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

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

• Section II – Estimated initial investment for a Hotworx franchise, based on Item 7 of the company’s 2021 FDD

• Section III – Initial franchise fee, royalty fee, marketing fee, and other fees for a Hotworx franchise, based on Items 5 and 6 of the company’s 2021 FDD

• Section IV – Number of franchised and company-owned Hotworx outlets at the start of the year and the end of the year for 2018, 2019, and 2020, based on Item 20 of the company’s 2021 FDD

• Section V – Presentation and analysis of Hotworx’s financial performance representations, based on Item 19 of the company’s 2021 FDD, including information on the:

• 2020 average revenue (membership, retail, total revenue), cost of goods sold, gross profit, operating costs/expenses (payroll, rent, royalties, accounting, bank charges, insurance, maintenance and repairs, marketing, miscellaneous, POS fee, staff incentives, supplies, taxes and licenses, telephone and internet, travel, utilities, virtual instructor fee, total expenses), and EBITDA for the 86 Hotworx franchised outlets that were operational during fiscal year 2020

• 2019 and 2020 average revenue, cost of goods sold, gross profit, operating costs/expenses, and EBITDA for the 28 Hotworx franchised outlets that were operational during both fiscal years 2019 and 2020, as well as year-over-year growth

• July to December 2019 and 2020 average revenue, cost of goods sold, gross profit, operating costs/expenses, and EBITDA for the 28 Hotworx franchised outlets that were operational during both fiscal years 2019 and 2020, as well as year-over-year growth

Section I – Background Information

16 Things You Need to Know About the Hotworx Franchise

Celebrates Opening of 100th Franchise Location

1.  In mid-February 2020, Hotworx celebrated a development milestone reached with the opening in Henderson, Nevada of its 100th studio location. The franchise is the first ever to offer 24-hour access to infrared sauna workouts, providing small group training through the use of its patented infrared workout sauna.

2.  Hotworx has awarded 493 franchise licenses since first launching the business opportunity in 2017. With franchises currently open or developing in 35 states across the country, Hotworx has no intention of slowing down the pace for continued growth and expansion.

3.  Holly Marietta, owner of Hotworx in Henderson, NV (Black Mountain), said she could not wait to share the unique and amazing concept of 3D Training with her entire community. She said, “I am ecstatic to be Hotworx’s first studio in Nevada and the 100th location to open! I love seeing all the new members sweating, feeling great, and earning the burn!”

4.  Jeremy Harwell, a corporate Performance Coach, began his Hotworx journey as the general manager of the first studio location. Reflecting on the brand’s milestone, Harwell shared, “It’s crazy that we’re opening the 100th location exactly 3 years after we opened the very first studio in Oxford, MS. When we were in Presale for that location, I envisioned Hotworx reaching the same level of success as other fitness franchises, but the growth we’ve achieved in only three years has far exceeded what I had imagined back then. It’s surreal to be here now as the Performance Coach of the 100th studio!”

5.  When it comes to the rapid growth and future development of the Hotworx franchise, much credit can be given to the innovative mind and passionate leadership of CEO and Hotworx creator, Stephen P. Smith. He said, “One of the main reasons for our rapid growth is the highly effective and very unique method of fitness that combines infrared energy and heat with isometrics and HIIT. We call it 3D Training. I am amazed to see hundreds and hundreds of five star ratings where our customers rave about their incredible results in the way they look and feel. This fitness revolution is what I like to call the Bold New Infrared Fitness Frontier. Hotworx, the first ever 24 Hour Infrared Fitness Studio concept, is making fitness history with the opening of its 100th franchise location!”

Announces Rachel Bradshaw as 2021 Brand Ambassador

6.  At the end of May 2021, Hotworx announced its partnership with Rachel Bradshaw, an award-winning singer, songwriter, and co-star of E! Network’s The Bradshaw Bunch. Bradshaw was named Hotworx’s 2021 Brand Ambassador. Hotworx CEO Stephen P. Smith said, “Rachel is a perfect ambassador for our brand because she not only loves Hotworx but represents our target demographic.”

7.  Growing up in West Lake, Texas, Bradshaw learned the value of competition and hard work at a young age from her father, NFL legend turned TV host, Terry Bradshaw. After graduating from Nashville’s Belmont University, Rachel was quickly signed as a solo country artist and songwriter. Gaining national attention equally as a songwriter and solo artist, Brandshaw co-wrote the #1 and RIAA Certified Gold country single “What Do You Want” with Jerrod Niemann, and played on The Tonight Show with Jay Leno.

