Life Time Group - Earnings Call - Q1 2025

Executive Summary

• Beat across key lines: revenue $706.0M (+18.3% YoY) vs S&P Global consensus $683.0M*, Adjusted diluted EPS $0.39 vs $0.28*, and Adjusted EBITDA $191.6M vs $178.8M*; flow‑through driven by higher dues rates, mix shift to full‑dues members, and strong in‑center spend. S&P Global estimates marked with * (see disclaimer).
• Raised FY25 outlook: revenue to $2.94–$2.98B (from $2.925–$2.975B), net income to $286–$293M (from $277–$284M), Adjusted EBITDA to $792–$808M (from $780–$800M); lifted comp center revenue growth to 8.5–9.5% (from 7–8%) and reduced interest expense/tax rate assumptions.
• Balance sheet and cash: net debt leverage to 2.0x (from 2.28x in Q4), fourth consecutive quarter of positive FCF ($41.4M), and LOI for ~$150M sale‑leaseback expected in Q2; entire term loan fixed below 6% all‑in via swap (3.409% + 2.50% margin).
• Stock catalysts: outlook raise, accelerating margins (Adj. EBITDA margin 27.1%, +260 bps YoY), leverage at 2.0x, and visibility on lower interest expense may support multiple; capacity management (waitlists) and disciplined growth (10–12 annual club openings) frame execution narrative.

What Went Well and What Went Wrong

What Went Well

• Strong top-line and profitability: Revenue +18.3% YoY to $706.0M; Adjusted EBITDA +31.2% to $191.6M (27.1% margin, +260 bps YoY) on pricing, mix, and in‑center spend strength.
• Membership quality and engagement: average revenue per center membership rose to $844 (+13.3% YoY), with visits per membership at new highs; retention running at record levels per management.
• Balance sheet de‑risking and cash generation: net debt leverage improved to 2.0x; operating cash flow $183.9M (+103% YoY) and FCF $41.4M; fixed rate on entire term loan below 6%.

What Went Wrong

• GAAP EPS aided by one‑time tax benefit: net income +205.6% YoY to $76.1M benefited from $14.6M tax benefit tied to CEO stock option exercise; underlying Adjusted EPS provides purer run‑rate view.
• G&A inflation: G&A and marketing +18.2% YoY to $57.8M due to timing of stock‑based comp/benefits, center support overhead, IT costs, and costs tied to February secondary offering.
• Early Q2 demand color cautious: management noted slightly softer new member sign‑ups in April/May at some clubs (de minimis to overall revenue), and comp outlook incorporates macro conservatism despite strong in‑center trends.

Transcript

Operator (participant)

Greetings and welcome to the Life Time Group Holdings First Quarter 2025 earnings conference call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. If anyone should require operator assistance, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Connor Wienberg, Vice President of Capital Markets and Investor Relations. Please go ahead.

Connor Wienberg (VP of Capital Markets and Investor Relations)

Good morning, and thank you for joining us for the first quarter 2025 Life Time Group Holdings earnings conference call. With me today are Bahram Akradi, Founder, Chairman, and CEO, and 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, 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 Eric.

Erik Weaver (EVP and CFO)

Thank you, Connor. We appreciate you joining us this morning. Starting with our first quarter results, total revenue increased 18.3% to $706 million, driven by a 17.9% increase in our membership dues and enrollment fees, and an 18.7% increase in our in-center revenue. We continue to see strong revenue growth in our clubs open within the last 12 months, which are outpacing their anticipated revenue plans. In addition, we are seeing strong comparable center performance. Comparable center revenue was 12.9%, which increased from 11.1% in the prior year period. We continue to see robust comparable center revenue due to, first, an increase in our membership dues revenue, which is primarily a result of a full quarter benefit of legacy member price increases taken in the previous year.

We took virtually no legacy price increase in the first quarter, and on average, legacy members continue to pay approximately $30 per month below our rack rate. We also realized a benefit from new members joining at higher dues rates, replacing members who were paying a lower rate. For example, if we lose an existing member paying monthly dues of $178 and gain a new member at a current dues rate of $208, we realize a net revenue benefit. Second, our ramping clubs continue to perform to our expectations. Third, we continue to see strong performance in our in-center businesses, particularly in our dynamic personal training. With our strong first quarter, we raised our guidance for our comparable center revenue to be between 8.5% and 9.5% for the full year as we normalize towards our long-term revenue growth targets in the following quarters.

