Question-and-Answer Session
Operator
[Operator Instructions] And your first question today, gentlemen, comes from the line of Brian Nagel with Oppenheimer.
Brian Nagel – Oppenheimer & Co. Inc.
First question, Mike, this is just a couple of mentioned [ph] so you may then talk about your growth plans for the next year. And you mentioned in there, you mentioned some type of acquisition. So maybe some additional color on what we should be expecting on that front?
Bahram Akradi
Brian, this is Bahram. We are not going to discuss any specific. Obviously, as you know, the gestation time for our big boxes are very long. And as we have significantly increase our activity on finding new sites, it’s going to take some time before we can produce out of the ground facilities at faster rate now, but there are many in the works. But we are able to find facilities that they fit, the logistics and strategic plans across the country, take them in,, and as you guys have seen what we can do with our construction and our architectural group in terms of redesigning and remodeling quickly of some of these facilities, and we’re truly making them become a Life Time feel facility. We are committed in order we can deliver at least a couple of more facilities in the next year to increase that square footage. So we’re not going to offer more details over all over it.
Brian Nagel – Oppenheimer & Co. Inc.
Okay. No, it’s helpful then. Second question I had with respect to your membership growth and as we look at results you reported today and over the last few quarters, it’s very, very clear, you guys are doing a very great job of managing down churn, monetizing your memberships extraordinarily well. At least from my model, the one you have — the area that continues to lag somewhat would be the actual membership growth. The question I have — I know we’ve talked a lot about this, sort of the macro factors out there. But as you look at your, obviously, you have much more detailed data than we have, but as you look at the individual clubs across your chains, is there anything that you’re starting to see now, maybe somebody’s macro pressures are beginning — that to give us some encouragement of the actual membership growth numbers starting to pick up?
Bahram Akradi
Let me start and then I’ll turn it over to Mike if he has any additional comments. We have clearly focused on a very specific strategy over the last 2.5 years. That strategy is to offer the absolute best programs for every group, every interest group. Whether if they’re interested in basketball, yoga, running, cycling, et cetera. We’ve mentioned that over and over to you guys. We’re less concerned about jamming the club up with folks who cannot appreciate the difference between the best product and just a product. Our strategy is to make the other so-called fitness centers a non-factor in our competitive landscape. And therefore, we’re really striving for that 20% of the market that appreciates the innovation, the best class products, et cetera. So we’re focused on a certain type of customer. And therefore, that customer is going to be less concerned about $5 cheaper or $6 less here or there. With that strategy, our focus is on driving same-store dues revenue increase more than necessarily membership count. However, we still want to grow the membership, don’t get me wrong. In some of our clubs however, we are comfortably at capacity or more and in some clubs, where we have more room for more bodies throughout the club or through certain portions of the club we’d like to get more members. But altogether, I am very, very, very happy with our dues revenue results, which is with focus of our entire management. With that, I’ll turn it over to Mike.
Michael Robinson
Yes, I think a couple of points. I don’t — I think it’s fair to say that we haven’t seen any significant change economically across the system. What we have done is spend a lot of time and it really was part of the remarks I talked about from a growth perspective in looking at the center-by-center economics and the center-by-center positioning, and in some centers, we’re — as Bahram said, we’re optimizing in trying to drive dues growth per center. That can come from 3 — aside from attrition, which we really feel we’ve got under good control. We’re not stopping to drive that, but we like where we are positioned there. There are 3 variables that we can drive. We can drive price, we can drive mix, and we can drive enrollment inquiries. And we’re really looking at every one of those elements at each one of these centers. There’s going to be centers where we may be at 80%, 85% occupancy, but we look at it, we say these are really strong demographic centers. Our best driver or our best levers here are really price and mix rather than trying to drive and bring in that fringe membership. There are others where you don’t necessarily have that as strong a demographics here, that we’re going to go and we’re going to drive membership growth as a driver to increase that occupancy to get those dues levels up. So Bahram stated it so simply, the focus is dues per center, and we’re going to get there in a variety of ways. So I would encourage investors and potential investors to look at it first on what’s going on dues growth itself. And then, understand each of the elements underneath that, membership growth, dues, pricing mix, et cetera.
Operator
Your next question comes from the line of Ed Aaron with RBC Capital.
