FDD Talk 2018: Orangetheory Fitness Franchise Review (Financial Performance Analysis, Costs, Fees, and More)

In this FDD Talk post, you’ll learn the following:

• Section I – Background information on the Orangetheory Fitness franchise opportunity, including relevant news updates

• Section II – Estimated initial investment for an Orangetheory Fitness franchise, based on Item 7 of the company’s 2018 FDD

• Section III – Initial franchise fee, royalty fee, marketing fee, and other fees for an Orangetheory Fitness franchise, based on Items 5 and 6 of the company’s 2018 FDD

• Section IV – Number of franchised and company-owned Orangetheory Fitness outlets at the start of the year and the end of the year for 2015, 2016, and 2017, based on Item 20 of the company’s 2018 FDD

• Section V – Presentation and analysis of Orangetheory Fitness’s financial performance representations, based on Item 19 of the company’s 2018 FDD, including information on the:

• 2017 average gross revenue and average number of active members for the 499 franchised Orangetheory Fitness Studios that had been open and in operation for more than 12 months as of December 31, 2017

Section I – Background Information

20 Things You Need to Know About the Orangetheory Fitness Franchise

Continues Aggressive Growth in First Quarter of 2018

1.  At the end of April 2018, Orangetheory Fitness announced that it had experienced significant growth during the first quarter of 2018, opening 61 new studios throughout the world, as well as signing 54 lease agreements and 34 franchise agreements to continue driving its global expansion. Additionally, Orangetheory grew its footprint in 27 states nationwide during Q1 alone, opening nine new studios in California and five in Texas, both of which are key target markets for the brand. These achievements position the leading fitness franchise to achieve its goal of having 1,100 studios open by the end of 2018.

2.  Mike Mettler, senior vice president of franchise development for Orangetheory Fitness, said, “Orangetheory Fitness has experienced incredible and unparalleled growth in less than a decade, and the compounding success we’ve already achieved this year is indicative that the brand’s global domination is just beginning. This relentless momentum has allowed us to accelerate our franchise development efforts in several prime expansion markets like California and Texas, and we’re thrilled to continue tapping into the wealth of potential in these regions.”

3.  According to Orangetheory Fitness, the company has continued to experience a surge in franchise development. There are more than 400 studios in the pipeline slated to open domestically. As a result, the company is seeking quality real estate to facilitate studio openings for franchisees throughout the country. To support these efforts, Orangetheory Fitness exhibited at the ICSC RECon Global Retail Real Estate Convention from May 20-23 in Las Vegas.

4.  Mettler added, “There are a number of factors that make Orangetheory an exceptionally attractive tenant, including consumer demand for experiences, our small footprint that allows us to be in more places, and the distinct achievement of never having closed a studio. We look forward to meeting with potential partners at the convention and accelerating our efforts to identify the best real estate for our brand.”

5.  Along with its impressive domestic growth, with a compound annual growth rate (CAGR) of 76% over the past five years, Orangetheory Fitness continued its ongoing international expansion throughout the first quarter of the year, opening nine new studios in Canada, two in Australia, and one in Guatemala. Its five-year international CAGR is 96%. Orangetheory Fitness also signed five new international franchise agreements and 11 new studio leases, which will further drive its global presence throughout the year.

6.  This strong Q1 comes on the heels of the brand’s success in 2017, during which it signed 275 franchise development agreements, including its 1,000th milestone franchise agreement. Looking toward the rest of 2018, Orangetheory Fitness is on track to achieve $1 billion in system-wide revenue and open more than 270 additional new studios.

Raises More Than $4 Million to Find a Cure for ALS

7.  Over three weeks during the spring of 2018, Orangetheory Fitness’s U.S. and Canadian locations raised $4,010,818 for Augie’s Quest, a foundation dedicated to finding a cure for amyotrophic lateral sclerosis (ALS). The donation, presented in San Diego, California in late March, was the largest single-year donation in the foundation’s 13-year history.

8.  David Long, co-founder and CEO of Orangetheory Fitness, said, “The passion and enormous action behind this effort at the studio level is incredible. Much like Orangetheory is so much more than a workout, this campaign to end ALS is so much more than a fundraiser. This campaign underscores our purpose at Orangetheory to help people live a longer, more vibrant life. While raising critical dollars to end this horrible disease, our members, franchisees and studio teams make meaningful connections in the studio and in the community raising more awareness and more support for ALS. I am amazed by the number of people in our network affected by ALS, and I continue to be inspired by every story.”

9.  The amount raised – more than double the amount raised in Orangetheory’s inaugural campaign last year, and more than double this year’s $2 million campaign goal – will help move AT-1501, a promising, cure-driven drug for ALS, into human clinical trials by the second quarter of 2018. In addition, the funds will help move a second drug into clinical development. AT-1501 and the new drug were discovered at the ALS Therapy Development Institute (ALS TDI), the world’s first and largest nonprofit biotech focused 100 percent on ALS research. All donations to Augie’s Quest go directly to fund ALS drug development.

10.  Steve Perrin, CEO and chief scientific officer of ALS TDI, said, “The money raised during Orangetheory’s 2017 campaign gave us the capital to keep our program going in the lab, shaving 18 months off our clinical trial timeline for AT-1501. Eighteen months is a big deal for people living with ALS, as the average life span is two to three years.”

