Life Time Fitness' (LTM) CEO Bahram Akradi on Q2 2014 Results - Earnings Call Transcript

Jul.24.14 | About: Life Time (LTM)

Life Time Fitness (NYSE:LTM)

Q2 2014 Earnings Call

July 24, 2014 10:00 am ET

Executives

John Heller -

Bahram Akradi - Founder, Chairman, Chief Executive Officer and President

Eric J. Buss - Chief Financial Officer and Executive Vice President

Analysts

Brian W. Nagel - Oppenheimer & Co. Inc., Research Division

Michael Lasser - UBS Investment Bank, Research Division

Sean P. Naughton - Piper Jaffray Companies, Research Division

Gregory J. McKinley - Dougherty & Company LLC, Research Division

Brent R. Rystrom - Feltl and Company, Inc., Research Division

Operator

Good day, ladies and gentlemen, and welcome to the Second Quarter 2014 Life Time Fitness Earnings Conference Call. My name is Kim, and I will be your conference operator for today. [Operator Instructions] As a reminder, this conference is being recorded for replay purposes.

I would now like to turn the conference over to your host for today, Mr. John Heller, Vice President of Finance and Investor Relations. Please proceed.

John Heller

Thanks, Kim. Good morning, and thank you for joining us on today's conference call to discuss the second quarter 2014 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.

Concurrent with the issuance of our second quarter results, we have filed a Form 8-K with the SEC, which also includes the press release. On today's call, Bahram Akradi, our Chairman, President and CEO, will discuss key highlights from our second quarter and our operations. Following that, Eric Buss, our Chief Financial Officer, will review our financial highlights and provide updated financial guidance for 2014. Once we have completed our prepared remarks, we will answer your questions until 11:00 a.m. Eastern time. At that point in the call, Kim will provide instructions on how to ask a question. [Operator Instructions] I will close with the tentative date of our third quarter 2014 earnings release and call. Finally, a replay of this teleconference will be available on our website at approximately 1:00 p.m. Eastern time today.

Today's conference call contains forward-looking statements and the future results could differ materially from those statements made. Actual results may be affected by many factors, including the risks and uncertainties identified in our SEC filings. Certain information in our earnings release and information disclosed on this call constitute non-GAAP financial measures such as 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 our non-GAAP data is included in our Form 8-K.

With that, let me now turn the call over to Bahram Akradi. Bahram?

Bahram Akradi

Thanks, John. Our second quarter was challenging. As we have said in the past, the health and fitness space continues to fragment at a rapid rate. That fragmentation has led to membership acquisition and retention becoming a little more challenging at some of our mature centers. While we expect these challenges to continue, our long-term goal is to have mature center revenue remain level on a year-on-year basis. We're committed to delivering that.

When we break down challenges we experienced at some of our mature centers in the first half of the year, we looked at 3 main areas: membership acquisition, membership retention and in-center revenue.

Our membership acquisition has not been far off of our plan. Some months, we have been slightly up and some months, we have been down slightly.

Membership retention is where we see the opportunity. Since January of this year, we have been looking at how we can improve retention dramatically from our historical numbers, such that it can have a material impact in our overall membership balance in mature centers. To date, we have taken many actions at magnitudes significantly beyond what we have done previously to improve our retention rates. However, these actions will take some time to deliver their full results. It is our belief that it can take, at the minimum, a full year before you can see material change as a result of our actions on retention.

Looking at our in-center revenue. As we have said before, we need to continue to innovate with respect to new products and offerings. We cannot expect the same level of in-center growth we have seen in the past several years without this. We also recognize that in-center revenue is impacted by the quality and the number of members in our centers, so our execution on retention is critical.

While we're experiencing some challenges overall, performance of our mature centers remained very strong. We still have unit level EBITDA margins over 40% in these clubs. While we're not suggesting that we are going to be satisfied with any deterioration of this great metric, it is simply important to point out that our business model is still very strong.

Moving on to our new centers. I'm happy to report that as a whole, the centers we have opened in the last 18 months are performing beyond our expectation. As a reminder, the majority of these large format Diamond and Onyx centers in addition, to the 5 new centers we have already opened in 2014, we plan to open one more later this year in Las Vegas market. As these new centers ramp to maturity, we expect them to continue to produce strong results. I'm pleased to formally announce that we plan to open 6 new centers in 2015. Four of these -- 4 of those centers will be in the existing markets, including Toronto, Long Island and New Jersey. We're particularly excited to enter 2 new markets, Boston and Sacramento. All of these planned locations are large format centers, and we expect that 5 of the 6 will be Diamond or Onyx level.

