Q1 2024 Life Time Group Holdings Inc Earnings Call

Participants

Dani Matzke; VP, Corporate Finance; Life Time Group Holdings Inc

Erik Weaver; SVP, Interim CFO, & Controller; Life Time Group Holdings Inc

Bahram Akradi; Chairman & CEO; Life Time Group Holdings Inc

John Heinbockel; Analyst; Guggenheim Partners, LLC

Megan Alexander; Analyst; Morgan Stanley & Co. LLC

Brian Nagel; Analyst; Oppenheimer & Co. Inc.

Alex Perry; Analyst; BofA Securities

Simeon Siegel; Analyst; BMO Capital Markets

Chris Woronka; Analyst; Deutsche Bank

Owen Rickert; Analyst; Northland Securities, Inc.

Michael Hirsch; Analyst; Wells Fargo Bank

John Baumgartner; Analyst; Mizuho Securities USA

Presentation

Operator

Greetings, and welcome to the Life Time Group Holdings, Inc. First Quarter 2024 earnings conference call. (Operator Instructions) As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Dani Matzke, Vice President of Corporate Finance. Thank you, Dani, you may begin.

Dani Matzke

Good morning, and thank you for joining us for the Q1 2020 for lifetime Group Holdings earnings conference call. With me today are Bahram Akradi, Founder, Chairman and CEO; and Erik Weaver, Senior Vice President, Interim CFO, and Controller.
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 those forward-looking statements made today.
As a comprehensive discussion of Risk Factors in the Company's SEC filings, which you are encouraged to review.
The Company will discuss certain non-GAAP financial measures, including adjusted net income, adjusted EBITDA, adjusted diluted EPS, net debt to adjusted EBITDA for what we refer to as net debt leverage ratio and free cash flow. This information, along with reconciliations to the most directly comparable GAAP measures are included when applicable in the Company's earnings release issued this morning, our eight K filed with the SEC and on the Investor Relations section of our website.
With that, I turn the call over to Erik Weaver. Eric?

Erik Weaver

Thank you, Dani, and good morning, everyone. We appreciate you all joining the call this morning. I will provide an update regarding our first quarter results. The full details of which can be found in the earnings release we issued this morning. We are pleased with the strong financial results we achieved this quarter. Total revenue for the first quarter increased 16.8% to $596.7 million versus the prior year, driven by a 19% increase in membership dues and enrollment fees and a 10.5% increase in in-center revenue. Access memberships increased 5% to end the quarter at more than 802,000 memberships and total memberships ended the quarter at approximately 853,000. Average monthly dues were $186, up 12.7% from the first quarter of last year. Revenue per access membership increased to $745 from $667 in the prior year period as we continue to benefit from higher dues increased visits and increased incentive activity.
Net income for the first quarter was $24.9 million, down 9.5% versus the first quarter of 2023. Q1 2023. Net income was elevated as a result of one-time net benefits of $8.7 million related to the sale leaseback transactions and the sale of two Triathlon events. Adjusted net income was $30.5 million, an increase of $7.3 million versus the first quarter 2023. Adjusted diluted earnings per share was $0.15 compared to $0.11 per share in the first quarter last year. Adjusted EBITDA increased 21.6% to $146 million, and our adjusted EBITDA margin of 24.5% increased 100 basis points as compared to the first quarter of 2023. Our strong financial performance continues to drive growth in cash flow and a reduction of our net debt leverage versus the prior year. Net cash provided by operating activities increased 21.7% to $90.4 million as compared to the first quarter 2023, we reduced our net debt to adjusted EBITDA leverage to 3.6 times in the first quarter versus 5.2 times in the prior year period. We are excited about the continued execution and success of our business with momentum on our side, we are very optimistic about the opportunities in front of us in 2024. I will now turn the call over to Bahram.

