Life Time Group Holdings, Inc.LTHNYSE
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Operator: Greetings. Welcome to the Life Time Group Holdings Inc. Third Quarter 2025 Earnings Conference Call. [Operator Instructions] Please note, this conference is being recorded. At this time, I'll turn the conference over to Connor Wienberg, Vice President of Capital Markets and Investor Relations. Thank you, Connor. You may now begin your presentation.
Connor Wienberg: Good morning, and thank you for joining us for the third quarter 2025 Life Time Group Holdings Earnings Conference Call. With me today are Bahram Akradi, Founder, Chairman and CEO; and Erik Weaver, Executive Vice President and CFO. During the call, we will make forward-looking statements, which involve a number of risks and uncertainties that may cause actual results to differ materially from those forward-looking statements made today. There is a comprehensive discussion of risk factors in the company's SEC filings which you are encouraged to review. The company will also discuss certain non-GAAP financial measures, including adjusted net income, adjusted EBITDA, adjusted diluted EPS, net debt to adjusted EBITDA or what we refer to as net debt leverage ratio and free cash flow. This information, along with the reconciliations to the most directly comparable GAAP measures are included when applicable, in the company's earnings release and earnings supplement issued this morning, our 8-K filed with the SEC and on the Investor Relations section of our website. With that, I will turn the call over to Erik.
Erik Weaver: Thank you, Connor, and good morning, everyone. Starting with our third quarter results. Total revenue increased 12.9% to $783 million. Average monthly dues grew 10.0% year-over-year to $218. Comparable center revenue grew 10.6%. We are proud of the sustained growth in our comparable center revenue, driven by continued strong performance in both dues and our in-center businesses. Particularly in our dynamic personal training. As a result, we have raised our full year comparable center revenue guidance to be between 10.8% and 11.0%. We ended the quarter with nearly 841,000 center memberships, including on-hold memberships, total memberships reached approximately 891,000, in line with our expectations. Net income for the quarter was $102 million, an increase of 147% and includes an approximately $5.7 million tax-effected gain on sale leasebacks. This compares to a $3.5 million tax affected loss in the prior year quarter. This quarter's net income also benefited from $16.2 million in tax-adjusted proceeds from employee retention credits received under the CARES Act. Adjusted net income, which excludes the impacts of gain and losses on sale-leasebacks, share-based compensation, ERC credits and other nonrecurring items was $93 million, up 65.2% year-over-year. Adjusted EBITDA was $220 million, an increase of 22%, and our adjusted EBITDA margin improved by 210 basis points to 28.1%. Net cash provided by operating activities rose approximately 66% to $251 million compared to the prior year quarter. Our consistently strong cash flow from operating activities remains a key driver of our long-term growth strategy. Free cash flow was $63 million for the third quarter. In Q3, we closed on the sale-leaseback of one property, generating net proceeds of approximately $34 million. We expect to complete between $55 million and $65 million of additional sale-leaseback transactions before the end of this year. We delivered another strong quarter and remain encouraged by our continued momentum as we approach the close of a successful year. We look forward to giving everyone a preview of our full year 2025 performance in our initial thoughts on 2026 in the second half of January. With that, I will now pass the call over to Bahram. Bahram?
