CBI: During the late '90s, the Health Fitness Corporation (HFIT: OTC) went through some difficult times.
When you took over in November of 2000, what sort of shape was the company in?
Jerry Noyce : In 1998, the board of directors brought in the Manchester Companies, a turnaround specialist, because the Health Fitness Corporation (HFC) was losing a fair amount of money. Manchester subsequently assumed day-to-day management responsibilities and, astutely, sold off the company's standalone physical therapy clinics and fitness equipment sales business. Manchester managed to get HFC back to the point where it was achieving profitability and generating earnings, so, when I joined the company, we had something to build on. However, there was still a significant amount of short-term debt, which we had to work our way through.
CBI: HFC, on the face of it, would seem to be a very different business from the Northwest Racquet, Swim, and Health Clubs and Wellbridge, where you'd spent the previous 26 years. What in your experience prepared you to take over HFC?
JN : The health clubs and HFC may look like very different businesses, but, in fact, there are a lot of similarities. You do many of the same things when you're running a multi-site operation, whether the final end-user is a club member or a corporate employee. Both situations require sound strategic planning and budgeting, and a strong focus on controlling expenses and growing revenue streams. Those streams may be different, but the need to concentrate on recurring revenues—dues, in the case of clubs, and management fees, in the case of HFC—is identical. Other aspects of the two businesses—site management, program services, etc.—are also similar. Whether you're working in the club or corporate environment, you need to have the same sort of operating procedures and checks and balances to deliver quality service.
CBI: What about the differences?
JN : One of the big differences, at HFC, is that we market our services on two levels. The first is the B2B (business-to-business) level, which involves marketing our management services to our clients; the second is the B2C (business-to-customer) level, which involves working with their employees to help them achieve their health and fitness goals.
CBI: How did HFC happen to decide you were the right person for the job?
JN : The company's board did an extensive search, and spoke with many people both from within, and outside, the health and fitness industry. They were impressed, I think, by the success we'd had at Northwest—including our ability to consistently grow top-line revenues and profits, our experience with corporate memberships, and our success in transitioning from one ownership group to another. At Northwest, we had about 130,000 members at the high-water mark, and most of them had been acquired through corporate programs we'd established with local companies. So, even though HFC's membership sales model is different from the ones utilized by most commercial clubs, I came to the company with a deep appreciation for the importance of relationships with corporation.
CBI: When you arrived, HFC was more than 25 years old, with a well-established corporate culture. Was modifying, modernizing, that culture a top priority?
JN : No, not really. The changes that I instituted had less to do with culture than with improved communication and more aggressive team-building. What I discovered, early on, was that there was a core group of professionals who wanted to be successful, but who needed to know how we intended to move ahead as a company. They had to know that we were committed to growth and what it was going to take, on their part, to make it happen. We had a solid nucleus of senior, regional, and site-management teams in place. A major part of my job was to rebuild their confidence, make them feel appreciated for their past contributions, and share our plans so that we could move forward together. It was also very important for HFC to have a strong board of directors; so, within a few months of my coming on board, we added five new members, all with leadership experience with other companies.
CBI: There were also shifts in strategy, weren't there? In 2001, HFC decided to offer a standardized menu of services at all its sites, and subsequently launched its Health Enhancement Programs (HEPs). It also concluded that acquisition was an attractive growth strategy, and, last December, acquired its chief competitor—the Health and Fitness Services Division of Johnson & Johnson (J&J) Health Care Systems, Inc. How did that impressive coup—worth nearly $5 million—come about?
JN : You're right. Part of the strategy that evolved, as we continued to grow the business organically, was to identify companies that seemed a promising match. Johnson & Johnson's health and fitness division was a good fit in a number of ways: their business model was similar to HFC's; it was a good cultural fit; and it was a good geographic fit, in that we had a lot of clients in the same areas. They had a more medical orientation, while we tended to focus on fitness, but it was a wonderful match, nonetheless. In fact, the acquisition gave us a blended team of senior HFC and J&J people, which has allowed us to expand our services; we've been able to move in the director of health- and wellness-related offerings, making it possible for us to support a broader range of employees at our client companies.
