Yet Another Value Podcast - Asheville Capital Management's Jake Barfield on InPost's scaling moat

Episode Date: December 5, 2024

Jake Barfield, Founder & Portfolio Manager at Asheville Capital Management, joins the podcast to share his thesis on InPost Group, Europe’s leading e-commerce logistics enabler. Jake Barfield's write-up on InPost: https://jakebarfield.substack.com/p/inpost-inpst-investment-thesis Chapters: [0:00] Introduction + Episode sponsor: Fintool [2:23] What is InPost and why are they interesting to Jake [4:24] What Jake is seeing with InPost that the market is missing [5:46] Push back on Jake's thesis + European parcel delivery differences to US [14:48] Relationship with Allegro [20:27] Why aren't landlords sticking it to InPost [23:55] Competitive analysis [34:32] Market penetration; Polish market and how they are trying to gain market share in UK and France [45:06] Valuation [55:26] Call options and gamification of customer experience [1:00:56] Advent involvement; how does Jake think about empire building risk [1:05:45] What would have to happen for InPost thesis to not work and final thoughts Today's sponsor: Fintool Fintool is ChatGPT for SEC Filings and earnings calls. Are you still doing keyword searches and going to the individual filing and using control F? That’s the old way of doing things before AI. With Fintool, you can ask any question and it’s going to automatically generate the best answer. So they may pull from a portion of an earnings call, or a 10k, whatever it may be and then answer your question. The best part- every portion of the answer is cited with the source document. Now- if you’ve tried to do any of this in ChatGPT you may know that the answers are often wrong or hallucinations. The way Fintool is able to outperform ChatGPT is their focus on the SEC filings. If you’re an analyst or a portfolio manager at a hedge fund, **check them out at https://fintool.com/**.

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So look, if you're an analyst or a portfolio manager, try FinTool today at finTool.com and take your research to the next level. That's fintool.com. all right hello and welcome to the yet another value podcast i'm your host andrew walker if you like this podcast it mean a lot if you could rate subscribe review wherever you're watching or listening to it with me today i'm happy to have on for the first time jake barfeld jake is the founder of ashville capital jake how's it going hey andry doing good thanks for having thanks for coming on super excited to chat today this is a really interesting company that's been on my radar off and on

for the better part of two years i'd say but we'll get there in a second before we get there just a quick reminders to everyone, disclaimer. Nothing on this podcast is investing advice. That's always true, but maybe particularly true today because we're going to be talking about a Polish slash European stock. So domestic listeners should just remember, you know, once we start going across the pond, everything carries a little bit of extra risk, you know, a little bit of extra illiquidity risk. We're not tax advisors, but there's certainly tax risks, just a lot of extra risks that people should certainly consider there. So remember, not investing advice, please are your own work, consults a financial advisor, tax advisor, all that, definitely.

So, all right, Jake, the company we're going to talk about today is in post. They are traded over in Poland. I'm super excited because, as I was telling you before, my wife is Polish. I'll try and bust out a Polish word or two. I don't know many on the podcast, but I'll just talk to it over to you. What is in post, and why are they so interesting? Yeah, so in post is a parcel delivery company. So if you're in the United States, think UPS, think FedEx, European, think DHL, DPD.

There's a few other competitors there. But what's unique about in post is the majority of their volumes, other parcel volumes, are not delivered directly to doors. So they're delivered in an out-of-home network, which they abbreviate O-O-O-H. Either way, out of home. And that means that it's not delivered to doorsteps, that it's delivered to a parcel machine in most cases.

So these are called automated parcel machines. And effectively what they are is just lockers. So you go up to this locker, there's 150 individual lockers in them, and you scan your QR code from your app, and out pops your parcel. And so APM's automated parcel machines are the primary delivery method via the out-of-home network. There is another method called pickup drop-off, otherwise abbreviated Pudo. So you may hear me if you refer to Pudo, and then it's just think pickup drop-off.