Bahram Akradi: Thank you, Erik. We are pleased with another quarter of strong performance and growth. Thank you, as always, to our 43,000 team members. The core of our success has been our team members and our consistent delivery of the best places, programs and performance to our members. Our growth strategy is clear: first, accelerating new club growth; second, continued our maniacal focus on member experiences growing member engagement and revenue per center membership. With the balance sheet strong and our net leverage ratio below 2x we remain well positioned for our accelerated development and construction of new clubs. We expect to deliver 12 to 14 new clubs in 2026 and beyond. This is our new baseline of new club growth. We're particularly excited for the next year's new club openings. 11 of the 2026 clubs are a large format. 13 clubs scheduled to open in 2026 are currently under construction, which provides great visibility for these openings. For more details on these locations, you can refer to the earnings supplement posted to our website this morning. As it relates to the second part of our strategy, which is growing membership engagement and revenue per center membership. Membership optimization is increasingly important as clubs are busier than ever. As highlighted in our earnings supplement, this includes, one, improving the mix with more couples and families and 2 limiting qualified memberships in certain clubs. Our strategy is working, as evidenced by average monthly visit, per membership reached 12.5% for the quarter, up 5.9% year-over-year. Total visits are up 7% year-over-year for the quarter, revenue per center membership is up 11.3% year-over-year for the quarter, and in-center business revenue was up 14.4% year-over-year for the quarter with the particularly strong growth in dynamic personal training. Our strong performance and increase to our year-end revenue, net income and adjusted EBITDA guidance are direct results of our focused strategy on growing revenue and adjusted EBITDA by delivering the best programs and experiences in every club and optimizing memberships. Given the high club utilization, we expect to further manage our membership mix to continue to increasing revenue per center membership and anticipate an additional seasonal decline in membership units in the fourth quarter. Finally, a couple of updates on our growth accelerators. We now have 2.75 million non-club members, LT Digital accounts and expect to cross 3 million by early 2026. More importantly, we are very excited to release new features and capabilities offered by L•AI•C, our AI health companion for both our club members and our nonmember digital subscribers by end of this year. Our trusted nutritional brand, LTH continues to grow year-over-year, and we are expanding our product lines. And we expect to add 4 to 5 new MIORA locations in various clubs by early 2026 as we continue to see progress in our first 2 locations. With that, we will now open the call for questions.
Operator: [Operator Instructions] And our first question comes from the line of John Heinbockel with Guggenheim Partners.
John Heinbockel: Bahram, I want to start with the in-center revenue opportunity, where do you think -- because the spend is still a small part of what your customers' wallet is. Where do you see the biggest opportunities? And I think about DPT penetration, how much upside is there to that from where it is today?
Bahram Akradi: John, our personal training program is absolutely doing an amazing job under the positioning, branding, DPT, the particular execution of the team all the way from the corporate office under the leadership of Ryan and then everybody who works with him as well as the focus in the clubs from our RVPs and our lead generals, all the way to the PTLs. We are executing a detailed plan and the results are incredible. There are many clubs that are setting new records, month after month. And then there are other clubs that they're basically following -- seeing what's possible and executing. So I think that possibility is right there, and we are very, very, very pleased with what they're doing and my hats off to all of them, but there's still opportunity there. We -- as we have mentioned on the other in-centers, there are our cafes and our spas and both of them showing some strength in the execution of the certain strategies, but look, when we rolled out dynamic personal training, dynamic stretch and all the different new concepts and ideas, they've actually took roughly about 6 to 12 months before you start seeing the momentum change. And so we expect to see this momentum change early next year on the cafes and spas. So I feel like we have plenty of room there. And then as I mentioned in my remarks, we've been working diligently on MIORA and LCH, both of which are -- have been in the early stage testing, development, introducing new products, seeing people, how people like it. And then we're going to really put pressure on growth and marketing of those in 2026 and beyond. So we feel really, really good. about all aspects of the business, John.
John Heinbockel: And then as a follow-up, right, now that you're starting to get really good momentum in the club openings. How do you think about prioritizing beyond '26, different channels, ground up, club takeover, et cetera. And what -- do you have sort of a number in mind that you -- in the intermediate term, you would prefer not to exceed in terms of maintaining a healthy level of execution?
Bahram Akradi: Yes, so I think the -- as we stated this morning and earlier, the new baseline is 12 to 14 clubs for right now. The pipeline is super strong. The real estate team is again doing an amazing job. And I am super, super excited about what we have on the pipeline. And the management of those, what we -- you've asked and we are providing supplement material for you online, so you can see a little more visibility to club openings where they're coming from. We we will have a variety of facilities. Our urban clubs are doing incredibly well. Everything we have opened up in Brooklyn, in New York and -- they're all doing really well, and our suburban clubs are doing better than ever. These clubs are ramping faster and clean memberships, which just matches the way we like the company being positioned from the get-go. So I don't have any -- we have really -- we have balance sheet restraints last year through the first half of this year because we just really wanted to make sure we deliver the BB credit standards, we've delivered that. The target, as I've always mentioned, for the debt-to-EBITDA is under 2x. And we have now a significant opportunity to grow the business we can do a bunch of round ups and take them to the sale-leaseback market at the right time. So we have all kinds of flexibility on growing the business, and I'm super excited about that.
