Executives
John Heller
Bahram Akradi - Founder, Chairman, Chief Executive Officer and President
Michael R. Robinson - Chief Financial Officer and Executive Vice President
Analysts
Paul Swinand - Morningstar Inc., Research Division
Michael Lasser - UBS Investment Bank, Research Division
Sean P. Naughton - Piper Jaffray Companies, Research Division
Sharon Zackfia - William Blair & Company L.L.C., Research Division
Brent R. Rystrom - Feltl and Company, Inc., Research Division
Life Time Fitness (LTM) Q3 2012 Earnings Call October 18, 2012 10:00 AM ET
Operator
Good day, ladies and gentlemen, and welcome to the Third Quarter Life Time Fitness Inc. Earnings Conference Call. My name is Ann, and I will be your coordinator for today's call. As a reminder, this conference is being recorded for replay purposes. [Operator Instructions] I would now like to turn the presentation over to your host for today's call, Mr. John Heller, Senior Director of Investor Relations and Treasurer. Please proceed, sir.
John Heller
Thanks, Ann. Good morning, and thank you for joining us on today's conference call to discuss the third quarter 2012 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 third 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 third quarter and our operations. Following that, Mike Robinson, our CFO, will review our financial highlights and update our financial guidance for 2012.
Once we have completed our prepared remarks, we will answer your questions until 11 a.m. Eastern Time. At that point in the call, Ann will provide instructions on how to ask a question. In order to give as many as possible the chance to ask a question, please limit yourself to only one question. I will close with the tentative date of our fourth quarter 2012 conference call.
Finally, a replay of this teleconference will be available on our website at approximately 1 p.m. Eastern Time today.
Today's conference call contains forward-looking statements, and 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 including EBITDA, free cash flow and other non-GAAP operating measures. 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. I'm pleased to be here to share my thoughts and perspective on our third quarter 2012 results. I would like to start by addressing attrition. Our attrition rate in the third quarter was above our desired goal. Our total attrition rate for the quarter was 10.3% versus 9% last year.
Excluding the impact of Lifestyle Family Fitness acquisition, our core attrition rate for the quarter was 9.8%. Excluding the impact of LFF acquisition, we anticipate finishing the year with a trailing 12-month attrition rate of 37%. While we have been targeting a 36% attrition rate, at this point, we don't see -- expect to see any significant improvement in attrition in the current run rate. At the same time, we don't see any signs or reasons for any significant acceleration either. We're not satisfied with this attrition number. And as always, we have been and will remain focused on managing these attrition rates. But for the time being, let's assume attrition rates will remain at 2012 full year run rates.
Now let's look at other key performance metrics. Membership for the third quarter was 6.4% higher than last year, and dues revenue for the quarter grew 9.4%. We continue to see strong dues growth in relation to the membership growth, up almost 50%.
Our in-center revenue had its 11 straight quarter of year-over-year double-digit growth at over 12%. Our total revenue for the quarter grew 11% over last year. Net income for the quarter was up over 19% versus last year, and the earnings per share was $0.77, over 16% higher than last third quarter . Same-store sales was up 4.1%, and mature same-center -- mature center same-store sales for the quarter was up 3.1%. Operating margin for the quarter was 20.1%, up 130 basis points over last year. I am very pleased with all these metrics we just listed.
Next, I would like to address enrollment fees. Since the inception of the company, we have used enrollment fees as component of our business model where we offer discounts, promotions and marketing programs. While we maintain and do not discount our pricing on our dues, this is the way it has always been and the way we think it always will be. Dues are 64% of our total revenue, while enrollment fees are barely over 1%. We offer discounts and promotions under 1% and protect the 64%.
From a strategic standpoint, we're very bullish on our Healthy Way of Life's direction. We're investing in branding, technology and new products -- and new product and service research and development. Products and service -- services that are currently in incubation are going well. We are excited about what these strategies and investments bring to Life Time in the upcoming years.
We also have an intense focus on our -- on the growth of our core business. Absent of any opportunistic acquisition, we currently expect 4% to 5% core square footage growth in 2013, and we're targeting 7% to 10% square footage growth in 2014 and beyond in our planning horizon.
