Life Time Group Holdings Inc

NYSE:LTH

Earnings Call Transcript 2021-Q4

[Operator]

Good morning, and welcome to the Life Time Group Holdings Conference Call to discuss financial results for the Fourth Quarter and Full Year Fiscal 2021. At this time, all participants are in a listen-only mode. Later, we'll conduct a question-and-answer session and instructions will be given at that time. 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 call is being recorded. 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. There's a comprehensive list of risk factors in the company's SEC filings, which 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 are included in the earnings release issue this morning and the company's 8-K filed with the SEC and on the Investor Relations section of Life Time's website. On the call from management today are Bahram Akradi, Founder, Chairman, and Chief Executive Officer, and Tom Bergmann, President and Chief Financial Officer. I will now turn the call over to Mr. Akradi to get started. Please go ahead, sir.

[Bahram Akradi, Chairman, and Chief Executive Officer]

Good morning, and thank you for joining our fourth quarter and year-end earnings call. I am pleased to share that we had a very good fourth quarter. Our revenue was slightly ahead of guidance and adjusted EBITDA was in line with our previous guidance despite the heavy headwinds from Delta and Omicron. The timing of these COVID variants, coupled with significant mask and vaccine mandate was very disruptive to membership recovery trends in December, January, and early February. However, from mid-February onwards, we are seeing great momentum in club traffic and membership recovery. Our main focus for 2022 is a steep revenue growth throughout the year to levels in fourth quarter that positions the company extremely well for 2023. We made a very decisive decision to continue the offensive strategy we started in 2021 through the Delta and Omicron headwinds. We believe that these strategies have put us in fantastic position to capture significant additional memberships at substantially higher average dues. Our center growth pipeline is the most robust I have seen in nearly 30 years. Throughout the pandemic, we established a high trust level with our real estate partners by paying 100% of the required rent, resulting in even closer relationships. In addition, our partners are experiencing the very positive impact of Life Time and the financial benefits it brings as a country club in their development. We continue to see an increasing number of urban and suburban opportunities from these relationships. For 2022, we plan to open 12 new athletic country clubs, and our pipeline for 2023 and beyond continues to become stronger than ever. We remain committed to further strengthening our balance sheet. Earlier this year, we entered into a non-binding letter of intent for the sale-leaseback of four of our properties for aggregate proceeds of $175 million. We expect to close on two of these properties by the end of this month, and the other two properties by the end of September. We continue to evaluate opportunities for additional sale-leaseback transactions. As a reminder, our owned real estate has estimated market value of more than $3 billion, which exceeds the company's current debt levels of approximately $1.8 billion. I'm looking forward to the Q&A portion of this call after Tom's remarks. Here you go, Tom.

[Tom Bergmann, President and Chief Financial Officer]