Bahram Akradi

Thank you, Erik. As you would expect from what you just heard, we're especially proud of our continued progress, and it is my pleasure to provide a little color with respect to the numbers Eric shared with you addressing revenues, we were pleased with the $597 million we achieved for the first quarter, nearly $2 million above the top end of our guidance with the outperformance drives principally from incremental membership dues and dynamic personal training. Adjusted EBITDA of $146 million was at top end of our guidance, and we achieved a 24.5% adjusted EBITDA margin for the quarter as pleased as we are at our progress here, we're going to reiterate our previously issued adjusted EBITDA margin expectation of 23.5% to 24.5% for this year, consistent with absolutely normal predictable seasonality, a portion of the revenue gain we anticipate for the middle of every year will be from summer activities, which generate incremental EBITDA, was that lower margins, even more gratifying access membership at the end of Q1 2024 were 802,000, which is substantially above our expectations. This overperformance has been a direct result of the strategic initiatives we have previously discussed with you, which include pickle ball, Aurora and a small group training and the improved member retention we're currently experiencing, which is the best we have ever seen additionally, we believe we had some membership pull forward into the first quarter there from the second quarter as some people joined earlier in anticipation of the full season, average dues were 186 a month in line with our expectations. Based on the positive trends we're seeing in our business, we're raising our revenue and adjusted EBITDA guidance modestly. Our full year's revenue guidance is now $2.5 billion to $2.53 billion, and our adjusted EBITDA guidance is $603 million to $618 million Our priorities for this year remain growing revenue and adjusted EBITDA per our guidance. Second, delivering positive free cash flow. We're on track to achieving this objective during the second quarter and we expect to remain free cash flow positive going forward, finally, reducing our net debt leverage ratio to under three times sooner than later and certainly before end of the year.
Lastly, I want to personally thank each and every lifetime team member for your relentless commitment to delivering the ultimate experience from the member point of view, which drives the amazing financial results we're enjoying today. Thank you.

Question and Answer Session

Operator

John Heinbockel with Guggenheim Partners.

John Heinbockel

I wanted to start with some engagement rates. I know you've given that metric and that continues to improve, I think was 135 year, last we heard. So what does continue to happen with engagement? And Joe, you mentioned dynamic personal training.
How do you guys think about wallet share with in-center revenue and the opportunity there because obviously your members have a pretty big wallet.

Bahram Akradi

Thanks, John. The two from a personal training standpoint, our dynamic personal training really has been some initiative we launched almost two years ago have been working on that brand and we really have amazing success with it. Right now. We have the most number of almost double the number of personal trainers applying on average each month as they did a year ago. The momentum is strong. The execution is the best I've seen. The casting is great and we are really extremely pleased with what my team is delivering right now. We are seeing continued growth and engagement and the personal training, the connectivity between the members and personal training is improving and so that that was the most important piece of our in-center. As we've talked about before, the kids programming has been great. Summer camps have been great spa and cafe have been the focus for this year to improve and we have tons of opportunity there. And we're seeing really the initial initial baby steps in improvement in those as well. So at this point, John, we just really have a very, very optimistic view of how all these programs are coming from an engagement standpoint. We are seeing the most engaged customer that we have ever had in the history of the Company, which directly resulting in the best retention that we are seeing. And it's continuing to trend better than our own expectation, which is for the offer.

John Heinbockel

Great. And maybe as a follow up right, Tom, without without stealing thunder from your Analyst Day, but I know you recently, I think introduced this concept right of large format equivalent clubs and how you want to think about the pipeline. So just maybe at a high level, how do you think about that? And obviously, you can mix and match them right to urban residential and office buildings. And you have a lot of optionality, but how do you think that plays out over the next two or three years with a great.