Edward Aaron – RBC Capital Markets, LLC
So when I look at the business it’s kind of a high-level, it seems like the new sign-ups were still a little bit tough, but you’ve really done a good job of creating a stickier more lucrative member base. And just realistically, how much more room is there to build on that when you consider that attrition is approaching kind of your stated goals, and that the spread between the dues growth and the membership growth is kind of getting back to historically more normal level for the company?
Michael Robinson
Well I think — we think there’s a lot of room yet. And again it goes back to some of the discussions I just had. We’ve said yes, we’ve achieved that 36%. Don’t for any minute think we’ve stopped trying to drive attrition lower. What we do want to do, is set realistic expectations in the investor community, that it does get a bit tougher. But everyday, we’re driving for lower and lower attritions. And we think that, over time, that can be accomplished but we don’t want that built significantly into the business model. So and again, as we go club by club, and we look at our mix, and we look at price and price potential and we look at occupancy rate, where we continue to be encouraged by the fact that we have — we believe we’ve got significant potential in the future.
Edward Aaron – RBC Capital Markets, LLC
That’s helpful, thanks. And then just as a follow-up, the 6% unit kind of growth guidance for next year, how would you suggest that we think about kind of the unit economics of those stores as a whole when you consider that the different markets that you’re looking to enter, the mix of the greenfield versus conversion and so forth, it seems like there’s a more moving parts there than maybe there have been historically?
Michael Robinson
I don’t know that there’s that much. I mean, I think you should start with the concept that we’re going in with the expectation that these are going to achieve the return hurdles that we have always designated, and I wouldn’t look for anything significant as far as changes to the actual business model itself. It’s predicated on timing and when these models are introduced into the centers and for right now, I would say you should introduce that in your model in a balanced way, in all kind of midyear type of averages, maybe slightly towards the front half of the year, but not significantly. Again, I wouldn’t expect anything significant difference there.
Operator
Your next question comes from the line of Scott Hamman with KeyBanc Capital Markets.
Scott Hamann – KeyBanc Capital Markets Inc.
Just on the price issue, have you had plans to do more price increases on existing members since the one in the beginning of the year for 2011, and also on new members, it seems like you’re selectively raising some of the new member dues rates. And can you kind of talk about what the plans might be throughout the balance of the year to continually look at price increases?
Bahram Akradi
We don’t have any plans for price increases on the rack rate for the balance of the year as a general rule of thumb. However, the strategy we have deployed as I mentioned earlier, is to continue to drive each and every program, each and every interest area so much that we do have more price elasticity for our products, for our programs. And my expectation is that over the next year, year and a half, our average dues should continue to grow as we attrition out some of the members with a little lower average dues than the new members we’re signing up with a higher average dues. And then I want to be in a position where we can have a price adjustment and again, it will be in certain markets and not in others by the beginning of the 2012. So I feel like we will be in a great position over the next 5, 6, 8, 9 months to make modifications, minor modifications in certain markets and then benefits from the overall dues revenue increase throughout the next several years.
Scott Hamann – KeyBanc Capital Markets Inc.
Okay, and then just a follow up on some of the newer investments that you’re making at some of these ancillary businesses, can you kind of help frame up what the profitability profile looks like, the return profile, kind of what types of numbers you’re looking for, stuff around like the Cooper Initiatives and in those programs?
Bahram Akradi
We always look at a 15% ROIC for our big-box facilities at the maturity levels. So with the way we look at investment is similar, we want to be able to get to a nice double-digit ROIC at the majority of any investment. With that, I’m going to turn it over to Mike. Mike?
Michael Robinson
Sure. Let me try to take you through a couple of these businesses. You’ve heard us talk about the Events business, and a good Events business runs at 25% to 35% EBITDA margin. So that’s really where we’re trying to drive this business, and we have events that run at those levels. And so, as you start to think about that business and that business model, these should be solid EBITDA performance drivers, and they should be return-enhancing vehicles for us because generally, they come at a relatively low investment. If you look at our investment in our Training and Certification businesses, we now have our yoga teacher training. We’ve got aerobics instruction and certification, and we just opened in the second quarter, a personal training certification. Again, we’re utilizing our own centers for the most part, for the delivery of this. So the investment side of this is quite low, and the overall profitability of these, clearly in our mind, is going to be above the profitability, we’re driving it to be above the profitability of our in-center businesses. So I think that should give you a good example of where we are. We’re young in the certification businesses. We’ve got some investment there, but we are off to a really good start on that. We now have critical mass, and I think you’ll start to see that growth showing through in the third quarter on Events. Keep in mind, the Events business is very seasonal, and a significant piece of that is in the summer months. Since so you’ve been seeing investment in that come through for the first 6 months, and our expectation is that you’ll start to see some of the revenue that derives from that infrastructure investment coming through in the third quarter.
