Life Time Group - Q4 2022
March 8, 2023
Transcript
Operator (participant)
Good morning. Welcome to the Life Time Group Holdings 2022 Q4 and full year earnings conference call. Please be advised that reproduction of this call in whole or in part is not permitted without written authorization from the company. As a reminder, this conference is being recorded. I will now turn the call over to Ken Cooper with investor relations for Life Time Group Holdings. Please go ahead.
Ken Cooper (VP of Investor Relations)
Good morning, and thank you for joining us for the Life Time 2022 4th quarter and full year earnings conference call. With me today are Bahram Akradi, Founder, Chairman, and CEO, and Robert Houghton, CFO. During this call, the company will make forward-looking statements which involve a number of risks and uncertainties that may cause actual results to differ materially from our forward-looking statements made today. There is a comprehensive list of risk factors in the company's SEC filings, which you are encouraged to review. Also, the company will discuss certain non-GAAP financial measures, including Adjusted EBITDA and free cash flow before growth capital expenditures. This information, along with reconciliations to the most directly comparable GAAP measures, where possible without unreasonable efforts, are included in the earnings release issued this morning and in the company's 8-K filed with the SEC and on the investor relations section of Life Time's website.
I'm now pleased to turn the call over to Robert Houghton. Bob?
Robert Houghton (EVP and CFO)
Thank you, Ken, and good morning, everyone. We appreciate you taking the time to join us today. I will briefly cover our Q4 and full-year results. The full details can be found in the earnings release we issued this morning. Bahram will then outline our strategies and key initiatives, followed by updated guidance for 2023. Starting with our 2022 results, Q4 total revenue increased 31% to $473 million, driven by a 32% increase in membership dues and enrollment fees and a 28% increase in in-center revenue. For the full year, total revenue increased 38% to $1.8 billion. Center memberships increased 12% to end the year at more than 725,000 memberships.
Fourth quarter average monthly dues were $162, up 20% from $135 in the Q4 last year. Fourth quarter revenue per center membership increased to $640, up 19% from $536 in the prior year period as we continue to benefit from higher dues and increased in-center activity. We generated net income for the Q4 of $14 million, compared with a net loss of $305 million in the Q4 of 2021. Excluding the one-time expenses detailed in our earnings release in both periods, net income improved by $51 million.
Adjusted EBITDA increased 123% to $107 million, Adjusted EBITDA margin of 22.6% increased 9.3 percentage points versus 13.3% in the Q4 of 2021. For the full year, our net loss improved to $2 million and our Adjusted EBITDA was $282 million. We delivered another quarter of improving cash flow with net cash provided by operating activities of $76 million versus a $5 million net use of cash in the prior year period. We reduced our net debt to Adjusted EBITDA leverage in the quarter and our year-end liquidity position remains strong with cash and cash equivalents of $26 million and $423 million in total available borrowings on a revolving credit facility.
As we turn to 2023, our business is in great shape and our strategies are working. We believe we are successfully using price to optimize our club performance and enhance our member experience, driving increased club usage across our strategic investments, opening new clubs and expanding margins, helping to drive increased cash flow and reduce leverage on our balance sheet. I will now turn it over to Bahram to outline our 2023 strategic initiatives and financial guidance.
Bahram Akradi (Founder, Chairman, and CEO)
Thanks, Bob. I am very proud of our more than 34,000 team members and our accomplishment in 2022. Our main priority in 2022 was to grow back our revenue and Adjusted EBITDA margins and prove that our business model is intact and healthy. In 2022, we successfully made adjustments to our pricing strategy and executed our strategic initiatives of ARORA, which is our active aging program, DPT, our Dynamic Personal Training model, SGT, execution of our small group training, and of course, the rollout of pickleball. These initiatives were critical to increasing our traffic and revenue. Additionally, we rewired our decision-making process to have significantly less layers to get things done, which helped our margin expansion effort. We took the past three years as a great challenge and made necessary adaptations to keep Life Time in a leading position.
As I have visited more than a third of our clubs over the last few months, I'm happy to report that our clubs are both busy and vibrant. For our clubs that were open at the end of 2019, January of 2023 membership dues in aggregate were 103% of membership dues in January of 2020 and are still re-ramping. As we have explained over the past several months, it takes three-four years to ramp or re-ramp one of our large athletic clubs. While we have already surpassed January 2020 membership dues across these clubs in aggregate, we're still in recovery period and expect to continue to improve results. In addition to the tailwinds for our re-ramping clubs, we feel we have significant pricing power and opportunity driven by a strong value proposition.
The average dues of our memberships sold this year through February is $208. This compares to the total average dues of all memberships of $164. We're adding new memberships at higher rates, each membership churn results in roughly $44 additional dues per month. There are over 510,000 memberships that in aggregate are paying roughly $17 million less in dues per month than our current rates. The first couple months of the year have been very strong, and we're looking forward to the full year 2023 and beyond. I am proud to say that our brand and business model has never been in a better shape.
With all that, we are setting the expectation for Adjusted EBITDA in the Q1 to $108 million-$110 million. We are raising our full year guidance to $440 million-$460 million from the $430 million-$450 million that we established on January 9th of this year. Our focus for 2023 will remain on continuation of our recovery and margin expansion, growing our Adjusted EBITDA to record levels and reduction of debt to Adjusted EBITDA. We have already announced $123 million in sale-leaseback transactions so far this year. We have closed on the first $33 million of that at the end of February. We are well on track to accomplish our goal of $300 million of sale-leasebacks for the year.