Bahram Akradi

Great question. Again, John, at the end of the call today, we're going to talk about our Investor Day that we're planning and we'll give you full details of that for May 30th, our goal is to flush out the description, but in a nutshell, we, as we've stated before and the same expectation on that levered rate of return out of any type of facility we do, which is roughly between 30% and 35% levered return on our invested capital, net invested capital with it. If it's upfront investment coming from landlords or building owners, et cetera. For the end with the sale leaseback conversion, the net invested capital that we're looking for is always between 30% and 35% and we're going to do on that day's demonstrate to everybody with variety of examples or all of these are the same. So then to in to further eliminate the confusion for the investors. Our target is between eight and 12, our fees in a given year and really averaging about 10 per year. Now, a lot of these things, as you know, they have very long gestation time. So sometimes you may have a year that comes in on that lower end eight. That means a couple of those clubs that have opened that year. And would have some delays in it. So the following year, we should do 12. So for modeling purposes, what we're going to guide everybody to is to about 10 LF. fees per year and the remainder of what it takes to deliver a double digits in a 10% plus revenue and EBITDA growth. This is not for this year, obviously, based on what we have just guided to is much higher than that. But for 25 and beyond, to get to the 10% revenue and EBITDA growth, we will then need to have about 45% of that come from same store. And the rest of it needs to come from additional of our fee expansions and other initiatives that we have in place, and we feel really, really great about our strategy outlook and the execution of our team.

Erik Weaver

Yes. This is Eric. I can just add to that another another key benefit of the various formats here is our total addressable market is substantially bigger. And I think that's one thing that's that's very important as we continue to think about our growth.

John Heinbockel

Great thank you, guys.

Bahram Akradi

Thanks.

Operator

Megan Alexander, Morgan Stanley.

Megan Alexander

Hey, good morning. Looking so much, gentlemen, and to stop things. Just wanted to follow up. Brian, you alluded to it a bit in terms of the updated guide and taking it up by more than the 1Q beat. You talked a little bit about it driven by current trends? You also talked about some pull-forward of membership into 1Q. So maybe can you just give us a bit more color on what's exactly changing and the outlook is it is it that you're getting some of these pool members a bit earlier, which tend to have a higher a higher dues number given the pull activation fee and you're just getting more revenue out of them over the season? Or maybe just help us tie those comments together in terms of what's changing in the outlook?

Bahram Akradi

Yes, that's great. So the most important thing, Meghan is retention. You know, we keep going back. We keep going back and emphasizing to everyone that has a high end leisure business that is based on subscription, the most important factor, the most important KPI is retention, and we are trending to roughly 10% better retention than we have had ever in the history of the Company. And that alone allows us to see that our forecast for our dues is basically significantly higher than three months ago at this point. And therefore, our forecast is just purely based on facts. Our guidance is purely based on our forecast and the forecast as easily suggests, we should be able to deliver the numbers we just guided to both on top line and bottom line.

Megan Alexander

Okay, that's helpful. Thank you. And then again, you alluded to this a bit. I wanted to talk a little bit more in just about the EBITDA margin center OpEx was a bit higher than what the Street was looking for, and you didn't take the guide up as much on the EBITDA line. So maybe not getting the leverage on sales. It seems it's driven by where that upside is coming from. But I guess just bigger picture, what are you seeing in the costs of the club and how are those trending? And is there some gating factor to getting EBITDA margins above 24.5%? Was this the right level for the business? How should we think about that a bit longer term in terms of you letting that EBITDA margin kind of drift higher over time?

Bahram Akradi

Yes, let's go through this. We are extremely happy with a 23.5% to 24.5% EBITDA margin. Our focus is always to deliver the best member experience and a long, long lasting enduring business. So what I'm really proud of is the work that my team has done here. We reinvented this business over the last four or five years with a clear vision that the business is not going to be going forward the same as it was before. All the decisions that was made during the last four or five years that we anticipated higher cost, we anticipated higher and higher for interest rates, we anticipated way more wages and much, much higher construction costs, development cost. Therefore, we made the proper adjustments. We made all the necessary adjustments, the EBITDA plus a rent margin it is now roughly 5% higher than it was at our banner year of 2019. And therefore, we have all the March, all of them Lattice with all this space to pay a little higher cap rate for our sell leasebacks and get those deals done. We have the ability to cover all the increase payroll so we can continue to hire the best talent and pay them what we need to pay them to keep them in the clubs and the business, the new business model, the whole model, inclusive of all these increased costs are superior to the model we had 2019 and before. So all of it has been anticipated. There is no surprise and we are super happy.

Megan Alexander

Is there a chance that the EBITDA margin could be more than 24.5%?