Great. Thank you, Bahram. I'll provide some additional detail on our 2021 fourth quarter and full-year results as well as our initial outlook for the first quarter and a few comments on fiscal year 2022. In the fourth quarter, total revenue increased 57.8% to $360.5 million driven by increases in both center revenue and to a lesser extent, other revenue. Total center revenue increased 56.8% to $352.9 million and was driven by increases in both membership dues and in center revenue. Average center revenue per center membership increased to $536 from $414 in the prior-year period, reflecting increased spending with our in-center businesses that continued execution of our pricing strategy and the opening of new clubs in more affluent markets. On a same-store basis, comparable center sales increased 52%. Center memberships increased approximately 30% to just over 649,000 as of December 31st 2021, compared to just over 500,000 as of December 31st 2020. As we discussed on the last call, on a sequential basis, we typically lose members from the third quarter to the fourth quarter due to normal seasonality related to kids going back to school and our pools closing in the fall. The sequential decline of 19,000 center memberships from the end of the third quarter to the end of the fourth quarter was in line with our expectations and included the loss of approximately 9,000 center membership. Related to the closure of 4 small atypical centers during the fourth quarter. Each of which had an expiring lease, and did not conform to our overall comprehensive lifestyle brand experience. Average monthly dues per membership was $135 in the fourth quarter compared to $104 in the fourth quarter of last year. An increase of approximately 30%. This increase was also in line with our expectation. With the closure of the 4 small off-brand lease centers that I just mentioned, combined with the expected opening of new higher-priced premium clubs throughout 2022, and the continued layering in a price increases to our existing members, we expect to grow -- to continue to grow our average monthly dues per membership throughout this year. Other revenue, which includes revenue generated from businesses outside of our centers, more than doubled to approximately $7.6 million in the quarter and was primarily driven by our athletic events business. Moving on to operating expenses. In the fourth quarter, total operating expenses were $698.8 million and included non-cash share-based compensation expense and one-time items of $327.8 million. Excluding share-based compensation expense and one-time items, total operating expenses increased 21.4% to $371 million. Center operations expense was $218.8 million and included $12.9 million of non-cash share-based compensation expense. Excluding share-based compensation expense and a $1.4 million one-time cost recovery, center operations expense increased by 33.9% or $52.5 million due to the impact of our center closures during last year's fourth quarter. Rent expense increased 15.7% to $55.3 million, primarily driven by additional sale-leasebacks compared to the prior year and additional non-cash rent expense, where we've taken possession of a site to begin construction. General administrative and marketing expenses were $353.6 million and included $309.9 million of non-cash share-based compensation expense and $2.6 million of other one-time items. Excluding these items, general administrative and marketing expenses increased 27.4% to $41.2 million primarily due to the rectifying of our center support overhead functions as centers reopened and additional public company expenses. Depreciation and amortization decreased 1.8% to $58.1 million and other operating expenses were $13 million and included $4.6 million of non-cash share-based compensation expense and $0.8 million of gains related to sale leasebacks. Excluding these items, other operating expenses decreased 21.1% to $9.2 million. Our GAAP reported loss from operations for the quarter was $338.3 million compared with a loss of $79.7 million in the prior-year period. Excluding the $327.8 million of share-based compensation expense and one-time items, the adjusted loss from operations was $10.5 million compared to an adjusted loss from operations of $77.3 million in last year's fourth quarter. Net interest expense was $48.4 million, and included $15.9 million of costs incurred in connection with the partial pay-down of our term loan facility, including a $5.7 million pre -payment penalty. Excluding these one-time items, net interest expense decreased approximately 0.7% to $32.5 million. Our fourth quarter effective tax rate was 21.1% compared with 25.3% in the prior-year period. This lower effective tax rate is primarily a result of valuation allowances against our state, net up operating loss carry forwards, and certain other non-deductible tax items. Our fourth-quarter GAAP net loss was $304.8 million compared with a net loss of $83.9 million in 2020. Excluding share-based compensation expense of $258.3 million and $12.9 million of one-time items. Our adjusted net loss improved to $33.6 million from $82.1 million. Fourth quarter adjusted EBITDA increased to $48 million from a loss of $18 million in the prior-year period. For the full-year, total revenue increased 39% to $1.3 billion driven by a 38.4% increase in center revenue and a 70.6 increase in other revenue. Comparable center sales increased to 35.3%, average center revenue per center membership increased to approximately $2100 versus approximately $1300 in the prior-year period. Our GAAP net loss was $579.4 million compared with a net loss of $360.2 million in 2020. Excluding share-based compensation expense of $269.1 million and $73.4 million of one-time items, adjusted net loss improved to $236.8 million from $324.2 million. Adjusted EBITDA increased to $80.3 million from a loss of $63 million. Moving onto the balance sheet, cash and cash equivalents as of December 31st, 2021 was $31.6 million compared to $33.2 million as of December 31st, 2020. As we discussed on last quarter's call, we completed our IPO during the fourth quarter and used the proceeds to pay down $576 million of our senior secured term loan facility including a $5.7 million pre -payment penalty with the remaining proceeds used for general corporate purposes. We also announced during the fourth quarter that we increased the size of our revolving credit facility from approximately $357 million to $475 million and extended the maturity to December of 2026. As Bahram mentioned, just a few weeks ago, we announced that the company has entered into a non-binding letter of intent for the sale leaseback of four properties with an estimated aggregate transaction price of $175 million. We plan to complete the sale leaseback of two of these properties on or before March 31st, 2022 for approximately $80 million in gross proceeds. The sale-leaseback of the two additional properties is expected to be completed prior to September 30th, 2022 for approximately $95 million in gross proceeds. We will continue to consider and evaluate additional sale-leaseback transactions in the future as a tool to continue to strengthen our balance sheet and fund the attractive growth opportunities we have in front of us. As a reminder, as we continue to execute sale leaseback transactions and incur incremental rent expense, we look at adjusted EBITDA plus the impact of rent expense as reported in our financial statements to better understand our underlying operating performance and trends. Capital expenditures totaled $328.9 million during the year compared with $265.6 million in 2020. The increase was primarily related to the higher number of club openings and properties currently under construction. We opened six new clubs in 2021 and as Bahram mentioned, we plan to open 12 new clubs in 2022. Turning to our initial outlook for the first quarter of 2022. For the first quarter of 2022, we expect revenue to be in the range of $385 million to $395 million, a net loss of $64 million to $60 million, adjusted EBITDA to be in the range of $38 million to $42 million. This outlook reflects the Omicron impact we experienced in late December, January, and February, and the increase strategic investments we have made in the numerous initiatives. Bahram previously mentioned to drive membership and revenue growth throughout 2022 and beyond. Let me provide some additional commentary on how we are thinking about the year from both a revenue and profitability standpoint. We are forecasting revenue to be in the range of $1.8 billion to $1.9 billion. We expect revenue to accelerate throughout the year as we move further away from the pandemic, open our pools during the second quarter, and gain momentum from our new initiatives. As you think about our revenue growth throughout the year, it's important to remember that we are different than most typical [Indiscernible] fitness companies that generate the majority of their memberships in the first couple of months of the year. For example, in 2019, we sequentially grew our net center memberships by just over 31,000 in the first quarter and 24,000 in the second quarter totaling net new center memberships of just over 55,000 in the first six months of that year. For this year, with our initiatives gaining momentum, the opening of our outdoor pools and expecting to be free of any COVID-19 mass mandates or other restrictions, we expect second quarter net new center memberships to exceed first quarter net new center memberships. A few other comments as we think about 2022. We are forecasting full-year rent expense to be in the range of $235 million to $245 million or approximately 13% of total company revenue. This includes non-cash rent expense of $35 million to $40 million. As we build membership revenue throughout 2022, continue to gain operating leverage on our fixed cost base and achieve returns on the new initiatives we are investing in, we are targeting our adjusted EBITDA margin to steadily improve and be in the 18% to 20% range during the third and fourth quarters of 2022. We think this will position us well for additional margin expansion heading into 2023. Outside of the numbers, let me just start to wrap up by saying, while the timing of Omicron disrupted our business in late December, January, and early February, we believe this is temporary and have started to see encouraging membership and usage trends over the last few weeks with the removal of mask mandates around the country. During Omicron, we had nearly 30% of our centers under mask mandates and/or other COVID-19 restrictions. So we are very pleased that as of March 11th, we expect all of our U.S. clubs to be free of COVID -related restrictions. Our three Canadian clubs are the only that have remaining restrictions. There is a lot to be optimistic about as we move away from the pandemic, look forward to our summer outdoor season, and see the momentum start to build in many of the new initiatives we have been investing in. In 2022, we will continue to focus on opening premium clubs in iconic, dense urban and suburban locations, strengthening our balance sheet, making the right long-term investments to take market share, and delivering unparalleled healthy way of life experiences for our members. With that, we will turn the call back over to the operator for Q&A. Operator?