Effectively, that is the delivery person delivers to a convenience store or a grocery store. and the grocery store then takes responsibility for those packages and the consumer comes through, they go through the checkout line, they scan their QR code, and then they go to the back room to get the package and deliver it to the customer. And so those are the two sort of out-of-home delivery methods that in-posts specializes it. Perfect. That's great. So I want to dive into all that. But before we get there, let's just start. My first question I always like to ask everyone. The market is a competitive place. You know, people are always competing for Alpha. So I guess what are you seeing an in Post that makes this a risk-adjusted

alpha opportunity? Yeah. So the thing that makes in post really attractive is the superior margins that they can generate relative to the DHL, the DPD, UPS, FedEx, etc. So the core attractive feature for the operator, the delivery of the parcels, is that you can gain leverage over your primary variable expense. So the, let's take D.HL, for example, the average parcel delivery worker can deliver between 100 to 150 parcels per day. The average in-post-delivery driver can deliver 10 times that, basically. And it's because every time he delivers to a locker, an APM,

he can deliver 150 parcels per delivery. And so they can deliver seven to 10 times per day. So, you know, upwards of 1,000 to 1,500 parcels per day. And so that saves on the efficiency of your delivery driver, as well as on fuel, which are the two primary savings for, or I'm sorry, which are the two primary costs for the parcel delivery worker, or the parcel delivery company. No, no, that's perfect. So let me just push back right there, right?

Because I am domestic. You're domestic. You're Nashville. I'm in New York City. I think most, though, not all of the listeners here are domestic. I think about 20% come internationally from all sorts of markets. But domestic, there is a Whole Foods 30 feet from where I'm sitting, right? And they've got the Amazon lockers. And if I want, I could always click Amazon deliver it to this locker and I could go pick it off there. But I never do that. I have it delivered to my house. Now, obviously, Amazon would prefer if I went to that locker because it would be cheaper for them. Right. But I think the tension with in post that I always struggle with is, yes, it is way more efficient for the company, way cheaper, more efficient to have everything, as you said, 150 parcels delivered to a bunch of lockers versus having to go to 150 people's different homes and deliver all those, right? Way cheap. But consumer preferences seem to me to be pointing to I would rather deliver to myself. And now maybe I'm too domestic and too spoiled and thinking like Amazon delivery is free everywhere. Whereas In Poland, I don't know, like, there is the cost, right? And I think a lot of retailers could start slapping on, hey, if you want it to deliver to your house, it's extra five bucks. If you're willing to take that your time and your money and go pick it up from a spot where it's going to be way more efficient for everyone, we'll save you $5. But I guess I just want to say, yes, I agree with you.

The model is more efficient for everyone if you ignore the consumers cost and time. But I don't know if I'm end of wanting and thinking about my own preferences, but don't consumers just prefer it delivered to their house? Yeah, so that was the primary. that I had to overcome in investing in post, or even considering it as a sustainable business model. And I think the average American has become very accustomed to getting packages delivered to their doorstep. That's not true in Europe. It is mostly true in the United Kingdom, not necessarily true everywhere else. So out-of-home delivery is the established model

for Poland, for France, and for several other countries in Europe. And so customers aren't accustomed to receiving packages to their door. They're more accustomed to receiving it in a locker, which is directly outside of their apartment, or in the park that they walk their kids in, or outside their office, or outside their grocery store, which you point out, or their convenience store. And so that is sort of the muscle, if you will, that has been flexed the most over the last 20 years. And in post is widely attributed in Poland with sort of establishing that before two-door could kick in. But then there's also added conveniences. So in Poland in particular, your packages have to be delivered at a set time. If the person is not there to receive the package, it's not delivered.

And so it results in a high rate of failure on packages that are delivered to the door. And in-post effectively removes that. It creates an increased level of convenience via it's put in the locker and you can go collect it whenever you want. Is that a regulatory thing? Like, is it by law? Because, you know, I'm never home and I, Amazon will just leave it at my doorstop. Is there a regulatory thing that says in Poland, you must go ahead. I'm sorry to interrupt you, but in Poland it is, in other countries, not so much.