Bahram Akradi

Yes. So we want to guide you guys to that right now? Absolutely not. So we're just giving you the 23.5 to 24.5 firmly and making sure that we can deliver our objectives and our promises through that through that through that range.

Megan Alexander

Great. Thanks from me.

Operator

Brian Nagel, Oppenheimer & Co.

Brian Nagel

Good morning.

Bahram Akradi

Good morning, Brian.

Brian Nagel

First and foremost, congrats on another nice quarter. The first question I have, Bob, we've talked a lot about driving the business towards free cash flow positive free cash flow. You reiterated that today.
Did the pressures are coming down, you could talk or any color you can give us on how you plan to your plans to address them getting your balance sheet becomes two in early 2026, as you would anticipate better than anybody?

Bahram Akradi

Brian were all ways months and months and months ahead, we're working on those things right now, we do have some we do have all sorts of things planned out. Our expectation is that that will get done sooner than later with much better interest rates for our next year and the we have had then much the most massive club opening in the first half of the year instead of spread out or the back half like upstream some years this year. So we are we just opened three or four amazing successful clubs, beating our expectations, beating our records in every case, all, but this we spent a lot of money to get those opened up. So but as we go through the second quarter there, you're going to see at the end of the second quarter, the shift where we deliver free cash flow positive this quarter there. That's after all growth capital. We start seeing the debt coming down that debt to EBITDA, adjusted EBITDA coming down pretty nicely from this quarter forward. And so we are absolutely thrilled. We are we are exactly on our plan or better in every case.

Brian Nagel

That's very helpful. I appreciate that. And then my follow-up question is bigger picture again, we're looking at the results, your comments, the businesses to be performing extraordinarily well. The question I'll ask me just given market concerns of consumer economic, et cetera. I mean, as you look across the business, in particular on the membership side, are you seeing anything at all anywhere to suggest a more cautious member within your within your model.

Bahram Akradi

So every month is a fantastic question, Brian. I'm glad you're asking it, and I'm thrilled to answer it every single month. We're seeing a record month on our personal training over the month before we're seeing record retention over it before we are getting more clubs, as I told you guys on the last call, going on a waitlist of only simply a function of making sure we still deliver MEMBER point of view and that sort of a highest quality leisure companies of that you can possibly expect in terms of service levels that so people want to learn about lifetime, they get the most amazing reception yet. We do have to hold the memberships back a little bit to deliver the experience we want do you want to handle that correctly?
So the only thing we're taking his time to train our leadership in every club when they're ready to put their clubs on a waitlist for putting more clubs in a waitlist. So honestly, we have more demand than work we are concerned about.
Well, I have personally expected to see some weakness for the last 18 months and I have been wrong. I have been wrong and wrong and wrong, and we kept thinking because customer is going to get tired, they're going to get tighter that we are not seeing anything. In fact, the only trend we see again, I just I emphasize this before, Brian, you know, at the most important key KPI is the retention and we are seeing the best retention you've ever seen.

Brian Nagel

Very helpful and best of luck here.

Bahram Akradi

Thank you so much.

Operator

Alex Perry, Bank of America.

Alex Perry

Thanks for taking my question here and congrats on a strong quarter. I guess just first for maybe following up on your last point, can you give us an update on how many of your clubs are on a wait list? And are you considering raising prices where demand continues to exceed supply like what's sort of the pricing outlook that we should be embedding for this year? Thanks.

Bahram Akradi

Two great questions, Alex. Great to hear from you. The one thing I want to make sure we don't create a pattern for is creating a metric around how many clubs on a waitlist. So just becomes one more thing that people get focused on is just what we want to insinuate, you guys is that we're getting more clubs getting to the point where to manage the experience for the customers who are already in. We have to be thoughtful about not having a free-for-all for people dropping in, right. So the waitlist is allowing us to sort of gauge the inflow of the new members in the busy clubs and all I can tell you right now is we literally are giving as many clubs on a waitlist as we can have our team and our processes proper properly in place to execute that would go with a high it execute excellent execution level. So I don't want to create a metric, but I can tell you by end of this month, it will be nearly three, four times how many clubs are on the wait list just just at the end of January. So it's there, but it's really a function of us being able to roll it out without creating it added to that were too good or anything like that for the customer who loves Lifetime's brands.