[Operator]

Thank you. We'll now be conducting a question-and-answer session. [Operator Instructions] A confirmation tone will indicate your line is in the question queue. [Operator Instructions] One moment please while we poll for questions. Our first question today is coming from Simeon Siegel from BMO Capital Markets. Your line is now live.

[Simeon Siegel, BMO Capital Markets]

Thanks. Good morning, everyone. Hope you're all doing well. A quick question, Tom. How much of the digital on-hold decline came from conversions back center memberships and B, how you thinking about that digital on hold rate of recapture? And then could you just speak to the average monthly price paid per membership this quarter versus prior levels? Would be great to dig into a little bit more of what you guys are seeing with the price lifts and what you'd expect going forward. Thanks.

[Tom Bergmann, President and Chief Financial Officer]

Thanks, Simeon, and good morning. To start with, typically we get about 75% to 80% of our digital on-hold members come back to access over time. That time period that people are going on hold, we continue to see shorten, so we're down to about, of average, around 4.5 to five months hold period. So we continue to do a nice job of converting on-hold members back to access members. On the pricing front, Bahram and I are very happy overall with the trends we're seeing on acquisition and the price changes we made. We continue to be pleased with it overall across the country. We didn't have as large of an increase from Q3 to Q4 as we didn't open any new higher priced clubs during the fourth quarter but we did see a slight increase as we started to take a little bit of legacy price member increase. And we are very well-positioned now as we think about the 12 clubs that we open here in 2022, they're opening up at over a 20% premium to where the existing price for those clubs in the market are. As we open up the new clubs here in 2022, as we continue to layer in legacy price increases, we expect to continue to see our average dues per membership grow throughout the year and in the year somewhere in that $150 to $160 range. Yeah. Additionally, Simeon, we're making some additional maneuvers here with expectation that, that linked of time people are in digital will shrink from 4.5, this is very sad right now to about 3 months and that will take probably another 5 or 6 months of transformation, and then we'll be by the average of 3 months, so we're going to shave another month and a half other that. The average dues that we are selling memberships every day is somewhere in the 165 to 185 range, depending on the day of the week, whether it's more families joining, more singles joining. And interesting thing is, as I said when we went public and we shared this with you guys, at the time that difference between people dropping off and people coming in was about $20-$25 a membership. And right now, we are more like $35 to $40. And when you compare it, and this is between coming and going, and compared to like the first portion of this month, the membership sales are about 150% on average dues of where they were in '19. So same number of memberships brings us actually 150% more in dues revenue, reoccurring dues revenue going forward. So the trends are really, really amazing. They're great.

[Simeon Siegel, BMO Capital Markets]

That's great. And then if I can have one follow-up. I think even since the last time we spoke, there's just a different conversations going along with connected fitness. Do you guys want to share your -- any new learnings you have with your digital, but then also are you seeing people come back from connected fitness? So just any color for your perspectives there. Thank you.

[Bahram Akradi, Chairman, and Chief Executive Officer]

Yeah, Simeon. I think there are some people -- I think it's a smaller population and a bigger population contrary to the common belief, maybe a year-and-a-half ago, that are going to use digital only. We see every day people coming back, every single day and they're just so, you can see the smile on their face. They're happy, they're thrilled to be back with the social community, get their workout. They recognize the quality of the workout is never the same when it's at home. Having said that, they also love the transformation of our company to the Omni. So they have everything they possibly want, there all kinds of classes on-demand and we're going to continue to increase the number of our streamed classes, high-quality. We have 25 amazing studios developed in our own clubs and we're due to simultaneously teaching and doing these classes streamed. It's all working and with the meditation, with the health source, with the health talk.

[Tom Bergmann, President and Chief Financial Officer]

So the app is so comprehensive in terms of healthy way of life that we basically, like I mentioned before, we've been working on the back engine behind it, the platform. And sometimes in the 3Q will be in a position to take that and invest in trying to take it to massive through different channels. But the business in my mind, largely is Omni. It's not purely physical, if not at all, purely digital. So we're positioned amazingly well.

