Life Time Group Holdings, Inc. raised its earnings outlook for the year after reporting first-quarter earnings topped guidance. On an analyst call, Bahram Akradi, CEO, shown above, said membership attrition had come down steadily each quarter and forecasted that June would be the first month with attrition rates below 2019.

Akradi also said the fitness club had not seen a pullback from member spending due to current macroeconomic conditions. He said, “We are not seeing any resistance from the customer spend at this time.” And added, “People love the programming. Love the service. Love all the additional changes we have made to make transactions for them easier and more robust. And all of those programs are working, and personal training is setting records in EBITDA on a monthly basis. Everything’s working.”

In the quarter ended March 31, revenue increased by 30.2 percent to $510.9 million, just ahead of company guidance calling for sales in the range of $505 million to $510 million.

On the call, Robert Houghton, executive vice president and chief financial officer, said the gains were driven by a 31 percent increase in membership dues and enrollment fees and a 28 percent jump in in-center revenues.

Center memberships increased 13.4 percent to 764,173. Life Time added 39,000 center memberships during the quarter, boosted by one of the strongest January enrollments in its over 30-year history, said Houghton. Including digital on-hold memberships, memberships increased approximately 9 percent to 813,500.

First quarter average center revenue per membership was $667, up 4.2 percent from $640 in the fourth quarter and ahead 15 percent from $580 in the prior-year quarter. The improvement reflects a continued benefit of higher membership dues.

Net income totaled $27.5 million, or 14 cents a share, rebounding from a net loss of $38.0 million, or 20 cents, in the first quarter of 2022. Results topped guidance that called for net earnings between $10 million and $11 million.

Adjusted EBITDA vaulted 195.8 percent to $120.1 million from $40.6 million in the first quarter of 2022 and was ahead of company guidance in the range of $108 million to $110 million.

Net cash provided by operating activities totaled $74 million versus $9 million in the prior year quarter. Life Time reduced its net debt to adjusted EBITA leverage in the quarter, and continued deleverage is expected as earnings expand and debt comes down.

“We are very pleased with our start to 2023,” said Houghton. “We are successfully executing our strategies to deliver significant revenue growth and improved profitability through growing memberships, increasing club usage through our expanded programming and opening new clubs that are ramping faster in great locations across the country. We are also clearly seeing the benefits from the rewiring of the business and the strategic initiatives that we put in place last year. And we remain confident in our ability to increase cash flow and improve our balance sheet.”

The “rewiring” efforts include introducing four programs launched in 2022—pickleball, dynamic personal training, small group training, and Arora— all of which helped to entice new members.

In pickleball, participation at Life Time grew from about 16,000 in January 2022 to about 160,000 in December 2022. Life Time finished 2022 with about 430 dedicated pickleball courts, expects to reach 600 to 700 by the end of 2023 and reach close to 1,000 by the end of 2024.

Alpha, GTX and UltraFit are Life Time’s small group training programs similar to Orangetheory, CrossFit or Barry’s Bootcamp. The programs had a 147 percent increase in unique participants in 2022.

Dynamic Personal Training are trainer-lead sessions that include a stretch table and other gym equipment that typically cannot be replicated at home. The Arora fitness program is tailored for gym members over age 65.

“Our team has been executing on our strategy with a great deal of passion and care,” Akradi told analysts. “With our newly rewired structure, we delivered Q1 records of revenue and adjusted EBITDA for Life Time. We have great confidence that we can continue to elevate our programming and experiences for our dedicated member base while also growing our revenue and adjusted EBITDA.”

Akradi said Life Time’s primary focus would be reducing its debt to adjusted EBITDA. He noted that net leverage had been reduced from 9.0x in the second quarter of 2022 to 5.2x in the first quarter and is expected to reach about 3.5x by the fourth quarter of this year.

“It’s important to mention we have approximately $400 million of our debt associated with assets under development,” said Akradi. “These assets are not yet deployed, nor are they generating any revenue or adjusted EBITDA. Once these assets are brought online and mature, debt to adjusted EBITDA will reduce by nearly a full turn, and that’s before any sale-leasebacks.”

Life Time opened three new centers in the first quarter of 2023 after opening ten in 2022. As of March 31, it operated a total of 164 centers. The company plans to open seven additional new centers in 2023.

“Our future development strategy will include building more clubs that are financed by landlords, which typically require less than $10 million of capital on average per location for Life Time,” said Akradi. “Further emphasizing this strategy will allow Life Time to generate as much as an additional $300 million of free cash flow each year that could be utilized to reduce debt.”

Looking ahead, Life Time expects second-quarter revenues in the range of $560 million to $570 million, representing a gain of 23 percent at the midpoint. Net income is expected in the range of $19 million to $20 million against a loss of $2 million a year ago. Adjusted EBITDA is projected in the range of $124 million to $126 million, representing a gain of 98 percent at the midpoint.

For the full year, Life Time expects sales in the range of $2.2 billion to $2.4 billion or a gain of 23 percent at the midpoint. Adjusted EBITDA is expected in the range of $470 million to $490 million, up 70 percent at the midpoint. Previously, adjusted EBITDA was expected in the range of $440 million to $460 million, up 60 percent at the midpoint.

Photo courtesy Life Time