Alex Perry

That's really helpful. And then my follow-up question was you made a comment in your prepared remarks about a bit of a pull forward into 1Q on center memberships on maybe just help us think about how we should be thinking about the second quarter on any sort of key KPI.'s, I guess on center membership specifically, and what do you think sort of driving that pull forward? Is it due to people being worried about getting into the club during pool season because of the weightless? Thanks.

Bahram Akradi

Yes, I think as a function of that and the fact that we normally have as summer pool pass sort of the implementation in the busier clubs, we charge a fee to get the people into sort of discouraged the people who joined just for those three four months, which we have happening every year. So you guys know, we have a big sign up, May and June, and then we have a big dropout, September and October, which we really don't like. So we're always trying to figure out a way to discourage that behavior without enough without making the customer feeling alienated. So in the past, we have introduced this sort of them are starting from April. We'll layer in some of fees for the pool and then it just accelerates into May June. All those fees goes up hires and some of some people who have the pattern they know they want to join for the summer. They're smart enough to join end of March and not avoid paying any of those fees, but they're paying an extra month to do so at the end of the day, it all works out. I just want to caution the analysts and investors and the fact that then we are overperformance on membership. I just didn't want people to just take that and multiply it for every quarter going forward and get ahead of our guidance on the revenue and EBITDA. And again, you have a choice of doing what you want to do and we're just trying to make sure we give you guys the best information and the best guidance possible.

Alex Perry

Perfect. That's very helpful. Best of luck going forward.

Bahram Akradi

Thank you so much, Alex.

Operator

Simeon Siegel, BMO Capital Markets.

Simeon Siegel

Thank you, guys, wanting to be doing well, but more to us than the owned brand front. I was hoping to follow up on that a little bit. Actually because I mean it's interesting. So one, is it new this idea of people are signing up earlier to avoid these fees? And maybe does that help smooth out seasonality a little bit, but does it give you a little bit more predictability if you are now bringing those people in earlier and keeping them for longer? Or is it or is it normal or just were more people that did it to maybe any context around that. Any way to quantify how many pulled forward earlier and whether this is going to be just a new dynamic and it's we've got optionality.

Bahram Akradi

Yes, I think I think if you take the number above the number that was consensus about seven 95, that's about 7,000. I would say it's about half and half. About half of it was extra pull forward and the other half was basically better retention, et cetera. So we are we are more cautious on all of this, Simeon, because that really does not have some we're balancing on what The Street's may want, but more so on what our customer reaction is to our company and our team member and I just can't emphasize how pleased I am with the overall field and the health of the business. The clubs are busy. The members are happy team members are in a great place. We're getting more and more amazing qualified people coming in wanting to be a part of the lifetime. So I just really don't see any negative trends at the same time, we just want to make sure we deliver a balanced tone in terms of not getting ahead of ourselves in terms of anything that's it.

Simeon Siegel

Okay. Well, yes, that makes sense. I guess my point or my question was, have you found a way to stretch those summer numbers into another month or so? Because you're getting this avoid the fees, but add them there longer.

Bahram Akradi

That's exactly what you're once again, 100%, correct. That's what's happening there. Just basically ours, our strategies are basically to have the longest term member. And we prefer not to have people drop in drop out of it's more of a country club and a mindset. And so we were able to do this. Simeon when prior to 20 or 2020 because we were doing so much promotions. So we almost invited people for this behavior. And now it's finally taking hold after a couple of years and really is about two years now since we were officially allowed to run our business without any restrictions across the across the northern Northern and Northern America. And now we're seeing things have kind of balanced out. But the beauty of it is that we are delivering a much, much more higher end leisure outside the country club business than we were doing in 2019 and the results are speaking for themselves.

Simeon Siegel

Okay, that's great. Thank you. And then just last one, you spoke you spoke to this in different ways, but just maybe understanding that some of the growth of the center OpEx expenses tied to the ramping centers. Is there any way to just help maybe simplify what the what you think the underlying change in existing center op expenses would be fair to strip out the new?