Operator: The next question is from the line of Arpine Kocharyan with UBS.
Arpine Kocharyan: You raised comparable center revenue guide and what that implies for Q4 is actually nicely ahead of expectations. But there is this near-term debate among investors about sort of average number per center growth and how that ties to your revenue, same-store growth trajectory. Essentially, we're going back to the question of price and ability to take price as investors are increasingly more worried about macro. Is there any way you could give an update on your current thinking on how you maximize revenue without leaning too much on per center membership, which I think you're sort of trying to control more? And then I have a quick follow-up.
Bahram Akradi: Right. Let me take a little bit of that and give it back to Erik, so both of us speak to that. The focus of the company has been brand and member experience, deliver a brand that is unmatched, deliver a brand that the customer wants it and wants to be a part of it and does not want to get away from it. When we went, public a second time, our materials suggested repeatedly, we're focused on memberships from 90 days old to 90 years old and basically trying to provide incredible programming for all of these people. When we came right [ at ] COVID, clubs were at about 40%, all clubs, they were at 40%, 50%, 45% of the membership capacity of the clubs. So we basically took in through all the programs, all the different types of memberships that we bring in to have enough traffic in the club, enough swipes in the club to make sure you run the programs. As the clubs have reached this optimum level of utilization. So many of the clubs are operating at very, very -- parking lots are full. Clubs are busy. So now in all of these clubs, the opportunity is in membership optimization, which basically means you manage to get more revenue per membership. Sometimes that means you focus on getting full-blown members, family memberships, which very, very high average dues and you select to restrict the number of memberships you get from third-party kind of a discounted programs. So we are constantly going to manage the total experience of the customer. We're constantly going to manage the brand, we're constantly going to manage the growth of revenue and EBITDA. And that is really what the company is focused on. It's a little less focused for center membership units, because that is going to fluctuate with depending on club-by-club based on the position that club is at.
Erik Weaver: Yes. And just to add to that, Bahram talked about mix and he talked about engagement. If you see in the supplement that we provided, you can see there is that shift happening where we're getting more couples and families. And so that with the increased utilization is requiring fewer memberships for those clubs to reach the desired utilization. In fact, if you look forward to next year's pipeline and the year after, those clubs are actually getting business planned with units somewhere in the range of 3,500 to 4,000. And so again, it's just a testament to the utilization and that improving mix requiring that smaller base.
Bahram Akradi: Yes. Many of the new locations are basically positioned in a way that they're ramping so fast with just the full price paying type of memberships that we basically do not open it up for restricted membership -- restricted memberships or qualified memberships or third party paid memberships. So that the really -- what I want to tell you guys, we are going to continue to emphasize revenue growth and EBITDA growth in every single club.
Erik Weaver: Yes. And one last comment on that. As we hit those targets, we're still papering those things to do plus 30% cash-on-cash return. So the unit economics are still extremely attractive and in some markets, can be better. So I just wanted to call out that that's all part of our growth algorithm.
Arpine Kocharyan: That is very, very helpful. Just a quick follow-up. You mentioned all centers you're targeting to open next year are mostly under construction currently. Whether you're at the lower end versus the high end of that range, what is that a function? Is it just sort of construction time lines making it to next year or kind of more tied to sale-leaseback cadence that you're looking at for next year?
Bahram Akradi: Yes. We're pretty comfortable that 13 of the 14 are for sure. And one club may end up a month earlier or a month later. And we're just making sure that what we're telling you is accurate. But the goal has been 12 to 14 clubs. And I again, as I mentioned, 13 of them are pretty firmly in the pipeline, there is going to take some monumental event for them not to come out during the year.
Operator: Next question is from the line of Brian Nagel with Oppenheimer Company.
Brian Nagel: Great quarter. Congratulations. [ For my first question ], just stepping back, obviously, we're seeing the numbers today and your commentary is extraordinarily positive. But just given all the -- given the concerns out there within -- amongst investors about consumer dislocations. So the question I want to ask, as you look at your business, are you seeing anything, anything geographically income cohort that would suggest some type of weakness or growing weakness in your consumer base?