Center memberships increased 3.0% compared to Q1 last year to end the quarter at more than 826,000. When combined with our on-hold memberships, total memberships ended the quarter at approximately 880,000. These membership totals are in line with our strategy. As noted in our earnings release this morning, we are focused on our member experience and adding memberships with higher revenue and visits per membership. In addition, retention continues to pace at record levels, and our in-center businesses are performing exceptionally well. Average monthly dues grew 11.8% year over year to $208. We continue to open locations in premium markets with strong demand and higher dues rates. Average revenue per center membership was $844, an increase of 13.3% from the prior year quarter. Net income was $76.1 million, an increase of 206%, and adjusted net income was $88.1 million, an increase of 189% from the prior year quarter.

We received an income tax benefit of $14.6 million related to the one-time exercise of stock options by our CEO, which is now factored into our updated guidance. For the remaining quarters of fiscal year 2025, we expect net income to benefit from reduced interest expense as a result of entering into the fixed interest rate swap of under 6% on our term loan B. Adjusted EBITDA was $191.6 million, an increase of 31.2%, and our adjusted EBITDA margin of 27.1% increased 260 basis points versus the first quarter 2024. Net cash provided by operating activities increased approximately 103% to $184 million as compared to the first quarter 2024. This increase was largely a result of income from operations as well as timing of cash interest in the first quarter 2025. For the fourth consecutive quarter, we achieved positive free cash flow.

Free cash flow was approximately $41 million, and we had no sale leaseback proceeds in the first quarter. We have signed a letter of intent for the sale leaseback of three properties for approximately $150 million, which we expect to complete in the second quarter. Before I conclude my remarks, I will give a brief comment on how we look at our exposure to tariffs. We have completed a review of key areas of our company that could be subject to tariffs, including construction, equipment, and retail, and we currently do not expect there to be a significant impact. As tariff policies are still evolving, we are diligently monitoring the situation to assess and respond as needed. After a strong first quarter, we have deleveraged our balance sheet to a net debt leverage ratio of 2.0 times.

We have clear visibility into our cash interest expense for the next three years, having fixed the interest rate on our entire term loan to below 6%. With over 30 years of operating experience, we believe we are well-positioned to navigate any macroeconomic conditions. With that, I will now pass the call over to Bahram. Bahram?

Bahram Akradi (Founder, Chairman and CEO)

Thank you, Eric. We had a great start to the year, and the business has continued to perform well. We have raised our revenue and adjusted EBITDA guidance, but only modestly in recognition of the uncertainty in the macroeconomic environment. Our focus in the near term is to maintain our very strong balance sheet position and positive free cash flow as we grow the business. Our clubs continue to experience increased traffic, with many at or near optimal levels. Visits in our comparable centers are up 4.7% versus the first quarter of last year. Many clubs are using waitlists as a means to protect the member experience. The large majority of our first quarter membership ads were full dues paying customers. This strategy is reflected in our results, including record visits per membership and retention, record in-center performance and revenue per membership, and record total revenue and adjusted EBITDA.

We have a robust pipeline of club growth, and we expect to deliver 10-12 clubs per year. We will continue to use cash flow from business as well as proceeds from sale leasebacks to pay for our growth. We will maintain the strength of our balance sheet and our current debt levels while growing revenue and adjusted EBITDA. This aligns with our focus of achieving and maintaining a strong Double B credit. We are well-positioned to operate in any macroeconomic conditions. We are also pleased with the progress in our three additional growth areas, including LT Digital, which is already over 2 million subscribers, Miura, and LTH. With that, we are ready to take your questions.

Operator (participant)

Ladies and gentlemen, if you would like to ask a question, please press star one on your telephone keypad, and a confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Our first question comes from the line of John Baumgartner with Guggenheim. Please proceed.

John Baumgartner (Analyst)

How broad now? How many clubs have waitlists? Where can that go? Can most of them have them? I know in cases you've charged a country club-like joint fee. How broad is that? Bahram, the question is, I know the waitlists, you're trying to limit traffic because you've got capacity on visitation. I guess there's no good way to increase capacity in a club, correct? It's not like you can do an easy remodel and accommodate more members. Is there anything to be done on that front?