We're excited about our pipeline of new centers that will continue our trend towards higher demographic locations and further strengthen our membership base. We will provide more details on our center-level growth plan on our year-end call in February.
I want to take this opportunity to truly thank everyone of Life Time's team members, from the front-line employees to our Executive Vice Presidents to everyone in between, whom without their relentless and passionate efforts, these results would not have been possible.
With that, I now like to turn it to Mike Robinson, our Chief Financial Officer. Mike?
Michael R. Robinson
Thanks, Bahram. Let's start by discussing in more detail some of the events and initiatives that have occurred over the past few months. During the third quarter of this year, the company recognized a noncash performance share-based compensation expense of $700,000 pretax versus $1 million in Q3 last year. The results and guidance we reported in our earnings release and discussed on this call are inclusive of this expense.
We expect the total impact of this expense in 2012 to be $0.04 per share. The company anticipates recognizing the remaining portion of this performance share-based compensation expense of approximately $650,000 pretax or $0.01 per share in the fourth quarter of this year.
In May of 2012, the compensation committee of the Board approved a grant of long-term performance-based restricted stock for approximately 50 members of senior management. The committee approved this grant to serve as an incentive to our management team to achieve certain cumulative dilutive EPS and ROIC targets in 2015 and '16. The EPS targets are 1.5x the compound annual growth rate under our current long-range plan, and the ROIC targets are 1.1x the ROIC under our current long-range plan. We do not believe the achievement of either the cumulative EPS or the ROIC targets is currently probable and have not taken any compensation expense related to this plan.
Our initial remodel and the dues price repositioning of the 9 former Lifestyle Family Fitness facilities in Ohio, Indiana and North Carolina acquired -- that we acquired late last year is complete. As a reminder, at the acquisition date, the memberships of these centers came in at less than half the average monthly dues of our current portfolio, which lowers our overall average revenue per membership company-wide. As a part of the transition and in conjunction with the remodels, we have raised the dues at these centers substantially and in some cases, over 100%. Obviously, this has increased the attrition of members, which we fully expect.
Our goal is to attract the demographic that fits our differentiated business model. We've seen positive results from these moves. Even as we absorb these transition and integration costs in 2012, we expect a positive contribution from this acquisition in 2012.
Now let me talk about attrition and retention. For the quarter, our attrition rate was 11.3%. On a true comparative basis, excluding the impact of the Lifestyle Family Fitness members we acquired last December, attrition for the quarter was 9.8%, up from 9% last year. Our trailing 12-month attrition rate is 37.3%. Excluding the impact of the Lifestyle acquisition, trailing 12-month attrition at the end of the quarter was 36.3% compared to last year's trailing 12-month rate of 35.3%. The increased attrition from the Lifestyle acquisition was expected as we have raised dues pricing on most memberships generally by 20% -- 25%, in some cases over 100%. We expect the incremental attrition related to Lifestyle to continue throughout the year.
In addition, in our core business, we instituted a dues increase late last year. This drove slightly higher attrition in the first half of 2012.
Please keep in mind, the incremental revenue from the dues increase well-outpaced any loss of dues from this attrition. Again, both of these influences were expected and well within our tolerance ranges.
The increase in our core attrition number in the third quarter was focused primarily on lower dues memberships. Attrition in our Onyx and Diamond clubs are significantly below our overall rate, in fact, just above 30%. These memberships bring in much higher dues and in-center revenue per membership than the overall average.
For the memberships that had trued-out and that we replaced with new memberships, we are seeing healthy increases in average dues, in effect, creating a lower dues membership for a higher one. Our business model works with attrition at its current level, and we continue to see strong dues growth.
The estimated average life of a membership is 33 months, unchanged from last quarter. We finished the quarter with 695,271 memberships. This was a 6.4% increase from the third quarter -- from third quarter of 2011. Excluding the impact of the Lifestyle Family Fitness acquisition, memberships grew 3% for the quarter, up from 2.8% in the second quarter. The result is a stronger, better membership base and higher dues rate. Again, we clearly see this in our total dues growth.