Bahram Akradi: Look, as you can appreciate, what I am proud of with our team. And again, this is really all about our team from the very, very top-level executive team, all the way to the people who run the clubs, it's just an incredible passionate commitment to delivering a place that people want to go to and enjoy. As we look at the company's history over 35 years, we have opened clubs in a variety of markets. And right now, we are largely opening in a more affluent markets. When the memberships were $39, $49, $59 a month, there were markets that were well suited for that. And they're not really well suited for $290 to $350 a month memberships. So the interesting thing, Brian, is that all the clubs are making money. All of our mature clubs collectively are making more money than they were making in the past. So all the execution that we have put in place is working. The consumer that goes to Life Time chooses a Life Time because of all of its differentiation, and that exists in Omaha in Algonquin, in Chicago suburb. It does also in New York and in Florida and in California. So -- but do we manage all of these the same. We have the same strategy to be the best provider, but they take different type of programming and techniques to try to continue to manage each and every one of those locations. And so we are not seeing any new trends. We're not seeing anything different than the past in terms of how the customer is responding to what we are delivering right now. We keep thinking that, that might change, and we keep hedging and embracing what if times get tougher, so we have strategies laid out, but we're not seeing anything at this point. Erik?
Erik Weaver: Yes. No, I would reiterate that. I mean we've talked about DPT, new business revenue in September was the highest for that quarter. Same thing in our spas, revenue per technician was up, and our group fitness classes on average were up 7.6%. So by all indications, we're seeing exactly what Bahram was talking about.
Brian Nagel: That's very helpful. I appreciate all the detail on that. My second question, just with respect to capital allocation. So it's great to see now you were ramping new center growth. You talked about the 12 to 14 for '26 and most of those now are under construction [indiscernible]. So the question I have is, to what extent, especially with at least some ideas, the stock are underperforming, languishing relative to some very strong fundamentals. To what extent are you thinking about potential using capital potentially to buy back stock here?
Bahram Akradi: Yes. So I'm going to respond to that. We -- #1 objective here is to remain extremely strong on the balance sheet so the company has all kinds of options in any kind of environment, okay? When the environment gets tough, we want to be in a win position. Environment gets stronger, we want to be in the win position. And based on where we are today, we are still adding even if we do $350 million, $400 million of sale-leaseback next year. We're still adding net asset value. We're still building more new assets, new club development, more money spent than that, then we are taking to sale-leaseback. So basically, the company continues to get stronger. So at some point, this is a Board discussion to decide, should we be buying some stock back. That's definitely on the table for discussion at the Board level. No decision has been made at this moment. But all options are on the table. The company is super strong. And that's exactly where we like it. We like to have this opportunity to basically go one way or the other if we need to. The main focus right now is to step on growth and make sure we have the ability to keep delivering these clubs. As I mentioned, 11 of these 14 clubs are ground ups. So they're taking a substantial amount of capital to build them. We're going to continue to invest in our programming and remodernizing the clubs to make sure all clubs are adapted to all things people are looking for in total health and wellness today. So we just like the flexibility, but every option is on the table.
Operator: Our next question comes from the line of John Baumgartner with Mizuho Securities.
John Baumgartner: Thanks for the question. First off, Bahram, I'd like to ask about relative value. As you see it, because fitness industry dues are moving higher across multiple concepts for the first time in years. And I'd imagine that some of these concepts, the boutiques, the studios, their prices are increasing, but the offerings aren't really evolving much to match that. So I'm curious, are you seeing anecdotally anything that's pushing some folks or stimulating more interest from folks to trade up or into Life Time because that value gap. I realize the number of members isn't necessarily your main KPI focused. But have you seen tipping points historically in that relative value versus other concepts where you capture more market share that sort of high-quality engaged consumer that you prioritize?
Bahram Akradi: Yes. We're totally seeing that happening in our clubs. I mean when you look at our urban markets where there are many studios offerings, we're really not seeing any impact. Nobody is leaving a Life Time mean to go to studios. But on the reverse, we do see the reverse of that taking place. So the -- overall, despite the transitioning the company to the super high end, which was part of our multifaceted strategy after COVID to completely reposition the company to the highest level and the best programs being delivered under one roof, everything is working. Really, the clubs are -- as evidenced by the utilization of the clubs, the clubs are having more utilization that they've had ever before with significantly, and I mean sometimes literally 50% of membership count of what they used to be at 2019. And so the utilization is the higher. The customers are using the club a lot more. They're seeing the value in the business. They appreciate the brand, and they see the differentiation, so the strategy is working. Life Time is working.