11.  Orangetheory’s three week #IBurnForALS campaign, which ended on March 8, challenged members to donate $1 or more for every “splat” point earned during workouts. A splat point is earned each minute a member spends in the Orange Zone, which is their target training zone of 84 to 91 percent of their maximum heart rate, or Red Zone.

12.  Another component of the campaign was “Augie-thon,” a special 90-minute class open to members and non-members with a minimum $25 donation for entry. This year’s Augie-thon raised over half a million dollars in just one day. Studios personalized their individual campaigns with special events such as charity bartending, coach challenges, silent auctions, and more.

Appoints Mike Mettler as Senior Vice President of Domestic Franchise Development

13.  In early March 2018, Orangetheory Fitness announced that Mike Mettler had joined the company as senior vice president of domestic franchise development. Mettler is an industry veteran and comes to Orangetheory Fitness with more than 12 years of experience in leading franchise development efforts for widely-recognized brands, including Dairy Queen and Domino’s Pizza. Most recently, Mettler served as vice president of franchise development for Dairy Queen, where he was responsible for propelling the brand’s growth and driving its footprint throughout the U.S. and Canada.

14.  In his new role with Orangetheory Fitness, Mettler will be responsible for overseeing the company’s domestic growth and expansion, as well as providing strategic leadership to assist the leading fitness franchise in achieving its goal of having more than 1,100 open studios worldwide by the end of 2018. Mettler will also be responsible for building a high-performance sales culture and providing strategic leadership to the company’s domestic franchise sales, real estate, and construction teams.

15.  David Long, CEO of Orangetheory Fitness, said, “The explosive growth Orangetheory Fitness has experienced is unparalleled in the franchise fitness industry, and we know we’re just getting started. We’re thrilled to welcome Mike to the team and have no doubt his wealth of development experience will be a tremendous asset as we accelerate this momentum and continue driving the brand’s unstoppable potential.”

Company History

16.  Orangetheory Fitness was founded in 2009 by Ellen Latham, Jerome Kern, and David Long. The company’s core fitness philosophy is based on Latham’s exercise program, “The Ultimate Workout,” which she spent years developing as a trained physiologist. Latham also owned and operated Ellen’s Ultimate workout gym in Florida.

17.  After establishing the company and working on the Orangetheory Fitness program, Latham, Kern, and Long opened the first Orangetheory Fitness location in March 2010 in Fort Lauderdale, Florida. Over the next few years, the business partners opened additional locations across the country and started franchising the concept in 2012.

18.  Initially, these franchised locations did not do well but things turned around when Latham, Kern, and Long temporarily stopped opening new gyms and focused on developing strong training systems. The effort paid off and the second round of franchises opened with better-trained operators and these locations ended up performing better than Orangetheory’s corporate locations, as well as the first wave of franchises.

19.  Today, Orangetheory Fitness has become one of the largest and fastest-growing fitness franchises in the world.

Entrepreneur’s Franchise 500

20.  Orangetheory Fitness ranked No. 48 on Entrepreneur’s 2018 Franchise 500 list.

Section II – Estimated Costs

• Please click here for detailed estimates of Orangetheory Fitness franchise costs, based on Item 7 of the company’s 2018 FDD.

Section III – Initial Franchise Fee, Royalty Fee, Marketing Fee, and Other Fees

• Please click here for detailed information on Orangetheory Fitness’s initial franchise fee, royalty fee, marketing fee, and other fees, based on Items 5 and 6 of the company’s 2018 FDD.

Section IV – Number of Franchised and Company-Owned Outlets

Franchised

2015

• Outlets at the Start of the Year:  152
• Outlets at the End of the Year:  307
• Net Change:  +155

2016

• Outlets at the Start of the Year:  307
• Outlets at the End of the Year:  499
• Net Change:  +192

2017

• Outlets at the Start of the Year:  499
• Outlets at the End of the Year:  753
• Net Change:  +254

Company-Owned

2015

• Outlets at the Start of the Year:  0
• Outlets at the End of the Year:  0
• Net Change:  0

2016

• Outlets at the Start of the Year:  0
• Outlets at the End of the Year:  12
• Net Change:  +12

2017

• Outlets at the Start of the Year:  12
• Outlets at the End of the Year:  18
• Net Change:  +6

Section V – Financial Performance Representations (Item 19, 2018 FDD) and Analysis

2017 Average Annual Gross Revenue and Average Number of Active Members for Franchised Studios Open for More Than 12 Months

• The following information shows the average annual gross revenue and average number of active members in the fiscal year ending on December 31, 2017 for franchised Studios that had been open and in operation for more than 12 months as of December 31, 2017.

• Franchised Studios that were in operation for less than 12 full months during 2017 and affiliate-owned Studios are not included in this financial performance representation.

• As of December 31, 2017, there were 753 franchised Studios in operation and 499 of them had been open for more than 12 months. The remaining 254 franchised Studios were open and operating less than 12 full months as of December 31, 2017 and, thus, are not included in the tables.

• “Gross Revenue” means all revenue derived from sales of products and services to members of the Studio.

• An “Active Member” is a client that is current in paying membership fees or a customer with an active membership package as of December 31, 2017.