Inside the Earnings Call: Life Time CEO Touts ‘Record Revenue,’ Membership Growth in Q1

Life Time is off to a strong start this year, with net center memberships up nearly 40,000 in the first quarter and revenue up 30% from Q1 of 2022

Life Time Fitness says it’s pleased with its start to 2023, having successfully implemented strategies to deliver significant revenue gains and improved profitability via membership growth.

The fitness operator released its first quarter earnings for fiscal year 2023, reporting a revenue increase of 30.2% to $510.9 million from $392.3 million in the first quarter of 2022. Net income also increased to $27.5 million from a net loss of $38.0 million in the first quarter of 2022.

Life Time beat Wall Street’s expectations, with shares popping in response to the Q1 report, closing Tuesday at $18.77 (+6.71%).

“We delivered record levels of revenue and Adjusted EBITDA for the first quarter,” said Bahram Akradi, Life Time founder, chairman and CEO. 

“We also delivered sequential revenue, profit and margin improvements over our strong fourth quarter 2022 performance. All of our strategic initiatives, together with our rewiring of the company, are delivering increasing revenue and higher margins,” Akradi added. “We are successfully opening new clubs, with faster ramping, in desirable locations across the country.”

In response to the “solid momentum in our business,” Life Time is raising its full year Adjusted EBITDA guidance to $470 to $490 million, Akradi said.

Here’s a deeper look into Life Time’s results and what’s working for the luxury athletic country club operator:

An increase in membership expected to last through the summer

Life Time attributes its increased revenue to improved growth in membership dues and utilization of its in-center offerings.

Net center memberships increased by approximately 39,000 in Q1 2023, which Life Time reports exceeded the approximately 25,000 increase in net center memberships during the first quarter of 2022. Total memberships, which include digital on-hold memberships, increased by around 9% to 813,500.

Life Time’s attrition has also been steadily decreasing each quarter, shared Akradi, projecting June to be the first month with attrition rates below 2019.

Akradi stated that membership will remain strong in May, June and July.

“At this point, we’re not expecting any negative sort of a factor coming into play,” he said of the cooling season fitness operators tend to face in the summer. “We are so ready, the clubs have been upgraded, the beach clubs are looking amazing and I think there will be significant pent-up demand for that.”

The club operator is also looking for ways to make it easier for members to order food on the pool deck.

“We’re pretty stoked about what’s about to come here next quarter as well,” Akradi said.

Dedicated club members are happy to pay a premium

Life Time reports that as it’s been improving its processes and technology, consumers of the luxury club aren’t demonstrating any resistance.

“I am absolutely certain that we will outperform anything we’ve done in the past because already we have kind of a view of how packed those programs will be,” Akradi said of programs such as summer camps for kids. 

“We are not seeing any resistance from the customer to spend at this time, even though we’re extremely conservative and are baking in a pretty healthy macroeconomic headwind coming up some time in the next six to 12 months,” he added.

One point that Akradi made clear to investors is that Life Time has steadily focused on increasing and improving programming, as opposed to cost-cutting. Such measures are likely the reason members are thrilled with the club.

“All of those programs are working, and personal training is setting records in EBITDA on a monthly basis,” Akradi noted. “Everything is working.”

Life Time expands its footprint with more locations on the way 

Life Time has opened three new health and wellness centers in the first quarter of 2023, operating 164 centers as of March 31. The club operator confirms it plans to open seven additional centers this year, resulting in ten new centers for 2023.

Future strategy and partnerships with landlords

As Life Time has mentioned before, its future development strategy includes building additional clubs financed by landlords, which Akradi pointed out typically requires less than $10 million of capital on average per location for LifeTime. 

“Further emphasizing this strategy would 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,” he explained.

Another opportunity has presented itself in terms of real estate. 

Landlords whose tenants did not pay during the pandemic have taken note of the luxury athletic club operator’s payment of rent throughout COVID and are eager to secure them as a tenant. Additionally, landlords are willing to make more significant concessions to have Life Time settle into their facilities, said Akradi. 

“We have significant discussions on these types of facilities,” he shared, adding that they will become a larger percentage of Life Time’s growth in the future. “They are extremely attractive from an economic standpoint. They’re sometimes two or three times better on the return on invested capital.”

A pricing strategy that’s working

Life Time says its pricing strategy has acted as a way to control the experience the brand wants in the club. While there is an opportunity to gain a couple thousand more memberships in one location, the company isn’t pressing the price point. 

“Where we have members in a club feeling like it’s being over-membered and we’re trying to limit the membership coming into that club and control the experience then we just raise the price,” Akradi said.

It’s an approach that he says members appreciate. 

“Our result shows that all across, our NPS (Net promoter score) shows it, the NPS is higher, revenue is higher, EBITDA is higher,” he said. “The customer who wants the Life Time athletic club experience isn’t comparing Life Time athletic country club experience to anything else. They just want to be in Life Time.” 

Dynamic personal training 

A big focus area for Life Time this year has been dynamic personal training, which has proved successful. 

“You couldn’t find a better opportunity with equipment and spacing to train your customers,” Akradi said of attracting the best trainers to Life Time. “So it’s all positive momentum. I expect this year on a monthly basis we’ll also break personal training revenue records, not just EBITDA records. It’s all moving in the right direction.”

After dues, personal training is the biggest revenue source for Life Time.

Consumers are back to in-person fitness

When assessing the post-COVID environment and forecasting the future, Akradi expressed his surprise that virtually all of Life Time’s members who left due to the pandemic wound up returning to the club.

“I figured 85%, 80% would come back,” he said. “So we went to the redesign of ‘what do we need to do?’ So we overhauled and revamped our small group training, and we made the small group training so easy for people to stay.”

Life Time has also significantly increased the number of classes it offers, and the addition of pickleball has resulted in at least 100,000 new members participating in the addictive sport at Life Time clubs. 

“If you increase the reasons for people wanting to come to Life Time, then you will see that every roughly 10, 11 swipes ends up being one membership,” Akradi said. “So it’s not complicated.”

Life Time is also seeing success in attracting customers who come from boutique fitness operators as well as those who’ve never had a club membership before but are sick of at-home fitness, according to Akradi.

“They’re tired of doing their home workout,” he said. “At one point, everybody thought all the clubs are going to go bankrupt and everybody forever was going to be sitting on their bikes at home bored to death.”