Erik Weaver: Yes. You mentioned relative value. I mean if you look at the relative value for -- we're seeing more couples and families. If you look at our pricing model. There's still significant value proposition there when you think of all the amenities that come with a membership. And when you compare that to a studio or what have you, all you need to -- 1 or 2 studios, it's not long before that's going to be in excess of what a couple of membership would be. So, the value proposition is still very, very strong, and that's what we're seeing.
John Baumgartner: Great. And then my follow-up, back to LTH Nutrition, I think the strategy there is for more of a phased rollout. But I'm curious, Bahram, your perspective fall in the consumer reports investigation into the contaminants and supplements, especially the protein powders, does that lead you to revisit how you build this business? I mean is there an opportunity to lean a bit harder, especially with non-Life Time households to leverage your third-party purity testing and kind of grow or market this business a bit more aggressively or differently?
Bahram Akradi: It's a brilliant question, and that's exactly the strategy for 2026. So here is what we have been doing. We needed to -- we did not own Life Time nutritional brand, some company had this before, we established the name Life Time until last year. So if you look at our materials, you see, we actually were -- had the opportunity to buy that brand and that create the opportunity to make sure that the LTH and Life Time brand can basically be synonymous, which we haven't been able to execute in the past. So that was one strategic move. The second piece is to basically take our product offering and make them look more unified because a lot of the work we did with Life Time started by looking at the nutritional space and seeing how the lack of regulation in nutritional space has created so many products that actually do not have the proper manufacturing, the proper third-party testing, which is expensive. So people just don't do it. And basically, they have either not the stuff that they claim they have in their product or they have contamination. So our strategy in the company is -- has been, will remain forever for 30 years after I'm gone, the strategy will remain to be the best to -- if we're not the best, don't do it. If we're not the best provider, don't do it. So we basically put a significant amount of energy in making sure every product is formulated correctly. We test them -- look, there are -- as an example, when you think about protein powders, the -- there are certain vegetables you eat that they own heavy metal. So basically that heavy metals are going to come in through different foods that you eat. Now the key is to make sure you have incredibly safe minimal amount of that, if there is any in them. And we basically have some of the absolute best cleaners and we test them. So to your point, what we needed to do is we need to kind of get everything lined up, make sure the packaging becomes more consistent. That's all underway throughout the end of this year, early next year and test the success of the product. I mean, our nutritional products like our Dream for sleep, I can tell you personally, it is absolute home run. We launched it. It immediately is doing great. And so there is some level of methodical development and testing and we're feeling out what products are working, repackaging. And then the strategy for 2026, as I mentioned before, is to completely and entirely press on and maybe even spend some -- we're not spending a lot of money on marketing as you guys have know -- known. And then maybe it's time to start spending some dollars on marketing. But we're probably 3, 4, 5 months premature to basically getting there. Right now, we're seeing all the growth, within our facilities, our team members and members are recognizing the superiority of these products, the trust that they can have for the brand and we want to make sure we test and examine that, use Life Time as a beta before we go to the outside world.
Operator: Our next question is from the line of Kate McShane with Goldman Sachs.
Katharine McShane: These questions kind of verge a little bit into 2026. So I'm not sure how much you can answer at this point that given that you're not giving guidance. But we wondered of the 13 clubs that you have under construction, we know there's a nice list of them in the presentation today. We just wondered what the breakdown was between new and existing markets. And if there was a little bit more in the new markets, what does it mean for marketing spend into 2026. And then just our other question unrelated was just about expenses in general, what you're maybe seeing or expecting on the labor side of things as you go into '26 in newer markets?
