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Jeff SkeenFounder of Titan Fitness and accomplishedHealth and Fitness Industry Leader

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Jeff Skeen “I Didn’t Think It Would Be a Career”

1992, became partner in Gold’s Gym in Fairfax,VA.

1992-1998, grew from one club to 11 in four states

1998, hired PricewaterhouseCoopers to secure capital to purchase GGE now know as GGI.

1999-2004, served as principal and CIO of GGI

2004 , founded Titan Management Solutions, a consulting company to assist Gold’s Gym franchisees open new stores and improve operations

Opened a facility with more than 7,000 memberships in pre-sales

Turned chain operating at a loss of $1M per year to a projected annual profit of more than $700k within three months; successfully sold the chain five months later

2007, found Titan Fitness, an investment company dedicated to purchasing and opening gyms under the Gold’s Gym brand

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Titan’s Long-Term Vision Build a chain of 60+ clubs in 4 – 6 markets

11/07 purchased 8 in Minneapolis

12/07 purchased 6 in Raleigh

Buy first – both Gold’s branded and non-Gold’s clubs/chains

3+ locations

$1.5 million adjusted EBITDA

Keep management in place to continue to grow out the market

Then build – establish/enhance brand leadership in acquired markets by building top notch clubs

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Leveraging Technology to Drive Profitability

Value of Using Technology to Drive Profitability

Technology’s Impact on Three Components of Club Health

Setting Up Your Organization for Optimal Club Efficiency

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State of the Union: Health & Fitness Industry

Our industry characteristics are extremely appealing

Strong growth / recession resistant / stable

Highly fragmented

Excellent economics and cash flows

Our industry has been discovered

Heavy inflow of private and public capital in 2000’s

Run of M&A activity

Well-funded platforms consolidating and building new gyms

Our world has dramatically changed

Continued growth and consolidation – required by private and public investors

Skill sets required to compete have changed

Cost to be in the business has dramatically changed

Technology is critical

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Value of Using Technology to Drive Profitability

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Value of Technology to Drive Profitability

Run your club like any other business

Focus on operating each club more effectively not solely on revenue

Technology is a critical element that provides the data and information clubs need to grow as well as tools to leverage staff’s time

Analyzing the data captured by software and other technologies can help identify ways to maximize productivity, increase efficiency and drive profitability

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Data Analytics

Data is not useful until it becomes information

What does the following data mean to you:

Chain of gyms haa a 40% Corporate EBITDA

Maximum number of members per square foot in a gym is 4

A gym’s payroll is 17% of Revenue

A 7,000 sqft facility has a four wall EBITDA of $300,000

A facility has $5 millions+ dollars in revenue

50% of a gym’s dues billings are billed using credit card

Gym purchased for 7 times EBITDA

Until you have a way to evaluate your gyms performance to others, if you can improve your business.

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Data Analytics

What are tools you can use to evaluate your data?

IHRSA – Profiles of Success

Billing Company – CheckFree has thousands of facilities in their database

Other operators and consultants

Business Intelligence – Tool used show data in a useful manner

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Business Intelligence Tool

Need to blurr data

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Billed vs. Collected Rates(Average)

Club SizeActive Members

Average Collection Rate

Low Mean(Average Collection Rate of Clubs with

Collection Rates Lower than the Overall

Average)

High Mean (Average Collection Rate of Clubs with Collection Rates Higher than the Overall Average)

< 100 94% 72.3% 99.4%

101 – 500 92% 62.8% 99.7%

501 – 1000 90% 57.0% 99.1%

1001 – 5000 97% 89.7% 99.0%

5001 – 10000 96% 89.6% 98.4%

> 10000 96% 89.5% 98.7%

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Technology’s Impact on Three Components of Club Health

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Technology’s Impact on Club Health

Business Health

Member Health

Societal/Community Health

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Technology’s Impact on Business Health

Allows you to view performance in real-time

Running standard daily reports can help identify potential issues and take swift corrective action. Can be as simple as:

“No entry” reports

Credit expiration reports

Analyzing expense and revenue reports can help you find areas where you need to focus

Bid where appropriate

Using data captured through software applications such as accounting, billing and membership management systems to fine-tune club operations

Accurate records help maximize selling price and save time when in the market to sell

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Technology’s Impact on Member Health

Clubs must have technology in place to help members achieve their personal goals.

Caring about members pays off (have them blame you for their success):

Increased retention

Protects against when competitor enters market

There are many tools / technologies a club can use to help members accomplish their objectives and track their success

Health assessments

Nutritional / meal programs

Personal training

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Technology’s Impact on Societal/Community Health

The poor health of Americans continues to drive the prevalence of chronic disease in the United States

The increasing prevalence of chronic disease is having an astronomical financial impact on the United States.

Costs are in the trillions.

