John Baumgartner : Okay. Thanks for that. And then just as a follow-up, I wanted to dig in a little bit around the phasing for 2023. The outlook for EBITDA in Q1 was stronger than expected, but it also implies sort of a sequential step down in EBITDA margin for the duration of the year. Are there any timing considerations, whether it’s new opening expenses, rent or anything else that would drive that margin moderation fall in Q1? Or I guess is there anything that elevates margin temporarily in Q1. Thank you.
Bahram Akradi : We just want to be — no, I don’t think anything elevates the first quarter margins are right exactly what they should be right now. As we grow the revenues in the summer, the next two quarters, their revenue grows substantially. Obviously, we all expect to have a bigger EBITDA come in the next two quarters. And then obviously, we also have incremental cost with like the summer camp. So we have big revenue. Also, we have big payroll with that. So furthermore, the reason we haven’t taken the numbers up more than we have for this — for the guidance increase is obviously we are trying to be conservative in the sense that we still have pokes in the world, and we just want to make sure we have the ability to deliver on what we say we will do quarter after quarter.
But we don’t expect the margins to go down as the rest of the revenue goes up. The only place that we have real pinch on our margin is when we open new clubs, but that’s already baked in. So no, we don’t have any event to think that the margin should decrease throughout the year.
John Baumgartner : Okay. Thank you very much.
Operator: Thank you. Our next question comes from the line of Simeon Siegel from BMO Capital Markets. Please go ahead.
Simeon Siegel : Thanks, good morning Bahram. Hope you’re doing well. Could you guys break out the revenue lift you’re expecting from pricing versus new units — new members for 1Q and full year embedded within the revenue — and then sorry if I missed it, it might just be sale-leaseback timing. Did you say why rent came in $10 million less than the expected number from January? And just is there any offset we need to keep in mind on expected cash balance or anything. Thanks, guys.
Bob Houghton : Yeah. Hey, Simeon, it’s Bob. Let me tackle the rent piece first. That’s just a function of — relative to our initial guidance, some of the sale-leaseback proceeds received and completion will be a little bit later in the year versus evenly distributed, but we’re still very much on track to deliver the $300 million. In terms of Q1 revenue contribution from pricing versus memberships, yeah, they’re both going to be meaningful contributors. As Bahram mentioned, we’re seeing stronger-than-expected membership growth in the quarter. And as you know, historically, we add memberships in the first quarter. So there will both be meaningful contributors to that revenue growth in the quarter.
Simeon Siegel : Great. And then if I can quick follow-up on. In terms of the seasonality comment, out of the members that tend to fall off in 4Q, what percent tends to come back? So just maybe talk about the reactivations within the churn.
Bahram Akradi : Yeah. Simeon, this is a good question, and you are really great about kind of looking through the good stuff and the bad stuff. I think in some ways, and I’ve always gone back and questioned our reporting of membership count. Look, sometimes, we are — we basically do not count a customer, right, if they haven’t — as soon as they drop out, they come off. Now in many times, these people are back within the 12 months and resigning back up, right? So a customer has a choice of going on hold for $15 a month, right, or just dropping out and coming back four months later. Now what they have is possibly they pay a little more in in monthly news, but that doesn’t really stop in them from giving up their membership and coming back.
They’re not reacting to that. Where we see the opportunity is for that is to actually gradually start introducing enrollment fees as we have the strength. We wanted to wait to get to where we are today, which basically, in aggregate fully recovered and gone beyond. And once we have that strength coming through, we are now at least about 10-12 clubs across the system. We’re charging initiation fees from a couple of hundred dollars all the way to $750. And I expect that by the summer season, we will have some enrollment fees in probably 100 of our locations across the system. And that is the real — if there is a speed break for people just dropping out and coming back in is that enrollment fee that will help that process. But just really — I mean, we’re seeing no pattern that given us a real concern.
The customers generally loves what they get at Life Time. If they can afford it, they go to Life Time if they can’t they go elsewhere.
Simeon Siegel : Great. Thanks a lot guys. Best of luck for the year.
Bahram Akradi : Thank you so much. Yeah.
Operator: Thank you. Our next question comes from the line of Dan Politzer from Wells Fargo. Please go ahead.
Dan Politzer : Hey, good morning everyone. Thanks for taking my question.
Bahram Akradi : Hello, Dan. How are you?
Dan Politzer : I’m well. Hope everybody’s well over there too. I wanted to follow up on the enrollment fees. I know you just mentioned that that could be something you’re facing over the course of the year at 100-plus locations. Is that included in the guide at all? Because I would think that, that could be material.