And the value proposition in those other countries where it's not regulated. is that there's decreased rates of theft, especially if you live in an urban center, it's left right outside your apartment door or your house door. Theft is a very large percentage, especially in these urban areas. And so it's more secure, it's more convenient, and because you're no longer delivering to doors and you can deliver much faster, the speed of delivery is much faster. And so, Impost was the one in Poland that sort of pioneered same-day delivery. especially if it's in the same urban center and so in post has benefited the uh sort of

customer goodwill if you will uh because of that and so you know if you think about this that will i'd like to come back to your question about the alpha in a minute but if you think about this there's four participants in this ecosystem that impost operates in so there's a customer which previously got charged for shipping which impost has effectively eliminated so it costs the last mile logistics is the largest percentage of the cost of delivery and it's roughly 50

sometimes 60% of the delivery especially if it's a larger package the last mile delivery costs more and in post has reflectively reduced that by 90% sometimes more actually but call it 90% it's basically slashed it nearly to zero in terms of the delivery cost

which slashes your total delivery cost in half And so that cost saving gets passed through to consumers. Oftentimes, merchants are willing to absorb that or bank it into their price because it's so much lower. And so consumers benefit from the increased convenience that we talked about. The decreased price is really the primary piece of value proposition and the increased security. So that's the consumers. That's the first sort of participant in this ecosystem.

The second one is the land owners. So in post doesn't buy like a square block on a street corner. They lease it. They rent it, basically, from whoever owns that. And the people who own that property benefit because they're now generating revenue on a piece of property that wasn't previously generating any revenue. And additionally, it drives split traffic. So if you operate a retail store or a convenience store and you can put an APM machine

directly outside or inside your convenience store, it drives foot traffic for people coming through, increases the likelihood that they buy something in addition to the rent that you now charge on an area that you weren't generating any revenue for. So it's 100% free cash, basically, for these lease owners or these property owners. The third participant in the ecosystem is the merchants. And so Impost has partnered with 50,000 merchants, almost exclusively via e-commerce and so in post has sort of ridden the wave of e-commerce and grown at a faster rate because not only are they growing at the rate of e-commerce but they're also taking market share via customers increasingly using in post at a higher rate than than the growth of e-commerce in general

and so merchants like it also for the cost savings and for the increased speed which results in a higher, you know, a better customer experience, basically. And lastly, it results in a higher customer conversion rate if Inpost is baked into the checkout process. And so you know you're not going to be charged for your delivery fees. And you know it's going to be very fast and very reliable at the locker right outside your apartment or within a four or five minute walk from your building. And so that's another part about this is Impost has a very very,

dense network. So in Poland, they have roughly 25,000 of these APM machines. And so like 70, 75% of the population is within a five minute walk of one of these machines. And so regularly pass by these things. And the network density incentivizes merchants and customers to opt into in post versus competing solutions. Because anybody can plop down a locker. And so the last one is, the last participant that I'll mention this is, is in post. So not only the offering customers sort of this win-win value proposition of decreased costs, faster delivery speeds, but they're also able to capture a much higher margin because they're leveraging those large variable expenses that we talked about.

And so I'll just give you an example, DHL, their EBITDA margins are roughly 12%, sort of fluctuated, give or take, one or two percent over the last several years. and Inpost's Polish business alone is during 46% EBITDA margins. And so that just gives you a sense for the profitability that Impost is able to achieve by operating this business model that benefits everybody, basically. No, you know, there's a lot of places I want to go there, but let's start with this. I guess the second, I'm really glad you went through all the components, because the second thing I look at when I see inposts, is I look at it to say, okay, you're building boxes,

you're building boxes, lockers, APMs, whatever they want to call them in high traffic locations so that people, instead of having it delivered to their door, can go and grab it, right? It's the second thing I wonder is, hey, as you said, it's kind of like a four-sided network, customers, in-post, merchants, land, right? The second thing I kind of wonder is, let's go through each of those. On the merchant side, you know, The merchants are competitive, the main, not the main cost, but a huge cost. Like, merchants operate on slim profit margins, and a huge cost for them is delivery costs. And even if in post is saving them, right?

Merchins are going to be sensitive to, hey, why can't I go with the competitor and all this first stuff? Especially, you know, in posts, let me back up. In the U.S., Amazon is probably 10% of retail sales and then toss a Walmart and Target. it would be very difficult to operate kind of an in-post-style network without having preferably all three of those, but at least one of them. In Poland, I believe Allegro is the big Amazon, is the big internet player. So I guess my question is, on the merchant side, and particularly the large merchants that you kind of really need to see this network, you know, why aren't they really pushing back

on price and kind of driving the economic returns down of in post down? Like, I get if you and I start Andrew and Jake's fashion, men's fashion shop, Impost probably has a decent bit of leverage over us because we kind of need to get a blivered. But an elaborate, shouldn't they be able to get Impost down to cost and kind of decrease economic returns there? Yeah, I think that was the big question sort of overhanging this business model about two years ago.