Additionally, we're continuing to work on more growth coming from asset-light opportunities, where facilities are funded largely from landlords. Every move we make is focused on enhancing our brand, customer experience, our balance sheet, and making Life Time stronger. We're looking forward to answer your questions.
Operator (participant)
Thank you. Ladies and gentlemen, at this time, we will be conducting a question-and-answer session. If you would like to ask a question, please press star one on your telephone keypad. 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. Ladies and gentlemen, we will wait for a moment while we poll for questions. Our first question comes from the line of Christopher Carroll from RBC Capital Markets. Please go ahead.
Christopher Carroll (Equity Research Analyst)
Hi, good morning. You previously disclosed that you expect 35%-40% of your clubs will reach profitability maturity this year. That's up from about 15% in 2022. Can you update us on whether you still think that's the case here? I would presume it still is just based on the EBITDA guidance that you provided this morning. It's largely unchanged from what you gave us in early January. Also, how you expect that profitability curve to ramp over the course of the year?
Bahram Akradi (Founder, Chairman, and CEO)
Yeah. Great question, Chris. We are seeing the clubs continuing to pick up on their swipes, match catching up to the swipes of the past. Obviously, they are doing that at much higher average dues. The in-center is catching up and improving, in some cases, moving ahead of the past performance as well. I think that we still have more runway for the clubs gaining to the 2019, 2020, early 2020 prior to closure revenues and margins, and then get beyond that, as they are still, as I've mentioned, they're still ramping. While our dollars have recovered, I think in terms of the opportunity to get more revenue and more memberships, more traffic in majority of the clubs is still plenty abundant.
Each month, as we mentioned to you guys, you see more and more clubs, more states are getting past their past performance and then easily go beyond. I don't know how to really reconcile your question mathematically right now, but I think it's just there's quite a bit. You know, when we said these clubs, you know, I don't think the clubs when you call it mature, you know, you're talking about like they have ramped up to a level that they can't keep going. We have room in most of the clubs that have recovered the dollar revenue, dollar margin, they still have room to gain more memberships and fill up more, if that helps you.
Christopher Carroll (Equity Research Analyst)
Got it. Yep. Thank you. Just as a follow-up on pricing, can you talk about maybe recent reception to the pricing actions you've taken? Thanks again.
Bahram Akradi (Founder, Chairman, and CEO)
Yeah. You know, we've sold tens of thousands of memberships in the first couple of months of the year, and not any resistance. You know, it's interesting. Our rejoins are still at a higher rate today than they were pre-pandemic, there is zero resistance to the price point. The customer is finding the value proposition at Life Time. It's not the gym, it's not a. You know, it's really the variety of athletic things they do for their family, sports. It's a social community. Actually we're getting 0 price resistance. We're continuing to adjust the prices, we will see if they work, they don't. If they don't, we can easily just go back and change the price in the club for, you know, the next week.
So far, we haven't had to take any club backwards.
Robert Houghton (EVP and CFO)
Hey, Chris, it's Bob. Just to add a little more color to that. Not only are memberships up, membership churn or membership departures are actually down the first two months of 2023 relative to 2022. That's despite the fact that our average dues are up roughly $20 versus last year.
Christopher Carroll (Equity Research Analyst)
Okay, great. Thanks a lot for the detail.
Bahram Akradi (Founder, Chairman, and CEO)
Okay.
Operator (participant)
Thank you. Our next question comes from the line of Brian Nagel from Oppenheimer. Please go ahead.
Brian Nagel (Managing Director and Senior Analyst)
Hi. Good morning, guys.
Bahram Akradi (Founder, Chairman, and CEO)
Hi, Brian.
Robert Houghton (EVP and CFO)
Brian.
Brian Nagel (Managing Director and Senior Analyst)
Nice quarter.
Bahram Akradi (Founder, Chairman, and CEO)
Thank you.
Brian Nagel (Managing Director and Senior Analyst)
Nice quarter. The first question I have, just with respect to your cost controls and some of the repositioning of costs within the model, you've clearly done a nice job here over the last couple of quarters, controlling costs. I mean, as we look at the business and especially in light of an improving top line, both from a dues perspective and membership, how should we think about the sustainability of these cost controls or another way the leverage ability of them?
Bahram Akradi (Founder, Chairman, and CEO)
Yeah, that's a great question. I don't expect us to continue to create more and more and more margin. I wanna be clear now. As the club's revenue continues to go up, In aggregate, many of the clubs are still gonna grow dues revenue, which is substantially. That's gonna add to our margins by the fact that the revenue % is gonna grow. On the cost side, we completely rewired the company, as I mentioned. The decision-making process at Life Time, instead of going through five, six, seven different people to get an approval on something, it's now down to three. We are basically making decisions much faster. We've eliminated layers. Those are being eliminated so that the cost isn't going to...
We also have transitioned our corporate office to a structure that as we grow additional clubs, the corporate office, majority of the office does not need to grow. You know, that actually allows us benefits from the scale of the company. It should move. We're not intending to go back and cut more cost. I wanna be clear. What we have put in place should be here permanently.