8.  Born with severe scoliosis, or an abnormal curvature of the spine, Bradshaw has struggled to find a compatible fitness routine. “I had an upper and a lower extremity and my body was contorted in a way so I couldn’t run anymore,” she explained. After an intense spinal fusion surgery to remedy her back issues, Rachel was left with two metal rods and 40 screws in her spine. When searching for a fitting fitness regimen, Bradshaw discovered Hotworx from a friend who is a member at the Nashville, TN (Midtown) Hotworx studio.

9.  Bradshaw said after her first session of Hot Yoga, “It was an instant addiction because of the infrared energy. I left and my skin felt so good and I felt completely rejuvenated as if I’ve gone on a detox program.” Within three months of joining Hotworx, Bradshaw was able to touch her toes again, a feat that was previously unbearable. “It was the coolest experience because this was the first workout I could really do with my back issues,” she said. Bradshaw said her body is able to heal quicker because of 3D Training, the unique combination of infrared energy, heat, and exercise in the Hotworx saunas.

10.  As her passion for Hotworx grew, Bradshaw organically reached out to Stephen P. Smith, CEO and creator of Hotworx, via Instagram to express her love for her new obsession. “I could tell from our first conversation how passionate she is about the Hotworx brand,” Steve explained. Soon a partnership was formed between Rachel and Hotworx, and Bradshaw was named this year’s brand ambassador. “It’s great to see how Rachel resonates with our members because of her story,” said Smith.

11.  “I’m so excited to take my love for Hotworx to the next level,” stated Bradshaw. “I go to the Denton, TX location all the time, and am always telling my friends about Hotworx, even before I met Steve. To be able to partner in a more official manner and share my enthusiasm for Hotworx on a larger scale is a dream come true! I hope we can introduce new members to Hotworx so it can help others like it helped me.”

12.  Bradshaw will commence this year’s Hotworx and Planet Beach franchise convention at La Cantera Resort & Spa in San Antonio, TX (July 19th) by singing the National Anthem. Additionally, Bradshaw will serve as a guest speaker at the convention in a Q&A style interview designed to understand the interests and characteristics of the company’s target demographic.

Company History

13.  Hotworx 24 Hour Infrared Fitness Studio was founded in 2017 by Stephen P. Smith. Three years earlier, Smith invented a new infrared fitness sauna, which is now patented, that was designed for three people to work out with virtual instruction. Smith has an extensive background in the fitness industry and has been an entrepreneur since 1986.

14.  Using this knowledge and experience, Smith developed the Hotworx concept, which is a virtually instructed exercise program created for users to experience the many benefits of infrared heat absorption, while completing a 30-minute isometric workout or 15-minute High Intensity Interval Training (HIIT) session. As the infrared heat penetrates the body causing a person to sweat, the isometric postures further accelerate detoxification by physically removing toxins from the organs through muscle contraction.

15.  Since 2017, Hotworx has grown around the United States and there are now franchise locations all around the country, as well as in Australia and the United Kingdom.

Entrepreneur’s Franchise 500

16.  Hotworx did not rank on Entrepreneur’s 2021 Franchise 500 list.

Section II – Estimated Costs

• Please click here for detailed estimates of Hotworx franchise costs, based on Item 7 of the company’s 2021 FDD.

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

• Please click here for detailed information on Hotworx’s initial franchise fee, royalty fee, marketing fee, and other fees, based on Items 5 and 6 of the company’s 2021 FDD.

Section IV – Number of Franchised and Company-Owned Outlets

Franchised

2018

• Outlets at the Start of the Year:  3
• Outlets at the End of the Year:  31
• Net Change:  +28

2019

• Outlets at the Start of the Year:  31
• Outlets at the End of the Year:  84
• Net Change:  +53

2020

• Outlets at the Start of the Year:  84
• Outlets at the End of the Year:  153
• Net Change:  +69

Company-Owned

2018

• Outlets at the Start of the Year:  1
• Outlets at the End of the Year:  2
• Net Change:  +1

2019

• Outlets at the Start of the Year:  2
• Outlets at the End of the Year:  3
• Net Change:  +1

2020

• Outlets at the Start of the Year:  3
• Outlets at the End of the Year:  3
• Net Change:  0

Section V – Financial Performance Representations (Item 19, 2021 FDD) and Analysis

• During the 2020 fiscal year, Hotworx had 3 company-owned studios. Hotworx makes no financial performance representation about these studios.