Bahram Akradi (Founder, Chairman and CEO)

Let's handle this once and for all because I'm sure this will be the number one question for everyone. We are extremely pleased with all the statistics of the company and everything working the way we want to. We have experienced this year an increased level of visits. We still also measure the number of swipes or number of visits per clubs, and number of visits per clubs were up over a very healthy number in the past last years. We have opportunistically focused on shutting down any sort of a membership that would come with any kind of a discount from third-party payers in some clubs. Some of the new clubs don't have any opportunity for sort of the Aurora memberships. And we really have gained the memberships we wanted to gain as members who are joining with full dues paying customers.

The focus of the business has been, as always, nothing changed, is manage the clubs, adapt the clubs so that we deliver the ultimate experience. The clear indication that our strategy is working is that we are basically getting the highest revenue per memberships. We're getting the highest in-center revenue. Our in-center revenue, as Eric mentioned, in the first quarter of this year outperformed the in-center revenue of last year, same quarter, as a percentage of our revenue. I think the only strong message that I can give you guys is that we are executing the strategy we've always executed: member point of view first. When the clubs feel like they're being pinched, the peak hours of the clubs are at the point where your experience might start getting pinched.

We basically put the club on a waitlist, and we definitely have the opportunity to take that waitlist both ways. It's a waitlist for the people who join and pay the full dues or a waitlist for the people who would join through the third-party insurance programs. We basically execute one or the other or both. This year, we definitively took steps to make sure more of the memberships we gained in the first quarter came from full dues paying customers rather than the third-party customers. That's really the only major issue and the major point in this call. Otherwise, everything else is basically moving exactly. This moved exactly the way we wanted it, and so is everything else in the business.

John Baumgartner (Analyst)

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

Bahram Akradi (Founder, Chairman and CEO)

As the gestation of these clubs is longer, I can tell you that 10-12 for 2025 is just the right number. For 2026, we have the opportunity to do 10-12. We have the opportunity to do more. We are very, very carefully studying all the impacts of different scenarios that can happen with the economy. As you guys might have heard, right now, it's the first time that some of the new homebuilders are having a tough time moving inventory. That type of impact is a positive impact for us in the sense that once some of the construction, I mean, it's spotty by market by market. Some markets, because of government contracts like Phoenix, etc., they're not impacted. Most markets, you'll be able to do the construction significantly better if you take the time to rebid before you have started construction.

We are methodically going through where the opportunities are, and we can continue to deliver 10-12. If the economy gets robust and the volatilities settle down that we are dealing with, we can step on the gas and do more. Otherwise, my approach, our approach, is to focus on having a balance sheet that allows us to take advantage of the opportunities that will rise if the economy is tough or opportunities that rise if the economy is robust. It is sort of a mathematical hedge so that if it is heads up, we win; if it is tails up, we win. With that, I think I have given you a very clear answer. For 2026, we could deliver more clubs if we want to.

John Baumgartner (Analyst)

Thank you. Appreciate it.

Operator (participant)

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

Brian Nagel (Analyst)

Good morning. Nice quarter. Congratulations.

Bahram Akradi (Founder, Chairman and CEO)

Thank you.

Brian Nagel (Analyst)

First question I want to ask, Eric, you talked in your prepared comments, you mentioned just the pricing. Clearly, as we see every quarter, Life Time's done a great job of monetizing memberships. The question I have is, with regard to the actions you took in Q1, if I heard you correctly, you did not raise dues on legacy members. I want to make sure I heard that correctly. Was that planned? How should we think about that effort going forward?

Erik Weaver (EVP and CFO)

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

Bahram Akradi (Founder, Chairman and CEO)

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

Brian Nagel (Analyst)

That's very helpful. My second question, recognizing you don't provide quarterly guidance anymore, we obviously have the updated annual guidance, but you report results through March. I mean, we're into the, I guess, now we're into the kind of the pool season. I mean, any comment on how you're seeing member signups or member activity as the pools get ready to go for the season?

Bahram Akradi (Founder, Chairman and CEO)

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

Brian Nagel (Analyst)

All right, guys. Thanks a lot. Appreciate it.

