Executives
Kenneth Cooper - Vice President of Finance
Bahram Akradi - Founder, Chairman and Chief Executive Officer
Michael Robinson - Executive Vice President and Chief Financial Officer
Analysts
Scott Hamann - KeyBanc Capital Markets
Tracy Kogan - Credit Suisse
Tom Shaw - Stifel Nicolaus
Edward Aaron - RBC Capital Markets
Bakley Smith - Jefferies & Company
Tania Bykkonen - William Blair & Company
Greg McKinley - Dougherty & Company
Life Time Fitness, Inc. (LTM) Q1 2009 Earnings Call April 23, 2009 10:00 AM ET
Operator
Good day, ladies and gentlemen and welcome to the First Quarter 2009 Life Time Fitness Earnings Conference Call. My name is Emanuel and I will be your coordinator for today. At this time all participants are in a listen-only mode. We will conduct the question-and-answer session towards the end of this conference. (Operator Instructions). As a reminder, this conference is being recorded for replay purposes.
I'd now like to turn the presentation over to your host for today Mr. Ken Cooper, Vice President of Finance. Please proceed, sir.
Kenneth Cooper
Thanks Emanuel. Good morning, and thank you for joining us on today's conference call to discuss the first quarter 2009 financial results for Life Time Fitness. We issued our earnings press release this morning. If you did not obtain a copy you may access it at our website which is lifetimefitness.com.
On today's call, Bahram Akradi, our Chairman and CEO will discuss his thoughts on the first quarter and our underlying business trends. Following that Mike Robinson, our CFO will review our financial highlights. Once we have completed our prepared remarks, we will take your questions until 11.00 AM Eastern Time. At that point in the call the operator will provide instructions on how to ask a question. I will close with a tentative date of our second quarter 2009 earnings call.
Finally, a replay of this teleconference will be available on our website at approximately 1 PM Eastern Time today.
This conference call contains forward-looking statements and future results could differ materially from the forward-looking statements made. Actual results maybe affected by many factors including the risks and uncertainties identified in our SEC filings.
Concurrent with the issuance of our first quarter results we have filed a Form 8-K with the SEC. Certain information in our earnings release and information disclosed on this call constitute non-GAAP financial measures including EBITDA. We have included reconciliations of the differences between GAAP and non-GAAP measures in our earnings release and our Form 8-K. Other required information about non-GAAP data is included in our Form 8-K.
Also, I'd like to take a moment to remind you that we are holding our annual shareholder meeting at 2 PM Eastern Time today. Accordingly, we'll be preparing for in conducting that meeting, we will not begin responding to emails or phonic enquiries until after that meeting for approximately 3 PM Eastern. Your patience and flexibility are appreciated.
With that, let me turn the call over to our Founder and CEO, Bahram Akradi. Bahram?
Bahram Akradi
Thanks, Ken. I would like to start with some cautionary comments and our action plan to address each. The macroeconomic environment continues to create headwinds, the effect of these are lower enrollment fees, generally higher marketing cost, a higher attrition rate, higher membership acquisition cost due to the need to offset the increased attrition, and pressure on average dues. Over the last 90 days, we have challenged ourselves to create and execute an action plan that would address each of these areas.
First, let me expand on enrollment fees, we created and implement a plan to control our enrollment fees and saw the results meet the goals, we are looking for by the end of the quarter. For now we believe our enrollment fees have stabilized to an acceptable level. Albeit, we want to continue to increase them as the environment and particular club demographics allows for it. It is where we need it to be, but not where we wanted to be.
Next, our marketing costs. They were nicely tamed by the second half of the quarter, by some changes in our marketing approach utilizing our existing member satisfaction to our advantage. Still, we are working on many initiatives today, which will continue to focus on connectivity and call to action concepts. Our marketing cost are controller centric and we believe we are positioned to maintain an improved efficiencies without losing and in fact, enhancing effectiveness for member acquisitions.
The third area of caution is a big one, attrition. Our membership attrition rates have remained higher than we like even though, we have made a slight improvement from the fourth quarter of 2008 to the first quarter of 2009. To state the obvious, our current attrition rates are much higher than we like. This is one of the biggest areas of focus for our company. We have numerous initiatives and programs in place to help improve retention. All of which are too early to demonstrate any meaningful trends.
However, I am very optimistic that we can make improvements in this area while executing well against most of these initiatives. Our ultimate goal for attrition is to be 36% or under on an annualized basis. I will make no claims of when this will take place or if our initiatives can get us to that results at all. But we are hopeful and intensely focused on getting there.