The balance of Flex Memberships at the end of the third quarter increased to approximately 100,000 versus approximately 94,000 at the end of Q2. The number of open centers at September 30, 2012, was 105 compared with 92 at September 30, 2011. 60 are our large current model and 83 have been open more than 3 years, which we classify as mature centers. We operate approximately 10 million square feet of fitness facilities, including the acquired centers.
Our total revenue was $294.9 million for the quarter, which was up 11.1% from last third quarter. Our main revenue drivers are as follows: Membership dues growth grew 9.4% in the quarter, our powerful dues stream accounts for 64% of our revenue. Dues increases taken late last year and Q1 of 2012 represent approximately 2% of this growth. We will continue to look at our pricing and mix competition -- composition and be opportunistic when and where we think it is prudent.
In-center revenue grew by 12.2% in the quarter. We are strategically driving this growth by increasing our products and services in our portfolio incenting members to use these services through our LT BUCK$ affinity program and continuously enhancing our connectivity initiatives. Our focus is to drive more member involvement, which we expect will improve member retention and customer satisfaction.
Other revenue grew 47%. This revenue includes our media, events and health businesses. These ancillary businesses are designed to drive brand, further product differentiation and support and grow our subscription businesses. Our revenue productivity metrics are strong and consistent across the board.
Our second quarter same-store sales were up 4.1%, while our 37-month mature same-store sales were up 3.1%.
Revenue per membership in the third quarter was $408 per membership, which was up 3.2%. Excluding the impact of the Lifestyle Family Fitness centers, revenue per membership was $416, up 5.2%. In-center revenue per membership of $131 was up 5.4% in the quarter. Excluding the Lifestyle centers, in-center revenue membership was $134, up 7.8%. As we discussed, we expect the lower dues and smaller facilities with fewer revenue-driving amenities such as cafés and spas in the LFF acquisition will lower our revenue per membership at statistics in 2012.
Our core in-center business growth strategy remains solid. For perspective, in the third quarter of 2011, '10 and '11, we were at $112 and $124 of in-center revenue per membership, respectively.
We believe the improvement over the last 2-plus years is evidence of our member connectivity and engagement, as well as expanded program offerings.
Now I'd like to discuss our cost structure. Year-over-year, operating margin was 20.1%, an increase of 130 basis points from 18.8% in Q3 2011 and the highest Q3 levels since 2008. Income from operations increased $9.5 million from Q3 2011.
Center operating margins continue to improve. For the quarter, center operating costs improved 250 basis points or 200 basis points when comparing center revenue to center operating costs. Leverage from the increased dues revenue and mix changes continues to drive this margin improvement.
In addition, we are seeing margin improvement year-over-year in our lower margin in-center businesses. Reduced lease expense from the buyout late last year of 6 former leased properties also contributed to this improvement. Costs in excess of enrollment fees were higher during the quarter, but were clearly much more than offset by the initiatives mentioned above.
For the quarter, marketing and advertising costs were down 40 basis points. As we've done in the past, we offset more aggressive enrollment fee promotional pricing in the quarter with a slightly reduced advertising spend. We continue to invest in our LT BUCK$ affinity program and marketing spend in new events and other corporate initiatives. These programs are showing results as evidenced by our strong growth in dues and the in-center revenue.
For the quarter, G&A expense was down 10 basis points from last year as a percent of revenue at 4.6%. While focused on controlling and leveraging core G&A elements, we continue to invest in expanding our customers or consumer-facing technology, including online scheduling, mobile applications and web sales. These initiatives are designed to further enhance member connectivity and drive more product and service differentiation.
For the quarter, operating expense -- other operating expense was up 130 basis points, primarily as a result of our continued investment in our athletic events business including Chronotrack acquisition, myHealthCheck business infrastructure and cost of sales related to our media business. While other operating expenses increasing as a portion of our total cost structure as we expect, we are seeing significant top line growth related to these synergistic Healthy Way of Life businesses. The associated revenues related to these other operating expenses grew 47% over the same period last year, driven by growth in our events business including the Chronotrack acquisition discussed earlier, as well as our health business.