For 2016 and '17, we are working to fill the pipeline and expect to deliver new centers in the best and most highly sought after areas continuing our strategy of directing our new centers' growth to higher demographic markets. We believe this strategy will generate strong center level performance and improve returns.

Next, I would like to provide some comments with respect to our commitment to deliver value to our shareholders. We believe that, over the long term, we will generate the best returns through the development of new centers. However, we also appreciate the impact of the share buyback can have to provide our shareholder.

Consistent with this, in the second quarter, we spent $80 million to repurchase approximately 1.7 million shares of common stock. Through the end of Q2, we have spent $140 million to repurchase 2.9 million shares. This repurchase activity demonstrates both commitment to deliver value to our shareholders, as well as the belief in long-term prospect of Life Time Fitness. However, it should be noted that the share repurchase activity results in a net income erosion due to the associated interest cost. On July 22, our Board approved a new share repurchase program in the amount of $200 million to June of 2016. Going forward, we expect to continue to repurchase shares when appropriate.

Finally, I am pleased to announce that on July 21, the Board of Directors formally named Eric Buss as our Chief Financial Officer. Congratulations, Eric. Your official appointment is well deserved.

With that, I would like to turn the call over to Eric. Eric?

Eric J. Buss

Thanks, Bahram. Let's start with some updates. In Q2, we delivered nearly $205 million in dues and our dues growth rate was 5.3% on a slight decrease in Access membership. This growth came primarily from centers opened in 2014, as well as the ramping of immature centers. Total memberships grew 1.2% for Q2 versus last year, while Access memberships were down 0.1% versus last Q2.

Attrition was up 10 basis points for the quarter over last year at 8.3%. Our trailing 12-month attrition at 35.8% was higher than last year's number of 34.5%, driven primarily by pricing actions and higher terminations from our faster growing non-Access subscription base.

We still expect total membership growth during the second half of the year as the benefits from the ramp of recently opened centers and the increased number of new center openings throughout the year compound. For the year, expect Access memberships to be up slightly. The estimated average life of a membership is 33 months, unchanged from last quarter.

The number of opened centers at June 30, 2014 was 112 compared with 106 at June 30, 2013. 66 are our large format model and 91 have been opened more than 3 years, which we classify as mature centers. We operate approximately 10.7 million square feet of fitness facilities, including our acquired centers.

Our total revenue was $326.6 million for the quarter, which was up 6% from last quarter. In addition to dues, our main revenue driver was in-center revenue, which grew by 7.3% in the quarter, led by kids activities, personal training and our smaller but fast-growing tennis business. We are strategically driving this in-center growth by increasing our products and services on our portfolio, incenting members to begin using these services through our LT BUCK$ affinity program and continuously enhancing our connectivity issues. Our focus is to drive more member engagement, which we expect will improve member retention and customer satisfaction and lead to us gaining a greater share of wallet from our active and engaged members.

Other revenue was up 12.7% for the quarter, driven by events businesses, including our race timing and registration business, as well as growth in our health businesses. We expect to see continued revenue growth throughout the remainder of the year.

Our second quarter same-store sales were down 0.6% for the quarter, while our 37-month mature store sales were down 0.9% for the quarter. As Bahram indicated before, we are focused on improving this important metric.

Revenue per Access membership in the second quarter was $442 per membership, which was up 6.3% and a sequential improvement over Q1. In-center revenue for Access membership of $150, was up 7.9% in the quarter and a sequential improvement over Q1, as well.

Now I'd like to discuss our operating cost, as well as company profitability. Operating margin in Q2 was 17.6%, down from 19.8% in Q2 of 2013. For the quarter, center operating costs increased 200 basis points over Q2 2013 to 59.4%. This increase is due primarily to centers under 1 year old, operating at lower margins as they ramp membership; as well as the lower leverage on operating costs, since some of our mature centers related to the decline in same-store sales; and finally, the incremental cost we've incurred to improve member experience in some centers.