Operator (participant)

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

Alex Perry (Analyst)

Hi. Thanks for taking my questions here, and congrats on a strong quarter. I just wanted to talk about the guidance a little bit. How much of the sort of same store center raise was 1Q flow through versus higher expectations in 2Q through f4Q? I think the guide implies a slowdown in comps in sort of the remainder of the year. What's the driver here? Is that just an element of conservatism? Have you seen any impact to your business to joins or cancels as we've seen consumer confidence soften a bit here as of late? Thanks.

Bahram Akradi (Founder, Chairman and CEO)

Yeah. I think what we are seeing right now is a stronger retention and a strong in-center spend. That means the customer who is inside of Life Time is extremely happy. They're having more visits into the club. They're using the clubs more. They're doing their in-center purchases, and they are staying with us longer. Okay? That's all positive news. The memberships coming in per sort of a, which is an extremely small piece of our business, that when you think about one month's worth of new membership sales versus last month versus the overall revenue impact, it's very, very, very small. We are seeing a sort of a customer who is a little more thoughtful about the timing of when they join. Maybe they wait a little longer before they start.

We are seeing some of that conservative in that, but that is such a small piece of our business that I don't think it has an immediate impact on our numbers. I think that if that type of a situation continues, where you have customer holding back for the next 12 months in a row, then you're going to see a little more impact on the business. Therefore, our guidance is guarded for this potential macroeconomic volatility, customer sensitivity sustaining for a long period of time. Does that answer your question?

Alex Perry (Analyst)

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

Bahram Akradi (Founder, Chairman and CEO)

Look, there are, for the most part, on the big purchases, we are not seeing, I mean, it's like a 0.5%, 0.4%. The big purchases, as an overall impact, it doesn't have a huge impact. T-shirts we buy for our athletic events, which is, I mean, these are de minimis numbers in terms of Life Time's total revenue, EBITDA. You are seeing some things coming in like 30%-40% higher, but those things don't matter to us. We are talking about buying $60,000-$200,000 worth of T-shirts that we use for athletic events. It is just not, we are not a company that is heavily impacted directly by these events.

There are all the type of things we are doing on continuation of value engineering on how we're designing our new prototypes that we have, a dozen of them, that we basically choose which one works in what market. We're continually working on having flexibility to be there use of steel or concrete when we build those. We have both types of plans. I mean, we are working to make sure we mitigate any of those impacts. At this point, I can tell you we are super comfortable that we can bring in the new boxes in at or better prices than last year, despite changes in that. Furthermore, it's a two-way street. If the economy does actually get a little more headwind, you hit recession, housing slows down, the contractors who basically before were like, "This is the price, take it or leave it.

I have too many jobs," they're basically start begging for work. Then you can basically get them to do the work for 5% overhead and profit instead of 20% overhead and profit. We can manage that. I do not believe we are in a position to worry about those types of things. We are going to continue to work on how to basically mitigate any of those impacts. As Eric said and I said, we have been anticipating for two years. We have been wrong about the headwind. Sometimes we are going to switch from tailwind to headwind. We have been preparing and preparing and preparing and preparing for what if we switch from sort of a tailwind economy to a headwind economy. Our strategy is to win in either kind. Okay?

Based on our strong balance sheet, we just mentioned $150 million of sell lease back, definite agreement to basically close by this year, by this second quarter, in the second quarter. Debt levels are at $1.5 billion without that cash coming in. Our growth is going to be funded pretty much entirely with either proceeds because of taking the money from sell lease back and putting it right back into new builds, or just basically from the substantial free cash flow the company is generating on its own. We feel like being in a super, super strong financial position allows us to basically negotiate better, get more deals, get better deals, be the game changer for the residential buildings. We feel like we are stacked correctly for any kind of a wind, head or tail.

Erik Weaver (EVP and CFO)

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

Alex Perry (Analyst)

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

Erik Weaver (EVP and CFO)

Thank you.

Operator (participant)

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

Megan Alexander (Analyst)

Hey, good morning. I wanted to start with a question on the balance sheet, and then I do have a quick follow-up just to one of Alex's questions. You took your leverage target down. You're now talking about under two times versus 2.25 last quarter. You're going to get some sale lease back proceeds here in the second quarter. Leverage is already at two times, so it should be pretty easy for you to stay under there. Brian, you talked about wanting to have a strong balance sheet to give you some flexibility. I guess theoretically, let's just say the macro remains volatile and maybe it does not make sense to accelerate club opens. How does the strategy around capital allocation evolve?

