FDD Talk 2019: 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 2019 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 2019 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 2016, 2017, and 2018, based on Item 20 of the company’s 2019 FDD

• Section V – Presentation and analysis of Orangetheory Fitness’s financial performance representations, based on Item 19 of the company’s 2019 FDD, including information on the:

• 2018 average gross revenue and average number of active members for the 750 franchised Orangetheory Fitness Studios that had been open and in operation for more than 12 months as of December 31, 2018

Section I – Background Information

21 Things You Need to Know About the Orangetheory Fitness Franchise

Reaches Sales Milestone

1.  At the beginning of February 2019, Orangetheory Fitness announced that it had reached an impressive milestone, exceeding $1 billion in systemwide revenues for 2018. According to the press release, Orangetheory Fitness, one of the world’s fastest-growing fitness franchise brands, reached the billion-dollar mark in systemwide sales in 2018 thanks to a loyal and growing member base and continued rapid studio expansion.

2.  At the time of the announcement, Orangetheory Fitness had more than 1,100 studios in the United States, Canada, United Kingdom, Australia, Japan, Hong Kong, Singapore, China, Poland, New Zealand, Germany, Mexico, Dominican Republic, Colombia, Israel, Peru, and Chile, among others. The company has another 500+ studios in its development pipeline.

3.  Orangetheory Fitness co-founder Ellen Latham, who designed the company’s well-known interval training fitness regimen, cited the company’s dedicated and supportive employees, franchisees, and – especially – its loyal members for its monumental growth.

4.  Latham added, “We opened our first studio in 2010 with one purpose in mind – to blaze our own trail with a workout that would help people live a longer, more vibrant life. I’m so grateful that our members have embraced that approach, which is designed to bring the heart rate into those key zones that allow members to push themselves harder and reach new goals in the studio.”

5.  According to Dave Long, co-founder and CEO of Orangetheory Fitness, “By taking heart-rate interval training to a new level of performance, we have been able to take our business to new heights as well. As our growth rate continues to skyrocket, we believe we will reach our aggressive goal of operating 2,500 studios – serving 2.5 million members, worldwide – within the next 5 years.”

Named Official Partner of the Chicago Cubs

6.  In mid-April 2019, Orangetheory Fitness announced that it was the new official fitness partner of the Chicago Cubs, one of the most historic franchises in Major League Baseball. As part of the partnership, Orangetheory Fitness hosted the World’s Largest HIIT Workout at Wrigley Field on Saturday, May 18, inviting thousands of participants to raise funds for the ALS Association and the chance to beat the World Record for World’s Largest HIIT Workout.

7.  Brad Ehrlich, owner and chief executive officer of Orangetheory Fitness Illinois, said, “We are thrilled to partner with the Chicago Cubs. With now more than 50 Illinois locations, serving individuals from Wrigleyville to Springfield, we feel that our partnership will elevate the Orangetheory Fitness Illinois experience for our more than 40,000 members across the state. We are excited to work hand in hand with the Cubs to create engaging, experiential fitness events for Cubs fans everywhere and meet our goal to raise more than $500,000 for ALS.”

8.  Additional events as part of the Orangetheory Fitness and Chicago Cubs partnership include:

• ALS Awareness Night Presented by Orangetheory Fitness – On Sunday, May 5, the Cubs and Orangetheory Fitness teamed up to join the fight against ALS by offering fans a Special Ticket Offer for the Cubs-Cardinals game at Wrigley Field. In addition to a ticket to the game, fans who purchased a ticket through this offer received a Cubs and Orangetheory Fitness water bottle. A portion of the net proceeds from the ALS Awareness ticket offer will be donated to Augie’s Quest, an organization dedicated to finding a cure for ALS.

• Orangetheory Fitness-Style HIIT Classes at Gallagher Way – As the exclusive programming partner for HIIT workouts at Gallagher Way, Orangetheory Fitness will host outdoor classes at 7 a.m. every Monday and Wednesday, beginning May 13 and running through September 25. Guests of the classes will be able to get a full-body strength and cardiovascular workout with coaches in the heart of Wrigleyville.

• Orangetheory Fitness to Team Up with Cubs Charities – Beginning in summer 2019, Orangetheory Fitness will partner with Cubs Charities in support of the Cubs Jr. All-Star program, which is designed to encourage kids to be active and healthy while having fun playing baseball and softball.

Partners with American Heart Association to Promote Cardiovascular Health

9.  During American Heart Month in February 2019, Orangetheory Fitness partnered with the American Heart Association to raise awareness and funds for cardiovascular disease. At its studios across the U.S., Orangetheory Fitness members and staff joined the fight against cardiovascular disease and stroke by participating in the American Heart Association’s Life Is Why We Give™ campaign to fund life-saving research, provide resources to help people reduce risk for cardiovascular diseases and stroke, and advocate for policies to improve health outcomes.