For the quarter, marketing and advertising costs were down 10 basis points over Q2 2013, driven by a shift to a lower cost, yet more productive media channels. For the quarter, G&A expense improved 70 basis points versus last year's second quarter as a percentage of revenue at 4.4%, driven by leveraging our corporate infrastructure, particularly our information technology. For 2014, we expect G&A to remain relatively consistent as a percentage of revenue.

Q2 2014 operating expense was up 10 basis points, consistent with a relatively higher growth in our other revenue. Depreciation and amortization was up 90 basis points at 10.6% of revenue compared to 9.7% of revenue in Q2 2013. This increase is a function of the increased number of new centers we've opened in 2014 versus 2013. We expect this to moderate over the remainder of the year as these new centers ramp.

Interest expense increased to $8.7 million from $6.4 million last second quarter. We expect to see continued growth in interest, both as an expense and as a percent of revenue as our debt balances rise from funding new center construction and share repurchases and we get a full year of impact from new mortgages we've closed. We also anticipate new financings that may have higher rates than our revolver.

Our tax rate for the quarter was 39.3%, down slightly from last Q2. We expect our 2014 tax rate to be slightly under 40%. That brings us to net income for the quarter of $29.8 million, down 10.2% versus second quarter 2013, but still at a 9.1% net income margin. As a reminder, we have expected net income and EPS growth to come from the second half of the year due to the incremental preopening costs and center ramp expenses that we absorbed in the first half of 2014 as compared to the same periods in 2013.

We have experienced twice the number of total months of presale club activity in the first half of 2014 as we did in the first half of 2013, and twice the number of total months of ramping clubs in 2014 as we did in the first half of 2013. That being said, our net income declined compared to 2013 is driven primarily by membership acquisition and retention challenges we've experienced at some of our centers.

My next topic will be cash flow and our capital structure. Our cash flow from operations totaled $134 million for the 6 months ended June 30, up from $125 million for the same period last year. Total debt increased $196 million since March 31, 2014, driven by share repurchase activity, the purchase of 2 of our centers, previously sold in the sale leaseback transaction in 2003 and by construction cost related to new club openings.

As of June 30, we have $729 million outstanding, including letters of credit, on our $1.2 billion revolver. That leaves $471 million in cash and revolver availability. Our net debt-to-EBITDA ratio at June 30 is approximately 3.15:1, up approximately -- up from approximately 2.45:1 at the end of 2013. As we have said before, we are comfortable taking on additional leverage, given the predictability and strength of our cash flow and the discretionary nature of the majority of our capital expenditures.

For Q2 2014, our cash spend was approximately $171 million on capital expenditures, which includes approximately $65 million for the purchase of 2 centers just mentioned. Excluding this purchase, roughly 77% was spent on new center growth initiatives and major remodels. For 2014, we are now forecasting $455 million to $490 million in capital spend, which includes the acquisition of the 2 centers as we double our openings in 2014 and look to open 6 new clubs in 2015. This amount includes $320 million to $335 million for growth CapEx, including new centers, expansion or a major remodel of existing or acquired facilities and other growth initiatives, as well as $70 million to $90 million for maintenance CapEx and corporate initiatives.

And now, an update on our share repurchase activity. As a reminder, in August of 2013, the Board of Directors approved the share buyback program allowing for the repurchase of up to 200 million of shares in the open market for a 2-year period ending in August 2015. In Q2, we spent $80 million to repurchase 1.7 million shares. On July 22, 2014, the Board of Directors approved a new share repurchase program of up to $200 million for another 2-year period, ending June 2016. Throughout the remainder of 2014, we expect to continue to repurchase shares when appropriate.

We finished the quarter with a weighted average diluted shares of 39.3 million, compared with 41.7 million diluted shares for Q2 2013. For 2014, we currently expect the weighted average share count to continue to decline from the impact of our share repurchase activities.

With that, let me discuss our updated financial guidance for 2014. We expect our revenue will grow 7% to 8.5% to $1.29 billion to $1.31 billion. We expect our net income will be either slightly down at 1% or up to as much as 3% or $120 million to $125 million. And finally, we expect our current fully diluted EPS will be in the range of $3 to $3.10.

That concludes our prepared remarks regarding our second quarter financial results. With that, we're pleased to take your questions.

Question-and-Answer Session

Operator

[Operator Instructions] Your first question comes from the line of Brian Nagel from Oppenheimer.

