on prior calls, we continue to actively manage our membership mix, including limiting certain memberships administered through third-party medical insurance providers, which we refer to as Qualified Medical memberships. Qualified Medical memberships declined by approximately 21,500 or 19.6% year-over-year. All other memberships increased by approximately 39,600 or 5.4%. This strategy is working, as reflected in the 13.7% increase in total dues revenue. In the fourth quarter, we expect total center membership growth of 2.4%-3.1%. Excluding Qualified Medical memberships, we expect center membership growth of 4.8%-5.2%. Moving on to net income.

For the quarter, net income was $106.5 million, an increase of 4% year-over-year. Adjusted net income was $115.9 million, up 24.6% year-over-year. Net income in the prior year included tax-affected net cash proceeds of $16.2 million received from employee retention credits under the CARES Act, and a tax-affected net gain of $5.7 million on a sale-leaseback transaction. Adjusted EBITDA was $256.3 million, an increase of 16.5% over the prior year quarter, and our adjusted EBITDA margin improved by 60 basis points to 28.7%. As noted in our earnings release, we increased our full year 2026 revenue and adjusted EBITDA guidance.

We also increased the midpoint of our full-year adjusted EBITDA margin guidance to 28.4%. Our updated guidance includes the impact of seven clubs opening in the fourth quarter and the associated pre-opening expenses and early operating ramp impact on margin. Net cash provided by operating activities increased to $262.1 million, approximately 4.4% higher compared to the prior year quarter. The prior year quarter included certain non-recurring items, primarily the same $16.2 million received from employee retention credits under the CARES Act that impacted net income. Total capital expenditures were $288.7 million, up 29.8% from the prior year, reflecting construction activity in support of our new club openings for 2026, as well as the construction of clubs planned for 2027 and beyond.

In September, we closed on a sale-leaseback transaction that generated approximately $62 million of proceeds. We expect to complete approximately $135 million of additional sale-leaseback transactions in the fourth quarter. Our full-year target remains unchanged at $400 million, supporting our ongoing focus on generating annual positive free cash flow. With that, I will pass the call to Bahram.

Thank you, Erik. Good morning, everyone, and thank you to our team members for their incredible work and dedication. Our third quarter results were above our expectations across the business, including dues, memberships, and our in-center businesses. We are seeing very good results from our new initiatives like CTR, HYBRID XT, LT Games, and LT Social. Our members are engaging with our clubs more than ever, as average monthly visits per membership reached 13 times in Q3, up 4% year-over-year. Opening new clubs remains our most significant growth opportunity. We are on track to open 14 new clubs this year, the high end of our initial range. We also expect to open 14 new clubs in 2027, nearly all of which are already under construction. We have great visibility into our pipeline beyond that.

The quantity and the quality of the development opportunities in front of us have never been better. Our outlook remains strong. We closely monitor visits, joins, retention, and in-center spending, and we continue to feel very good about what we are seeing across the business. While we remain mindful of the macroeconomic environment, we believe we are in a very good position to perform in various economic conditions given the strength of our premium business and our balance sheet. Our net debt leverage ratio is 1.3 times. We have more than $900 million of liquidity, and we expect to deliver another year of positive free cash flow. The financial strength allows us to continue investing in our clubs, pursue attractive growth opportunities, and deliver strong revenue and adjusted EBITDA performance. We look forward to your questions.