The cost-revenue relationship improved in the quarter compared to the second quarter, and we expect quarter-over-quarter relationship to continue to improve gradually over time as we grow these revenues.
Depreciation and amortization was up 40 basis points for the quarter to 10%. This increase was expected as we absorb the incremental depreciation from the former leased facilities we purchased in December 2011, as well as the increased remodel activity from acquisitions.
Interest expense, net of interest income, increased to $6.5 million from $5.1 million last third quarter. This increase in interest expense reflects the impact of the W.P. Carey mortgages we assumed as a part of the 6-center lease buyout at the end of 2011.
Our tax rate for the quarter was approximately 39.7%, down from 40.2% last Q3. We currently expect our full year tax rate to be approximately 40%. That brings us to net income for the quarter of $32.1 million, up 18.9% over third quarter 2011. Weighted average diluted shares for the third quarter totaled $41.9 million. Overall, we achieved diluted EPS of $0.77 in the third quarter, up 16-plus percent.
Our next topic will be cash flow and our capital structure. Cash flow from operations totaled $60 million for the third quarter. Year-to-date, we've delivered $203 million in operating cash flow, up over 14%.
For the quarter, free cash flow was slightly positive, and year-to-date, it's approximately $38 million before acquisitions. We have now generated 15 consecutive quarters of free cash flow.
Please keep in mind, we intend to increase investment and long-term growth opportunities, including square foot expansion while maintaining a strong balance sheet. We do not plan to manage positive free cash flow, but intend to maintain a prudent debt leverage ratio.
We continue to focus on the capital structure, cash and debt availability. Total debt for the quarter decreased $6.6 million since Q2. As of September 30, we have $426 million outstanding including Letters of Credit on our $660 million revolver. That leaves approximately $242 million in cash and revolver availability. Our net debt-to-total capital was 38.3% at September 30, and our EBITDA leverage was just over 2:1.
Year-to-date, we've spent approximately $165 million in capital expenditures excluding acquisitions. This was comprised of approximately $90 million for growth and $75 million for acquisition remodels, maintenance and corporate infrastructure investment.
We had no new club openings in the quarter and no additional planned openings for the remainder of 2012.
For the full year, we expect to spend approximately $220 million to $250 million for CapEx for the 3 large centers we've opened, commenced construction on our 2013 and '14 centers, remodel the acquired centers and maintain our portfolio of clubs. This will be comprised of approximately $135 million to $155 million for growth and $85 million to $95 million for maintenance, acquisition remodel and corporate infrastructure.
A few balance sheet variances from Q2 to note include accounts payable grew $7 million back to normal levels from an unusually low level at the end of the second quarter.
Deferred revenue decreased about $7.5 million for the quarter, driven primarily by the completion of summer camp, as well as some other kids' activities that had been paid for in the second quarter.
With that, let me discuss our updated financial guidance for 2012. Based on our third quarter results, we are increasing the lower end of our earnings guidance ranges. We expect our revenue will grow to $1.127 billion to $1.137 billion or 11% to 12% growth. We anticipate our net income will growth to approximately $114.5 million to $116 million or 24% to 25% growth.
This net income guidance includes an anticipated $1.6 million after-tax and performance share-based compensation expense for the 2012 tranche of performance-restricted stock.
We currently expect our diluted EPS will grow to $2.73 to $2.76 or 21% to 22% growth. This EPS guidance includes an anticipated $0.04 of noncash performance share-based compensation expense for the 2012 tranche of performance-restricted stock.
As we look to 4Q, we expect low double-digit revenue growth and 30% plus net income growth from 2011 reported numbers. We plan to give detailed guidance for 2013 when we release 4Q 2012 results.
As we've discussed before, we are targeting at least low double-digit top line growth, led by square footage growth, including organic center growth and potential convergence and opportunistic acquisitions. We are also focused on balancing this growth with price, mix, in-center growth and related ancillary business growth.