Robert Houghton (EVP and CFO)
Yeah. Brian, just to emphasize one point that Bram made. Most of the cost efficiency actions were taken in the Q4 of last year. We'll see the full annual benefit in 2023. There aren't a lot of additional cost saving steps we need to take to see that full year benefit this year.
Bahram Akradi (Founder, Chairman, and CEO)
They're rolling through right now every month.
Robert Houghton (EVP and CFO)
Right.
Brian Nagel (Managing Director and Senior Analyst)
No, that's great. That's very helpful. My second, my follow-up question, you know, obviously we're seeing the results track well here. If you look at these new center openings, how are those... Generally, how are you feeling about this? How are those tracking versus your expectations versus historic levels, that sort of thing?
Bahram Akradi (Founder, Chairman, and CEO)
They're fantastic. I mean, our new model, again, both in the way we're modeling the operations of the clubs, the programming, and the pricing of this system. You know, we're generally opening up the clubs right now above the business plan in our dues revenue, and they're ramping beautifully, so we have no issue. Generally, we take a substantial loss a few months before a club opens and about three to four months maybe after the club is open, you know. That's we've been, you know. As you know, we have opened significant number of clubs in December and, you know, one opening just this week, a big one in California. We're covering that, you know, sort of a negative EBITDA from those.
Within about four or five months from the time they open, they flip over, and they start kind of giving back EBITDA. We're pretty excited about, you know, where everything's going. Again, as I mentioned on my remarks earlier, the business has never looked healthier, stronger, than it is today.
Brian Nagel (Managing Director and Senior Analyst)
Great. Well, congrats again. Thank you.
Bahram Akradi (Founder, Chairman, and CEO)
Thank you.
Operator (participant)
Thank you. Our next question comes from the line of Robert Ohmes from Bank of America. Please go ahead.
Robert F. Ohmes (Managing Director and Senior Equity Research Analyst)
Hey, Bahram. Hey, Bob. Two questions. Just, you know, the center memberships fell, you know, less than we were expecting, you know, in the Q4. Is that, you know, the departure rates just being a lot less, as Bob said? Based on that, like, was it? Can you kinda talk about the initiatives and if that played a role in that? Was it, you know, pickleball versus personal, you know, group training in ARORA? You know, and maybe more color we would wanna know, like, can you give us any examples, like, of clubs that don't have pickleball versus clubs that do? Is there significant difference in performance of, you know, memberships and departures and things like that?
Bahram Akradi (Founder, Chairman, and CEO)
It's not just pickleball, though. I think to be clear, It's all the programs I mentioned earlier, small group training. Personal training is having an amazing comeback and recovery for us under new programming, VPT. And that obviously generates more customers. Revenue margins are up on that, and the number of people doing personal training is increased. Small group training is more than tripled since beginning of last year. Basically, it's simple. You know, our business in our company, in our particular business, on average about 10 swipes generates 1 memberships. We focused on what we called SSR, which is basically creating swipes, giving people reasons to have to be in our large athletic facilities, and then that swipe would generate subscription, and the subscription generates the revenue.
That was the full strategy last year, and that's what we're continuing to execute. We expect to grow ARORA, our active aging program, significantly this year. It grew massively in the Q1. So far, we are growing small group training significantly. We have, again, steady growth in pickleball. We're continuing to convert opportunities to pickleball and running the programs. VPT, as I mentioned, is working. All the programs are working. You know, you know, we usually gain membership, substantial membership in the Q1 seasonally, and we're doing better than our own expectation this quarter. It's going fantastic.
we're very optimistic about the year, as we're seeing the programs that we've been initiated, they really are catching, you know, momentum and getting into that leap stage that I really like to see, you know, with the programs.
Robert F. Ohmes (Managing Director and Senior Equity Research Analyst)
That's helpful. Just a follow-up. The in-center revenue growth, you know, what is the sort of expectation on in-center revenue growth in the guidance for 2023? Do you guys disclose sort of the frequency driver to in-center revenue growth versus spend per visit?
Bahram Akradi (Founder, Chairman, and CEO)
Yeah. Let's go through this. The in-center is broken into a number of things. The personal training, which is the biggest factor, we reinvented our approach to training and wiring from the corporate office, down to clubs, up and down, back and forth, it's really working. It's working significantly better than it ever has. I expect that to continue to grow. The second one is, you know, kids and aquatics. Our programming is very strong right now. We are getting more signups for, like, summer camps, selling them much earlier, so we have full, you know, full capability of seeing if we have the opportunity to expand the capacity because we're gonna get sold out in many clubs on that to the capacity we have. We're just sort of laying that out. The cafe, we're making improvements on that.
On aggregate, we're way ahead of the past revenue for our café business. In the same store, I think we're close, but we're making progress on that, and I expect that to get past. You know, all of our in-centers are growing. In the past, it used to be, you know, one third in-center, two-thirds revenue. You know, once we got into the, you know, pandemic period, you know, that number shrank some, and it was more like, you know, 70% dues. Now we gradually, as we go back and we kind of, readjust the programmings that we need, I expect that number to come back up as well. We're seeing it, that is happening.