[Simeon Siegel, BMO Capital Markets]

Great. Thanks so much, guys. Best of luck for the year ahead.

[Tom Bergmann, President and Chief Financial Officer]

Thank you.

[Operator]

Thank you. Your next question today is coming from John Heinbockel from Guggenheim. Your line is now live.

[John Heinbockel, Guggenheim]

Hey, I want to start with in-center revenue and your thoughts on the cadence of recovery, particularly personal training. And then sort of as part of that, you've talked about investments inside the center. Is that -- are those investments greater than you thought, maybe six months ago? And in particular, I think about getting right the roster of personal trainers, ramp back up to closer to where they were, 2019.

[Bahram Akradi, Chairman, and Chief Executive Officer]

John, that's a great, great question. And I think the business has changed dramatically in some fronts over the last 24 months. That most heaviest impacted is personal training and we have the clear strategy, being back in the clubs myself to see that personal training, the wave was being done. You continue doing it exactly the same way as you were doing it in the past. I think your numbers are going to be 50%, 60% at best, reinvented to a path that there is a clear distinction. We've seen the personal training that you can do with it with a hands-on trainer and versus somebody sending you a workout through an app and say okay, follow this routine, those have to be so different in execution that the value of an in-person physical training has to be -- they're not even in the same orbit, it's not -- it shouldn't be comparable. We have made all the adaptations. Our intent is to get our personal training revenue beyond -- per club, beyond where it was in 2019, we have a clear plan, I'm not going to get through the details of the year at all. We are working fast and we are growing substantially with the goal of growing our PT revenue double-digit month over month from where it is today. It has to be 10% plus growth month-over-month and all system is set up. Can it be done? Yes. Does it need to be in the new imagination of how that training has to be, the answer is absolutely, and we have it all laid out. We've been investing heavily in going through creating that differentiation, doing the training right now. And I see us being able to achieve that and be in a position by end of this year, so we wouldn't have to talk about any excuses going in 2023 and we would give you guys are investors an amazing robust experience from a customer and an amazing number for you guys. The other revenue centers spar, our tenants program is already above and beyond 2019, cafe and spa which are two big ones, we will definitely least surpass the '19 revenues and same with kids. So again, John, we played a hard defense for six months. We went to defense from March of 2020 till October of 2020. Then the executive team and myself focused on turning the company, focused on how we would have to re-imagine and reinvent all those things that needed to be, not to get you back to where you were in 2019, but to get you a plus 10%. And we have been investing heavily, working day and night. We've been putting these programs in place and it will take -- it's taken the last 12 months literally for these things to be imagined, created, put into the system, start working on debugging them, and then having them start paying some fruit. Right now, we're seeing the growth in every space based on the work we've been doing playing offense for the last 12 months to 14 months rather than going back to defense. And what I'll see -- right now what our expectation is that the fruit that comes from this is going to continue to improve every month over month. So we are very, very bullish on what we're going to be able to accomplish for you guys and also deliver the most amazing experience one that is significantly and more homogeneously better than the best we ever did all in the next six months. I mean, we see this all coming together very, very rapidly, looking for 20% growth quarter-over-quarter plus. And then we really need to get this company to not 100% of 2019, we need to get this company -- it needs to be 110% and more. Tom?

[Tom Bergmann, President and Chief Financial Officer]

Yeah. Just to add on a little bit. John, you're absolutely right. We're -- we've been making investments, as Bahram said, to go on the offensive in order to drive revenue growth and accelerate revenue growth. So part of that is where at 2700 personal trainers today. Pre -pandemic, we were at 3700, 3800. So we're investing in rebuilding our personal training business to hit those revenue growth goals, that Bahram laid out there. We've also made big investments in the class schedules. They have really robust flat schedules. And as the membership volume grows, we've got that fixed cost base now established. So as we grow our dues and revenue from here, we'll be able to start getting a lot of leverage on both our personal training base as well as our overall club operations expense.

[John Heinbockel, Guggenheim]

One quick follow-up, just in terms of your capacity, right on the club opening front. So I think the thought was maybe 10 or so a year after '22. What's -- The gaining factor I imagine, is people, right? If you can do sale-leaseback, it's not capital, it may not be real estate anymore. Is that the gaining factor? And can the organization do a lot more than 10 or 11 a year or you'd like to hold it to that?

[Bahram Akradi, Chairman, and Chief Executive Officer]

Yeah. Look, I want to balance the expectation in here, but let me just walk you through. Our -- as we mentioned to you guys, these villages that we have developed, Life Time Living, Life Time Work, Life Time Athletic Country Club, combined all in one, we generally, very generally, we are not the developer of the apartment building. However, those -- the results that we have from that is some of the most disruptive transformations for an industry we have. So many conversations are going on where we basically are going to be developing these very, very large urban athletic country clubs as part of these kind of live-work-play developments. And so, our expectation is we're going to get at least a dozen clubs opening per year going forward for the foreseeable future. And then there are other opportunities, John, that is going to happen in the next three, four, five, six months here that I think gives us potentially a chance to pick away on some really good locations in other forms. So, my expectation of 12 clubs per year is basically unchanged. Maybe it will be more based on all the opportunities we see, but it won't be less.