Do you start to think about other uses of cash, like something like buybacks, or would you rather just sit on higher cash balances and lower leverage and build some ammo for when things settle down?

Bahram Akradi (Founder, Chairman and CEO)

Yeah. Definitely the latter. We are not going to—we're not Amazon. We're not Apple. We're not JP Morgan. We're a very strong, good-sized mid-cap company. We need to be thoughtful about our balance sheet and make sure that works to our strength. We are going to have the ability, at least with half of our development, which is the ground up, to start a couple of months later if we want to. We have the ability to start it. We start faster because we have the permits. We want to have the full flexibility to basically navigate through how the world shakes up in here. I feel super strong. I'm just telling you, I feel really, really, really strong about how we are positioned right now. We basically have put the company in a situation where we have every option.

Megan Alexander (Analyst)

Okay. That's good.

Bahram Akradi (Founder, Chairman and CEO)

We don't need to start as many. We have the ability not to. If you have something just massively wrong, we're still going to grow revenue. We're still going to, like 2009, we're still going to grow EBITDA. We're still going to grow EPS. We can be in an extremely well-tucked-in defensive position. If things go robust, then we can step on it and go faster on development and build out. I don't know what else I could tell you guys other than based on our feel of what's straight ahead, we want to be in full control of how we manage our balance sheet. I absolutely want to achieve a double B from the next one from either S&P or Moody's to get the company to that double B status. That's super important. It's been my next big objective.

We're putting the company in a position where we can get that and stay in that position as we go forward.

Megan Alexander (Analyst)

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

Bahram Akradi (Founder, Chairman and CEO)

Yeah. It's a dynamic situation, Megan. We have clubs that they're on a waitlist, and even the—they're operating at such a maximum level of output from visits to in-center revenue, EBITDA, margins, everything. There are some natural limitations on how many more people you can take in. They're on a waitlist. We're managing that the best way we can. There are clubs where I've always said there are some clubs that they have the extra capacity. When we're looking at the macro picture, we see that April and May, that new members sign up, which is, again, a de minimis number for our total picture, is slightly softer than it has been the last couple of years. That's partially because clubs are more full. Retention is higher. We're not losing as many people.

When you don't lose as many people, you don't have as many opportunities for rejoins. At this point, it's not something to have a huge concern about. We got to shake this out through really Memorial Day, June, to see how that shakes up. For right now, I think everything is just fine.

Megan Alexander (Analyst)

Okay. Great. Thanks, Bahram. I'll pass it on.

Operator (participant)

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

Kate McShane (Analyst)

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

Bahram Akradi (Founder, Chairman and CEO)

Yeah. Spot on, Cafes are doing better than they were doing last year. They're not doing as good as I want them. We haven't still implemented all of our strategies in all the clubs. We're basically going location by location, trying to improve the offering. The personal training, Dynamic Personal Training, dynamic stretch is one of the first things that we implemented three years ago to transform how that business is done. Because, as I mentioned during IPO, I didn't believe that business, as it was before, it would actually have the ability to kind of get its legs back under it. We changed it to a program where it truly has an incremental value. We have been working an amazing execution of strategies.

I believe that the win on the personal training, which is substantial, is really just due to the function of all the things that we have been putting in place. We're getting the benefits, the fruits of our groundwork that we have been putting in the last two, three years. We still have opportunity to continue to improve in cafes and spas significantly. I'm not, by any means, thrilled with what we are, even though they are better than last year. I want to be clear. There is significant more opportunity for us to execute better. That's within our control. That has nothing to do with the macroeconomic. We got to work on that. The customer who comes to Life Time wants to interact with us. They want to do more things with us.

All we have to do is deliver to them the type of things they want in a high level, and they're spending the money. They love the brand. I mean, it's a constant repetition of they love the brand. They travel around Life Time. When the economy gets a little—I have gone through this with all of you guys. When you get through a recessionary period, customers start pulling back on spending on big spends, right? They have more time. As they have more time, they use the stuff they own more. They're going to spend more time in the clubs. They're going to utilize that membership better. That extra utilization means better retention for us. We are well-positioned for an economy that is growing or an economy that might be in recession for two, three quarters.