Robert F. Ohmes (Managing Director and Senior Equity Research Analyst)
That sounds great. Thanks so much. Oh.
Bahram Akradi (Founder, Chairman, and CEO)
Yeah.
Operator (participant)
Thank you. Our next question comes from the line of John Baumgartner from Mizuho Securities. Please go ahead.
John Baumgartner (Managing Director and Senior Equity Research Analyst)
Good morning. Thanks for the question.
Bahram Akradi (Founder, Chairman, and CEO)
Morning.
John Baumgartner (Managing Director and Senior Equity Research Analyst)
I guess, first off, I wanted to come back to pricing, and I think conceptually, Bram, you've been clear about the lack of resistance to price increases on the part of your members thus far. From your perspective, for the memberships that have seen pricing already increase, how consistent are these new prices with your objective relative to what you perceive the Life Time experience to be worth? You know, I'm sort of more curious about how you think about price versus value from an operator's perspective.
Bahram Akradi (Founder, Chairman, and CEO)
The, the reality is that I have repeatedly admitted my mistake when we started the business, is that building these massive, big athletic clubs and just pricing them extremely low. That really was a challenge. We saw, you know, the problems with that was, A, we couldn't run the clubs with a level of excellence that I want, just a Four Seasons, The Ritz-Carlton level of quality, a real athletic country club quality. We just couldn't do it. There was just too many people beating down on the club, number 1. Number 2, we just were stuck there because of the system we had with the salespeople in the company. They just could not, they could not react to price changes. It was just really, really clunky.
The most critical piece we did was eliminate the middleman, the salesperson in here, and go to a system where the customer just goes online, looks at the product, or goes to the club, looks at the product. We have member concierge, both, you know, in the corporate office that they do this via chat room calls, et cetera, or in the clubs, that they can show people what the facility is, and people will just choose to buy or not buy. Nobody will call you back and harass you to buy a membership. I mean, it's just really a different approach than I took the first 30 some years I was in this business. We really love what's happening because there is no fear that you're making a mistake on the price.
Let's say we took a club from 179 to 199, and then the management says, "Oh, that's not enough. We want to take it to 229." This has just happened. We take the price to 229. Assume it didn't work. If it doesn't work, it takes us 24 hours to change that price on the computer back to 219 or 209. It's just, it's not one that anybody should get some sort of a, you know, fear. Oh, God, you know, this is not a big mistake. It's just basically you test and you run. Works, you keep it. It doesn't. And we have had zero friction with this. What's happening, though, is we have clubs that they were saturated. And I'll give you, like, one example, South Austin.
That club was saturated with membership pre-pandemic. Dues levels were just maybe, you know, $1 million a month or something. Now it's $1.3 million, $1.4 million. It really has took the lid off of the potential of our facilities. I mean, these clubs are, you know, not easy as I've mentioned, they're not easy to replicate. They are, you know, 60, 70, 80 today, cost of new construction, $60 million, $70 million, $80 million facilities. You can't replicate these, but you also don't have to give them away. We just have a system now that naturally and intuitively helps us find that right equilibrium for the price should be for the club.
John Baumgartner (Managing Director and Senior Equity Research Analyst)
Okay. Thanks for that. Just as a follow-up, I wanted to dig in a little bit around the phasing for 2023. The outlook for EBITDA in Q1 was stronger than expected, it also implies sort of a sequential step down in EBITDA margin for the duration of the year. Are there any timing considerations, whether it's new opening expenses, rent, or anything else that would drive that margin moderation fall in Q1? I guess, is there anything that elevates margin temporarily in Q1? Thank you.
Bahram Akradi (Founder, Chairman, and CEO)
No, I don't think anything elevates, the Q1 margins are right exactly what they should be right now. As we grow the revenues in the summer, the next 2 quarters. The revenue grows substantially. Obviously, we all expect to have a bigger EBITDA come the next 2 quarters. Obviously we also have incremental cost, with like the summer camps. We have big revenue also, we have big, you know, big payroll with that.
Furthermore, the reason we haven't taken the numbers up, you know, more than we have for the guidance increase is obviously we are trying to be conservative in the sense that, you know, we still have kind of bogeys in the world, and we just wanna make sure we have the ability to deliver on what we say we will do quarter after quarter. We don't expect the margins to go down as the rest of the reven-- as it goes up. You know, the only, the only place that we have a real pinch on our margin is when we open new clubs, but that's already baked in. No, we don't have any event to think that the margins should decrease throughout the year.
John Baumgartner (Managing Director and Senior Equity Research Analyst)
Okay. Thank you very much.
Bahram Akradi (Founder, Chairman, and CEO)
Mm-hmm.
Operator (participant)
Thank you. Our next question comes from the line of Simeon Siegel from BMO Capital Markets. Please go ahead.
Simeon Siegel (Managing Director and Senior Equity Research Analyst)
Thanks. Good morning, everyone. Hope you're all doing well. Could you guys break out the revenue lift you're expecting from pricing versus new members, for one Q and full year embedded within the revenue guide? Sorry if I missed it, might just be sale-leaseback timing. Did you say why rent came in $10 million less than the expected number from January? Just is there any offset we need to keep in mind on expected cash balance or anything? Thanks, guys.