We continue to work with J&J today—they're actually our biggest customer. They want to have the healthiest work force in the world, and, I think, it says a lot about their confidence in HFC that they want us to help them achieve that goal.
CBI: Does HFC have its eye on any other firms? Are any other acquisitions pending?
JN : If it make sense for our core business, allows to expand on what we do, and is accretive to shareholders—we'll take a look at it.
CBI: A number of club companies do a large amount of business in on-site corporate fitness. Do you regard them as serious competitors?
JN : They're tough competitors and do a great job for their clients. But, having said that, I hasten to add that what we do for our clients differs from what they do for theirs. Today, corporations are less interested in providing an attractive employee perk, and more interested, than ever, in finding ways to limit rising healthcare costs. To have a significant impact on those costs requires an integrated approach to employee health management. You need to reach both those workers who, ordinarily, would use a fitness center without encouragement and those who would probably never go near one. You have to provide programs and services to engage the entire employee spectrum—all the way from the healthiest individuals to those who are at the greatest risk of developing medical conditions. That means health assessments, and fitness, wellness, and occupational health programs delivered in a variety of ways: on-site, via telephone, over the Internet, etc. The range of programming and delivery is much wider, and deeper, than the sort a commercial club would generally offer.
CBI: What about outcomes? Aren't quantifiable results much more important in the corporate arena?
JN : Absolutely! Today, we're being asked, by CEOs and CFOs, to demonstrate that these initiatives make sense financially—they want to see a return on their investment in the form of smaller annual healthcare cost increases. We do so by providing them with metrics that accurately reflect utilization and activity—how often a facility is used, number of members, client satisfaction level, program effectiveness, changes in health status, reduced injuries, reduced healthcare claims, etc. For example, company-wide, HFC boasts a 45% utilization rate, a 67% injury-reduction rate, and a 98% client satisfaction level.
CBI: For years, there's been a great deal of debate about whether corporate programs actually produce a positive return on investment. Recently, however, there have been a lot of glowing reports. Can we now say, unequivocally, that such programs are profitable for the companies that provide them?
JN : What we can say is that there's a growing body of good evidence which indicates that these programs work...What we can also say is that there's solid data showing that such programs are desperately needed. One recent study, conducted by Hewitt Associates and Watson Wyatt, reported that, while 99% of all U.S. corporations are concerned about rising healthcare costs, only 18% felt that they had found a solution. Our market is the 82% that's still looking.
CBI: You talked about the figures that your clients are concerned about. Which metrics do you follow closely to assess HFC's own state of health?
JN : In terms of the financial picture, we look, primarily, at the growth of our recurring revenue base, and also at growth with respect to number of sites, new sales, and attrition. We also monitor, company-wide, the same metrics that we track for our clients—number of members, on-site utilization, program effectiveness, and member—and, of course, client—satisfaction. We have 3,000 full- and part-time associates throughout the country, so we also track turnover, open jobs, and diversity.
CBI: When you took over HFC, it was, as you pointed out, a company that had regained its footing, but one whose future was hardly assured. What's happened to the value of HFC since then?
JN : When I joined HFC, our stock was trading at $0.29 a share, and the company's market cap was roughly $3.6 million. Recently, it's been trading at about $1.45 a share, which gives us a value of approximately $18 million. HFC currently has about 12.5 million outstanding shares.
CBI: Not bad, not bad! What's next—what sort of company do you want HFC to become during the next 10 years, and what's it going to take to get there?
JN : Our current goal is to be the global marketplace leader in health-improvement solutions—it's that simple. And we'll get there by providing the employees of our client companies, worldwide, with a wide range of programs and services and by consistently demonstrating the effectiveness of our products.
Jon Feld is a contributing editor for CBI and can be reached at kjfeld@rcn.com.
