In essentially its initial public offering, Life Fitness Holdings, the commercial fitness equipment leader being spun off from Brunswick Corp., predicted generally modest growth for the fitness equipment sector overall in the years ahead. But the company expects to continue to grab share through its reach into an increasingly digitized commercial fitness landscape.

“Life Fitness’ vision is to connect the world to fitness through a seamless combination of physical and digital solutions that link our leading installed base of equipment to the cloud ecosystem, other platforms and consumer technologies,” Life Fitness wrote in a filing with the Securities & Exchange Commission.

As reported, Brunswick expects the spinoff will help maximize the value of both businesses while enabling management ineach business to a place greater focus on their respective industries.

With over $1 billion in 2017 net sales, Life Fitness is a leading distributor of commercial cardiovascular and strength training equipment marketed under the Life Fitness, Hammer Strength, Cybex, Indoor Cycling Group and SCIFIT brands. The company will also continue to design, manufacture and distribute billiards equipment, game tables and furnishings under the Brunswick and Contender brand names.

In late October, Jason Worthy, most recently vice president and general manager of fitness solutions for Life Fitness, was appointed to head Life Fitness.

Following the separation, Brunswick, comprised of its Marine Engine and Boat segments, will remain a global leader in recreational marine products.

Life Fitness’ filing noted that in recent years, it has delivered solid top-line growth and generated over $1.0 billion in net sales in fiscal year 2017. From fiscal years 2015 to 2017, sales grew at a compound annual growth rate of 9 percent, primarily driven by acquisitions and growth in sales to its largest customer, Planet Fitness. The acquisitions included Cybex in January 2016, Indoor Cycling Group GmbH (ICG) in August 2016 and SCIFIT Systems in July 2015.

The flagship Life Fitness was established in 1977 and acquired by Brunswick in 1997.

In fiscal year 2017, Life Fitness’ achieved net earnings of $55.0 million and an adjusted EBITDA margin of 11.5 percent.

Going forward, a core growth driver cited was creating digital solutions.

The filing noted that the commercial market within the global fitness equipment industry was approximately $3.4 billion in 2017 and is expected to grow at a low single-digit annual percentage rate through 2020 with digital-enhancements fueling demand.

“Driven by exercisers’ desire for social engagement, we believe that the commercial fitness experience will continue to be enhanced with innovation that provides a broader array of entertainment, content and connectivity capabilities that engage and motivate the exerciser,” wrote Life Fitness.

The report notes that more than 90 percent of the company’s  current cardiovascular offering is connectable, capable of delivering an internet enabled interface for exercisers. However, Life Fitness noted that fitness clubs remain in the “very early stages” of trial and adoption with regards to incorporating digital content, feedback and coaching into their operations and showing strong interest in such technologies.

“Technology companies, ranging from emerging companies, such as Peloton and Tonal, to large players, such as Amazon and Samsung, are increasingly developing fitness offerings and accelerating a tech-enabled fitness ecosystem,” wrote Life Fitness in the SEC filing.

The filing noted that there’s a “meaningful” consumer demand for wearables with data-tracking capabilities and other quantified self-performance measurement technologies. Connectivity is also growing in importance as employers and insurers begin to test risk-based healthcare pricing models. Additionally, evolving consumer preferences have driven an emergence of technologically advanced at-home fitness providers offering unique content and coaching typically through subscription-based business models.

Life Fitness’ big push into providing digital solutions came with the introduction of the LFConnect open architecture platform in 2012. The LFConnect platform connects fitness machines to consumer fitness trackers (including wearables) and applications to enhance the exerciser experience, and allows fitness facilities to better monitor day-to-day equipment management and operations.

In March 2018, the Halo was introduced to supplement LFConnect. The Halo platform provides a broader software solution for fitness facility customers to enable a higher level of interactions with their fitness members and to run their businesses more efficiently. Also introduced was Halo Media, which leverages Life Fitness’ growing installed base of premium connected consoles to deliver content solutions for operators and consumers, including potentially customized sponsored content on consoles.

“We expect our open architecture platform will accelerate technology adoption among our customers and, as a result, our growing installed base of premium connected consoles will be an essential asset that allows both Life Fitness and our commercial customers the ability to unlock meaningful digital revenue streams over time,” wrote Life Fitness.