Robert Houghton (EVP and CFO)
Yeah. Hey, Simeon, it's Bob. Let me tackle the rent piece first. That's just a function of, you know, relative to our initial guidance, some of the sale-leasebacks proceeds received and completion will be a little bit later in the year versus evenly distributed, but we're still very much on track to deliver the $300 million. In terms of Q1 revenue contribution from pricing versus memberships, yeah, they're both gonna be meaningful contributors. As Bram mentioned, we're seeing stronger than expected membership growth in the quarter. As you know, historically, we add memberships in the Q1. They will both be meaningful contributors to that revenue growth in the quarter.
Simeon Siegel (Managing Director and Senior Equity Research Analyst)
Great. Then if I can quick follow up, Ram, in terms of the seasonality comment, out of the members that tend to fall off in 4Q, what % tend to come back? Just maybe talk about the reactivations within the churn.
Bahram Akradi (Founder, Chairman, and CEO)
You know, Simeon, this is a really good question. You are really great about, you know, kind of looking through the good stuff and the bad stuff. I think in some ways, I've always gone back and questioned our reporting of membership count. Look, sometimes we are, you know, we count, you know, we basically do not count a customer, right? If they haven't, you know, they, as soon as they drop out, they come off. In many times, these people are back within the 12 months and re-signing back up, right? So a customer has a choice of going on hold for $15 a month, right? Or just dropping out and coming back four months later.
Now what they have is possibly they pay a little more in monthly dues, but that doesn't really stopping them from giving up their membership and coming back. They're not reacting to that. Where we see the opportunity is for that is to actually gradually start introducing enrollment fees as we have the strength. We wanted to wait to get to where we are today, which basically, you know, in aggregate, fully recovered and gone beyond. Once we have that strength coming through, you know, we are now, you know, at least about 10, 12 clubs across the system, we're charging initiation fees from a couple hundred dollars all the way to $750. I expect that by the summer season, we will have some enrollment fees in probably 100 of our locations across the system.
That is the real. If there is a speed break for people just dropping out and coming back in, is that enrollment fee that will, you know, will help that process. Just really, I mean, we're seeing no pattern that giving us a real concern. The customers generally loves what they get at Life Time. If they can afford it, they go to Life Time. If they can't, they go elsewhere.
Simeon Siegel (Managing Director and Senior Equity Research Analyst)
Great. Thanks a lot, guys. Best of luck for the year.
Bahram Akradi (Founder, Chairman, and CEO)
Thank you so much. Yep.
Operator (participant)
Thank you. Our next question comes from the line of Daniel Politzer from Wells Fargo. Please go ahead.
Daniel Politzer (Managing Director and Senior Equity Research Analyst)
Hey, good morning, everyone, and thanks for taking my question.
Bahram Akradi (Founder, Chairman, and CEO)
Hello, Dan. How are you?
Daniel Politzer (Managing Director and Senior Equity Research Analyst)
I'm well. I'm well. I hope everybody's well, well over there too. I wanted to follow up on the enrollment fees. I know you just mentioned that that could be something you phase in over the course of the year at 100 plus locations. Is that included in the guide at all? Because I would think that that could be material.
Bahram Akradi (Founder, Chairman, and CEO)
Yeah. It's not material because the numbers are... You know, we charge more of a pool pass. In the summer months, because, you know, part of what we're trying to manage is people just joining for the pool season, overcrowding the customer who has been paying all year long. We charge a pool pass, and that pool pass, basically goes into, I guess, averaged out over the several months of the pool open on the dues line. The, the memberships that we're selling now in the clubs that they have enrollment fee, that enrollment fee, you know, it's basically GAAP over the length of the membership.
If we charge, call it, you know, $660, I'm just giving that for a number, and the customer was a member for average membership is 33 months, we're only taking $20 of that in revenue per month over for that 33 months, as you know how that works. It's really like a 1%, 2% number for right now. Again, it's my desire that the company gets really, really where I like it to do in terms of revenue and EBITDA generation. I would really like to have actual enrollment fee be the next phase of introduction for our... That just makes the experience of a Life Time customer once again closer to a country club rather than a health club.
Daniel Politzer (Managing Director and Senior Equity Research Analyst)
Interesting. That makes, that makes sense. I think earlier in the call you mentioned that memberships, the 2019 center commentary, you said 3% is where they're above at this point.
Bahram Akradi (Founder, Chairman, and CEO)
Let me make that really accurate. It's actually a little bit higher relative to the same clubs, are like 104%, over the 2019 January dues. The clubs that open all the way through 2020 are 103% of the January of 2020. If you remember January of 2020, we had a robust January and February, and then, you know, the shutdown came in March. We had very strong January. Very strong. The best January we've ever had was January of 2020, and we were able to beat the similar clubs that were open, be able to hit that number at 103%. That's what that number is.
Daniel Politzer (Managing Director and Senior Equity Research Analyst)
Okay, got it. Well, I guess my question around that was, you know, as we sit here today and you know, your pricing is over $160, you know, you know, system wide and getting those centers fully back, I mean, is that membership? Is that pricing? Is it a combination of both? What's the receptivity to those prior customers to come back at higher prices and possibly enrollment fees?