Wellness and health promotion programs are showing positive results

An effective health improvement program needs to take an integrated approach and focus on improving

lifestyles

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Health clubs will become integral to preventive health, disease management, and lifestyle improvement programs

Health club works in unity with wellness programs, physicians, dieticians, and other specialists to personalize lifestyle improvement programs

Utilizes technology to test members, measure progress, and securely share data with appropriate parties

Results and other data supplements traditional medical data to form a more comprehensive “health picture”

Source: Briefing, “The Conexion Solution”

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Value Proposition*

Assumptions

Lifestyle improvements reduce medical claim costs by 5%

10% of the diabetic population can be helped

Impact of Diabetes $132,000,000,000

Number of Diabetics in the U.S. 17,000,000

Cost Per Diabetic $7,765

Reduction In Claim Cost $388

Share In Savings  

Share to the Consumer, Employee, Employer, Provider, Health Program, Gym $388

% of Diabetics That Can Be Helped 1,700,000

Total Share in Savings Available ($388 x 1.7M) $659,600,000

Example

*Provided by Deloitte Consulting

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Setting Up Your Organization for Optimal Efficiency

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Setting Up Your Organization for Optimal Efficiency

There are a number of technological products available. Be careful not to overwhelm staff with the implementation of new systems

Strategically implement proven operational and technological systems

Evaluate return on investment to determine if worthwhile

Establish relationship with preferred vendor partners. Vendors have been exposed to many different ways of using their systems.

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Challenges Finding Right Software Solution

Looking for solutions within the health and fitness industry:

Software companies are small with low employee count and minimal support staff

Greater possibility of company failure

Limited ability to create wide breath of successful product lines

Limited resources to improve core products

Looking outside the industry:

More expensive

Lack of attention due to perceived limited opportunity

Not focused on specific health club needs

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Choose the Right Tools to Support Your Business, Staff and Members

Qualities of a Successful Software Solution. Should assist in:

Increasing revenues or decreasing expenses

Making staff more effective in completing their jobs

Allowing management insight to business performance

Improving ability to collect dues and keep the money you have earned

Improving member retention by offering services to improve the member experience

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Example of an Increase in Profitability – Nutrition/Weight Management DivisionVariables: New clients per month

Supplements 35

Weight Mgt 11 Supplement Fees:

Enrollment $ 75

On-going $ 45 Monthly Attrition 10%

Weight Management Fees $ 315 Annual Increase in EBITDA (Beginning 3rd Year):

Revenue $ 315,917

Expenses 160,759

Annual EBITDA $ 155,157

System One-time setup Costs: $ 9,545

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Example of an Decrease in Expenses – Time & Attendance System (Biometric)Variables: 50 employees $10 per hour wage 1% error factor $1,000 setup fee $2.50 per month per employee fee

Annual Savings due to accuracy/labor reduction Human Error Factor Savings $ 309 Auditing Savings 50 Corrected Time & Leave 10 Data Entry Savings 25 Lost Time Savings 267 Gross Weekly Savings $ 661 Gross Annual Savings $ 34,353

System Costs Setup (one time) $ 1,000 Annual On-going: Employee Fee 1,500 Time clock rental 2,400 Total Costs (first year) $ 4,900

Net Savings (first year) $ 29,453 Net Annual Savings $ 30,453

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Example of an Decrease in Expenses – Business Intelligence (Replace Excel)Variables: Hourly rates Regional Ops $ 29 per hour GM $ 37 per hour OM $ 11 per hourNote: includes 10% increase for taxes and benefits Time allotment Ongoing Regional Ops 4hr per month per gym General Mgr 15hr per month per gym Operations Mgr 30hr per month per gym

Annual Savings Due to reduction in labor: Regional Ops $ 116 GM $ 555 OM $ 330 Monthly Savings $ 1,002 Annual Savings $ 12,020

Does not take into account intangible benefits from real-time visibilityinto the gym's performance or value created by allowingemployees to use their time to service members or sell memberships.

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Example of an Decrease in Expenses – Billing Fees

Variables:

Annual Dues $ 1,200,000

Billing Fees 5%

Fee Reduction 10%

Annual Savings $ 6,000

Additional ROI Considerations for Outsourced Billing & Gym Software

No incentive to steal

More effective in collecting money

Significant investment in gym management software & billing systems

No one person responsible for billing or software functions

Possible evaluation of business against large database of gyms

PCI compliance protects against possible fines

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Summary - Impact to Value of Business

Category Improvement

Nutrition/Weight Mgt Division $ 155,157

Time & Attendance System 30,453

Business Intelligence 12,020

Reduction in Billing Fees 6,000

Annual Improvement to EBITDA $ 203,630

Purchase multiple of 4 times $ 814,520

Less: System implementation Costs (10,545)

Increased Gym Value $ 803,975

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Contact Information

IHRSA Technology Summit was sponsored by:

www.checkfreecompete.com