The next item is the level of membership acquisition cost. Naturally, by having increased churn, we will have increased cost to offset the membership loss. There are three measures for this. Number one, our enrollment fees must be controlled at a level that is mutual or better, when compared to the direct cost of each membership sale. Two, obviously reduced attrition will help. Three, we'll have more efficient marketing programs in place which I was just mentioning that we're working on.
Lastly, we have experienced a constant pressure on our average dues over the past six months. Some of this is unavoidable and necessary part of remaining competitive in this tougher environment. Other parts are a function of better management and alignment of our entire sales operation. Over the past 60 days, we have overhauled our commission structure for the entire sales operation group. This went into effect April 1. We have seen immediate evidence in changed behavior and focus of our sales team on dues revenue, which has reduced the pressure on average dues, for new membership sold recently.
Those are the areas of caution. On the positive front, we have never been more invigorated addressing the changes necessary to combat the macroeconomic trends, and we have had three main positives occur. First, we have focused on a thoughtful and vigorous cost cutting measure, with a big goal to eliminate all unnecessary cost, while we do not in anyway shape or form damage our customer satisfaction or our very strong brand.
Mike, will provide some details shortly.
Another big positive for our company is how quickly we have reacted to adjusting our new center growth. Our goal has been to reach a level that our goals for the foreseeable future is funded by our cash flow from operations while simultaneously reducing our overall debt balance. We expect a small reduction in 2009 and a more meaningful debt pay down in 2010.
To that effort we have opened two successful clubs this year and we will open one additional club in 2009. We are ecstatic to demonstrate how powerful our cash flow from operation is and we are confident we can be cash flow positive this year.
A final positive mention is that we have been demonstrating, how we can continue to grow our membership levels.
Dues revenue has grown about 15% this quarter. I would like to emphasize that you should expect this growth to slowdown as we slowdown our new center openings.
With that let me close with the fact that I can confidently say, that Life Time Fitness is invigorated, fully engaged, and energized to face the challenges in front of us. We will continue to hit it head on, we will win.
With that I will now turn to Mike Robinson, our Chief Financial Officer. Mike, here you go.
Michael Robinson
Thanks Bahram. Let me start with a discussion of our capital structure, cash, and debt availability. I have often highlighted the cash flow from operation strength of this business model. Our first quarter results continue to prove this ought. Our first quarter cash flow from operations was $49.7 million, exceeding last first quarter results in a difficult environment.
Over the past several months, we've discussed our plans to slow our new center growth and fund this growth internally through our operating cash flow and current revolver availability. We've set our internal targets to be free cash flow positive in 2009 and 2010.
Paying down debt by reducing our revolver balance, to that end we are planning to open three centers in 2009, two of which have opened in February. Berkley Heights, New Jersey and Lake Houston , Texas. In our first club in the Memphis, Tennessee market in the suburb of Collierville is planned to open in June.
Our capital expenditure expectations are now 125 to $150 million down from 150 to $200 million. We currently plan to open three large format centers in 2010. Our approach is prudent and we remain flexible with the timing of our capital expenditures. We are prepared to further adjust our spending should the environment dictate it.
We closed the first quarter with approximately $56 million in cash and revolver availability, up slightly from year-end 2008. Our net debt to total capital was 51.2% for the quarter down slightly from the 51.8% at the end of last year. Our covenant calculations for the quarter continue to show significant room versus our covenant limits.
Although the credit markets remain very tight, we closed on a small mortgage in a Minnesota center during the quarter to remain in active discussions with a variety of financial institutions primarily regarding mortgages.
Please remember, we currently have over 30 facilities with an asset cost on our balance sheet well in excess of $500 million, with no mortgage financing against them.
In Bahram's remarks he discussed our focus on cost and efficiency improvement, let me expand a bit here. We're focused on cost controls across the company including central overhead costs, marketing and member acquisition costs and center operating costs.
Central overhead includes our construction in real estate and development groups which we've continued to downsize because of the slower growth profile. We continue to drive efficiency improvements and remove growth infrastructure across the rest of our central overhead structure.
Member acquisition and marketing costs came down in the last half of the quarter, driven by a number of initiatives including more surgical enrollment fee pricing and commission structures.
Finally, we continued to gain labor efficiency improvement in our centers as well as benefit from attacking many other center costs.
Now, let's discuss our operating results for the first quarter. Total revenue was $206.4 million, up 11.9% from last first quarter. Our revenue growth in the quarter continues to be driven by two main factors including membership dues, membership dues growth of 14.8% for the quarter. Membership growth of 15.1% outpaced membership dues growth. Part of this reversal is that we didn't see pricing -- that we didn't increase price on existing memberships in Q1, anywhere in the country.