Bahram Akradi

Yes. So look at all times, if anybody tells you, they're running everything perfectly. I would have to believe their line, because then I would be lying if I told you everything was running perfectly. There's always opportunities to improve, but we have had a bit of a cost creep that has been already corrected number one. Number two, there is some that is unavoidable, but it was all planned in our strategy to change our business model. So just wages alone are four or 5% higher of under on the wage side. And then we have more INCREASED swipes and then our lead rep hourly wages that go to service those swipes correctly are also up higher. So the clubs don't have we're spending we're spending no money on sales and marketing and we are spending a lot more money teaching classes that provides the best engagement in our clubs. So I don't I don't know how else to explain this. I think the overall we expected the cost to go up. That's why we guided to what we guided. We expected the cost to be up higher than we expected. Our revenues will be higher. We expected our engagement be higher, and we expect that our retention to be better. So all of these things are coming right in line with our expectations, slightly better or right in line with our expectations. Wages are going to think wages our wages aren't going to go back down. Simeon, anybody sitting there thinking wages are going to go down. I don't know what they're thinking. The wages are going to go up they're going to keep going up. And in order to employ happy, happy team members who can afford to pay their bills, you've got to pay them enough. Do you have the best employees in your in your in your company. So that's just that's just something everybody needs to plan for. And then you need to see if you have the ability to deliver the revenues to deliver your margins. And we've been able to do that, some them grateful that the team has been able to execute such a great plan.

Simeon Siegel

Sounds great. Best luck for the rest of the year. Thank you you so much.

Operator

Chris Woronka, Deutsche Bank.

Chris Woronka

Hey, good morning, guys, and nice very nice quarter for all of us. The first question is really about as for almonds, you've talked about outperforming all your expectations and it's kind of existing clubs. New clubs does that change the economics of when you're looking at new centers, whether it's conversion or ground-up, I mean, does that basically enable you you have to kind of raise the underwriting budgets on stuff you look at maybe things fall into a bucket of penciling out better than they did a couple of quarters ago. Is there any of that to think about the everything's in line.

Bahram Akradi

I mean, let me emphasize this. Our clubs are costing significantly more on any measure real estate cost. More interest rates are higher. Home construction is significantly higher. Payroll is higher and our revenues are higher. So when we look at the business plan, which we approve with those targeted net invested capital returns, which I told you 30%, 35%. What we consistently see when we come back three years, four years later and look at that class of clubs and see how they performed. The business plan is the same pattern. We have to spend more and we have elaborate more and the rate of return has remained constant. Where we are seeing right now is our new clubs opening the last year, year-and-a-half and now opening today, they will have a higher revenue per square foot that also cost more to build, but they also have revenue more revenue per square foot more margin, then the old facilities because of the legacy memberships that they're inside of those memberships in those clubs, older clubs that will take time.
Do you give it five to 10 years? My expectation is the legacy clubs will catch up with the new clubs. That's going to take a long time because we've told you we're going to raise those dues extremely methodically and slowly. So the customer remains loyal to lifetime. The beauty of that from a modeling standpoint is that we again, we've been consistent about this of 4%, 4.5%. Same stores for years to come is really a function of the fact that 140 clubs have the ability to keep going up to catch up with the revenues and the margins of the new clubs. So it's really all working for us were thrilled about what this outlook looks like for 24, 25, 26, 27. And again, I am just so thrilled with the fact that we made all the adjustments that we made because our business model today is enduring. All those things I mentioned to you higher interest rates, more wages and more construction costs, more supply costs are our business model is pain for all of those and then soft. So I just can't be more grateful to see where we're at right now.