That concludes our prepared remarks regarding our third quarter financial results. We are pleased to take your questions now.
Question-and-Answer Session
Operator
[Operator Instructions] And our first question comes from the line of Paul Swinand.
Paul Swinand - Morningstar Inc., Research Division
I just wanted to drill down a little bit on the attrition. Is there anything that's different in behavior this time? I know you guys are very analytical, and I'm sure you've looked at this a bunch of ways. Is the fall-out rate any different in a linear time sense, like, are people either falling out earlier or they're spreading it out more? And then I guess the other part of the question would be, you said it was lower-end customers, have you analyzed the impact, or what those customers were engaged? Is there any metric of engagement that you could give us for the customers that you're losing and how you would improve that?
Bahram Akradi
Paul, this is Bahram. Good question. We, obviously, analyze attrition every which way possible. We have metrics where we look at clubs, where they are having high attrition and high growth in dues and these are clubs that are mature. We have clubs that they have low attrition and virtually no growth in dues. We have clubs where they have high attrition and no growth in dues. I mean, so we quadrant these things. We study them that way. We look at every member in terms of their level of engagement. We know that the more engaged customer has a lower attrition rate. That's natural. That's what you would assume it would be, and all the data support, suggest that. We have tremendous initiatives to try to get those nonactive members, nonengaged members more connected to any one of our programs inside or more. And frankly, the amount of energy and effort we have put into attrition over the last 4 years, if you look at it today versus what it looked like, what we were doing about attrition 5, 6 years ago, it looks like a revolution, not an evolution. It's completely different. We have virtually half of our marketing and sales group is equal to that size of sales group we have in retention groups. So the efforts are half and half, so how I see this thing is the relationship between dues and attrition. Anywhere -- we've been targeting that 36%. I'm telling you guys that 36% is a good number. It's a number we're comfortable with. Last year frankly, we were just pleasantly surprised with the impacts of the things we were doing, and we were about 1% below that, just less than 1% below that 36% mark. Now, it's about 1% more. I don't want myself or any of my team members come across defensive saying, "If it's still within the bandwidth, we feel like it's great really where we're at." I don't see what else we can do right now other than maybe a better job in isolated clubs than we are -- the better job doing what we have laid out to do in some of the clubs, maybe they're not executing as well. And I can tell you that there are, of course, those types of facilities. But some of the things that I want measures -- I want to address this long enough so everybody can hear these things, it's important. We have taken measures in certain clubs to lower attrition from 50% plus, and we have. We brought them into the 40s, and all the while, we have slowed down the growth of dues in those clubs. So not everything makes linear sense, and I don't know how else to explain this to you guys. So with all that said, at this point, we're going to stay fully engaged on improving those strategies we have laid out for connectivity, really breaking down the clubs one-by-one and make sure we put emphasis on the clubs, maybe they're not doing as good of a job, and we -- that's a constant effort. It's not like new initiative, but we just got to keep doing that. We like to keep the attrition rate in that 36% number versus higher, so I'm not pleased with it creeping to this 37% this year, despite all of our hard, hard work. But at the same time, the biggest concern I would have is when we would have a higher attrition rate and dues would be going south. And right now, same-store sales, mature stores, dues revenue is up nicely. And so I'm a little less sensitive to the attrition being 50 or 70 basis point higher than before. With that said, if you have any more question, I'll be glad to answer.
Paul Swinand - Morningstar Inc., Research Division
Yes. Actually, I'd like to switch gears a little bit and ask a question on the -- you said you had new products coming out, new services that -- usually, I ask about something how you're going to drive in-center revenue when it keeps going up and up. And so I said it a different way this time. Of the new products that you have in place, can you give us a metric on how much of the in-center same-store increases that new -- the past new products have driven?