The other factor is a carryover trend from 4Q 2008, where we've seen a mix shift for incoming memberships to be more single oriented membership base. For example, we've continued to see strong acceptance of individuals under the age of 26 joining Life Time Fitness. This mix shift has continued to put pressure on our average dues.
The in center revenue grew by 7.3% in the quarter. We did see our personal training business grow slow to approximately 2% over last first quarter and the rest of our in center businesses registered approximately 13% quarter-over-quarter growth, with our café business continuing to register relatively strong growth. And as has been a recent trend, our spa business continues at a slower pace.
Let me also take a minute to provide some highlights on our other revenue metrics. Memberships at March 31, 2009 totaled 599,919 which is an increase of 15.1% from last Q1. We've grown memberships sequentially for the last four quarters. As we look to the rest of 2009, we expect this growth rate to slow to single digits as we reduce the number of new center openings.
Our first quarter same-store sales had a 2.7% decline and our 37 month mature same-store sales were down 7.9%. These two metrics, as expected were driven by lower dues mix and in center sales. With respect to revenue per membership, we generated $352 per membership, which is down 2.9%.
In center revenue per membership also decreased in the first quarter to $103, or a 7% decline. Again, as expected the faster membership growth rate, the mix shift to more lower priced individual memberships in the economic environment are major drivers in these results.
Center usage remains high, with a slight increase in average member visits during the quarter. In addition the number of inactive members declined from Q1 2008 to Q1 2009.
Moving to our margin analysis. The company's operating margin in the first quarter was 15.7%. This is a decrease over Q1 2008 margin of 19.5% but in line with our expectations. The main drivers in the margin decrease come from an increase in center operations occupancy costs from our sale lease back deals we executed in the third quarter last year, which added approximately $4.3 million of rent expense or over 200 basis points in cost.
In addition, depreciation expense increased to 170 basis points driven by the late 2000 end completion of remodel acquired centers, higher investments in centers opened in 2008 and early 2009, and the deceleration of revenue growth rates.
Our center operating margin for the quarter decreased from 41.7% to 38.5% as a percent of total revenue. Excluding the sale lease back transactions from the third quarter 2008, our center operating margins would have been 40.5%. As we experienced in the fourth quarter last year, higher membership acquisition costs and lower average dues also pressured center operating margins.
Marketing expense declined by $1.2 million or 110 basis points to primarily, to reduce direct mail advertising in the latter portion of the quarter and less pre-sale activity. G&A expense increased to $1 million but declined as a percent of revenue from 5.8% to 5.7% the increased cost were primarily the result of unabsorbed construction in real estate and development overhead from the reduction in our new center growth.
Other operating expenses increased slightly from growth in corporate businesses as well as losses on asset disposals.
As we make our way down the P&L, interest expense, net of interest income increased to $7.4 million from $7.2 million last first quarter. Although debt balances are higher and capitalized interest cost reduced during the quarter, we benefited from low variable interest rates on our revolving line of credit.
Our tax rate for the quarter was 40.4%. We expect our 2009 effective tax rate to be approximately 40%. That brings us to net income for the quarter of $15.1 million which is down 13.2%. Our net income margin for the quarter was 7.3%.
Weighted average fully diluted shares totaled $39.4 million for the first quarter. We expect our total year 2009 share count to be approximately 40 million shares. Based on our first quarter weighted average share count, our diluted EPS for the quarter was $0.38, down from $0.44 in the first quarter last year.
Moving to our operating data, our first quarter trailing 12 month attrition rate was 42.7%, up slightly from the fourth quarter. Our quarterly attrition rate was 9.8%, compared to 9.3% for the first quarter 2008. Although higher than we want, we have now seen two successive quarterly reductions from 11.5% in Q3 to 10.8% in Q4 to 9.8% this quarter.
The number of open centers at March 31, 2009 was 83, compared with 71 at March 31, 2008. Of these 83 centers, 50 or 60% are our large current model and only 57% of all the centers have been opened three years or more, which we classify as mature centers.
As of March 31, 2009 we had approximately 8.3 million square feet, which is 18.5% greater than what we had at March 31, 2008, when we had 7 million square feet.
EBITDA totaled $54.9 million in Q1, up 3.7% from last first quarter. EBITDA margins decreased to 26.6% from 28.7%, last first quarter. If you remove the impact from the sale lease back transactions the first quarter EBITDA margin is 28.6%.
Cash flow from operations totaled $49.7 million. This was up from the $49.3 million reported in the first quarter of 2008. Again, this reinforces the strength of our economic model.
Turning to other financial highlights, cash outlays for capital expenditures for the quarter were $49 million which includes approximately $40 million related to growth or construction of our new centers and 7 million for maintenance of our existing club base and corporate initiatives.