And so if you look at stock price, it's trading right around where it IPOed, and it dips very significantly. And there's two reasons for that. But one of the big ones is, um, is because Allegro was a fairly large percent of Inpost volumes. I forget the percentage. It may have been 25 or 30 percent, something like that, of Inpost volumes. And Inpost had a contract with Allegro saying, hey, whatever inflation is,

we're going to increase our prices at the rate of inflation plus 2 percent, something like that. And Allegro initially said, sure, that's fine. That was a long-term contract that's sort of been in place. And then what happened in 2021, 2022 was inflation skyrocketed in Poland. And so you're looking at a 12 to 14% price increase, contractual price increase for Allegro, for all merchants that operate within the in-post ecosystem. But for Allegro, and they didn't like that. They didn't like that at all.

And the CEO said, we will effectively get off of in post within three years time. and we're going to build our own locker network, and they started in mass. They started building out their own locker network. They got to, I don't want to tell you a number because I don't remember off the top of my head, but several thousand APM machines in Poland. And what they realized was this was really just the cost of doing business. Impost was passing through incremental cost to Allegro and protecting their own margin. And Allegro didn't like that.

Anytime you see a company earning 46% EBITDA margins, the question naturally is, how can I get a slice of that, basically? And Allegro didn't like that. They said, we're responsible for a very large percentage of your revenues. We're going to take that away from you. And they failed effectively. So the CEO is now out, and they're rolling back, their APM rollout. They're pulling APMs off because 30% of. the volumes is not necessarily enough.

I mean, Inpost is facilitating 700 million parcels. And in order to make the union economics work, you have to have massive amounts of volume. And Allegro couldn't generate the volume to drive the utilization rates, to drive the payback rate that Inpost does, which is 14 months, roughly. And so in addition to that,

a new CEO came in, I believe he had, a new CEO came into Allegro, not Impost. And I believe he used to work at Amazon. And he came in and he said, look, guys, we have so much more lower hanging fruit to acquire customers rather than in spending the capital expenditures to roll out this APM. And he says, and he hasn't said they're not going to do it. But if you go back and look at the earnings calls and listen to what he says, he has clearly deprioritized the APM rollout. And he has said, effectively, what I'm saying is like, look, this is just the cost

of doing business. If we're paying in post more for this, we're not going to save it by going and doing our own. We still have to pay for the sorting hub, for the for the vehicles, for the delivery couriers, et cetera. No, that was a great answer. You actually asked the question I wish and meant to ask but did not frame properly, which is why don't they insource? Why don't they in-house it? And your answer is, hey, even if you're 30% of the market, it's not enough volume to cover the, to leverage the fixed costs that in post is generating. And you see that and you as well. So Amazon has roughly 30% market share of sort of the e-commerce industry and they also rolled out a very large APM network and now they're scaling that back down as well. A reminder that today's

podcast is sponsored by fintool.com. The chat GPT for SEC filings and earnings transcripts. Just ask your question and FinTool will pull the best answer from the relevant documents, whether it's a snippet from an earnings call or a key point from a filing. If you're an analyst or portfolio manager, try FinTool today at fintool.com and take your research to the next level. that's fintool.com. Let me, I want to come to competitive, but I hope our listeners keep in mind that fixed cost leveraging everything.

I want to come to new competitors and everything, but I want to ask about the last piece of the ecosystem. And that's the landmboards, right? Which Inpost is given, and Inpost does drive a benefit to them, right? Like, I would love if I'm a landlord for you to say, hey, I'm going to throw this box on your lot and it's going to drive, you know,

a thousand people who are coming to pick up their packages. But, you know, there are good. going a mall that's well-tracked, domestically, right off the interstate, right next to a park. Like, well-traffic places are where you want to put these things. And I guess my question to you is, why aren't these well-traffic places kind of sucking out all of the economic returns from in-posts at each location in very much the same way, like, hey, you know where a great place to have a restaurant is? In an airport, you've got a very captive customer base that often gets hungry.