10.  Dave Long, co-founder and CEO of Orangetheory Fitness, said, “The heart is the only muscle that gives you more life. That’s why we think it is so important to connect your heart to your workout at Orangetheory Fitness. I am proud of our efforts to support the American Heart Association through its Life is Why We Give campaign to promote heart health, as we share the same commitment to encouraging healthier lives for everyone.”

11.  Orangetheory Fitness worked together with the American Heart Association to drive home the message of improving the quality of life through exercise and to provide educational information to members regarding heart health, stroke prevention, and symptoms. The fitness brand held fundraising initiatives, including a class in which all proceeds went to the American Heart Association, and raised more than $120,000. Orangetheory also took to social media to showcase video profiles of Orangetheory Fitness members who have used its fitness program to help overcome heart disease.

12.  James Postl, chairman of the board for the American Heart Association, said, “The ability to connect Orangetheory Fitness members with the American Heart Association’s collective efforts to help everyone live longer, healthier lives makes an impact far beyond the critical dollars raised. We hope Orangetheory members will continued to be inspired by the stories shared throughout this partnership and for all of the heart healthy transformations yet to come.”

13.  The American Heart Association recommends that adults get at least 150 minutes of moderate-intensity aerobic activity or 75 minutes of vigorous aerobic activity per week – or a combination of the two. That recommendation can be met by participating in an Orangetheory class, taught by highly-trained coaches. The hour-long, heart-rate tracked, technology-backed, full-body workout helps members elevate their heart rate to the “Orange Zone,” which is 84-91 percent of their maximum heart rate.

14.  Renowned physiologist and Orangetheory Fitness co-founder Ellen Latham designed the company’s fitness regimen based on the physiological theory of excess post-exercise oxygen consumption (EPOC), which enables members to raise their heart rate and burn more calories for up to 36 hours afterwards.

Company History

15.  Orangetheory Fitness was founded in 2009 by Ellen Latham, Jerome Kern, and David Long in Fort Lauderdale, Florida. Latham is a trained physiologist who taught aerobics for nearly 40 years when she opened her own Pilates studio in 2006.

16.  Although Latham’s Pilates studio was doing well, her clients often mentioned that they had to supplement their classes with cardio. This inspired Latham to open a bigger studio that could accommodate all of a client’s fitness needs. Latham spent some time developing “the ultimate metabolic workout,” which would feature heart-rate training, cardio, a power component, and muscle building.

17.  In 2008, Latham opened “Ellen’s Ultimate Workout,” which was the precursor to Orangetheory Fitness. Latham used scientific studies to combine workouts specifically to reach “afterburn,” which helps people burn 15% to 20% more calories following a workout. According to Latham, these extra calories might seem insignificant, but they add up over time.

18.  Another feature that Latham emphasized with her program was a focus on the individual. Instead of using group scoring, Latham used heart-rate monitors that would track each member’s personal progress. Latham’s new workout program was a hit and within months of opening her studio in 2008, there was a waiting list.

19.  Sensing the potential to fill a need in the workout industry, Latham brought in Jerome Kern and David Long to help her grow the company. However, instead of growing rapidly, Latham, Kern, and Long decided to grow Orangetheory Fitness slowly and even stopped the company’s growth during its first year, despite successful franchise numbers. The co-founders decided they needed to focus on redeveloping internal structure and building stronger educational systems, specifically how the complex workouts were constructed and taught.

20.  Orangetheory’s growth resumed the following year and by 2015, there were 300 studios in the United States, Australia, the Dominican Republic, and Mexico. Since then, Orangetheory Fitness has continued to expand around the world and there are now studios in Australia, Canada, Chile, China, Colombia, Costa Rica, the Dominican Republic, Germany, Guatemala, Hong Kong, Israel, Japan, Kuwait, Mexico, New Zealand, Peru, Singapore, Spain, the United Arab Emirates, and the United Kingdom.

Entrepreneur’s Franchise 500

21.  Orangetheory Fitness ranked No. 25 on Entrepreneur’s 2019 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 2019 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 2019 FDD.

Section IV – Number of Franchised and Company-Owned Outlets

Franchised

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

2018

• Outlets at the Start of the Year:  753
• Outlets at the End of the Year:  963
• Net Change:  +210

Company-Owned

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

2018

• Outlets at the Start of the Year:  18
• Outlets at the End of the Year:  23
• Net Change:  +5

Section V – Financial Performance Representations (Item 19, 2019 FDD) and Analysis

2018 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, 2018 for franchised Studios that had been open and in operation for more than 12 months as of December 31, 2018.

• Franchised Studios that were in operation for less than 12 full months during 2018 and affiliate-owned Studios are not included in this financial performance representation.

• As of December 31, 2018, there were 963 franchised Studios in operation and 750 of them had been open for more than 12 months. The remaining 213 franchised Studios were open and operating less than 12 full months as of December 31, 2018 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, 2018.