During the first quarter, our overall debt balance remained relatively flat, only growing $1.4 million to $714.4 million as of March 31st. This includes 414 million outstanding on our $470 million revolver.
Other balance sheet variances to note include working capital is down about $10 million, primarily driven by $20 million decrease in construction accounts payable, as we reduce our new center growth, partially offset by $8 million growth in accrued expenses primarily accrued taxes.
With that, let me discuss our updated guidance for 2009. We've already discussed our CapEx expectations. Let me move on to financial guidance. We have not changed our revenue guidance which is 8 to 12% growth, which equates to 830 to $860 million.
We expect net income of approximately 62 to $68 million. We've increased the low end of the guidance from 60 to 62 million based on our first quarter results. This results in diluted EPS guidance of $1.55 to $1.70 per share despite the low end of our range up from $1.50.
That concludes our prepared remarks regarding our first quarter 2009 financial results. We're pleased to take your questions now.
Question-and-Answer Session
Operator
(Operator Instructions). And our first question will come from the line of Scott Hamann with KeyBanc Capital. Please proceed.
Scott Hamann - KeyBanc Capital Markets
Good morning. On the subject of attrition, can you just talk about maybe what your expectations are embedded in your guidance for the rest of 2009? And then kind of walk me through what specifically you're doing to address that situation.
Michael Robinson
Sure, I'll cover the first part of that Scott and then I'll let Bahram talk about some of the things that we are doing. Our expectations for the year are that the attrition rate with the economy, the way it is and continued pressure on that, our attrition rates will remain at about the levels we've seen over the last couple of quarters. Bahram, do you want to talk a bit about--
Bahram Akradi
I'll give you a little bit of color. As Robinson mentioned last year, the bulk of increased attrition, we had seen was people who were dropping out more quickly when they were not using the club. And we also saw the last six months, a number of people who are using the club and they were financially so pressured that they just really needed to sit out for a while, even though they loved the club, et cetera.
What we are doing is increase the value proposition by providing more services, more value, more programming, more connectivity, but not reducing our fees or our dues which we really don't believe is necessary. And we're confident we can improve the attritions from the where they are at today, to what level I can tell you, the level I like to get to as I mentioned is 36% or under.
I also want to emphasize as we have demonstrated, we have confidence and the ability to replace those members. However, again as I mentioned you will see a higher acquisition cost when you are trying to replace the higher churn than 36%. It's not that -- that is not doable, it's just not desirable. So in the details of what we are doing I prefer not to get into. We are doing a lot of stuff, I am excited about where we are going to keep it to ourselves as a competitive advantage.
Now, I am going to turn over for other question.
Scott Hamann - KeyBanc Capital Markets
Okay. On a follow-up question on your CapEx revision for this year, it seems a little bit higher I thought it would be lopping off those three clubs at the back end of the year. Does that include some stuff for 2010 openings? Are they going to be early season openings that would -- you will incurred some expense for that?
Michael Robinson
Yeah, it's a good question Scott, it includes two things. First of all, the CapEx number that we report is within our guidance, is the cash outlay for capital expenditures that would show up in the cash flow statement. That includes any change in payables, in other words if you are carrying a higher payable, a construction payable from 2008, any pay down in that is included in that.
So and there are obviously with the slowdown of growth, you will take that payable balance. We expect we'll take that payable balance down. And it also includes dollars, as we prepare for some of the large centers that we would be planning to open in 2009. That's correct.
Scott Hamann - KeyBanc Capital Markets
Thank you.
Operator
And our next question will come from the line of Paul Lejuez with Credit Suisse. Please proceed.
Tracy Kogan - Credit Suisse
Thanks, it's Tracy Kogan filing in for Paul. A couple of questions. First, can you guys talk about what you are seeing in some of the weaker housing markets? Are you seeing any stabilization now or are they continuing to get worse?
And then Bahram, I was hoping that you could address the competitive landscape and whether you're seeing increased capacity reductions from some of your competitors? Thank you.
Michael Robinson
Yeah, let me cover your first part of the question and I think I saw something on news yesterday that obviously the four states that continue under the most pressure are California, Florida, Nevada and Arizona. We have one club in Florida. We don't really feel that pressure anyway, that way. We don't have anything in California. And we don't have anything in Nevada. So the real focus for us would be in Arizona. And as I've talked about in the past, we have four clubs in Arizona. One that we have felt pressure on through last year and that continued this year was a club in Gilbert, Arizona.
Gilbert continues to comp negatively from a sales -- same-store sales prospective. But it appears to be stabilizing. We are not seeing any significant drop from that. The other thing that I talked about in the past on that and I think it does give you a sense of how we can -- how these clubs perform even in that type of environment. A typical club for us we like to have at maturity running at high 30% EBITDA margins.