Brian W. Nagel - Oppenheimer & Co. Inc., Research Division

First thing, Bahram. So Bahram, you opened your prepared comments talking about some more aggressive initiatives to include member retention. I wondered if maybe you could elaborate further on what you're thinking there. And one of the question I have is does that include -- or are you thinking all about potentially tweaking pricing one way or the other as a means to retain members better?

Bahram Akradi

Well, we tweak prices all the time. We take some up. Rarely, we adjust them back down a bit because maybe we have taken them up too much to find the right price for the market and for the club. But most importantly, as we have elevated our facilities and our differentiation to focus in the top 20% of the market, we have implemented, in the last 6 months, a variety of different initiatives to have a tighter relationship between folks in the club and our members. We have added, in numerous locations, pilot programs where we have as many as 2 or 3 people that their job is strictly to get to know the members and help them get the most out of the membership that they have and what they're already paying for, not trying to sell them new items. We have numerous technology programs that we have deployed and we are upgrading the clubs. We are adding Kids Academy, where we can convert the child centers in the Kids Academy model. So we really are attacking -- we have attacked the retention in a different way than we have, as I mentioned in my remarks, than we have ever really attacked it. We're -- beginning of this year, end of last year, I told my team that I didn't believe we can continue to win like we have in the past 4 years by trying to win based on membership acquisition. And we had to really start focusing on reducing attrition from the historical numbers of the mid-30s to much lower than that. But the activities we do, the effort we put forward to please the member increase our net promoter score, NPS, customer satisfaction scores. It's more like branding, it will take as much as 1, 2 or 3 years for the benefit of that to really cash out. And we just have to be patient and we have to continue to invest in our quality. We are continuing after investing in our brand and differentiation and be patient to be able to get that results back in the future. We're not seeing large impact as a result of the activities that we have laid out. We're not seeing overall impact. We're seeing anecdotal impact, we're seeing isolated impact in certain clubs, certain months right now. And so we feel that, directionally, we're doing the right stuff. But we have to prove that over the next 6 to 12 months, hoping that we can have attrition rate down 1%, as an example, 1.5% next year, instead of up 1%. And as you can appreciate, a couple of percent variation in attrition on 800,000 plus membership balance is a significant number from a membership balance within a year. We have had good growth as we've mentioned above expectation from our new facilities and dues. We planned a dues increase for 2014 as other years and newer -- for all the new membership rates, we added our new pricing, which was higher. So our average dues price is higher this year than last year. When we planned our 2014, aggressively, we did not reduce the number of membership -- new membership acquisitions in any sort of a proportion to the increased dues level. So we expect it to gain a significant amount of dues in our plan on the existing club, mature clubs, dues growth. And when we are looking at the year, that is exactly where we have our challenge. We're having a plateau of being able to grow dues and in-center in our mature clubs. We're getting the similar amount of dues as we were getting before with fewer membership because of the increased prices, but we just really have tapped out the ability to keep growing dues unless -- as I mentioned, we dramatically reduce retention; and for in-center, dramatically reduce attrition, improve retention. And then, in order to sell additional in-center revenue, which we think we do really good job, our team members doing a fantastic job. They work hard and under pressure at all times and I can only be thankful to them. In order for us to continue to be able to grow in-center, we have to invent, create new products going forward. Now I know you asked one question and I answered 5, but I'm sure some of you, guys, would have more of those questions, I wanted to cover all of them.

Operator

Your next question comes from the line of Michael Lasser from UBS Investment Bank.

Michael Lasser - UBS Investment Bank, Research Division

I was almost curious about the expense associated with these -- some of these initiatives. And a few years ago, you engaged in a similar type of strategy and it weighed on the P&L a bit. Do you think you're getting to that point again, where you're going to have to invest some expense in order to drive retention? And then, I have a follow-up question.