[John Heinbockel, Guggenheim]

Thank you.

[Operator]

Thank you. The next question today is coming from Brian Harbour from Morgan Stanley. Your line is now live.

[Brian Harbour, Morgan Stanley]

Good morning, guys. Maybe to follow up on that, could you remind us how some of the work, co-work locations, and living locations factor into your expectation for 12 this year?

[Tom Bergmann, President and Chief Financial Officer]

Yeah. And that 12, that's the 12 club count, John. In addition to that, we'll be opening up -- or Brian sorry, in addition to that, we'll be opening up three additional Lifetime work locations this year. Yeah, we're actually very pleased with how the Lifetime work is performing for us. We'll also be opening up our second or actually our third Lifetime living location this year in Henderson, Las Vegas. But the 12 that we speak about is pure Athletic Country Club Resorts.

[Bahram Akradi, Chairman, and Chief Executive Officer]

And the results and the living. Again, we at this point, the asset that we own, which was creating the concept, is Henderson and it's doing amazing. We'll start moving people in sometime in June, hopefully by June 1. And we're looking really forward to demonstrating one that we have designed ground up. But for the most part, everything we using that developers come to us. They want to have their apartment building be branded Lifetime Living because of the differentiation we bring into the format, the higher rent, and the faster ramp up, which is complete game changer for them and is providing all kinds of additional opportunities for us going forward. Mostly in the fact that gets us either additional income on the sites where we have additional land and they are going to buy that land from us and build apartments that we get the management fee, we get additional memberships, like our location in [Indiscernible] or part of Colorado, or it provides the opportunity to have a better economics for the club that we are going to be building as a part of the whole ecosystem.

[Brian Harbour, Morgan Stanley]

Okay, thanks. And maybe just another question on kind of membership sign-up. You talked about that nice pickup since February and expectations for 2Q. What have you seen that kind of reinforces confidence in that? Have there been above normal seasonality drawings over the last few weeks? Do you think that the second quarter of this year could be kind of above normal seasonality? I'm just curious on some of the specifics of the things that you've seen [Indiscernible]

[Bahram Akradi, Chairman, and Chief Executive Officer]

I'll give you the best I can do in terms of specifics and the answer is -- the short answer is yes, robustly yes. Second quarter will be amazing. We basically gain significant net memberships in every January, partially with the fact that we've always done promotions every two, three days. So we really are very, very promotional prior to 2019 in January. But we're not doing any promotions. We're do -- letting the quality of our services on programs and our athletic country clubs do the job and it's working extremely well. But January, we have had better -- so we ended up under heavy, heavy mask and vaccine pressures. Pretty much most of December, all of January, and then first, I would say 10 days of February. Then we saw momentum shift. But in February, we actually did more net memberships than January, which has never happened before. In March, we are starting much better than February of course, that would be better than January. And it's -- the numbers are extremely, extremely promising. The trends are very good, gives us the confidence to basically focus everybody on -- our expectation is delivering no less than what we were expecting delivering in the fourth quarter when we went public. Basically, we think we will recover the impact of the Delta on Omicron coming together and having the government closures, the mandate and vaccines which was very, very disruptive. We're going to make up for all of that by the fourth quarter.

[Tom Bergmann, President and Chief Financial Officer]

Yeah. And Brian, I would just add, we had 44 clubs -- 44, 45 clubs under mask mandate in the fourth quarter and into January and parts of February. As we saw those in February starting to get back, we saw a really nice increase in club usage and our swipe activity. And even last week we saw about a 4% increase week-over-week in club usage. So we're clearly, in the back half of February and first two weeks of March here, seeing a really great momentum in the usage of our clubs. Just to give you some examples, in Chicago, the mask mandates came off on February 28th, since then, the first two weeks of March here, Chicago is leading the pack here on us, on membership recovery. So we can just see as all these mask mandates and vaccine passports and restrictions, February was better than January, March is starting off to be better than February, and that gives us a lot of confidence that in the second quarter of this year, we'll actually outperform a net membership gains compared to the first quarter as well as I expect the second quarter membership change to exceed what it did in 2019 as well.

[Bahram Akradi, Chairman, and Chief Executive Officer]

And I want to make sure this is understood, this is no whining, no complaining. I just want to state the facts. I had basically repeatedly told people if it was just COVID, maybe the impact of the virus with on us, would've been about 10% and the remainder 50%, 60% of drop in our revenues, it was basically all government interventions is to closures, vaccines, masks, all the different pressures they put restrictions that they've put on our type of business. It's interesting when you look at our day-to-day, week-by-week data across the country, states that did not do any change in their policies, i.e. let's say Texas, during the height of Delta ramping into I think into Omicron, those traffic drops may be 8%, 7%, 9% just as a result of the virus itself. And now they've recovered. The clubs that were government invention, the municipality intervention with it, very hard closures and those could've been as much as 20, 30% damage to the swipes and traffic. With this last week now, we are seeing the highest swipe activity, the most traffic we have had since the beginning of this pandemic. And we are seeing improved trends day-by-day. Do we expect to be at 100% of traffic by the summer months? Absolutely. And we're going to have that traffic is much higher dues.

[Brian Harbour, Morgan Stanley]

Great. Thank you, guys.