Bahram Akradi
And then to add to Mike’s comments just for clarity, a lot of these businesses, like the yoga teacher training, the practical personal training school, et cetera, they are all at the infancy stages in our company. We’re working hard to leverage and connect the dots across the board. We are at this stage, where we’re investing more money in the infrastructure at this point than early on. But as Mike mentioned, 2 or 3 years from now, we look at having great margin opportunities from these, as well as the ROIC improvement on our overall business
Operator
Your next question comes from the line of Michael Lasser with UBS.
Michael Lasser – UBS Investment Bank
What was the contribution to same-center revenue from price and mix?
Michael Robinson
The price hasn’t changed much from what I talked about in the first quarter. When we took price on about 20% of our membership base, that was about 1%, and mix is probably a little bit more than 1%. We’ve been successful — clearly successful in taking, and I put in mix, I put the higher price points that we’re charging for new memberships coming into the membership pool in our existing clubs. So I would say of that 5% same-store sales, or let’s call it on the 4.5% on the mature centers, probably 2/3 of that is coming from price and mix with one of those points coming from price and the rest of it, mix. And then obviously, significant contribution from the in-center margin growth or the in-center revenue growth.
Michael Lasser – UBS Investment Bank
How do you think about the elasticity of the pricing on a seasonal basis, do you have any expectation that as we move later into the year, when folks stopped using some of the outdoor amenities? That the response could be not as robust as you saw earlier the year?
Bahram Akradi
I don’t think that has any change in our overall numbers. And we do have a number of members who joined family programs for the summer for the outdoor pool but that has been the same pattern year after year for years. You shouldn’t see anything dramatically different. So if the average dues are X amount of dollars higher now than they were a year ago, they will continue the same pattern of ups and downs as before. Then it would just be that much higher in October than they were last October
Michael Lasser – UBS Investment Bank
I guess I was thinking about it as you guys were a little more aggressive on the pricing action earlier this year. So as we get later into the year, the consumer response might be because of the price increases, as they utilize the clubs a little less maybe that’s — the attrition rates could rise?
Bahram Akradi
I really don’t think that price right now is a factor in our performance. We’re not hearing from our customers coming into the door and knew that their prices is a factor. If they want Life Time, they pay whatever the price there is and if they don’t want Life Time, they’re looking just for a room full of fitness equipment, they can pay half of our price or third of our price to some place else. There’s just not any other factor.
Michael Robinson
Michael, I want to make share that I’d understand. I mean, there is a seasonality to attrition, and certainly we expect second-half attrition to be above first half attrition, mainly driven by the back-to-school crowd, that exited from the summer pool season, things like that. But we don’t expect, and we’re not seeing any indication as we look at and really try to understand our member base, anything beyond that from a pressure point.
Michael Lasser – UBS Investment Bank
It makes sense, with one last follow-up question. On the in-center revenue, are you seeing the improvements driven by an increase in penetration or is it the members who have been using or driving the in-center revenue are you getting more revenue per those members?
Michael Robinson
It’s penetration. If you look across the system, it’s penetration, and it’s more price per ticket. We’re getting more — when you look at our Spa business, we’re getting more revenue per ticket. When you look at the Café business, we’re getting more revenue per ticket and most importantly, we’re broadening the penetration, we’re broadening the usage base, which is exactly what these programs and this strategy is designed to do, get people more involved. Get them connected. And the LTBUCK$ program, the affinity program is a real driver in doing that. We’re bringing membership in trying things out, and then driving more fee-based revenue because of that, and that really does help drive our penetration.
Operator
Your next question comes from the line of Lee Giordano with Imperial Capital.
Lee Giordano – Imperial Capital
Can you talk a little bit about the overall competitive environment you’re seeing out there today? Are there any threats or opportunities on the horizon in terms of market share and maybe you could also comment on just the overall consumer spending environment you’re seeing? I know the economy seems a little bit weaker there over the past couple of months are you seeing any difference in trends?