A related growth driver was seen in addressing emerging fitness trends in functional and group training. Life Fitness noted that group exercise and functional training continues to grow as Millennials choose to exercise differently than prior generations.

“Exercising is an increasingly social activity for Millennials who are willing to pay a premium for group exercise experiences and who are heavy users of group fitness classes,” wrote Life Fitness. In 2017, approximately 14 million U.S. health club members maintained a membership in more than one commercial facility. This trend is likely due to exercisers’ desire for variety of training and intensity as well as social engagement, ultimately resulting in fitness facilities shifting their deployment of floor space and modifying their equipment purchasing patterns to match evolving exerciser preferences.

But again, it comes to connectivity. Life Fitness said it expects innovation addressing functional and group training will drive growth in its accessories business and expand its functional strength offering through a virtual personal trainer and other content-rich solutions to guide exercisers through functional training workouts, create personalized user experiences and generate feedback.

Life Fitness also plans to continue developing and expanding the application of ICG Connect and Coach by Color digital solutions to create group training offerings beyond group cycling. Life Fitness wrote, “These solutions pair seamlessly with our equipment to help instructors and exercisers maximize the effectiveness of each class and track performance through color-based exertion tracking and an interactive leaderboard.”

The filing noted that over 90 percent of Life Fitness’ 2017 annual revenue was derived from sales to the commercial fitness equipment market.

The consumer market represents less than 10 percent of the company’s sales. Life Fitness said the direct-to-consumer model is not its primary focus given the significant upfront and ongoing investment in advertising and promotion and the concentration in lower-quality, less durable and portable equipment to price sensitive consumers with varying levels of exercise needs and commitment. The company also believes the consumer market is “has been and remains susceptible to rapidly changing trends that often drastically reshape consumer demand,” including the recent growing influence of content-based subscription business models.

The retail business focuses on the Life Fitness brand. The company also maintains an active recreation business which designs and markets billiards tables, assorted game room tables, furniture and accessories under the Brunswick and Contender Brands, sold through specialty retail channels.

Other findings from the prospectus:

  • Life Fitness’ installed base includes approximately 2 million pieces of cardiovascular and strength equipment used regularly by over 60 million exercisers, supporting over 4 billion workouts annually.
  • Life Fitness estimates that 250,000 global fitness facilities, which include health clubs and vertical market installations, feature its equipment.
  • Life Fitness products can be found in over 160 countries with 46 percent of its 2017 net sales derived from markets outside the U.S. The U.S. represented only 34 percent of global health club revenue overall in 2017. Growing demand for fitness facilities are being seen in emerging markets in Asia, Africa, the Middle East and Latin America.
  • The health club market globally reached record revenue and membership levels in 2017, generating approximately $87.2 billion in revenue with approximately 174 million active participants. The number of active club members has grown steadily, adding 71 million members since 2005, with 23 million members joining in the past two years alone. The health club market has proven to be resilient to economic cycles. Industry revenue has grown at a compound annual growth rate of approximately 4 percent since 2005 and without interruption during the Great Recession.
  • The commercial fitness equipment is estimated to represents more than a $3 billion market opportunity globally, of which Life Fitness enjoys approximately 30 percent share based on 2017 sales
  • Health clubs, including traditional clubs, budget clubs, premium clubs and boutiques, comprised $1.9 billion of the equipment market in 2017 and are expected to grow through 2020 at low single-digit annual percentage rates. Budget clubs and boutiques are expected to drive the majority of health club growth.
  • Vertical markets, including hospitality locations, multi-unit housing, corporations, schools and universities, military and governmental agencies, retirement and assisted living facilities, professional and collegiate sports teams and community centers, comprised $1.5 billion of the commercial equipment market in 2017 and are expected to grow at mid-single-digit annual percentage rates through 2020.
  • Cardiovascular equipment was a $1.9 billion category in 2017 and is expected to grow at low single-digit annual percentage rates through 2020.
  • Strength equipment is a slightly smaller category at $1.5 billion in 2017 and is expected to grow at mid-single-digit annual percentage rates through 2020.
  • Commercial facilities typically refresh their equipment offering on a regular cycle which averages 5 to 7 years for cardiovascular equipment and 7 to 9 years for strength equipment.
  • The consumer market within the global fitness equipment industry was approximately $7.7 billion in 2017 and is expected to grow at a mid-single-digit annual percentage rate through 2020

Image courtesy Life Fitness