Bahram Akradi (Founder, Chairman, and CEO)
Well, business is about supply and demand, right? We have so many spots that we can deliver in anything. In pickleball, in a small group, in the swimming deck. We basically have to manage that supply and demand so that the experience becomes what we wanted. Life Time is a highly experiential company, we wanna make sure the experience is what we wanted, and we have to adjust the pricing. As I mentioned again, we are now, you know, if I go back, the aggregate clubs that early part of 2020 before the shutdown would have been maybe $122, $124, $125, is for the new memberships sold at that time. All memberships sold at that price. Now, you know, it's $208 for the period we told you.
You know, we've made some additional price increases. It's actually above $210 this month so far for the memberships sold. We are just. Again, you know, if the fear is, "Oh, what if it doesn't work?" We can adjust them. I mean, it's not, it's not an issue. It is working. We are seeing, as I mentioned to you, a highest %. I mean, we are getting 30 some % of our memberships are rejoins. Prior to pandemic was 26% of our membership being rejoined. The answer is the customer is not even making a comment. They just go online, and they sign up. They come to club happy as they can be, and they go about doing their business. We are very comfortable with the strategy, the way it's working.
Go through the You keep asking what portion is pricing. Some clubs, they had like Let me give you individual clubs. Syosset had north of 9,000 memberships prior to pandemic. It's too many. It was just uncomfortable for the brand we wanna deliver. It was too much. Now at, you know, 6,500 memberships, when we get to that, we will have higher dues, higher margins, and much better experience. Some of the clubs, we basically don't ever wanna get back to the old numbers, and some we had the room to go beyond because they weren't really at that threshold of giving uncomfortable experience. Now the opportunity for them is a higher number, but also at a higher dues.
We are still in a membership count in aggregate below the membership count that we were pre-pandemic. Again, I emphasize that's by design, by choice of change of the business model that I mentioned. All the tweaks we have made to our adaptations we've made to our business, that's one of them. We would open clubs. I mean, I'll tell you, if I... You know, some of you guys, like Brian Nagel, has been covering this company at different firms since I was public the first time. We used to CPM every club, all the large clubs, to 11,500 memberships at maturity. The last thing I ever want right now is to get to, in most of those clubs, 7,500, 8,000 memberships is the max we would ever want the club to get to.
They're doing that, today, almost more than, you know, 200%-plus of the dues revenue. The personal training sessions are more money. It's just really cost, the cost structure and the position of the company has changed dramatically.
Daniel Politzer (Managing Director and Senior Equity Research Analyst)
Thanks. I appreciate all the color. If I could just sneak in one last housekeeping one for Bob. Just as we think about the rent and progression throughout the year, is there a 4.2 exit rate for the rent expense? On the leverage, I know you guys said 4 times at year-end. Is there a long-term target on a traditional or at least adjusted basis we should think about? That's all for me. Thanks.
Bahram Akradi (Founder, Chairman, and CEO)
The long-term leverage, I wanna have it below three. We're gonna continue working on crusade of improving the balance sheet till the leverage gets under three. Since everybody is on the call, that is not a leverage I would like three times debt to EBITDA for a company that would not have all the real estate assets we still own. The change in that, where I think under three is a very healthy number, is that at all times we are carrying roughly about $3 billion worth of owned real estate, even with the sale leasebacks that we continually do. That just doesn't allow that $3 billion to grow, right? We recycle stuff coming in. My target is to keep the debt to EBITDA under three. We're happy with the progress we're making.
Obviously, the most improvement in that, just keep growing the revenue and EBITDA to grow the margins, and that will help that number you know, rapidly come down. I think Bob will get you that by the time you can run the math. Go ahead.
Robert Houghton (EVP and CFO)
Yeah. Dan, on the rent piece, you know, we've guided the $270 million-$280 million for the full year. Obviously, we'd exit the Q4 at slightly higher than that run rate since that's the guide for the full year. You know, something just north of that $70 million, which is-
Bahram Akradi (Founder, Chairman, and CEO)
If you just take our rent, we only did $33 million that we just closed in end of February. We got one more scheduled to close here in the next couple of months, another one in June, July, and then we are working on the other, you know, deals that we would announce in the future. If you assume $300 million of sale-leaseback in the mid-60s range for the, for the cap rate for the year and add that to where we exited, that will give you the exit coming out of... The timing of these will be, you know, depends on Life Time, the ability to deliver the product and/or the, you know, landlord's ability with the time they want that to go on their, on their deal.
That's gonna take, you know, sort of a little moving target, but, you know, you're looking at about $20 some million of, Call it $20 million of you know, incremental rent annually added to our exiting rent on the Q4 of 2022.
Daniel Politzer (Managing Director and Senior Equity Research Analyst)
Thanks so much. Really helpful.
Bahram Akradi (Founder, Chairman, and CEO)
Mm-hmm. You're welcome.
Operator (participant)
Thank you. Our next question comes from the line of Brian Harbour from Morgan Stanley. Please go ahead.
Brian Haber (Equity Research Analyst)
Hey, guys, this is Matt Morrison for Brian. Thanks for taking the question. Just to follow up on that conversation around membership dues versus 2019 levels. A couple months back you gave it broken down by state. You're obviously performing very well and in quite a few of those states, but a couple of the core markets in the Midwest, like Minnesota, Illinois, are still running kind of below those levels, or at least were when you last disclosed. Has that gap kind of closed? Is that mostly just due to kind of the timing of restrictions rolling off a bit later in those states, or is there anything else to call out there? Thanks.