Bahram Akradi
Lee, you’re asking a very good question. So let me emphasize again, in late 2008, when we saw the early pressure on the market and the proliferation of the fitness industry by the barrage of little bitty fitness centers coming in at $10 and $15 and $20 a month, really our strategy was to dramatically and drastically differentiate Life Time way beyond anything like that. So our focus has become, what we have driven the company from day 1, this is what we call member point of view. Our member comes to Life Time does not come to us primarily because they want a fitness center with a couple of treadmills and some free weights. So what we’re focused on is the customer who is interested in running, then we provide the best running program all around, everything about running, from coaching, training, groups to run with, athletic event around running. And I give you this example because I really want you guys to understand, whatever the customer interest is, we try to provide something that is by far, the best thing out there and comprehensive. As a result, we don’t look at Life Time as a fitness center. You guys I’m sure are still comparing us in your head, the first thing that comes to your head naturally, is a fitness center. That’s the last thing that comes to my head. I think of us as a Healthy Way of Life Company. As I emphasized in my comments and remarks — stated remarks in early on, is that we are looking to help people achieve whether if it’s athletic aspirations, or if it’s total health objectives or it’s fitness goals. It doesn’t matter which angle they’re coming at it. And then we’ll find what is their interest point, and then we’ll help them achieve those objectives, those goals by doing what they love to do. With that said, if we continue on delivering on our vision and continuing to improve on our vision, and don’t deviate from the path that we have set up in here, I really don’t see us having a direct competitor out there today. It’s an extremely broad and intense business model and at this point, we don’t have a head-on direct competitor out there. Now we have many competitors across the board, so the little fitness centers compete with about 10%, 15% of what we offer. YMCA is up competing with 10% or 15% of what we offer. The athletic event companies compete with 5%, 3% of what we offer. So it’s our business model is extremely broad. Does that help you?
Michael Lasser – UBS Investment Bank
That’s very helpful.
Michael Robinson
I think you have a second part to that question and that was, can you give us — can you give any sense to general consumer attitude and things like that? What we’ve — we’ve talked about this in the past that we continue to experience and see headwinds. I think that’s still — that is still the case. One area that we have focused on and talk to the investment community in the past is what’s going on from an enrollment fee perspective, and we’re obviously still in a mode where our enrollment fees are lower than what they were back in 2006 and 2007, and the reason for that is very simple, we are still in a membership acquisition mode and are discounting those enrollment fees. Now we have seen a slight improvement in that. If you look at the second quarter compared to the first quarter, or certainly the second quarter compared to the second quarter of last year, but it is not, we don’t think we’re out of the woods from that perspective. And we continue to expect a difficult, more discerning consumer environment for the future. We’ve talked a lot about the fact that we’ve really set our strategies up with that expectation. Our expectation is that the consumer remains discerning, unemployment remains uncomfortably high. And so all of the strategies that we’re doing, the differentiation focus, the connectivity focus, all of these things are meant to win in this type of an environment. And we clearly believe that the results that we’ve been putting up show that we are winning and that we have a confidence level as we look into the future that we’ll continue to do that if we continue to execute on the strategies that we’re talking about.
Operator
Your next question comes from the line of Greg McKinley with Dougherty.
Gregory McKinley – Dougherty & Company LLC
You started off the Q&A talking about, really your goal of maximizing dues per center and that’s sort of a mix between revenues per membership and total memberships. On the latter point, can you talk a little bit about historically, where your occupancy has been, where it is today and any vision for how you see that unfolding over the next, call it, 12 months or so?
Michael Robinson
I think many of you have heard, we talked about this before, but if you go back to 2007 or early 2008, the occupancy in our mature centers was running at about 90%. As we went through the recession, the attrition level popped up, et cetera, that occupancy level dropped to mid to low 80%. We’re still in that mid to low 80% bracket, although it has improved over the last year or so. So as we look at the future, obviously, we want to drive that occupancy rate back up. But we’re going to do it more in a focus of what’s going on with total dues and drive total dues up rather than focus unrelently just on that occupancy number itself. There will be centers where we look at an 85% or an 82% occupancy, and we say, let’s change the strategy here and let’s go to a dues optimization strategy rather than a full bore membership increase strategy and get the same results or potentially better results. So we’re going to go — like we said in the prepared remarks, it’s center by center in those differences. So as I step back and look at it, we would like to get that occupancy back up. From our perspective, that’s — more reality is probably in the 85% to 90% range, but with the ultimate goal of continuing to drive the total dues per center at the same types of levels and more.