[Operator]

Thank you. Next question is coming from Brian Nagel from Oppenheimer. Your line is now live.

[Brian Nagel, Oppenheimer]

Hi, good morning.

[Tom Bergmann, President and Chief Financial Officer]

Good morning, Brian.

[Brian Nagel, Oppenheimer]

My questions are a bit of a follow-up to some of the prior questions. Bahram, as you're [Indiscernible] merging together [Indiscernible]. As you're seeing members now return the clubs, it was -- particularly as these COVID pressures are mandates are abating. Is there anything different? [Indiscernible] different how people returning, how they're utilizing the club, or is it basically getting back to what it was pre-pandemic?

[Bahram Akradi, Chairman, and Chief Executive Officer]

I see the happiest faces we've ever seen. People don't recognize how their life has changed, and not for the better, while they're being more secluded. And I mentioned to you guys, again, there is no match. I have, as you would possibly imagine, some of the best equipment and space in my home for workout. It's never the same. My workout at home is nothing close to my workout in the club, number one. Number two, the reason I go to the club is the -- what we have been focusing on, Brian, you see, brings something that makes me want to take the time to explain this. We have been working, as we've told you guys over and over, to try to create this athletic country club experience. And when you come to the club and you see the social fabric of what's happening in our clubs as an athletic country club, note that there is no other. Life Time has nearly 30 to 35 million square feet of indoor and outdoor tennis, and pickleball, and pools. This you cannot see -- you cannot have an experience like Life Time by any other path and nobody can do that. We give the people ability to travel around the country, go to the beach club. I was this weekend in Coral Gables, there were members from Syosset and East Coast coming to Coral Gables, Havana Nights. Our total experience is so robust that with the people have been gotten so afraid of COVID, they just stayed home, their routines changed, when they come back, they're just thrilled. Meanwhile, we did not let this crisis go to waste and I want to say this again so that we have very candid conversation. COVID is the only thing ever in the history of this company, coupled with all the government decisions to take us from every year adding revenue and EBITDA to the company. It was the only time we went the other way. But when there is crisis, you do not sit on your butt and say, oh my God, look how bad it is. You think about what's the opportunity. Opportunity here for us to really examine in this path of taking these clubs from really large 100,000 square feet, category killer, what I would say, big, big multi-purpose gyms, to complete our transformation to this national athletic country club that gives you something that no other country club can. You can play pickleball anywhere in the country. You can play tennis anywhere in the country. You can go to a beach club anywhere in the country. So what's happening right now, our member’s common tells us, that experience is amazing. They're traveling and they're making sure the route of their traffic, if they're driving from Midwest to Florida, they're going by Life Time locations and having the specific hotels picked up. So we have taken this as an opportunity to absolutely homogenized every experience to the highest level of athletic country club, more electric four season execution. We have member concierge in the club and so salespeople. Things have really improved, members are thrilled. We have continued to invest in the clubs, not only physically, but programmable as well. So we have different programs. We have more options. And so far, every reaction is they are either floored that -- and people come to us and say we're still amazed the way you guys have handled this. We are more grateful. They're more thankful. So it's really amazing. All I can say to you, I don't see any negative trends, all I see is positive trends.

[Brian Nagel, Oppenheimer]

I appreciate the color. Congrats. Thank you.

[Bahram Akradi, Chairman, and Chief Executive Officer]

Thank you.

[Operator]

Our next question today is coming from Robby Ohmes from Bank of America. Your line is now live.

[Robert Ohmes, Bank of America]

Good morning, guys. Thanks so much for all the colors, been really helpful. I have just a few follow-ups, one of them maybe Brian would just be as you are recovering people, how much of that is totally new members to Life Time? When you see these new members coming in, where are they coming from? And then also just one other follow-up related to this. So it sounds incredible that you are seeing the seasonality kind of shift after you had the miss the window normal because of Omicron. As you move through the year, are you thinking of some new marketing initiatives that offset the fact that Omicron ruined the normal window in January?

[Bahram Akradi, Chairman, and Chief Executive Officer]

Both, good questions. So typically, prior to COVID, we would basically have 21% to 24%, 25% of our membership being people who had dropped out and then they come back as past members, they want to rejoin. Right now, that number is more, 35% of our membership. It's natural because there are people who have been sitting out for a period of time and then they just get up and come, at some point, something brings them in. And then to your question, do I feel like we need to do marketing to get there? When we do need it, we will put it in because we're not going to fail our own objectives and goals that we have for the year. But at this point, all of our energy has been to create the best reasons for people to feel the need of having to get up and come to Life Time. And those are at least a half a dozen, very, very specific initiatives that we had rolled out in the last several months and we're focusing on programs, classes, routines, making things easier, giving the most amazing experiences, creating the more social programs, and all of this -- all the money rather than spending it on advertising, we're actually spending less money in advertising or marketing than ever before and we're getting more results, more memberships, and more average dues. Simply we're seeing no complaints, no mention of the price changes. People are coming back to a club that was $89, now they're paying $119 or $129 and there isn't a single question, why is this much? It's literally just rolling right in. So all the churn is going to benefit Life Time because we were so, so, so underpriced and we still have tremendous pricing power. Even from where we are putting the rack rates right now, we have tremendous pricing power from here forward based on the fact that once you go to the direction of customer coming into you because of the experience, the price just doesn't matter. When you are focusing on price and promotion then the price does matter. But right now all of our strategies are working robustly. They're not just working, they're working robustly.