Chris Woronka

Thanks. I think it's very helpful and great, great perspective. Just to follow up and then it kind of goes back to the through the sale leaseback outlook in understanding that there's the general view that rates maybe stay higher for longer. But we've also heard and the largest player in private credit say they're not waiting for rates come down, they're going to invest now. Do you guys sense any change in your potential buyers and wanting to kind of kind of move forward

Bahram Akradi

We are under LOIs at this point and some deals and we will announce some when it's appropriate when we have we have full commitments on some deals. But ultimately, what I have said repeatedly consistently, these deals are 25 year 2025 year leases with another 30 years of options with fixed bumps in goes. So the way we look at the way you look at our rent is based on GAAP rent. The number we give you is a GAAP rent when you look at the GAAP rent is a straight lining all of that. When you when you look at the difference between what the rates would have been a couple of years two, three years ago and what they will be now they've built on a GAAP basis, there may be up 50 basis points. We are generating so much more margin at the club level, that is almost a nonevent. We can endure that extra 50 basis point extra really, but on a GAAP basis, and it won't change the outcome and the business will produce the margins that we are committing to you guys going forward. So we are in a really, really good place and looking forward to see what we can demonstrate over the next several months.

Chris Woronka

Okay. Thanks.

Operator

Owen Rickert, Northland Securities.

Owen Rickert

Congrats on the great quarter. Just quickly, what's the current market value of your unencumbered facilities and assets? And how many of these could be subject to a sale leaseback if needed or desired?

Bahram Akradi

Yes. This was a brilliant question. So we have probably $3.5 billion today market. If I tried to if I took our assets and tried to sold them for replacement cost, it would be probably $3.5 billion to be to be realistic, about $2.5 billion from one reason or the other is almost punitive to make a sale leaseback. But roughly $1 billion of it. That's that we could get into some sort of the formula that would actually work, and that would be some sale leasebacks of the older clubs, which we would have substantial tax gain with some sale leaseback of new clubs where we keep $20 million to $25 million of our cost, right, the for to build that facility as the net invested capital. But if we sell them early on before, we have depreciated them, then that $20 million, $25 million can show up as a loss to offset the tax gains on the older assets. So this is a unique opportunity over the next couple of years where we can mix old and new throughout the year on sale leasebacks to sort of mutes out the the impact of the gains or losses from a sale leaseback. And then because I really want the market to see the natural potential growth of this company. And so that also we don't also we don't have any tax Lucas. So we have some we're still enjoying some loss carryover from the COVID period. And we we forecast such increased amount of EBITDA and net income growth that we want to make sure we protect as much of it as we can. So we want to use those loss carryovers not for sale of our older assets. We want to use that to offset and maintain our cash flow to pay for our growth. So balancing all those things in order to answer your question. I think out of the $3.5 billion, I think we could do in the right environment as much as a billion. I'm not telling you we're going to do $1 billion. I want to be clear what you're asking and I'm giving you pure answer. We could do as much as $7 billion of it, but we have to mix-and-match it and got it.

Owen Rickert

Got it.

Bahram Akradi

And I don't I emphasize we're not saying we will do that much. We won't do that much. There is no comment on that I'm just purely answering your question that about $2.5 billion of the $3.5 billion is almost like punitive and the rest of it, we could find a path forward.

Owen Rickert

Thank you. That was very helpful. And then secondly, in terms of the recent April club launches, are there any early performance metrics to call out or how well have these launches gone in the first few weeks?

Bahram Akradi

No. So far what we have is record-breaking numbers. We that's all I can tell you. We have been club after club. We've seen record-breaking numbers. And these clubs are achieving contribution margin positive much faster than I've seen in the history of the Company. So we're absolutely thrilled with what we're seeing in those results.

Owen Rickert

Great. Thanks for taking my questions.

Bahram Akradi

Thank you so much.
Yes.

Operator

Dan Politzer, Wells Fargo.

Michael Hirsch

Hey, this is Michael. Hirsch on for Dan today. Could you talk about CapEx going forward this year? And if anything has changed from last quarter's commentary and maybe how we should think about growth versus maintenance going forward?

Erik Weaver

Yes, I can take that one on now relative to last quarter, nothing's really changed. Their CapEx is especially our growth. Capex is coming in at where we expect for us, we're kind of looking at maintenance CapEx at roughly roughly $10 a square foot.

