Increased Membership Dues, Programs Help Lift Life Time Revenue in 2022

Life Time posted 2022 revenue of $1.8 billion, a 38 percent increase from 2021, the company announced on March 8. 

The company’s fourth quarter 2022 revenue of $473 million was an increase of 31 percent from fourth quarter 2021, driven by 32 percent increase in membership dues (as average monthly dues for the quarter were $162 compared to $135 in fourth quarter 2021), enrollment fees and 28 percent increase in in-center revenue.

“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,” Life Time CEO Bahram Akradi said in the call with analysts. 

In the fourth quarter, adjusted EBITDA increased 123 percent to $107 million, and adjusted EBITDA margin of 22.6 percent increased 9.3 percentage points versus 13.3 percent in the fourth quarter of 2021. Life Time generated fourth quarter net income of $14 million compared to a net loss of $305 million in fourth quarter 2021.

For the full year, the company’s net loss improved to $2 million, and its adjusted EBITDA was $282 million. 

“As we turn to 2023, our business is in great shape, and our strategies are working,” Life Time CFO Bob Houghton said on a March 8 call with analysts. “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.”

Pricing Strategy

One of the factors in improving 2022 revenue was an adjustment in the company’s pricing strategy.

“I have repeatedly admitted my mistake when we started the business was that building these massive, big athletic clubs and just pricing them extremely low,” Akradi said. “And that really was a challenge.”

Management couldn’t run the clubs, which often now cost between $60 million and $80 million to build, at the level of a country club with the original pricing strategy, Akradi said.

The company was “stuck” because of the system and salespeople not being able to quickly react to price changes, Akradi said. So, Life Time eliminated the salesperson, instead allowing customers to join online, booking a time with a member concierge to see the facility if they wish. This new approach is working, Akradi said.

“We really love what's happening because there's no fear that you're making a mistake on the price,” he said. A club can move from $199 to $229, and if that is not working, the price can be lowered within minutes in the system, he said.

“So we just have a system now that naturally and intuitively helps us find that right equilibrium for [what] the price should be for the club,” he said. 

In January 2023, Life Time clubs that were open at the end of 2019 have membership dues in aggregate that are 103 percent of membership dues in January 2020 but are still in the three-year to four-year re-ramping process that often is required of large Life Time clubs, Akradi said. The company has surpassed January 2020 membership dues across these clubs in aggregate, but it is still in a recovery period and should continue to improve, Akradi said. 

The average dues of new memberships sold through February 2023 was $208, while the average dues for all memberships was $164.

New members and those who have rejoined have offered no resistance to the higher dues, Akradi said. Rejoins are at a higher rate in 2023 than they were prior to the pandemic.

Not only are memberships up, but membership departures are down the first two months of 2023 compared to 2022, despite average dues being about $20 higher this year than last year, Houghton said.  

“We feel we have significant pricing power and opportunity driven by a strong value proposition,” Akradi said.

Programming’s Role in 2022

In addition to the increased dues memberships, Life Time executed strategic initiatives such as its ARORA program focused on active aging, its Dynamic Personal Training (DPT) model, Small Group Training (SGT) and pickleball. All of the programs are having “an amazing come back and recovery,” Akradi said.

The number of people doing personal training has increased, small group training has more than tripled since the beginning of last year, he said.

“These initiatives were critical to increasing our traffic and revenue,” Akradi said.

Life Time expects to grow these programs in 2023 along with pickleball. 

“And so we're very, very optimistic about the year as we're seeing the programs that we have initiated — they really are catching momentum and getting into that ‘leap’ stage that I really like to see with the programs,” Akradi said. 

Another 2022 initiative involved decreasing the layers for decision making from about five to seven people down to three, which allows for faster decision making and helped the company’s margin expansion effort, Akradi said.

2023 Expectations

Akradi and his team saw the past three years as a challenge and made necessary adaptations to keep Life Time in a leading position, putting the company in a good spot to start 2023, he said.  

“The first couple of months of the year have been very strong, and we're looking forward to the full year 2023 and beyond,” Akradi said. “I am proud to say that our brand and business model has never been in a better shape.” 

For first quarter 2023, Life Time anticipates adjusted EBITDA at $108 million to $110 million. The company also raised its full-year guidance to $440 million to $460 million from the $430 million to $450 million that it stated on Jan. 9.

“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,” Akradi said.

The company announced $123 million in sale-leaseback transactions so far in 2023, closing on one for $33 million at the end of February. Akradi anticipates $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,” Akradi said. “Every move we make is focused on enhancing our brand, customer experience, our balance sheet and making Life Time stronger.”