Bahram Akradi (Founder, Chairman, and CEO)
Yeah. Majority of... You know, there are these anomalies, but majority of those, the ones that, you know, again, we mapped out, like in orange, they haven't fully recovered, was really timing. If you go back right now, and we will, you know, as we meet with any investors, we've, you know, we file those before we go to investor conference, You look at every single month, more states are turning green from orange. The other ones are keep coming up. Our expectation is every single state will recover to full numbers and go beyond. It's just timing, and really there hasn't been a situation saying, "Oh, the world is gonna be different in Michigan or Minnesota." It is not.
The only other thing in Minnesota has always been a little bit off is that we have one large super mega club that opened in town, and that depending on where you draw the line, that club takes a lot of members from the other ones, so dilutes the message. It's very close, and I think by this summer, I think we will hardly have any state that is left behind.
Robert Houghton (EVP and CFO)
Yeah. Matt, just to give context of what happened in the Q4. From November to December in Q4, two additional states fully recovered and six additional clubs. We're seeing similar, if not accelerated progress as we've rolled into 2022.
Bahram Akradi (Founder, Chairman, and CEO)
Yeah, every month you'll see that progress happening.
Brian Haber (Equity Research Analyst)
Okay, thanks. Just one more. Curious on how Net Promoter Scores have evolved recently. Have you seen any noticeable shift given gyms are likely less crowded versus pre-COVID, but you also have some additional programming around whatever it may be, pickleball, Small Group Training or revamped Personal Training, et cetera? Thanks.
Bahram Akradi (Founder, Chairman, and CEO)
Yeah. No, no significant change to our NPS. What's happening is we're getting a little better, obviously results because of expanded programming. Then, you know, the two things will reduce the NPS. The most potent one is when the members get a letter saying their dues is gonna go up $10 or $15. The legacy dues increases usually is an impact that's just a one-month impact. Finally, yes, the January traffic in the clubs basically can make the experience a little pinched. So those are just the seasonal, but apples and apples, our NPS is as good as it's ever been.
Brian Haber (Equity Research Analyst)
Thank you.
Bahram Akradi (Founder, Chairman, and CEO)
Thank you.
Operator (participant)
Thank you. Our next question comes from the line of Chris Woronka from Deutsche Bank. Please go ahead.
Chris Woronka (Managing Director and Senior Equity Research Analyst)
Yeah. Hey, good morning, guys. Thanks for all the color so far. Just a follow-up on the kind of the lease backs. You know, the question we get a lot from investors is how do we get comfortable that the, you know, given the interest rate environment and such that the, you know, buyers, which I know includes some REITs, you know, that the economics don't change materially. Maybe any thoughts you can provide around that?
Bahram Akradi (Founder, Chairman, and CEO)
Go ahead.
Robert Houghton (EVP and CFO)
Yeah. On sale-leasebacks. Yeah, we from a cap rate perspective, Chris, we're seeing cap rates consistent, little-
Bahram Akradi (Founder, Chairman, and CEO)
Mid-sixes.
Robert Houghton (EVP and CFO)
Consistent with what we've done historically. We still see strong demand from the REITs to participate in our properties. As you know, we paid every nickel of rent during the pandemic. Our clubs are all cash flow positive, we're a really attractive tenant for landlords. We're seeing a continued strong demand at rates consistent with what we've done in the past.
Bahram Akradi (Founder, Chairman, and CEO)
The one thing I would mention to you guys is that our leases are 20-plus year leases initially, and then they have, you know, we have multiple options, five-year options after that. This is a very, very long-term. Think of it should be more like the 30-year mortgage rather than the. Our partners who are doing these deals with us, obviously they're under pressure for, you know, their investors tying it into a, you know, current rates. We all know the current rates will change. If they don't change this year or next, they'll change soon enough relative to a 20, 30 year. While the rates are volatile for a two year, or a five year, even 10 year, they don't really have as big of a pull.
They're It's not % for % on a 20 plus 30, 25 year lease. There is virtually no concern that we can't get them done. The difference is just a quarter percentage point, one way or the other on the cap rate.
Chris Woronka (Managing Director and Senior Equity Research Analyst)
Okay. Very helpful. Appreciate that. Bahram, you've talked in the past about the potential M&A in the space and being a, you know, active participant in that. Has anything, you know, changed versus a year ago, six months ago, in terms of what you're seeing relative to, again, debt markets being tough for some of the maybe, you know, weaker capitalized players? Is there anything that changes your view on what might happen over the next year or so?
Bahram Akradi (Founder, Chairman, and CEO)
I think, strategically, at some point, those opportunities will become very attractive for Life Time. For the last 12 months, the current, six months, the first six months of the year, you know, our heads down focusing on fundamentals. We needed to make the adaptations that I have talked about to make sure our business model has overcome all the inflationary issues that everybody's dealt with. And recovered from the pandemic, you know, ups and downs, and overcome all the inflationary stuff with construction, supplies, payroll. I am so excited because we have accomplished that. I think as we look into the breakdown of the business unit, you know, I tried to do it and give you guys some examples on this call.