Megan Alexander (Analyst)

Thank you.

Operator (participant)

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

Erik Weaver (EVP and CFO)

Good morning. Thanks for the question.

Bahram Akradi (Founder, Chairman and CEO)

You're welcome.

Erik Weaver (EVP and CFO)

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

Bahram Akradi (Founder, Chairman and CEO)

Yeah. We have been on a steady execution. I was just talking to our regional VP for Texas. In that market, 30-plus clubs, seven clubs have converted to cold plunge. We're putting recovery in. We're putting in work lounges. We have a steady plan in our budget, sort of the modernization and CapEx. We're executing on those. Those are really, really great adds to our business. As far as the other question you had regarding programming, we're obviously always working on what are the programs that naturally are losing steam and people aren't participating naturally in as big of a format. There are other ones that people are sort of kind of going, leaning into. As I've always told you guys, modality of exercise, how you achieve your fitness, your wellness, your health, that it's more like a fad.

People will do—everybody goes crazy about spinning, and you can't teach enough spin classes. Then all of a sudden, it changes, goes to some other form, and spinning starts kind of getting weighed down. We have always designed and adapted the clubs to move and adjust those fads. Lifetime is a big part of people's lifestyle. We position Lifetime so it's part of your life. You're using it 10 times a month, 12 times a month, 14 times a month. It is how you live. Within that, we keep adapting what inside of there we need to adapt to keep our customer with us for as we have customers who have been with us for 30 years, 20 years, 10 years. That is the approach that we take on running the business. It's constant adjustments and constant adaptation.

Erik Weaver (EVP and CFO)

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

Connor Wienberg (VP of Capital Markets and Investor Relations)

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

Erik Weaver (EVP and CFO)

Thanks, Eric. Thanks, Bahram.

Operator (participant)

As a reminder, if you'd like to ask a question, please press star one on your telephone keypad. The next question comes from the line of Owen Rickert with Northland Securities. Please proceed.

Owen Rickert (Analyst)

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

Bahram Akradi (Founder, Chairman and CEO)

Yeah. The strategy there is to grow LTH to the most trusted nutritional brand that exists. We are working on building the product lineup, make sure it is absolutely the best. One of the things about nutritional products is that there is not any sort of a regulated, vigorous testing for them. We have always, for 20 years, tested our products to make sure they have the right ingredients, the right efficacy. As I take—I just took my 40-plus supplements that I normally take in the morning while we were having our call. We want to make sure what is in them, they are the best, and it is the right product. We had significant growth, like a 40% plus month-over-month in March. We expect to see LTH grow substantially over the years. We are diligently working on LT Digital and L.AI.C, our AI companion.

That is moving exactly on our timetable right now. We're not behind. We expect to deliver an AI option for health and wellness, not for just building a workout, not just for meditation, not just for taking classes. I mean, the entire ecosystem that Life Time offers physically will be offered digitally. We're continuing to work. We open our LT Digital Studio next week in New York to be able to generate more amazing content there. It all ties in together between that and LTH and Miura. Miura is right on schedule in terms of the execution, the growth of the few places that we have open. We have scheduled openings for at least half a dozen more throughout the rest of the year. We will expand and start speeding up. We're still looking for basically rollout of additional revenue opportunities that are asset-light.

Those are all in the works, and we look forward to them.

Owen Rickert (Analyst)

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

Connor Wienberg (VP of Capital Markets and Investor Relations)

The LTH Health? Yeah. I mean, look, there are obviously, with some of the ingredients there, there are some potential risks there. Again, we do not think it is anything that is going to be material, but we continue to monitor.

Bahram Akradi (Founder, Chairman and CEO)

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

For these types of things, all we have to do is execute better than other people. That's it.

Owen Rickert (Analyst)

Awesome. Thanks a ton, guys.

Bahram Akradi (Founder, Chairman and CEO)

Thank you. Thank you.

Operator (participant)

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

Connor Wienberg (VP of Capital Markets and Investor Relations)

Yeah. Thank you, operator. Thank you, everyone, for the good questions. We're looking forward to next quarter.

Operator (participant)

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