That particular club with revenue coming -- which has come down and decreased over the last four or five quarters, runs at low 30% EBITDA margin. So still does very, very well. Again, given the economic pressure that we've seen. So I guess, that's a long weighted answer to say that, yes there is still pressure in those markets. But we don't see that pressure increasing any significantly right now.
Bahram Akradi
Okay, I'm going to answer your -- go ahead.
Tracy Kogan - Credit Suisse
Is that true in Detroit also Mike, are you seeing that stabilize or is that worsening?
Michael Robinson
Detroit, we talked a little bit about in the last quarter, that we'd seen some sales -- same-store center decline pressure that we did see the same-store sales decline again in the first quarter. But again, it's not beyond the expectations that we have.
Tracy Kogan - Credit Suisse
Thank you.
Bahram Akradi
Okay. And I add to that, it hasn't been significant whatsoever. I mean the -- it's still performing extremely well in Detroit. The question that you asked about, are there potential players with -- are we seeing any sort of a breakdown of the lower margin clubs. The answer is yes. We have seen some number of clubs close down, in fact around the Gilbert Club that Mike just mentioned, there has been about four or five small club closings, just in the last two, three months and again that's offset by still franchise based operators and some of the local operators are still building whether or not this is commitments they have had from the past or the growth in the franchise based business, the small what I call kiosk fitness centers, they are the 10 to 15,000 square foot fitness centers.
It's something I expect to continue to see grow as the real estate market softens. It's easier for these people to get favorable leases from landlords and as unemployment rises it helps some people buying themselves their job. Short-term can be somewhat of a noise, long-term I don't have a total concern about it because many of these clubs are so unsophisticated in nature that they will continue to open clubs across the street from each other and eventually what we're seeing there four five clubs closing down around Gilbert facility in Arizona, happening in other markets as well.
Tracy Kogan - Credit Suisse
All right. Thank you, good luck guys.
Bahram Akradi
Thank you.
Michael Robinson
Thank you.
Operator
And our next question will come from the line of Tom Shaw with Stifel Nicolaus. Please proceed.
Tom Shaw - Stifel Nicolaus
Hey. Thanks guys. First question, I guess you gave a little bit of color on some of the member acquisition cost and how that changed off the quarter. Any kind of current update, what you are seeing from a member spending towards the later part of the quarter even into April?
Michael Robinson
Overall, when you look at the productivity measure that we would look at is incentive revenue per membership. That was down 7% or so for the quarter. We have not seen a change dramatically from those levels, really through the quarter or into April.
Tom Shaw - Stifel Nicolaus
Okay, that's helpful. So I guess for Bahram, what inning are we in here the evolution of the myLT platform and how does that really change the philosophy around advertising and marketing expenditures coming forward?
Bahram Akradi
It's a great question. Hasn't been satisfied with the execution, internal execution of that at all in the last 18 months. However, we are making some platform changes and many, many operating changes here. We're seeing some rapid improvements now. My expectation is that overall the complete shift that we're marketing from the standard marketing of sending out direct mail and get catching the response to where we're going with it is going to allow us to bring in the membership counts that we need at a reasonably and I want to be cautious with that, more cost saving in the member acquisition. I believe we can acquire all the members we need to maintain the memberships that all what we need to get. If we execute those things according to the original vision, I believe it will take us about 90 more days to see some real improvements that we can share with you guys factually. I don't want to get in many details right now, if you allow me because I want to make sure we can show you guys results.
Tom Shaw - Stifel Nicolaus
Sure.
Bahram Akradi
I don't want to get into details of it.
Tom Shaw - Stifel Nicolaus
Okay. And one last one. If you looked at since really 2007, you opened your first club in New Jersey, had three, the new three storey formats. You got smaller formats such as Rockville, Maryland. What did you learn from these club openings and obviously that the pace of growth has been brought down. But what do you learn so far and how that will maybe impact, how you look at new clubs for 2010 and beyond?
Bahram Akradi
Look, over my personal career in the club business and in the course of lifetime, we have built clubs from -- we operate clubs from 10, 11,000 square feet all the way to 300,000 square feet. And frankly, we have small clubs that have great rate of returns and small clubs that don't. We have large clubs that not step out of the park and our expected ROIC and we have large clubs that don't.
So the -- trying to get a formula analytic categorization that you would say, the jumbo clubs don't work great and the small clubs don't work great. Mid size clubs work, you just can not do that. I mean if anybody tries to put them in any sort of classification, you know I think I can logically and factually rebottle those comments.
What we know is that, when we put the club in the right market and we deliver the right product, it works and the Rockwell Club is a successful operation. And the two clubs in New Jersey are great success as I'm sure any of you guys show in that market could feel it by just going in there yourselves.