Bahram Akradi: It's a great -- those are great questions. Let me take the first one for you, Kate. When we build the ground-ups, in any market, new or old, it makes no difference. They work exactly the same. The -- if you think about Life Time's, how long it's been in existence [ and ] 30-some years and the amount of loyal customers who love Life Time. But let's say they move to San Diego, and now we have nothing in San Diego. When we open clubs in new markets, they are just as robust as opening other club in Dallas. So I don't see right now any sort of a difference. We haven't seen. We're seeing great success and similar success in new markets as well as the established markets. And then as far as the expectation of wage growth, look, I believe that as the cost of living increases, wage growth is absolutely a given. So we basically model all of those things into our -- while we're not going to give inter-quarter guidance or 2026 guidance, the team is very, very incredibly thoughtful led by Erik and rest of his financial team, our President of Club Operation, P.J. and all of our analysts we are working diligently on thinking about what are those items that can cost more? What are the things we can do to mitigate if there is opportunities to hedge on the energy or this or that. So the team is doing an amazing job, credit goes to all of our team, like in our insurance -- health care insurance is managed amazingly by our team. None of that credit, 0 goes to me. Everything is going to -- the team is doing a maniacally great job on all aspects of the business. But -- it's given. I mean as you see cost of chicken going up, as you see all the different inflationary cost to the consumer, I think you -- the customer who -- the team member who works in the club also needs to have a pay increase in order to get through the life. And that's all planned for.
Erik Weaver: Yes. And I would just add to that, to your point, we'll give 2026 outlook here at the end of January. But as far as labor expenses in our centers, those have been trending roughly around at the level of CPI 2.5%, 3%, and we wouldn't expect that to be any different, Bahram mentioned utilities, of course, utilities with energy demand, there's always going to be a potential for increase there. But we do a number of things to hedge and rate lock in a lot of our markets. So I would say we've managed exposure nicely there. And of course, R&M supplies, COGS, those things will always be subject to regular inflation. But for the most part, I think we've done a nice job of managing a lot of those risks.
Bahram Akradi: And I want to add a comment. Look, I talk to investors all the time. Our environment is dynamic, our world is dynamic. Things change, sometimes they change slowly, sometimes they change rapidly and you need to constantly be ready for adaptation. And this team is doing an amazing job of thinking about adapting as necessary. And we're very, very, very proud of what the team has been executing over the last several years. With that, we'll just deal with the future as it comes.
Operator: Next question is come from the line of Eric Des Lauriers with Craig-Hallum.
Eric Des Lauriers: Congrats on another very impressive quarter here. Wondering if you could expand a bit more on dynamic personal training, certainly been a driver of incentive growth for a few quarters now. Could you just expand a bit on what changes have been driving that growth? And then maybe even more importantly, what kind of -- I guess, how should we think about capacity in terms of continued growth in DPT. I mean do these personal trainers have a lot of capacity to add new clients? Are they pretty much booked throughout the day at this point? Just kind of help us understand a bit more how to think about the capacity for continued growth in DPT?
Bahram Akradi: That's a really, really complicated question. The response is not going to be something you like. There are some trainers who are booked solid. They don't have other hours to sell. So their opportunity is to adjust their price up a little higher and charge a little more, sometimes they do and sometimes because of their loyalty to their customer base they have, they don't. It's their call. The -- some trainers are new. They come in. We have a great opportunity right now with the Life Time brand, the DPT, the clubs to attract really, really, really solid people for that business. We have an incredibly robust program for them. The top performers get compensated extremely well taken care of really well, and we're continually adding to the number of productive trainers at a very good pace. Some clubs are doing PT, dynamic personal training revenues that are record-breaking month after month. And some clubs have opportunity to do significantly more than what they're doing based on their particular location and their membership base and their dues base. So it's the managing and is not the simple answer for the whole company as a whole, it's club by club, location by location, trainer by trainer.
Eric Des Lauriers: That's helpful. And it certainly sounds like there's room for this to continue to be a growth driver, though. I appreciate that it certainly varies center by center. Next question for me. Just on the decision to expand new more locations. Can you just comment on what you're seeing from the few that you have opened now and just expand a bit more on that decision?