Part 1 – 2020 Fiscal Year (Franchise Outlets)

• During the 2020 fiscal year, Hotworx had 86 operational franchise outlets. Of the 86 franchised outlets accounted for, 4 are third year, 24 are second year, and 58 are first full year businesses.

• The financial performance representations are based on historical financial data, which is provided to Hotworx by its proprietary software for its franchised locations. The financials are unaudited.

Revenue

• Membership:  $209,340.90 (88.3%)
• Retail:  $27,860.64 (11.7%)
• Total Revenue:  $237,201.54 (100.0%)

Cost of Goods Sold:  $19,329.94 (8.1%)

Gross Profit:  $217,871.61 (91.9%)

Operating Costs/Expenses

• Payroll:  $57,526.57 (24.3%)
• Rent:  $54,483.74 (23.0%)
• Royalties:  $5,299.84 (2.2%)
• Accounting:  $1,912.99 (0.8%)
• Bank Charges:  $6,749.79 (2.8%)
• Insurance:  $5,014.91 (2.1%)
• Maintenance and Repairs:  $2,392.79 (1.0%)
• Marketing:  $18,962.91 (8.0%)
• Miscellaneous:  $2,139.47 (0.9%)
• POS Fee:  $1,529.72 (0.6%)
• Staff Incentives:  $447.09 (0.2%)
• Supplies:  $3,959.32 (1.7%)
• Taxes and Licenses:  $1,147.66 (0.5%)
• Telephone and Internet:  $3,071.55 (1.3%)
• Travel:  $631.68 (0.3%)
• Utilities:  $14,186.15 (6.0%)
• Virtual Instructor Fee:  $959.84 (0.4%)
• Total Expenses:  $180,416.05 (76.1%)

EBITDA:  $37,455.55 (15.8%)

• These figures do not account for any monies that may have been obtained through the Paycheck Protection Program (“PPP”).

• Retail Sales include retail sales, vending machine sales, and net gift card sales.

• As a result of COVID-19 government-mandated shutdowns, some studios had their monthly rent deferred or waived entirely by their landlords. The franchisee rent expenses throughout the year may vary as a result of state or local restrictions and/or landlord concessions.

• These franchise outlets paid royalties of $500 or $550 per month in accordance with the Franchise Agreement signed for that location. Monthly royalty payments increased to $550 per month in 2019.

• During the 2020 fiscal year, Hotworx did not charge royalties for the time periods that a studio was required to be closed due to government mandated shutdowns related to the COVID-19 pandemic. The royalties were prorated in accordance with a daily royalty rate, which was calculated by the monthly royalty rate divided by the number of days in the month. The prorated royalties became payable the month after the reopening of the studio.

• Payment plans for insurance premiums vary with some paying premiums on an annual basis and others paying on periodic installment basis.

• Marketing expenses include the monthly SAIL fee. Franchises are required to spend a minimum of $2,000 or 10% of gross monthly revenue, whichever is greater, on local advertising but are not prohibited from spending more if they choose to do so.

• Your required monthly spending will decrease to 5% of your gross revenue once your NET EFT reaches a monthly minimum of $30,000 USD. Should your monthly NET EFT drop below $30,000 USD, the monthly spend will increase to 10% of gross revenue or $2,000 a month, whichever is greater.

• In fiscal year 2020, and due to COVID-19 government-mandated shutdowns or restrictions, Hotworx, due to these circumstances, did not require satisfaction of the monthly budget for its franchised outlets as there were reduced opportunities to advertise and market.

• Miscellaneous expenses relate to operating costs that do not typically fit into one of the other categories on the list of expenses. These figures also include the monthly Secret Shopper inspection fee.

• Taxes and Licenses account for such things as franchise taxes, taxes on assets, and licenses. These figures do not include amounts for sales tax. The amount and payment period for taxes and/or license fees varies depending on geographic location.

• The required convention fee varies depending on the effective date of the Franchise Agreement. The annual convention fee ranges from $590 to $790 for two attendees. For fiscal year 2020, locations paid a discounted rate for the convention fee.