So we are seeing variety of performances in variations of our clubs and so the focus right now for Life Time is to demonstrate to everyone for once and for all that we can be very, very strong cash flow by just taming our growth. And that's what we are going to do while the credit environments are uncertain. We are not going to kind of put the foot on the gas in terms of growth and -- but we certainly have the ability to increase that once we are absolutely certain that the headwind is behind us and the credit markets are open.
Michael Robinson
Yeah, just a little bit of color I think part of our question implies just how are some of these newer clubs performing and as we have talked about in February, those two East Coast clubs that we just opened in New Jersey are performing very well. We're running ahead of our membership plan, in both cases. Those centers are over a million dollars a month in revenue. At this point in their very, very young life that's extremely encouraging for us.
The three storey center we've talked about, we've got two of those up. We've got one in the Houston market and one in the Chicago market. And again together those clubs are performing like we would one happens to be a little bit under our plans right and one happens to be over our plan.
Bahram Akradi
And the one under our plan frankly. We have opened in a magnificent life style center huge and because of everything has happened in the economy, we opened in September and the first next business that is opening was just about two weeks ago. So we've been sitting in new level construction zone and I would not have any expectations. In fact, the club has performed above what I would have thought, it would do being in the condition it has been. So I have huge expectation for that club to ramp this year as the rest of the center starts coming towards more of a completion by mid-summer.
Tom Shaw - Stifel Nicolaus
Great, thanks for the color guys.
Operator
And our next question comes from the line of Ed Aaron with RBC Capital Markets. Please proceed.
Edward Aaron - RBC Capital Markets
Hi, great. Thanks, good morning, guys.
Michael Robinson
Good morning, Aaron.
Edward Aaron - RBC Capital Markets
I was hoping if you could elaborate a little bit on your decision to cut the CapEx guidance the amount is in favor of conservatism. But my impression from last quarter was that, that was more or less a contingency plan in the event that earnings were tracking toward the low end of your guidance. But you're actually now at the low end up or I'm just a little puzzled there?
Bahram Akradi
Okay, I emphasize again. I believe that the markets today demonstrate the fact that there is uncertainty in the credit market and the way that even though we are trying and we have some signs that we'll able to get some mortgages. There is no assurance that it will happen.
Furthermore, I think there has been just underlying thought that Life Time Fitness is going blow itself out with growth and get in trouble. We have such a strong cash flow, we just want to demonstrate that reduce our debt balance and be firmly in control of opportunities ahead. We feel great about still opening three large format clubs this year and another three next year and so on. Again and when the market gives us complete green light that everything is back in normal, we can step on increasing the growth very quickly.
Edward Aaron - RBC Capital Markets
Okay, thanks. My second question was just on the center operating expenses on a per center basis after making some adjustments for incremental rent and maybe some higher commission expense. It seems like they were probably down about 3% or so on a per club basis year-over-year and just with the fact that usage is actually higher on a per member basis I'm trying to understand where you are able to cut inside the center without hurting the member experience?
Michael Robinson
Yeah, let's, I am trying to reconcile the way you are talking about to overall margin and you've touched on that there are three primary elements to that margin pressure. Number one was the increased occupancy cost from the sale lease backs. Over 200 basis points. And next thing was the commission of direct sales cost in excess of enrollment fees that probably had 50 or 60 basis points of pressure in the quarter.
And then the next over writing was just the lower average dues, that brought your revenue line down a little bit. So you're correct in the assumptions as you looked at that. From a cost perspective it really is every line on -- every controllable expense line on the P&L. It starts with controllable labor and for us we term that our operation's labor cost, we have put more and more tools in place, labor efficiency tools that help us schedule our labor tighter. And we expect, we budget and we expect efficiency improvement in that labor cost.
We saw that in the first quarter, we actually saw that slightly better than our plan. You move down the line to our occupancy costs to our utility costs to our telecom cost to those types of cost and again there is a tremendous amount of focus line-by-line are ensuring that, we are spending only what we need to in those areas.
Now go back big picture, we are not going to. We have a tremendous strong brand and we are not going to degrade that in anyway. And so, we must maintain the proper repair maintenance dollars, the proper maintenance CapEx dollars and that friendly smiling helping face where it's expected and needed. So it's a balance but it's a balance that we continue to see opportunity on and we work hand-in-hand with our operations folks day in and day out to prove that.
Edward Aaron - RBC Capital Markets
Thank you.
Michael Robinson
You are welcome.
Operator
And our next question comes from the line of Bakley Smith with Jefferies & Company. Please proceed.