Unfortunately, it gets convoluted, you know, because we can't talk about the EBITDA when you exclude the impact of rent, so I just took it out so I can do it in a much more detailed approach. We have the healthiest business model since the inception of the company today. I'm proud of our company. I'm proud of our team. I'm proud of my partners for digging deep and making all the necessary adaptations to end up with a business that is better. Now, once we get that done, and then we are kind of building our normal course of clubs, and we can also look at opportunities, hopefully by the next call, or two or three, we can start sharing with you guys the opportunities that are popping up and how we're dealing with them.
Chris Woronka (Managing Director and Senior Equity Research Analyst)
Okay. Very good. Thanks, guys.
Bahram Akradi (Founder, Chairman, and CEO)
Thanks.
Operator (participant)
Thank you.
Bahram Akradi (Founder, Chairman, and CEO)
I think we have time for one or two more questions. Go ahead, guys.
Operator (participant)
Thank you. Our next question comes from the line of John Heinbockel from Guggenheim Partners. Please go ahead.
John Heinbockel (Managing Director and Senior Equity Research Analyst)
Hey, Bahram.
Bahram Akradi (Founder, Chairman, and CEO)
Hey, John. How are you?
John Heinbockel (Managing Director and Senior Equity Research Analyst)
Good. Good. Two quick well, one will be quick. Can you talk about your philosophy, right, on, there's a virtual flywheel here, right? You take in more dues, you invest in the business, the experience gets better, and you can, further raise pricing. Talk about that philosophically, right? What would you like to when you think about raising the experience further, what would you like to invest in, whether it's new services or upgrades that you're not doing today, right? That would elevate the experience.
Bahram Akradi (Founder, Chairman, and CEO)
We are doing them. We're not doing them across the system, John. It's a great question. Let me. Certain things you just can't do overnight. Like, what I like to do is in terms of our Ultra Fit class, which is really a amazing small group training. It's a kind of a sprint training coupled with functional training for perception. It's as complete of a workout somebody would want to have. Okay. We have to build the, you know, this pop-up studios for people to be able to do those, and we've been busy working our tails off nonstop to converting the floor plans to get this done. We are now done with maybe more than 2/3 of the clubs, and we're still kind of doing that remodel in the others we're going forward.
That takes time to implement that idea. Once you have that, now you have to get the talent that can actually coach that class that has the people wanting to follow. There's just these things that we wanna do, it's not like writing a new, you know, software for something and then rolling it out and everybody can. It's just the speed of implementation is really, you know, one of those things that you have to take into consideration.
To answer your question, what I love to see is more consistently across all the clubs in the country, executing the locker room that smells like, you know, the best spa in the world, the cafe that gives you the best food, all the programs taught by the best coaches, best instructors. It's just really continuing to work. When we. Any CEO of a multi-unit, you know, you can get excited about the few stores that is closer to you, that you see everything running perfectly. The question is: Is that happening consistently across all the system? How fast can you roll out new programs consistently across the whole system? We are doing that.
We have lots and lots and lots of runway right now in continuation of implementation of the programs we have just talked about. There is plenty of runway there. I see our average dues, you know, for the new membership sold by this summer, well in excess of $220-$225, that's almost country club-like in terms of what you're charging. I feel like we got to make sure that sense of belonging for the customer, where they just deeply believe they're going to the best brand. The other thing we're doing for the customer that nobody else can do, no country club can give, is access to nearly 40 million sq ft of facilities across the country. More and more, we hear from the customer saying, "I travel with Life Time.
We look for a home near Life Time." I mean, it's happening constantly. When Our desire has been to build a, you know, one of the most, you know, well-coveted brands in the country, and we've been working at it for 30 years, and I think today is in the best place it's ever been.
John Heinbockel (Managing Director and Senior Equity Research Analyst)
Yeah. Just real quick. The quick one was gonna be, if you look at the underpriced memberships, right, that you talked about before, that's about $200 million of annual revenue. I mean, how do you think about, maybe not all of that is available, but you think about staging that over a, you know, one year, two year, three year period?
Bahram Akradi (Founder, Chairman, and CEO)
Yeah. That's too aggressive. You know, you really have to run your business from the customer point of view. You don't want to make the customer who's been with you for six, seven, eight years, feel like 10 years, 15 years, feel like you have no appreciation for that. We have been doing this, you know, steadily. We didn't do it as smoothly as we're doing it now. We used to do a price increase every November for everybody at one time. Too harsh. Now we go through a use of AI, utilization, studies, everything, and we may take a half a million dollars worth of dues increase this month. We may take another half a million next month. It's small number of people.
It's a small number of people per club that allows an individual conversation between that particular member and the lead general of the club. We're gonna bleed that in methodically, slowly. We have lots of dry powder. Just that that's really an opportunity for the company to kind of improve the dues revenue steadily throughout the year.
John Heinbockel (Managing Director and Senior Equity Research Analyst)
Okay, thank you.
Bahram Akradi (Founder, Chairman, and CEO)
Thank you.
Operator (participant)
Thank you. Ladies and gentlemen, we have reached the end of the question and answer session, and the conference of Life Time Group Holdings, Inc. has now concluded. Thank you for your participation. You may now disconnect your lines.