Bahram Akradi : Yeah, it’s not material because the numbers are we charge more of a pool pass in the summer months because part of what we’re trying to manage is people just joining for the pool season overcrowding the customer who has been paying all year long. So we charge a pool pass and that pool pass basically goes into, I guess, averaged out over the several months of the pool open on the dose line. The memberships that we’re selling now in the clubs that they have enrollment that enrollment fee is basically gapped over the length of the membership. So if we charge, call it $660 and seeing that for a number and the customer was — member for average which i 33 months, we’re only taking $20 of that in revenue per month over the first — for that 33 months.
As you know how that works. So it’s really like a 1%, 2% number for right now. Again, it’s my desire as the company gets really, really where I like it to do in terms of revenue and EBITDA generation. I would really like to have actual enrollment fee be the next phase of introduction for our — that just makes the experience of a lifetime customer once again closer to a country club rather than a health club.
Dan Politzer : Interesting. That makes sense. On — I think earlier on the call, you mentioned that memberships, the 2019 center commentary, I think you said 3% is where they’re above at this point—
Bahram Akradi : Let me take that really accurate. So it’s actually a little bit higher relative to the same clubs are like 104% over the 2019 January dues. And then the clubs that open all the way through 2020 or 103% of the January of 2020. Now if you remember, January of 2020, we had a robust January and February and then the shutdown came in March. So we had a very strong January, very, very strong. The best January we’ve ever had was January of 2020, and we were able to beat the similar clubs that were open, be able to hit that number at 103%. That’s what that number is.
Dan Politzer : Okay. Got it. And I guess my question around that was, as we sit here today and your pricing is over $160 system-wide and getting those centers fully back. I mean is that membership? Is that pricing? Is it a combination of both? And what’s the receptivity to those prior customers to come back at higher prices and possibly enrollment fees.
Bahram Akradi : Well, that’s really we — it’s a business is about supply and demand, right? And we have so many spots that we can deliver in anything in pickleball, in a small group in assuming deck, we basically have to manage that supply and demand so that the experience becomes — this — Life Time is a highly experiential company. And so we want to make sure the experience is what we wanted, and we have to adjust the pricing. As I mentioned, again, we are now — if I go back, the aggregate clubs in that early part of 2020 before the shutdown would have been maybe 122-124-125 is for the new membership sold at that time. All memberships sold at that price. Now its 208 for the period we told you, we’ve made some additional price increases.
Now it’s actually above 210 this month so far for the membership sold. And we are just — again, we can — if the fear is, what if it doesn’t work, we can adjust them. I mean it’s not an issue. It is working. And we are seeing, as I mentioned to you, highest — first, I mean we are getting 30%-some of our memberships are rejoins. Prior to pandemic, was 26% of membership being rejoined. So the answer is the customer is not even making a comment. They just go online and they sign up, they come to club, happy as they can be, and they go about doing their business. So we are very comfortable with the strategy, the way it’s working. And so it goes to the — you keep asking what portion is pricing. So some clubs they had me give you individual clubs as social had north of 9,000 memberships prior to pandemic.
It’s too many. It was just uncomfortable for the brand we want to deliver was too much. So now at 6,500 memberships when we get to that we will have higher dues, higher margins and much better experience. So some of the clubs we basically don’t ever want to get back to the old numbers. And some we have the room to go beyond because they weren’t really at that threshold of giving uncomfortable experience. So now the opportunity for them is a higher number, but also at a higher dues. So we will — we are still in a membership count in aggregate below the membership count that we were pre-pandemic. But again, I emphasize that’s by design by choice of change in the business model that I mentioned, all the tweaks we have made to our adaptations we have made to our business, that’s one of them.
So we would open clubs. I mean, I’ll say if I — some of you guys look Brian Nagel has been covering this company at different firms since I was public the first time, we used to CPM every club, all the large clubs to 11,500 memberships at maturity. The last thing I ever want right now is to get to — in most of those clubs, 7,500-8,000 memberships is the max we would ever want the club to get to. But they’re getting — they’re doing that today are almost more than 200%-plus of the dues revenue. The personal training sessions are more money. So it’s just really the cost structure and the position of the company has changed dramatically.
Dan Politzer : Thanks. I appreciate all the color. And if I could just sneak in one last housekeeping one for Bob. Just as we think about the rent and progressing throughout the year, is there a 4Q exit rate for the rent expense? And then on the leverage, I know you guys said 4 times at year-end. Is there a long-term target on a traditional or lease-adjusted basis we should think about? And that’s all for me. Thanks.