But guess what? The airport's going to suck out most of the economic. returns from that airport location. So why isn't the landlord kind of really stick in its end post? Yeah, you know, it's a good question. I think it really boils down to the fragmented nature of this. And so there's not any one landlord that owns large portions of the APM sort of footprint. And so because of the fragmented nature, these individual landowners aren't necessarily

going to um going to you know unite to to to uh to bargain with in post uh or i guess if they do they haven't they haven't done it yet and i think it's i think it's unlikely that they do so there there are some uh some companies like there's a grocery a couple grocery stores there in poland that have several hundred locations that in post is located on but it's sort of pales in comparison when you consider they have 25,000 of these locations. And so the bargaining power just really isn't there to suck out the economics. No, you know, I hear you on bargaining power, but if I just took it to the, I mentioned airport, right? There's 10,000 McDonald's and there's one LaGuardia airport, right? But despite the fact that there's one LaGuardia airport, because that

real estate is so prime, LaGuardia is going to be able to suck out most of the economics from a rent with the McDonald's. You know, McDonald's is basically going to earn the economic profit that is the difference between what, like, you know, a subs, the next level, if a Burger King could do $2 million in that box and McDonald's could do $500,000, then McDonald's will suck out like the economic gross profit of that $500,000 margin because Burger King will bid up to that. I guess with Impost, like, I think the answer probably is it's just like there's so many alternative locations, you know, like if you're a mall, maybe the 7-Eleven across the street

isn't quite as ideal, but, you know, the Impost at the 7-Eleven versus the mall is it works pretty much as well and if you're mall you're like look a little bit of extra money plus the extra foot traffic it's actually worth more than them going across the street i think i think that's probably the answer is i could just go right across the street to somebody else you know if if you're trying to go into an airport you know maybe if you're trying to open a restaurant in an airport maybe there's two or three slots that are available whereas if i'm on a popular street corner and the lease owner tries to extract too much value from me i can just go across the street to a different street corner.

Okay, so we've kind of laid out all the different things, and I think people can probably see why in post is getting an economic return, right? Customers, especially in Poland, where it seems like it's regulatory that they're required, and I want to come back to the Polish market in particular. Big benefits to customers, you're bigger, so you spread more cost over. For the merchants, they need, you get one nationwide shipper, they need this for shipping for the landlords, like they will go across the street. I guess the other question is competition, right?

You mentioned DHL, and yes, and Amazon or Allegro don't have quite the same fixed volume, but you and I could go raise a bunch of money. It's not like these APMs cost a lot of money. Why haven't we seen kind of a big competitor emerge and try to encroach and start taking share and compete them away? I guess that's the last thing. Like, why is this a network-effective business where a competitor doesn't come in and start driving returns and margins down?

Yeah. So are you referring to if you and me were to raise capital and to go out and try to do this? Well, probably not. You or me because I don't know if I could operate anything. But, you know, any place. It could be, I'll give you one. The post office, right? In the U.S., the post office has boxes. The post office has a big distribution system. Why couldn't the post office launch one? Now, they have a big retail base in their sleep here, but them or a private equity firm, right? They could look and say there's a lot of land. Impost is generating great margins, great returns. Why don't we start this up and we can bootstrap a network, get good returns, building competitor to Impost, and maybe we can take advantage of some of those. I want to talk about the call options that Impost is doing through payments and a bunch of other things. But we can get a good return on just creating an impost competitor, and maybe in the end we get the call options as well. Yeah, sure.

So in Poland, Poland's a little bit different than the rest of Europe. So let's talk about both of those. So in Poland, I think it's very unlikely to happen. So the primary parcel delivery company that's sort of a competitor to Inpost is a company called Pokedopolska, which is basically the sort of government-owned sort of monopoly postal service. And Inpost was actually originally created to compete with a sort of monopoly postal service because they thought that they could deliver letters in particular cheaper than the government monopoly. which was sort of a regulated monopoly. And so they found some creative ways to sort of get around those regulations

to deliver more efficiently. And so Inpost was originally founded to deliver letters. But then they saw that there was higher revenue to be earned in parcel delivery. And with the parcel lockers, again, you could gain leverage over those large expenses.