Bahram Akradi

Good. Your answer as a good -- your question is a good question, and the answer is yes. It is exactly what's happening. We have a double whammy right now. We have flat in-center revenues. We have flat, more or less, when I say flat, just to point, some percent, up or down. It's dues in the mature centers. And in order for us to grow, again, we have to, as I mentioned, we have to invest on dramatic measures. We're doing a good job with our current model. We have to change the model a little bit. And reach out to the understanding of our members, the relationship we build with each of our members, how many people they know in the club, how we know them, how well we know their family. And so we are actually developing a whole new business unit in every club that their only job is to do this. They don't have to do this as an extra work on top of other things they do. So that is going to have additional layer of cost. Additionally, we have reworked our LT dollars, LT BUCK$, we call, the dollars we give the members to kind of reengage and connect in the club. We have retooled that and made it much more customer-friendly. Now they can use those dollars across any services we offer at Life Time. And we -- to make sure we do the right thing by our team members as well, we wanted to make sure the team members get a full commission when they deliver service on these LT BUCK$ dollars. That will do the right thing for our team members long term, team member retention, and it will do the right thing by our member. But initially, that will cost more money before the customers really -- get to the point that it's commonly known and commonly appreciated and has impact. So your answer is yes, we're going to continue to invest in our members and our team members. That's going to cost money, and I expect to see good returns from that by year end or middle of next year.

Michael Lasser - UBS Investment Bank, Research Division

Okay. That's helpful. And in the last few months, last few calls, you've talked about the strategy of just winning [ph] back and let some of the little frills studio-type clubs competing out against each other, beat each other up and then, Life Time will be left standing. Do you still think that's the most effective strategy? At what point do you switch gears and may try something different to confront the more competitive landscape?

Bahram Akradi

Let's talk about that. We haven't just -- it hasn't been just that. For 5 or 6 years, we have been building the best programs in terms of studio quality, better than any studio quality, group fitness classes, cycling classes, yoga classes, alpha program, which is far better execution of what a CrossFit maybe. And so we haven't sat on our butt waiting for things to just come and go. We have been taking proactive measures from way back, years back. Having said that, there is a lot of clubs in all levels. Like I said, there's clubs, $10 or $15 a month, which really don't impact us. There are clubs in the $25 to $45 a month, which have some impact on our few of our clubs that are still in the markets where price limitation for us is in the $50 to $60 a month. And then, there are studios, as many as 8,000, 9,000 like CrossFit and more, that they impact slightly in our large clubs. So if I look at it and not want to panic, which is not really our mode of operation here, just being astute and smart about what's happening. Look, we -- as I mentioned, we have over 40% margin, EBITDA margin, in our mature center at the 4 walls of the center. So if attrition is up another percent, well, it's not going to look good for same-store sales but the model is robust and strong. But we're already seeing -- I mean, already, we're seeing some of these studios or facilities that they're low barrier to entry, already putting hurt on each other. You go by some, there is nobody in them; and you grow by some, they're doing fairly well. So we're feeling a 1% impact, not a 10% impact. I mean so, I can't sit in here and blame things all on one excuse or another. It's just a small amount, a little bit here, a little bit there, there's a little bit of fragmentation affecting us right now. And we're going to continue to invent and execute programs to overcome any and all of those things. I am extremely confident and bullish on our model and our business.

Michael Lasser - UBS Investment Bank, Research Division

My last quick question is, what percent of your club of your mature centers do you think are being impacted by some of the competitive dynamics?

Bahram Akradi

I'd say -- but it's tough, I know. We break down the clubs as we do our analytics and how we run our business with dues positive, EBITDA positive; dues positive, EBITDA negative; dues negative, EBITDA positive; and then negative EBITDA, negative dues. So those 4 quadrants, the heaviest concentration of our clubs, by a long shot, is in the dues plus EBITDA plus. The second quadrant, which I would say probably about 20% of our clubs right now, rough and tough, I'm just giving you a rough number, is in the dues negative, EBITDA negative. And then, a very small percentage falling to the other 2 quadrants because as you can appreciate, if dues is positive, most likely, you're going to be EBITDA positive and if dues is negative, most likely, you're going to be EBITDA negative. So it's largely dues positive, EBITDA positive and small numbers of negative, negative.

Operator

Your next question comes from the line of Sean Naughton from Piper Jaffray.

Sean P. Naughton - Piper Jaffray Companies, Research Division

Just a follow-up question on some of the retention efforts. Just -- I know you guys do a lot of surveys with your members, but when you do survey your members and they're talking about why they're leaving the club. What is the most common reason that their citing today? And has that been changing at all over the last 18 months?