Bakley Smith - Jefferies & Company
Hi, guys, just two questions. I guess first on attrition. I mean do you have a sense for what share was basically people, do you kind of strike out. They won't really come to the clubs versus those that, I mean just talk about little bit I just want to get a sense of how some of the share between that and the people that really had to cut back despite the fact they were showing up every week?
Bahram Akradi
I think that if you go back to pre-recession time we had about 28-29% of our total attrition was due to non-utilization and only 16 - 17% of our attrition was due to money. Today, more than a third of our attrition probably 35 to 40% of our attrition right now is due to financial. And some clubs and this doesn't breakdown exactly. But, some months in certain clubs you may see 50 - 60% of the attrition they write down money, as the reason they are dropping out.
So it's completely has shifted to money being a number one reason why we have had our increase in attrition and it's the largest portion of our attrition today. And that's why we're focusing on increasing the value proposition every which way we can. So the customer feels like they just can't let go of this because there is too much value. And that's what we have to continue to work on and of course little things come back, all of that will help us tremendously to have a strong come back. So that's just the value proposition is going to be stronger and stronger all the time.
Bakley Smith - Jefferies & Company
Okay. And I guess as kind of dovetails of that because my next question was, I mean how do you view, I know you are looking at your trends drops and your trying to control those. But how do you view that trade-off between, having a trainer on duty versus not, in the case that you get some of them shows that its never done before and wants to try it. But now, I mean like how do you view, how are you weighing, how are you evaluating the service level versus the cost?
Bahram Akradi
Yeah, now you are asking a question that the answer is thousand different things. If you heard what I said earlier, our number one asset is our strength, our brand, and our member satisfaction. As we have mentioned to you, we run a very systematic approach to customer satisfaction called net promoter score. We do it accurately and according to book. And we have had steady increase in our member satisfaction surveys to near 45, 46, 47% system wide. This compared to other service companies, other products in the country who do this accurately and according to the book, average above the single-digit 6, 7, 8% customer satisfaction.
So the one thing Life Time Fitness is never going to give up is that intensity towards giving the customer satisfaction and in fact part of my strategy of future marketing is utilize that satisfaction. So we are not going to damage our brand and we are not going to be accepting any sort of a cost cutting measure that would result in a lowered experience from our customer base.
Having said that if you look hard enough there is always room to find efficiencies particularly when your company it have had have four plus years of every quarter hitting our financial results and our estimates. I think sometimes you may think, you are running efficient but there are areas that you probably have been a little more relaxed than you could have been. So we have spent more time focusing on where we can take cost out which does not effect our customer experience and we have been successful and I believe we still have a little bit of additional room at the club.
However, the bulk of the money we are taking out of our cost is at the corporate office overhead which was largely built on growing at the pace of 12 or 13 or 14 or 15 clubs a year which at this point is not necessary.
Bakley Smith - Jefferies & Company
Okay, thanks.
Operator
And our next question will come from the line of Tania Bykkonen with William Blair. Please proceed.
Tania Bykkonen - William Blair & Company
Hi, it's Tania.
Bahram Akradi
Hi, Tania.
Tania Bykkonen - William Blair & Company
I have a question, Bahram with answer I guess on the cost want more detail on that cost cutting. But on the revenue side I'm wondering where do you get the confidence to reiterate revenue guidance, given the deterioration and some of the metrics and then Mike I think mentioned that in center revenue per member is sort of a just below rate if it was. I am just trying to understand and Bahram you mentioned increase in the value preposition, just trying to get your thinking on, the revenue guidance giving that deterioration metrics.
Bahram Akradi
It's because when we did our guidance we were not thinking. We're going to be in the land of milk and honey this year. We thought we are going to be in a tough macroeconomic conditions, we thought it we'll be in headwind throughout the year and we planned for that.
Tania Bykkonen - William Blair & Company
Okay, so you have built in cushion. And then second, you've already mentioned in terms of comp store some stabilization in Gilbert and a little bit about Detroit. But just in general on the aggregate, the comps across the regions show signs of stabilization in quarter? Or do they deteriorate?
Michael Robinson
Well, comps were down.
Tania Bykkonen - William Blair & Company
Right.
Michael Robinson
So I mean from the first quarter of last year. But again across the -- as you are looking at and trying to compare at with the fourth quarter of last year, it was relatively stable.
Tania Bykkonen - William Blair & Company
Okay. All right, thank you.
Operator
And our next question will come from the line of Greg McKinley with Dougherty & Company. Please proceed.
Greg McKinley - Dougherty & Company
Yeah, good morning. Just a couple of real quick numbers questions. I think G&A typically is up sequentially from Q4 to Q1, but maybe a little bit higher this year than what I expected. Could you talk a little bit about that and should we be expecting expense rates on that line, I mean to decline on a quarterly basis? As the year progresses and then also with your view for free cash flow this year, should we expect the interest expense sort of having hit a high watermark in Q1?