Bahram Akradi

And so that's kind of how we're modeling out and signed the way we are looking at that maintenance CapEx to be clear. So you look at the last year's square footage at the end of the year by the billions about $17 million square feet you apply to for modeling purposes, you apply $10 a foot. That's about $170 million. Now the way that $170 million is broken down to I would say it's about half and half, about half of it, five bucks of it would be what would require could spend to maintain your current EBITDA, maybe plus two or 3% just to sort of cover the inflation on that EBITDA and the other half. The other $5 we spend in the clubs for remodel organization, reinvention and technology of basically investments, which we expect to get additional return from on top of that. So but I want to make it easy for people to model. You could just take the last years deployed square footage applied $10 to that. So this year would say okay, $170 million to $175 million. And then we will take the remainder of it. If we do equivalents of technologies after their net after sale leaseback or all of that net investment of, call it, $25 million apiece to 50, you add it up. We're generating enough free cash flow from our business to actually execute that. And that's the way we are looking to go forward, be able to continue to deliver of the 10 FTEs per year and and free cash flow positive.

Michael Hirsch

Thank you.

Bahram Akradi

Thank you so much.

Operator

John Baumgartner, Mizuho Securities.

John Baumgartner

Good morning. Thanks for the question, Bahram, and I'd like to ask about the New York program. I recognize it's early days, but I'm curious as to any initial takeaways you have at this point as the program rolls out, I think your bigger picture, do you see anything that would suggest an opportunity to bridge me or with Aurora and maybe enhance the offerings for active adult as an incremental source of in-center revenue. I think you especially if you're talking about fleet for joint health and maybe even the opportunity to gain some traction with the Medicare plus or your other insurers for preventative health. And when we're just curious how broad you think about concierge type service across your member base.

Bahram Akradi

To your first part of your question, we committed that we're not going to tried to have in numbers associated with Neoral to deliver the to deliver the business model that we want and we're working on that.
We're very pleased with the demand that we see for that. And we are working on testing more doctors and physician assistants to be able to handle the traffic that is coming our way. So I would consider that business and one that we will develop to a successful model and rollouts.

John Baumgartner

Will you see a number that would be material impact this year. The answer is no. Will it have the opportunity to start having a small impact in 25 and then growing into 26, 27?

Bahram Akradi

Absolutely.

John Baumgartner

Is there a crossover between the Aurora customer and the mirror?

Bahram Akradi

Yes, but it's not the bulk of it. The bulk of the mirror customer is the person who is going to look for vanity. They want to look, they want to look great. They want to have a very vibrant enthusiasm towards things they want to do in life and so they're looking for ways to enhance our look for performance, right? And the science is going to allow people to do this. And our approach is to caution people to make sure they will only engage on those things that have been scientifically proven to be safe and effective and not just jump on every sort of a snake oil ourselves pitch that is taking place. Unfortunately, with these things when they go in and there is some good some truth to some of these things. There is also a significant amount of our hype and misuse of that information. And we are always going to do the right thing by the customer. And I just don't want to guide the financial community to trying to get numbers put into this is not necessary. Our Our growth is pretty fantastic without it and when we rolled out Mera on a national level. So I'll just add to that something that's already.

John Baumgartner

Good. Understood. Thanks.

Bahram Akradi

Thank you.

Operator

Thank you. There are no further questions at this time. I'd like to hand the floor back over to Bahram Akradi, Founder and CEO, for any closing comments.

Bahram Akradi

Thank you and thanks again for joining us this morning. We're off to a great start to what should be a milestone year for us in an effort to share insight into our company plans and strategy. We are excited to be hosting an Investor and Analyst Day on May 30th here in Twin Cities. We have a comprehensive agenda that will include the key milestones in our history that have led us to making into making us who we are today as well as tackling many of the key investor topics that we feel are not fully understood by the investor community.
Most importantly, we have a number of opportunities that we want to talk about for investors to hear from and interact with our deep management bench. Institutional investors should reach out to our Investor Relations team for more information. Contact information is on the press release issued this morning as well as our IR website, where that have a great rest of the day. Thank you.

Operator

This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.