Bahram Akradi
Not -- right now, the bulk of the increase in our same-store sales is coming in personal training , a variety of different testing and programming we do around personal training, weight loss, which is really part of the personal training for us. The cafés are doing great, with all Healthy Way of Life, food campaign, which we basically have finally, cleaned up the last of all the cafés in the system with -- of any of the products that we have said. We don't want to have high-processed -- high-fructose corn syrup, sugars, all the processed sugar, food coloring. So we've cleaned that cafés, and the customers are seeing that, the team members are seeing that. They're liking. They're responding, so it's a little bit of this, a little bit of that, but largely, it's is dues. If you look at our dues revenue is growing substantially. That is helping the overall growth of the clubs, and in the in-center personal training is the biggest driver of our in-center revenues, and that has had nice growth year-on-year.
Paul Swinand - Morningstar Inc., Research Division
So -- but that's not really dependent on the new products then. So that's just execution?
Bahram Akradi
Yes and no because a lot of the new products are helping better engagement in that area, so one of the areas that we have is our lab testing, which basically blood testing. We have metabolic testing, so we are able to do a much deeper diagnostic on a person's health and therefore, give them a significantly more scientific approach to the way forward. As a result, we are seeing the impact in the overall -- again, it's manifesting a lot in the PT department, but those innovations are helping that area.
Operator
And our next question comes from the line of Michael Lasser.
Michael Lasser - UBS Investment Bank, Research Division
Two questions, really. Number one, how are you thinking about the attrition on internal versus external factors? So there's clearly a relationship with attrition and pricing, so are you reaching a point at which it's going to be harder to push pricing. And then what degree is attrition going up for maybe competitive reasons? There seems to be movement within the fitness industry towards more specialized centers like yoga and Pilates, and to what extent is that driving some of the increase in attrition?
Bahram Akradi
That's -- the most sense I can tell you is that the bulk of the increase -- first of all, attrition we've looked at this and see if it's isolated to a market. Is it isolated to generally like Mike said, it's a little -- the only thing we can see is a little higher on the lower-priced subscription and it's exactly that way. The lowest -- the subscription price it is that we charge has the highest attrition. So that contradicts your thesis that they're leaving us to go to specialty stores, which they're $100 or more a month in pricing. It doesn't mean that anecdotally, we wouldn't lose someone to that, but it's rare. But the one place where I feel like we see the resistance a little more pressure is on just economy. We'll see more people, I've seen more people come in and say, "Got to love to stay and be a member, but right now, I just can't afford it. When I can, I come back." So we'll see a lot of that incrementally. And I think if you look at the incremental attrition over -- when we thought it was so good, it's not that many more members. And I think the economy has probably the highest impact on overall broad ticking up of attrition.
Michael Lasser - UBS Investment Bank, Research Division
Does that mean you are running into an upper bound on how far you're -- you are able to push pricing, and perhaps you might even benefit from rolling back some pricing?
Bahram Akradi
No, that's contrary. I just repeatedly have said to you, we have the lowest attrition rate in our most affluent, most expensive clubs. Our clubs are overcharging. The Diamond pricing have the lowest attrition. Onyx, next. And our highest attrition is in the lowest-priced subscription we have by a large distance.
Michael Lasser - UBS Investment Bank, Research Division
And my final question is can you describe how the distribution of your membership base has changed over the last year or 2 with respect to the total amount of revenue that you're getting from your highest end members. So are you getting a more concentrated base of your member -- of total revenue from...
Bahram Akradi
I'm going to let Mike take this.
Michael R. Robinson
Yes. I mean, I've talked about this in the past, and it truly does manifest itself. When you look at the revenue per membership, obviously, on the higher center is called Platinum and the Onyx and the Diamond Memberships, it is obviously, significantly higher. When you narrow that down and you look at the in-center revenue per membership, the highest level of -- our highest level clubs double, in many cases, more than double the system and the system averages. So it's -- and that has, to your point before, the migration of this, if you look at this 5 years ago, we, either 5 or 6 years ago, we introduced Platinum. It's been in the last 3 or 4 years that we've introduced Onyx, and in the last couple of years, where we've introduced Diamond. So whereas if you would have taken a snapshot of this business in the mid-2000s, we would have had roughly -- we would had 100% of our price base in that $50 to $60 category. Today, we've got 25%, 25% plus of our clubs in that Platinum, Onyx and Diamond network. So it's a fairly significant change.