Michael Robinson
Well, let me answer that last one first and then go from there. We do not expect interest expense to have hit the high watermark. We expect that will continue to increase primarily because capitalized interest will continue to come down during the year as our construction progress, balance reduces.
Greg McKinley - Dougherty & Company
Okay.
Michael Robinson
And I don't know how you -- its relatively low rates today. I cant, I don't have crystal ball, I can tell you what our revolver rate is going to look like in the third and the fourth quarter. So, I clearly do not expect that our -- I expected our interest expense line will continue to grow.
Greg McKinley - Dougherty & Company
Okay.
Michael Robinson
Let's talk about G&A a little bit. You asked a couple of question in there and let me try and address those. It's down as a percent, I think 10 basis points from 5.8 last year to 5.7%. I expect that leverage will continue and we should get more leverage as we go through the year. In the first quarter, we spent about a $1 million more than we did in the first quarter of last year. There are a few elements to that, but one of the bigger ones is, we have some costs that accumulate within the construction and the real estate development groups that typically are fully absorbed into projects.
Greg McKinley - Dougherty & Company
Okay.
Michael Robinson
And in this particular case with the growth slowdown, you got some timing effect but you also have some effect, we had some costs that were not fully absorbed within projects. And I expect that -- that will continue on but yet to be smaller as we go through the year. So sequentially, I would expect that we'll start to see some decline in G&A dollars as you go into second, third and fourth quarters.
Greg McKinley - Dougherty & Company
Okay, great. Thank you.
Michael Robinson
Welcome.
Operator
And our question is follow-up question from Scot Hamann with KeyBanc Capital. Please proceed.
Scott Hamann - KeyBanc Capital Markets
Mike, could just touch on some of the trends that you saw with now there is shift in the attrition month-to-month throughout the quarter?
Michael Robinson
I'm hesitating because we normally wouldn't give that type of color and I really don't want to give that type of color. Again I think that, I think from my perspective, the quarterly results really do lay out what we were seeing month-to-month. With one caveat and that is as Bahram mentioned and I mentioned, in our prepared remarks that we do expect membership growth, that membership growth rate to slow as you move on each quarter through the year, mainly because we have cut back our growth and we don't have any one near the, as the new clubs coming out line. For instance, we only have one active pre-sale today. So you should expect that membership growth and it would have come down from January, very, very strong number down as you move on through the year.
Scott Hamann - KeyBanc Capital Markets
Okay. And then just maybe in the quarter, what percentage of the memberships that you added or kind of in the single maybe call it lower margin type membership versus what you saw in the fourth quarter and your expectations for the year?
Michael Robinson
Yeah. Again we are not going to get into specifics here all over. I will comment on some general things. We have seen, first of all historically you see about 50, 55 maybe 60% individual membership sales. That has gone up in the last six months or so. We have seen, we planned and have seen the 126 membership be stable at roughly what we're selling in the fourth quarter and that's about where they came in the first quarter of this year.
We also -- we saw earlier in the quarter more pressure on average dues that improved a little bit in the second half of the quarter, but not significantly. We've got a number of things that we are looking at to try and help that along. But a lot of those things were initiated late in the first quarter rather than in the second quarter.
Scott Hamann - KeyBanc Capital Markets
Okay. And then finally on the lower enrollment fees for the quarter. Can you quantify what impact that had on center ops?
Michael Robinson
Can you repeat that, the lower enrollment fees? Just repeat the question for me.
Scott Hamann - KeyBanc Capital Markets
I mean last year you'd said that you took about a 1% hit because of the lower enrollment fees and the inability to really offset that with?
Michael Robinson
Right, the impact in the first quarter was roughly a half a point probably 50 or 60 basis points of increased member acquisition costs coming from lower enrollment fees and higher direct cost associated with the sale of those memberships.
Bahram Akradi
We have corrected that and we expect to be able to be neutral on acquisition cost versus enrollment fee for the remainder of the year.
Scott Hamann - KeyBanc Capital Markets
All right, thank you.
Operator
And at this time I'd like to turn the presentation back over to Ken Cooper.
Kenneth Cooper
Thank you for joining us on the call today. As I mentioned at the start of the call, we'll be holding our annual shareholders meeting this afternoon. We look forward to reporting to you our second quarter 2009 results which tend to be has been scheduled for Thursday, July 23rd at 10 AM Eastern. Until then, we appreciate your continued interest in Life Time Fitness. Thank you and good bye.
Operator
And thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Good day.
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