Bahram Akradi

Okay. Good question. So the #1 reason for our clubs -- I'll review the first 3 reasons, then that should usually cover about 80% of our reasons for why people, at least, tell us they're leaving. Is moving out of the area that they -- so that Life Time would not be convenient. Equal to that is non-utilization. And then, equal to that, we call it 1/3, 1/3, 1/3 for that 80% is money. So -- and the money is not all cited at the time of cancellation. We lose some members every month that we have tried to collect from them for a month or 2, and then they go into a termination mode for 30 days and if we haven't been able to collect by end of 90 days, they have been canceled out by us and then, we mark that as money being the reason for them being gone. So those 3 make about 80% of our total attrition. And years ago, that was probably about 84%, 85% of our reasons. And then, all other reasons would be about 16%, 17%, 15% and now, it's about 20%. So when we break down those reasons, the 20%, none of them are worth digging into because they're all 1%, 1.5%, 0.5% and they become more close to the margin of error. You can't really make an overall impact. When people move, we can't do anything about it. The money, we really can't do anything about that. And so, it ends up being where we have -- the only opportunity we have is to get the members to use the club. And the club models, as I've mentioned to you, if you're charging $10 or $15 a month for a club, $25 a month, your club model, it's not a bad model, it's a non-utilization model. You expect 80% of your customers pay their $10 a month and not use the club. When you're charging $100 a month, you want your members to use the club. Because if they don't use it for a month or 2 or 3, they're very, very high likely to cancel. So we have a use model versus a non-use model. So all of our efforts is into understanding that and figuring out how we can get our customer to come in and use the club more frequently.

Sean P. Naughton - Piper Jaffray Companies, Research Division

Okay. That's helpful. And then, I guess, just as a quick follow-up, a couple of clarifications on the -- I guess, can you talk about how much of the $5 million reduction for the full year on the net income is from just shortfalls to potential plan versus the increase in interest expense? That will be the first question.

Bahram Akradi

So I'm going to let Eric answer that question. We have a -- the biggest portion of our challenge is really the dues level at the clubs, mature clubs, versus what we had hoped to execute beginning of the year. And I mentioned that in detail. Our over optimism of the fact that we could sell more or less the same number of units as we sold last year, with significantly about 7%, 8%, 9% on average, higher dues per member -- new member being sold. We haven't been able to do that despite how much effort we had put forward. So that gap is the largest gap, coupled with some incremental operating cost, mostly as a result of trying to deliver better service to our customers, more group fitness classes, more customer service people, more repairs and maintenance, I mean, across the board. We're trying to right the clubs tighter, nicer, better from a member point of view. So all of that has had the impact. And of course, the share buyback has a dramatic impact on increased debt because of the additional clubs we're building, has an impact on our interest payment. And I think, Eric can shed some color for you on exact numbers.

Eric J. Buss

Yes, Sean. That's probably closer to 2/3 related to business initiatives and business under-performance, and about 1/3 of that is related to the increased interest expense.

Sean P. Naughton - Piper Jaffray Companies, Research Division

That's perfect. That's helpful. And then, just one last question, the $70 million to $90 million in maintenance CapEx, I know that's been unchanged. Is that the right number to think about for the longer term on the business, just from if we think about the square footage you, guys, have out there today? Or are there some incremental things that you're spending this year on systems at the corporate level that are inflating that just a little bit?

Eric J. Buss

Yes. So Sean, you're right. That is not just club repair and maintenance. That's corporate initiatives, as well. So we don't believe there should be any change in how you model, repair and maintenance at the club level from how we've talked about that in the past. And we don't see any significant increases with respect to corporate initiatives that are taking some of those $70 million to $90 million, as well. Everything is pretty much on the same course on that. We're continually looking at our corporate initiatives and make sure that we're getting the bang from those bucks that we're expending, and we'll just be focused on that. But really, no change in how you should consider this stuff going forward.

Bahram Akradi

We're modeling roughly $4 to $4.30, $4.40 a foot on the maintenance CapEx on an annual basis. So that's the easy number. We have given you the 10.7 million square feet, just multiply it times that number. And that gives you a nice close number in terms of what the club maintenance CapEx will be on an annual basis. And then, the remainder of that will be in the corporate office, technology, other initiatives we have, as Eric mentioned.

Operator

Your next question comes from the line of Greg McKinley from Dougherty.

Gregory J. McKinley - Dougherty & Company LLC, Research Division

You mentioned 2 centers in new markets next year. One is Sacramento. Where was the second market, please?

Eric J. Buss

Boston.

Bahram Akradi

Boston. It's actually not in city of Boston. It's in the Boston Metropolitan Area.