[Tom Bergmann, President and Chief Financial Officer]

That sounds great. Thank you.

[Operator]

Next question today is coming from Dan Politzer from Wells Fargo. Your line is now live.

[Dan Politzer, Wells Fargo]

Hey, good morning, Bahram and Tom. Thanks for taking my questions. So just want to hit on some of your recently opened centers. If you could talk about the ramp there, maybe any data points or color you can provide, especially the ones in the higher cost of living areas this is Coral Gables or [Indiscernible]. And also similar similarly, do you still expect kind of a 4-year ramp there to reach a normalized revenue or do you think that there could be maybe some upside? Thanks.

[Bahram Akradi, Chairman, and Chief Executive Officer]

No, I think they'll ramp in three years or less. We used to give -- I remember from the time Robinson and I sit here and talk about this. We talked about clubs getting to 90% of their membership capacity within four years. Right now, I think we get to the 90% membership capacity, definitely short of 36 months. Our systems are so much more robust in creating the wait list for a club prior to -- we had 9,000 people in a wait list for our Frisco Club we just opened. That club will reach a million dollars of dues faster than any time in the past. That's a million dollars of dues in a given month. So we are seeing amazing, amazing results in our other club we just opened in River North in Chicago. If you guys ever get a chance to go to any of these clubs, I strongly recommend you guys take the time. You will see the level of this high-end athletic country club field, the social fabric, the distinction of all the amazing programs, they come to life in a way that they just naturally work. They don't need anybody to sell it, they don't need any marketing for them. They're just coming. But the ramps are going to be closer to the 90% of the capacity, the club, I think will happen all in short of three years.

[Dan Politzer, Wells Fargo]

Got it. Thanks. And just for my follow-up, in terms with your guidance, I know you guys gave a lot of helpful color. We're coming out to somewhere around EBITDA or in the mid-500 range based on your commentary. I mean, is that just -- obviously, a little bit -- just from a little bit softer first quarter, but can you just talk about maybe the puts and takes to that versus maybe your prior guidance and when you were kind of going through the process of going public? Thanks.

[Tom Bergmann, President and Chief Financial Officer]

Yeah, I'll start. It's really just a temporary delay due to Delta and Omicron pushing the recovery back one to two quarters. So from a strategy standpoint, from an execution standpoint, everything we're trying to do Dan, we're still working extremely hard. As Bahram said, our goal is to drive this to get the revenue levels back in the second half of the year so we can get back on track of where we thought we would be pre -pandemic. So to me it's really just a really Delta - Omicron impact, no change in strategy, no change in execution, and all the new initiatives that we've been investing in will start to take hold here in the second quarter as we really see an acceleration of memberships and then hold on to them throughout the rest of the year.

[Bahram Akradi, Chairman, and Chief Executive Officer]

And the most critical number that I am driving, the most critical focus number is where the jumping off is, from 2022 to 2023. So I will not sit still until I know we're going to beat the numbers we had in our projections for December of 2022, for -- we had when we went to meet with all of you guys. We're going to do everything pretty confident with the execution of our plans. We will beat those numbers for December of 2022. Now, why that's important? Because as you guys know, 2/3 of our revenue is subscription. And if you have that subscription robustly ahead of where you wanted it to be, that will repeat itself going forward into the 20 -- into the following year, month after month. So, all the strategy here is focusing on, as I mentioned earlier in the call, to get the revenue of the company to 100%, then 110%, then 120% of 2019 revenue. Now, part of that is we need to have bigger revenue, and we will, on every single club than we used to have because costs are higher obviously, utilities are higher, payroll is higher. So you'd really have to have a bigger revenue to make up for those. We have a solid plan to get there. And then you also have the additional clubs that are opening up. So hitting 2019 revenue is no -- nothing to brag about. We're going to get there. We're going to go past that. But the most important thing for everybody is to focus on the fourth quarter. Because the fourth quarter is when we have to, and Tom and I, the rest of the management team is bent out of shape to make sure we will recover every impact of what happened in the first two, three months of the year, December and January, February. We recover for that and make sure it's almost -- as if it didn't exist by the time we get to the fourth quarter results.

[Tom Bergmann, President and Chief Financial Officer]

And Dan, just to close it out. What gives us really a lot of confidence as those parts of the country where we've seen less restrictions and mass mandates such as Texas, the Heartland Mountain Regions, where recovered in that 90% to a 100% in February type of ranges. So that gives us the confidence as the New York and Chicago, and the other and parts of coast, have eased up now here in February, that we're going to recover those clubs to that same percentage as rapidly as we can.

[Bahram Akradi, Chairman, and Chief Executive Officer]

We will expect to have at least a dozen clubs, to be surpassing 2019 dues numbers by end of March. And those are just like Tom said, those are the markets that they were the least restrictive to us. So that as you go back, the markets have been more restrictive. It doesn't mean they don't come back, it just going to take longer. But hopefully now through this summer with much steeper recovery on those markets and we're seeing some of that trend as well, by the way.