Bahram Akradi: Yes. So the decision -- we kind of set the bar a year or 2 ago is about 10 to 12 club openings, balancing that with some acquired clubs that had a great opportunity to kind of convert those. And all of that was to sort of balance 2 things at the same time. The club growth and the balance sheet to the safe, safe BB level credits, we were just kind of delivering on 2 objectives. We achieved our BB credit a year ahead of what would have been expected. And I'm proud of the team for executing that 100%. And then as soon as we did that, the focus was come back, look at our pipeline and see what could be expedited and then take that into the equation. And that was the change. And now, as I mentioned to you, the balance sheet is strong. Our #1 priority is growth. We have a significant amount of -- as we told all the investors over and over in '23, '24, '25. We have significant opportunity to grow the -- all of the clubs, re-ramping a lot of clubs because they had lost. And with a clear understanding at some point, the clubs will get to a high level of [indiscernible] and then you need to sort of get the -- your growth coming in from new center growth. And so that is now part of the plan to grow the new center, as I mentioned, we have been working on our digital strategy as well. I know we didn't spend a lot of time on it, but I am super, super excited about the work our team is doing to deliver an amazing experience for AI to make the life of the member significantly easier with basically a pretty robust unveiling of the features that come in late December, January, February of this year, is about how we can do things so much easier for our customers in the club through AI as well as what AI can do for digital subscribers who are getting all of this for free. And the reason they're doing that is because -- the reason we're doing that is to make sure the Life Time brand is reached to people who are within our club vicinities and the people who are outside of that. And then, of course, we hope to establish opportunities with a much easier way for people to share link on, hey, why you should take Life Time's protein powder versus others and then the people can just click and purchase that. So there's a lot of different works being done that basically is established to help the overall growth of Life Time as a healthy way of life, health and wellness, full service of all aspects of healthy living, healthy aging. Additionally, our MIORA offering, which is the longevity. We are -- we have been at a sort of R&D stage for the last year, that results have been exactly in line with what our expectation is, as we need to establish the relationships, get the doctors, bring them into the facilities and then get the providers, which are the nurse practitioners or physician assistants. Get them fully trained and then take them through our approach of metabolic code and do that program. That program is going really well. It's right on schedule. We're expecting to open 4 to 5 additional locations in different markets in the next 90 days and then roll those out and then it starts rolling that out much more aggressively by the end of '26 into many, many, many more markets. So we're going to continue to look for ways to adapt the business to what the customers are seeking, make the adaptations necessary to provide that, make the adjustments in positioning the company into the market. So it's the highest premium product in the market. And sort of address the customer who wants that quality, and they're not going to subsidize -- sacrifice the quality for anything. And that strategy has been working as evident to your -- our results, and we're going to continue to stay on that strategy until we see a need to come up with something different. Right now, we don't.
Operator: Our next question is from the line of Owen Rickert with Northland Securities.
Owen Rickert: First, where do Life Time Living and Life Time Work fit into your road map going forward? And maybe how should investors think about their contribution to growth over the next several years?
Bahram Akradi: That's a great question. Life Time Work, actually, from the separately unique locations, the specified [ Life Time Work ], they're working. They're working just as good as our clubs are working. They're not really a big factor in the overall number. However, the opportunity there remains asset-light when we can fit them in right next to the club, adjacent, we have similar success, waitlist for them. They work great. The -- what's interesting about that is that we have kind of launched the Life Time Work Club Lounge, which is basically a more expanded opportunity within our existing clubs, just part of the membership and it's really interesting to see how well that works. And we continue to make adaptations in existing clubs that just helps the regular membership. Life Time Living, it is clearly a superior performance in terms of -- we have 6, 7 locations that basically have Life Time Living, every single one ramp faster, every single one of those will have a higher rate per square foot and every single one demonstrate better retention and regular apartment business. So it's truly a disruptive plan, it benefits from the 200 billion of Life Time impressions per year. And so we are working though on either ways to provide the -- CapEx for that, that is more or less off Life Time's balance sheet and using the Life Time's balance sheet and cash flow for building our regular business, which has a massive IRR after sale-leaseback or sort of fully leveraged, as you guys know, it's a great IRR. The apartment business, even if we are 25% superior to the apartment business, which so many times, we demonstrate that, it's still extremely below the IRR of our club operations. Therefore, what we are working very, very diligently on is having a different vehicle that is basically does not use Life Time's money to build it. Now we're talking with that, we're working with a lot of partners who are building the apartment business to name their apartment Life Time Living, and we just got the financing all in place and the location in Paradise Valley is under -- it's a very minimal investment from Life Time. Most of it is outside capital, but it will be right behind and attached to our Paradise Valley location, which will open ahead of the apartments. So it is definitely on a development plan part of Life Time to continue to grow the full campus of the Life Time Living, Life Time Work, Life Time Club. The capital structure, the cap stack of that is very, very different than the cap stack for just the club business.