Gregory J. McKinley - Dougherty & Company LLC, Research Division

Okay. And then, regarding CapEx, how much did you say was related to the 2 centers that you recently acquired?

Eric J. Buss

Approximately $65 million.

Gregory J. McKinley - Dougherty & Company LLC, Research Division

And can you just remind us, tell us a little bit about what those centers were? How they are different or similar to your existing network?

Bahram Akradi

No those are -- the 2 sale leasebacks we did in 2003 and we just bought them back.

Eric J. Buss

Yes, they've been Life Time properties all along, Greg.

Gregory J. McKinley - Dougherty & Company LLC, Research Division

I got you. Okay. And then, in terms of G&A, Eric, you had said you expect it to be relatively flat year-over-year. Is that in dollar terms? It was actually down almost $1 million in the first half of the year. Or so you're speaking in terms of percentage of revenue or dollar terms?

Eric J. Buss

So in -- I was actually speaking of that -- my comment was really more around the rate year-to-date. Do I expect that to continue? I expect that rate to continue, which is a favorable rate. So...

Bahram Akradi

We have been extremely tight in the corporate office due to our challenges. When we are militant about cost cutting, that cost cutting is generally always started and exhausted at the corporate office before we ever think about doing any sort of cost cutting in our clubs, which I hope to continue. Because we don't want to take away anything from our members or our frontline team members. So -- but, it's unlikely for us to continue the same rate of the spend we have spent in the corporate office in the next year or 2. We probably will have some increased G&A at the corporate office, simply do to the fact we have many, many positions in the corporate office that they're not filled in the last year or 2. So when we get the numbers going the direction we want it, with the retention and the clubs to start performing, we'll probably will add back some cost at the corporate office.

Gregory J. McKinley - Dougherty & Company LLC, Research Division

Okay. So my interpretation of that is in the second half, we're going to continue to run very lean until we see a sustained improvement. And so, Eric, just to refresh, when you said flat year-over-year, again, is that percentage of revenues or is that actually dollar terms? [indiscernible].

Eric J. Buss

Just to clarify. My comment, I think in my remarks, was about our current ratio of G&A dollars to revenue of 4.4%. And that being quite favorable to last year's 5.1%. We would expect that same ratio to continue. So at the end of the day, in nominal dollars, very flat or slightly up compared to last year and just continuing to run lean. And Bahram is right. We expect, if we start to get some momentum with our businesses, to potentially invest a little more in G&A, but that would only come after that momentum start.

Gregory J. McKinley - Dougherty & Company LLC, Research Division

I see. Okay.

Bahram Akradi

So you're correct. We can -- you could probably apply the same rate for the second half of the year, and you will be safe.

Gregory J. McKinley - Dougherty & Company LLC, Research Division

Yes, I got you. And then, are additional share repurchases included in your second half outlook?

Bahram Akradi

Not really because we don't know how much of that we will execute and how much we won't. We are now got to start kind of thinking about, we are very, very happy and thankful to our Board for approving our request of putting the $200 million additional share buyback. We're going to be opportunistic about how we buy those shares. What we also really like to continue, our commitment to our growth of 6 clubs a year. And we have to make sure that we have the ability to do both share buyback and build 6 clubs and pay for it in 2015 and 6 clubs in 2016. So we got to make sure that we don't get ourselves in a place where we are uncomfortably leveraged either.

Eric J. Buss

Yes, that's -- Greg, I'd add to that. Of course, leverage is not a limitless concept out here by any means. So while we've taken leverage up, we still are very mindful of that and are managing that basically on a month-by-month basis. So our leverage ratios are at the front of how we look at this as well. And as we continue to grow, we'll just manage everything else.

Bahram Akradi

We also want to be in a position with our share buyback policy to demonstrate that if our shares are not being -- our performance is not being appreciated by the general market, that we demonstrate our own appreciation for those and we stepped in and we buy some. So that's really the tone and tenor here.

Gregory J. McKinley - Dougherty & Company LLC, Research Division

And then, regarding your center margin outlook in the second half. So you talked about, in the first half, we've had more preopening expenses. We've got a fewer of those, I'm guessing, in the second half than we had in the first half. But we're still going to be running younger, less mature center base in the second half than we may have earlier in the year. And then, we've got maybe some of these increased investments around some of your retention initiatives. So as you blend all those factors together, how does your margin outlook for centers in the second half compare to the first?