[Dan Politzer, Wells Fargo]

Understood, thanks so much. Appreciate it.

[Operator]

Thank you. Next question is coming from John Baumgartner from Mizuho Securities. Your line is now live.

[John Baumgartner, Mizuho Securities]

Good morning. Thanks for the question. I guess let me first off, I'm curious just to be more specific as to how inflations impacting business at the margin. What are you seeing in terms of the labor availability and wage pressures? How is that tracking relative to your views, maybe back in October? And then second, just given the acceleration of broader inflation here around the economy. How is it, or is it, I guess, evolving your views on pricing power relative to what you were thinking last summer? I mean, it sounds like, Bahram, it sounds as though right now you're not seeing much elasticity, but how are you thinking about an incrementally stronger pricing power sustaining at this point?

[Bahram Akradi, Chairman, and Chief Executive Officer]

I have no concern about pricing power for us. We have always underpriced too many things from membership to some of the in-centers and food, etc. in our clubs. But now that we are focused 100% at the super high-end delivery as I mentioned, homogeneously, and we continually test, we don't -- no decision you make is going to be like sending a child to the moon. If you're wrong, what happens? Nothing happens. If you price something $2 more than you should, if it doesn't work, you bring it back down $2. We have a dynamic pricing strategy here. We test and see what we find. We don't want to make the customer feel like we're nickel-and - diming them, we don't want to make the customer feel like we're taking advantage of them but the customer completely understands where the cost of -- all the -- every cost of the food has gone up and the payroll has gone up, they don't care. They don't care as long as you're giving them the right products and the right service. As far as our advantage, our brand is so loved by our team members, by members. We have the least issues with staffing than I hear from any other business owner. People want to work for Life Time, 16-year olds, 17-year olds, for $5 less on our, they would much rather work for Life Time than they would work for McDonald’s or somebody else. So we have the least amount of problems. We have some issue but it's not monumental. it's not something we cannot overcome because of the quality or brand. But we expect to see probably $10,000 to $15,000 a month per club additionally, due to the payroll increased costs into our lease staff. However, we did these transformations like we mentioned to you, transforming the membership sales, member services desk, and the front desk all into this member concierge. With that and our credit card fees, it's a policy that we have put in place, we basically are looking at clubs that they are now catching up to where the dues was before we've seen that puts between what you we've taken out versus what we have to spend more in by the time we have the PT in the right matching revenue and margins, we are going to be able to produce the same kind of margin despite the challenges in the in the labor cost of goods, etc. So we feel really, really good.

[John Baumgartner, Mizuho Securities]

Well, thanks for that. Just along those lines in terms of meeting consumer's needs, I'm curious in light of your announcement regarding the Aurora program for the active adults, your prior demographic efforts have been concentrated on programs for your cohorts, kids and teens. But can you discuss this program a little bit more? What are you seeing from that demographic that drives the initiative? To what extent do you think it can enhance membership growth relative to being attack on offering at the margin for existing members. And when you think about your programming across generations, where do you see the largest opportunities for growth in the largest paybacks moving forward? Thank you.

[Bahram Akradi, Chairman, and Chief Executive Officer]

That's a great question. So this is an activity that was taking place in our clubs episodically. We have some relationships with a bunch of these companies who pay for this active age group, 55 plus. It's the community but there is the programs that the companies -- insurance companies are paying for, 65 years and older, like Silver&Fit, etc., or SilverSneakers. We were doing those but we weren't doing them in a holistic approach with a branded programming and bringing a texture. So the ARORA Club is an opportunity to double and triple that population, program them specifically in the hours of the club where we have the best opportunity to bring those people in, where the club is being the most underutilized. But how we're doing it is by really building these 2, 3, 4, 5 hours of programming, social and different kinds of activities from pickleball to swimming, to this, to that. We're bringing all of those coupled with social hours, so social coffee [Indiscernible] the deal, and then fully branded. So we've been working on it for half a dozen months, formulated the brand that went out to this market serve in the research, talked to all these people, see what they like, what they don't like and then we work the programs. So it does not interfere with other programs we want to deliver in the club, but basically uses the opportunities we have to increase the traffic and the revenue, swipes, and traffic. so everything we're driving here is swipes, subscription, and revenue. And this is one of the fixed programs we're running to make sure we achieved the objectives we have. And so far, it's going fantastic.

[John Baumgartner, Mizuho Securities]

Great. Thanks, Bahram. Thanks Tom. Thanks for your time.

[Operator]

Thank you, we've reached end of our question-and-answer session. I'd like to turn the floor back over to management for any further or closing comments.

[Bahram Akradi, Chairman, and Chief Executive Officer]

We're grateful to all of you guys. The attention the focus, we're excited to take the remainder of this year and as I mentioned, the focus is not on revenue recovery. The focus is on steep revenue growth, both to recover and then get way past beyond. We appreciate the support we're looking forward to see you guys on the next call, which I think the results will be significantly in line with the kind of growth expectations we have. So thank you, Tom.

[Tom Bergmann, President and Chief Financial Officer]

Thanks, everybody. Have a great day, talk to you soon. Bye.

[Operator]

Thank you. That does conclude today's teleconference and webcast. You may disconnect your line at this time and have a wonderful day. We thank you for your participation today.