Gregory McKinley – Dougherty & Company LLC
Okay, thank you. And then, 2 just quick follow-ups, is it still your expectation that the cost of membership acquisition in excess of enrollment fee will be roughly approximate to 2010 levels this year? And then, can you just refresh my memory a little bit about your Flex members is now at 73,000, how is that program structured and what are your goals with that?
Michael Robinson
So I’m going to answer the first one and then Bahram and I will share the second one. You have to help me again.
Gregory McKinley – Dougherty & Company LLC
Yes, acquisition cost in excess of enrollment fees.
Michael Robinson
We have seen — we saw a slight improvement in the first quarter. We saw a little bit better improvement in that in the second quarter. Our expectation is that we see a modest improvement in cost in excess of enrollment fees for the total year.
Bahram Akradi
Not too much, because that’s our lever in terms of when we need to kind of do maneuvers to get membership in, and I would model it the way it’s been until you see, I don’t know, unemployment down to 7%. I’ve modeled it the way you’re modeling, that you have in the last. It shouldn’t be a significant number, but I wouldn’t be more optimistic about it that it is at right now.
Gregory McKinley – Dougherty & Company LLC
Very good, and then just some color on your Flex member program and what you’re hoping to accomplish with that?
Bahram Akradi
Yes, so the Flex member program, it’s basically has created the opportunity for our customer, who may have dropped out for 3 or 4 months to just not lose their account number and the benefits of having this older membership whatever might be there, make it a little easier for those who know for 3 or 4 months, they’re going to be out of the state or something like that. And when we introduced it, we knew that with time, it will grow and it’s working exactly the way we expected it. And obviously you’ll have a bank of new members — a bank of members who are not active. They’re paying very little, and when they want to re-sign up instead of having the counting as a new membership sign-up, you’re actually basically getting an activation. So I wouldn’t put much more thought into it than that. It’s simply a strategy that we can either make the member cancel their membership, come back, pay a little bit of enrollment fee then we have to pay some commission, which is kind of a little more work for everybody, or the way we have it set up. I wouldn’t put much thought into it.
Operator
Your next question comes from the line of Sharon Zackfia with William Blair.
Sharon Zackfia – William Blair & Company L.L.C.
I guess a question — 2 questions, so one for Bahram. I guess, when you’re talking about doing, what I guess I would call revenue optimization per member, it sounds a lot like what you did pre-recession, and I’m just curious as you think about sales per member, do you think there’s the opportunity to push that growth back into the high single digits going forward, maybe in 2012 and beyond like it was in ’06 and ’07?
Bahram Akradi
Yes, well you’ve got to consider the fact that we are just sharper on our strategies than we were pre-recession. We have focused stronger on the reasons why people want to join Life Time, and make sure that there is really high quality program around their interest. It’s the same strategy, we just have had more years at it. We’re a lot sharper at delivering it. We’re still in a tough macroeconomic environment. So again, our strategy, like Mike said, is to win against these tougher anticipation of how the macroeconomic is going to stay, and so we feel good about that. At this point, I feel like I wouldn’t be more aggressive on modeling other than the fact that, should the environment improves at all, I think that would put just a little more win in our back rather than going into the headwind. So winning in the headwind is great, but if we get a little bit of help from the macroeconomic, I think we’re going to see some great opportunities to maximize price across the programming. Right now, we’re using all that great delivery to increase the connection, reduce attrition, kind of a blend of all of those things here.
Sharon Zackfia – William Blair & Company L.L.C.
Okay, and then just one quick question for Mike. As we look at membership growth on the back half this year, should we expect that to decelerate pretty substantially given that there are no new clubs coming in?
Michael Robinson
No, I wouldn’t expect a significant deceleration. I would expect it that we’re going to continue to grow the membership and the membership base in roughly the range that we’re seeing right now.
Operator
Ladies and gentlemen, this concludes the question-and-answer portion of today’s event. I’d like to turn the call back over to management for closing remarks.
John Heller
Thanks, Regina. Thank you for joining our call today. We look forward to reporting to you our third quarter 2011 results. Which tentatively, has been scheduled for Thursday, October 20, 2011, at 10:00 A.M. Eastern. Until then, we appreciate your continued interest in Life Time Fitness. Thank you and have a good day.
Operator
Ladies and gentlemen, this concludes the presentation for today. Thank you so much for your participation. You may now disconnect. Have a great day.
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