• The Virtual Instructor fee will vary depending on the number of saunas a franchisee has. In fiscal year 2020, and due to COVID-19 government-mandated shutdowns or restrictions, Hotworx, due to these circumstances, waived this monthly fee for certain months when studios were closed due to government-mandated shutdowns related to the COVID-19 pandemic.

• Hotworx will begin billing all monthly fees the first month after franchisee’s operations begin.

• Total Revenue means income generated from normal business operations and is the gross revenue figure from which operating costs/expenses are subtracted to determine EBITDA.

• Gross Profit means Total Revenue minus cost of goods sold.

• EBITDA is defined as earnings before interest, taxes, depreciation, and amortization, is a measure of a company’s overall financial performance, and is used as an alternative to simply earnings or net income.

Part 2 – 2020 vs. 2019 Same-Store Sales Comparison (Franchise Outlets)

• During the 2019 fiscal year, Hotworx had 28 operational franchised outlets. Part 2 compares the financial performance of these same 28 operational franchised outlets during fiscal years 2019 and 2020 on an average basis as well as year over year.

• These figures reflect a comparison of the financial performance of franchised outlets operating both before and throughout the COVID-19 pandemic.

• During fiscal year 2020, and of the 28 franchised outlets, 4 are third year locations and 24 are second year locations.

2020

Revenue

• Membership:  $229,071.02 (90.7%)
• Retail:  $23,503.99 (9.3%)
• Total Revenue:  $252,575.01 (100.0%)

Cost of Goods Sold:  $18,678.84 (7.4%)

Gross Profit:  $233,896.17 (92.6%)

Operating Costs/Expenses

• Payroll:  $59,917.28 (23.7%)
• Rent:  $53,108.91 (21.0%)
• Royalties:  $5,193.65 (2.1%)
• Accounting:  $1,872.34 (0.7%)
• Bank Charges:  $7,308.11 (2.9%)
• Insurance:  $5,372.36 (2.1%)
• Maintenance and Repairs:  $3,039.01 (1.2%)
• Marketing:  $17,745.22 (7.0%)
• Miscellaneous:  $2,192.53 (0.9%)
• POS Fee:  $1,550.67 (0.6%)
• Staff Incentives:  $693.36 (0.3%)
• Supplies:  $3,829.08 (1.5%)
• Taxes and Licenses:  $1,681.51 (0.7%)
• Telephone and Internet:  $3,227.48 (1.3%)
• Travel:  $524.40 (0.2%)
• Utilities:  $16,062.98 (6.4%)
• Virtual Instructor Fee:  $902.90 (0.4%)
• Total Expenses:  $184,221.79 (72.9%)

EBITDA:  $49,674.38 (19.7%)

2019

Revenue

• Membership:  $276,499.82 (88.8%)
• Retail:  $34,832.72 (11.2%)
• Total Revenue:  $311,332.55 (100.0%)

Cost of Goods Sold:  $21,083.79 (6.8%)

Gross Profit:  $290,248.76 (93.2%)

Operating Costs/Expenses

• Payroll:  $71,049.42 (22.8%)
• Rent:  $59,316.36 (19.1%)
• Royalties:  $5,973.84 (1.9%)
• Accounting:  $2,700.65 (0.9%)
• Bank Charges:  $9,046.66 (2.9%)
• Insurance:  $4,748.47 (1.5%)
• Maintenance and Repairs:  $3,241.51 (1.0%)
• Marketing:  $25,708.67 (8.3%)
• Miscellaneous:  $2,903.23 (0.9%)
• POS Fee:  $1,551.46 (0.5%)
• Staff Incentives:  $636.70 (0.2%)
• Supplies:  $4,242.06 (1.4%)
• Taxes and Licenses:  $83.72 (0.0%)
• Telephone and Internet:  $3,105.02 (1.0%)
• Travel:  $2,693.69 (0.9%)
• Utilities:  $19,496.88 (6.3%)
• Virtual Instructor Fee:  $1,061.60 (0.3%)
• Total Expenses:  $217,559.95 (69.9%)

EBITDA:  $72,688.81 (23.3%)