Operator
And our next question comes from the line of Sean Naughton.
Sean P. Naughton - Piper Jaffray Companies, Research Division
On the Q1 call, you had talked a little bit about some growth in that advertising and marketing line as a percentage of sales for the full year. Mike, do you believe that, that is still a good figure to think about for the full year? And I guess as a follow-up on that, given some of the lower spending on the line item this quarter and that half of it seems like it's focused on retention, do you think that, that had anything to do with some of the higher attrition levels on some of the core members?
Michael R. Robinson
Well, the -- I'd be glad to. One of the reasons -- one of the things that I said in the call is -- and we do this and clearly, have done this over the last 3 or 4 years, is we've looked at what we are doing on the promotion and the promotional pricing perspective and counter that with some of our new acquisition spend in the marketing line. And so the reduction that we saw in the third quarter in marketing spend was primarily related to the focus on the new acquisitions' side. We'll continue to look at that as we move into the fourth quarter. We'll always look at that and rebalance that. Underlying that, the spend that we are having on retention and moving people into more in-center activities, we anticipate is going to continue to grow. And so overall, that half or about half of that revenue spend, we expect to continue to roll. The other side of it, the new member acquisition may go back and forth depending on whether and how aggressive we are in promotional pricing. So from a full year basis, no significant change in that strategy other than the fact that we will move that member acquisition marketing back and forth depending on promotions. So could we -- would it surprise me if we're at or above last year's levels? No, it wouldn't on a total-year basis still.
Sean P. Naughton - Piper Jaffray Companies, Research Division
Okay. And then I guess just secondly, when you talk about the investments and initiatives on the Healthy Way of Life Company, you guys are developing for the new products and services, do you think that there's going to be some more impact on those investments that you've been making on the P&L in 2013 than we're seeing right now in 2012?
Bahram Akradi
You're going to continue to see heavy expenditure on our developments. We have a number of initiatives in continuation of positioning Life Time as a Healthy Way of Life Company. Our strategy is not significantly different in the fact that we're going to continue to be a subscription business. So most of the businesses are going to largely manifest themselves as a subscription. So -- but I am certain that they will also enhance, as Mike said in his earlier remarks, they will continue to enhance the core business as well. So they're not just businesses that can do well freestanding, but also they're synergistic with what we are doing in our main business. We're excited. We're very, very bullish on what it's going to do, and we're going to continue to invest what we have to, to grow the company. Having said that, in the history of Life Time, we have been able to develop new products and services and continue to achieve our internal budget year after year after year on top line as well as EBITDA goals and earning goals. And we hope to continue that trend, so we're not going to invest in R&D in lieu of hitting our budgets. So hopefully, that explains what you're after.
Operator
And our next question comes from the line of Sharon Zackfia.
Sharon Zackfia - William Blair & Company L.L.C., Research Division
I appreciate all the discussion about attrition, but I'm not sure I still understand if you have a good grasp on the causal elements behind the increase in attrition in the quarter. I know you do exit surveys. But did you actually see financial hardship tick up during those exit surveys in the quarter? And then you mentioned we should just kind of assume this is steady-state attrition rate. Are you at a steady-state? I mean, did you see it stabilize at some point in the quarter and so far in October?