Bahram Akradi

It naturally should improve because the centers that have had just opened or they had few months of presell, plus a few months right after, they are a dramatic drag to the EPS, to the net income because they're heavily net income with EBT negative. I mean, they are massively -- they're losing $300,000 $400,00, $500,000 a month right before the opening. And then they, from an EBT standpoint, they are losing that amount because then the depreciation kicks in as soon as the clubs open. So you have a significant drag. And then, it takes 2, 3 months, 4 months for them to be EBITDA positive. They may still have a small drag from an earnings standpoint. And then, by the time they get to month 4, 5, 6 and we [ph] will turn them actually. So we -- I think there is a significant change from a dollars standpoint, second half of the year, particularly Q4. We should have a huge change versus Q1 as an example between the clubs. Do you follow what I'm saying?

Gregory J. McKinley - Dougherty & Company LLC, Research Division

Yes.

Bahram Akradi

I mean the clubs that were heavily EBT negative in Q1 can actually be EBT positive on Q4.

Gregory J. McKinley - Dougherty & Company LLC, Research Division

Okay. Yes. And then, just last question. Other revenue, it was up this quarter, not dramatically. Is that a timing issue on events? And how should we think about that growth for the whole year?

Eric J. Buss

Yes, that's right, Greg. That business is fairly lumpy for us because it's really about that timing. So that's what you experienced there in the second quarter. We expect the revenue growth to continue at or near the trends that it's on right now, and that was a 12.7% year-over-year revenue growth. So we're still pretty optimistic about how that stuff looks for the rest of the year.

Operator

Your final question comes from the line of Brent Rystrom from Feltl.

Brent R. Rystrom - Feltl and Company, Inc., Research Division

Just 2 quick questions. Bahram, you had mentioned that 2/3 of the $5 million miss was related to dues, and/or maybe Eric had mention it, and 1/3 is related to the buyback. On the dues side, what kind of incremental margin are we talking about? That $3 million after tax miss is related to what amount of dues that you're thinking you're missing?

Bahram Akradi

Well, so the dues missed is larger than that versus our internal plan to be clear. We -- I guess, what I want to help you, Brent, and everybody else to think about is we are flat on dues growth, more or less, on all mature centers, for all practical purposes, flat. So -- and we had not modeled flat. We had modeled increases in our mature centers for this year. I don't -- there is nothing we can do to change that from 1 month to the other because you know, the subscription model, the impact of those is going to continue to be there for the remainder of the year. So the way I am seeing the business now for foreseeable future is flat on mature centers. And then, the only dues increase was going to come from the new centers, building and ramping up. Until we can, as I mentioned, demonstrate a formula, some sort of a model that we build and show success of it, that dramatically changes how we hang on to the member. And that's a dramatic ask, I want to be clear. We're -- we have been in this mid-30 range of membership attrition for 20 years, 15 years. I want to change that and I want to change that dramatically. In order to do that, we have to do dramatically different approaches to -- and then, prove that those things work. Clubs aren't doing a bad number as a standstill, as I mentioned before, but if we want to see more out of them, we have to invent. It's not the same old approach as before. So when you, guys, think about modeling, think about modeling flat on mature centers and just layering the impact of the new clubs. For -- until we can demonstrate better than that to you.

Brent R. Rystrom - Feltl and Company, Inc., Research Division

Okay. And then, final question, you had mentioned the -- you or Eric, that you had twice the months of the presell activity in the first 6 months of the year. Can you give us a financial sense of what this means? For example, we had x number of presell months year-to-date this year and spent x total dollars on them.

Eric J. Buss

So let me see if I can help you clarify that one a little bit. We had -- I want to think about this here for a second. So I think we had about 8 months of presale ramp in the 2013 period and about 16 of those, during the first half of the year as well. So I'm talking halves of the year. And then, net impact of those 2 differences is -- that's about $2.5 million difference in expenses, Brent.

Operator

Okay. This concludes our question-and-answer session. I will now turn the conference back over to John Heller for closing remark.

John Heller

Thank you for joining our call today. We look forward to reporting to you our third quarter 2014 results, which has tentatively been scheduled for Thursday, October 23, 2014, at 10:00 a.m. Eastern. Until then, we appreciate your continued interest in Life Time. Thank you, and have a good day.

Operator

This concludes today's conference. Thank you for your participation. You may now disconnect, and have a great day.

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