Operator: Our next question is from the line of Molly Baum with Morgan Stanley.
Molly Baum: I just wanted to ask 2 quick follow-ups on the new club openings for next year. So the first of which is, I know you highlighted that you're going to be opening larger clubs next year. Are there any important considerations that we should keep in mind from a margin standpoint or maybe from a new club ramp standpoint as we think about 2026 versus 2025?
Erik Weaver: Yes. I mean for those clubs, I mean, those are going to have margins that are going to be, I would say, relatively similar. We do expect those clubs with the larger square footage though, on a per average basis will be -- we'll have higher average revenue per club. So that would be one expectation to keep...
Bahram Akradi: These are what you should look for. Higher average revenue, lower membership count, as Erik mentioned, our new business model for the new clubs, we don't need more than 3,500 to 4,000 memberships to achieve the best outcome, the best optimal returns. And then you should also expect that we are going to press you guys on not keep calling for more EBITDA margin. We are -- last year, we started at 25%. We told you not to model beyond that. You asked, can you do better? We said, we didn't say we can't do better. But now we've got to consider that as we get into the next year, opening 13 or 14 new clubs, there will be a -- there would be a negative margin from those at the early stage of the opening. So we feel really, really good about where the business is at as strong as we've ever felt. I just want to make sure that we guide you guys correctly with all of that. But those clubs should do really, really well.
Erik Weaver: Yes. And you probably saw in the supplement the average size is about 95,000 or 94,000 for next year. So just -- so you guys can model that into your models because look at 2025, it was roughly 66,000. So that's an important point as you're doing your remodel.
Molly Baum: Got it. And then just quickly on my follow-up. When you think about the balance of using sale-leasebacks for self-development for new club growth, how are you thinking about the implied interest rate on leases versus using that on the balance sheet? Is there an opportunity to improve your lease terms going forward? Or does it ever make sense for you to keep the stores on the balance sheet with your lower cost of debt?
Bahram Akradi: Yes. It's a little bit of both, right? I think the -- when you're looking at these clubs after sale-leaseback, the IRR are significantly better on the capital that has remain in the business. On the other hand, we do have a low financing charge, and I expect that our cap rates will start coming back down and we will be expecting to do sale-leaseback with better cap rates as the interest rate starts coming down. But your answer -- to your question is it's a thoughtful question, and we definitely will analyze those decisions as we go forward, balancing that out.
Erik Weaver: Yes. I mean the obvious objective there is the cheapest cost of capital, right, whether that's a sale-leaseback or [indiscernible] debt.
Operator: Our final question is from the line of Chris Woronka with Deutsche Bank.
Chris Woronka: Thanks for squeezing me in, and I appreciate all the details so far. I just had one question, which is -- Bahram, as you continue to open new clubs, new builds, especially, but maybe the supplies to some conversions. Is there anything you look at with respect to design and maybe not necessarily from an efficiency standpoint only, but also from a customer -- what customers are looking for. I mean do these centers need to have more -- whether it's some of the sport courts or more room for training or whatever it might be? Is there any [ element of ] design and construction process that is going to change over time and what the impact might be?
Bahram Akradi: Yes. Look, all large club formats from 30 years ago have been designed with maximum flexibility to offer the programming that is necessary for the time. And we've done those transformations that you guys have seen. And nobody has a crystal ball to know what 10 years or 15 years from now will look like. So whenever we work on a design and I was working for hours last night on design with my team, you have to think about as much flexibility as you can. And we -- that's all you can do. You can basically plan for that, hey, what can we change, what if things change? What do you do with that space? And that's an ongoing work. It is not something for next year or for last year. That's been going on for 30 years is going to go on for the next 30 years.
Operator: At this time, this concludes our question-and-answer session. I'd like to turn the floor back to Connor Wienberg for closing comments.
Connor Wienberg: Yes. Thank you, everyone, and thank you for joining us this morning. We look forward to having you on the next call.
Operator: This will conclude today's conference. Thank you for your participation, ladies and gentlemen. You may have a wonderful day. Please, you may disconnect your lines at this time.