Bahram Akradi
Yes. The short answer is yes. We've seen it stabilizing now. We have been -- there is a point that, Sharon, I don't think you guys are hearing, and I have been consistent on this is that in 2011, we had attrition metrics that they were well better than our expectations. So yes, we were making a lot of effort in connectivity, but we had an internal goal and the attrition rates came in approximately throughout the year-end, about 1% -- percentage point, 100 basis point better than our internal goal. And we have no really good reason for that. And today, we are seeing a percent more than that internal goal. And we're working hard because we're not -- because we're publicly held. We know everybody's going to look at year-on-year, so do we. So when we hit the 35%, our goal was to try to -- but having said that, I had not set the internal goal for Life Time for this year at 35%. I had it set it at 36% and change just because I did not believe it's realistic to maintain that the attrition rate. We're slightly above that attrition rate now. And I am going to be -- we're very much all over it. I'm not going to go through every detail of what we do. Most of it, because of a competitive advantage, we're doing a lot of really cool stuff, and I emphasize we have clubs at teen, low-teen attrition rates, and we have clubs in the 50s. So I don't know what else to tell you guys, and some of those clubs at the 50% attrition rate have had 8% or 9% dues revenue increase. These are clubs at 10 years or more old. They're like not the new clubs. There's something about it. They have 10% dues increase last 2 years consecutively. So high attrition, high dues growth in a mature club, 1 or the -- 2 of these clubs particularly, with the highest attrition rate, we haven't increased the dues. Without increasing the dues, we have high attrition, and we have so -- I mean, it's not that simple. We're looking at 100 and some clubs in 26, 27 metropolitan markets. Some markets naturally have higher attrition. Some markets just generally have 40% attrition. Some markets are 30% attrition. So there are market variations. There are price variations, but I will just want to finish my statement, attrition is that the highest attrition rate we have in the company clearly happens in the lowest subscription that we carry. And with that said, I think we really need to spend a little bit of time on other things if you guys have questions. I don't know if we can tell you -- I don't know that we, Mike and I, can tell you guys, shed any more light on attrition for you, I'm sorry to say that.
Sharon Zackfia - William Blair & Company L.L.C., Research Division
No. And I think we all recognize that your revenues per club are at all-time high. I think our concern -- and it's good to hear that attrition has stabilized, but if attrition kept going up, it seems like the mathematical relationship will start to unwind at some point. So that I was -- what I'm trying to get to is if we're seeing stabilization. And then, I think the comments on maybe the more aspirational, lower end, lower dues paying consumer being a little bit more sensitive, I mean, should we assume that as you're looking at new clubs and the development accelerating that you are looking at kind of those more stable, affluent neighborhoods where you have seen less sensitivity going forward?
Bahram Akradi
That has been what we have told you guys generally. We're much more -- the pipeline is not 100% that type of market where we would do Onyx and Diamond, but the significantly higher weight of our clubs are in the next 2 or 3 years, looks like will be in those types of demographics, significant. Significant change in the weighing of what percent will come in, the Gold, and Platinum and then versus what comes in that Onyx and Diamond pricing.
Sharon Zackfia - William Blair & Company L.L.C., Research Division
Perfect and then just one last question for Mike. Mike, do you have the actual average dues for the members that left during quarter versus the members that you added?
Michael R. Robinson
I have it. I'm not going to disclose it. Other than to say that it was significant, and by significant, I mean over $10 a membership.
Operator
And our next question comes from the line of Brent Rystrom.
Brent R. Rystrom - Feltl and Company, Inc., Research Division
Just one quick question, Mike, can you give us a sense on how to think about EPS growth '13 and '14? I know you don't have guidance out there, but as you look at the acceleration of the square footage or maybe [indiscernible].
Michael R. Robinson
Yes. Again, all -- sort to cut you off. I'll tell you what I've told people here for the last year, so when we introduced we said, we are a growth company. We look at ourselves as a growth company. We have a tremendous amount of opportunity. We see that across all of the Healthy Way of Life perspective that we're talking about and that Bahram talks about. Top line, we've said this before that we want to grow at least low double digits, and we want to show leverage on that from a bottom line perspective. That's all I've said, and I'd rather that we wait until we get into the guidance for next year when we talk about it in February.
Operator
And our next question comes from the line of Greg McKinley.
Bahram Akradi
Okay. I guess he's not there, so any other? Okay. And if there's nobody else in the queue, I want to turn it over to John.
John Heller
We good? Thank you for joining our call today. We look forward to reporting to you our fourth quarter and full year 2012 results, which tentatively has been scheduled for Thursday, February 14, 2013, at 10 a.m. Eastern. Until then, we appreciate your continued interest in Life Time Fitness. Thank you, and have a good day.
Operator
Ladies and gentlemen, we thank you for your participation in today's conference. This concludes the presentation, and you may now disconnect. Have a good day. You're welcome.
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