Year-Over-Year Growth

Revenue

• Membership:  -17%
• Retail:  -33%
• Total Revenue:  -19%

Cost of Goods Sold:  -11%

Gross Profit:  -19%

Operating Costs/Expenses

• Payroll:  -16%
• Rent:  -10%
• Royalties:  -13%
• Accounting:  -31%
• Bank Charges:  -19%
• Insurance:  13%
• Maintenance and Repairs:  -6%
• Marketing:  -31%
• Miscellaneous:  -24%
• POS Fee:  0%
• Staff Incentives:  9%
• Supplies:  -10%
• Taxes and Licenses:  1,908%
• Telephone and Internet:  4%
• Travel:  -81%
• Utilities:  -18%
• Virtual Instructor Fee:  -15%
• Total Expenses:  -15%

EBITDA:  -32%

Part 3 – 2020 vs. 2019 Same-Store Sales Comparison (July to December) (Franchise Outlets)

• In fiscal year 2020, and due to COVID-19 government mandates, franchisees were either temporarily closed or operated on a restricted basis for varying time periods in the second quarter. Of those franchise locations that were operational in fiscal year 2019, 99% had reopened by July of 2020.

• During the 2019 fiscal year, Hotworx had 28 operational franchised outlets. Part 3 compares the financial performance of the same 28 operational franchised outlets from July through December of fiscal years 2019 and 2020 on an average basis as well as year over year.

• These figures reflect a comparison of the financial performance of franchised outlets operating both before the COVID-19 pandemic and throughout the COVID-19 pandemic as government mandated restrictions were alleviated or partially lifted.

• During fiscal year 2020, and of the 28 franchised outlets, 4 are third year locations and 24 are second year locations.

2020

Revenue

• Membership:  $130,223.67
• Retail:  $11,269.91
• Total Revenue:  $141,493.58

Cost of Goods Sold:  $10,015.44

Gross Profit:  $131,478.14

Operating Costs/Expenses

• Payroll:  $31,621.32
• Rent:  $28,675.24
• Royalties:  $3,016.68
• Accounting:  $859.50
• Bank Charges:  $3,678.83
• Insurance:  $2,564.95
• Maintenance and Repairs:  $1,799.54
• Marketing:  $8,957.30
• Miscellaneous:  $1,022.08
• POS Fee:  $781.48
• Staff Incentives:  $479.03
• Supplies:  $1,901.46
• Taxes and Licenses:  $726.35
• Telephone and Internet:  $1,730.28
• Travel:  $335.19
• Utilities:  $8,722.03
• Virtual Instructor Fee:  $502.90
• Total Expenses:  $97,374.15

EBITDA:  $34,103.90

2019

Revenue

• Membership:  $135,852.58
• Retail:  $12,910.76
• Total Revenue:  $148,763.34

Cost of Goods Sold:  $8,105.81

Gross Profit:  $140,657.53

Operating Costs/Expenses

• Payroll:  $33,088.04
• Rent:  $30,151.99
• Royalties:  $3,040.40
• Accounting:  $1,140.96
• Bank Charges:  $4,640.03
• Insurance:  $2,374.35
• Maintenance and Repairs:  $1,560.23
• Marketing:  $10,960.26
• Miscellaneous:  $1,514.49
• POS Fee:  $803.99
• Staff Incentives:  $369.01
• Supplies:  $2,315.23
• Taxes and Licenses:  $83.72
• Telephone and Internet:  $1,632.35
• Travel:  $1,643.73
• Utilities:  $9,955.62
• Virtual Instructor Fee:  $546.69
• Total Expenses:  $105,821.09

EBITDA:  $34,836.44

Year-Over-Year Growth

Revenue

• Membership:  -4%
• Retail:  -13%
• Total Revenue:  -5%

Cost of Goods Sold:  24%

Gross Profit:  -7%

Operating Costs/Expenses

• Payroll:  -4%
• Rent:  -5%
• Royalties:  -1%
• Accounting:  -25%
• Bank Charges:  -21%
• Insurance:  8%
• Maintenance and Repairs:  15%
• Marketing:  -18%
• Miscellaneous:  -33%
• POS Fee:  -3%
• Staff Incentives:  30%
• Supplies:  -18%
• Taxes and Licenses:  768%
• Telephone and Internet:  6%
• Travel:  -80%
• Utilities:  -12%
• Virtual Instructor Fee:  -8%
• Total Expenses:  -8%

EBITDA:  -2%

• Some outlets have sold this amount. Your individual results may differ. There is no assurance that you will sell as much. These studios are substantially similar to the studio you will operate if you decide to become a franchisee.

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