And so the post office is just not in a position to innovate and compete on this. It's extremely inefficient. You know, heavily unionized labor force. And so let's put the post office way because I guess I'm more thinking about, I mean, Inpost was owned by Advent for a while. I guess I'm more thinking about a private equity firm saying, hey, that's an attractive

business model there, right? It's basically a lot of capital to start up, but we can put the capital, get a retractive return on investment by creating a number two player and competing this away. So let's focus on that. Yeah, no, and I actually think we'll probably see that in the coming years. Royal Mail is a popular, it's the market share leader of parcel delivery in the United Kingdom and they're being taken over right now by a firm that has effectively said that this is their goal to roll out, I believe it was 20,000 APMs over the next 10 years which would effectively

compete with the United Kingdom, which has, or in post of the United Kingdom, which has 10,000 and will very quickly surpass 20,000 in the UK and Italy, sorry. But, yeah, so I think these businesses will experience some difficulties gaining volume. So in order to have volume, you have to have route density. You have to have a network density And in order to have network density You either need a ton of capital And a large number of customers

Basically like already on the platform And so you're going to generate So they could So they could install 10,000 lockers at $20,000 a pop And so you're talking You know, you're talking a lot of money to build this out but installing the lockers is not necessarily does not necessarily mean that you

have built the same business that in post has so there's there's a large back-in piece to this that's not seen and in post actually made this same mistake in their founding years so in 2006 they started doing this parcel locker so we're almost 20 years into doing this and they started plopping down lockers all over place, just saying, Rofal, the CEO of Impos, said, it's a land share grab. I'm going to go out and grab as much land as humanly possible. And he was deploying lockers all over the place. He was even deploying lockers in Canada prior to the advent acquisition. And they over leveraged themselves. And they also had a side business, which went to zero because the Polish company, or I'm sorry, the Polish government sort of regulated this other side business

away. And because they were over leveraged and the revenue went away, they nearly went bankrupt, which is why Advent was able to buy them and take them private, because they were previously publicly traded before Advent owned them. But they learned from that. And Rofal's e-lessened that he learned from that was we cannot over-leverage ourselves via growing and just plopping down lockers. It's not about plopping down lockers. It's about owning the entire back-end infrastructure that facilitates it, the delivery of a parcel from a merchant's warehouse to the locker very quickly in the most efficient manner possible. And so it's sort of going back to your question, it's a chicken and the egg problem. Yes, that's the word I was going to use. Yes, exactly.

That's right. It's absolutely a chicken and the egg problem is you have to have lockers, but in order to make those lockers pay back at any reasonable rate of return, you have to have volumes. And in order to have to have volumes, you have to have customers, and you're not going to get customers without lockers, basically. So I think, like, when I first look at this business, you just see, I mean, it's the first page of their investor presentation, right? It's the lockers. And you just think, oh, I do the lockers.

But the thing here is they have all that delivery behind them. And as you're saying, you know, they'd have to, if you're doing it, you have to get the lockers and you have to get all those things. And then you have to go to the customer because nobody's going to come and be like, hey, I'd love to do your startup delivery that delivers my, packages slower that has less reliable deliveries my customers might be missing theirs they might not be able to get their returns like nobody's going to want to do that for a small it's a small piece of the overall cost of shipping of selling goods right it's a small piece but it's a critical

piece and if you're going to fly by night i guess my last question on competitor is you mentioned dhl like the key thing here is a big piece of the chicken a problem is not having the actual back-end logistics, right? The distribution centers, the people who are going to bring the things to the bottom. Some of like a DHL, a UPS, a FedEx, these guys do have all of that. Why don't they, the only piece of, they have the relationship with the merchants, they have customer relationships. The only piece they're missing is the lockers, right? So I guess the last competitive aspect I want to ask is, if you're a DHL or a FedEx or something, why don't you look at in-post margins and post-return on capital and say, hey, two,

$200 million, that's nothing to us. We could start up a big competitive locker and we'll leverage our current distributions and we'll actually beat in post because we're offering all of these merchants, hey, you can either go with our in post model and we'll take it to, or if your customers want, you can pay or you can tell your customers, hey, for two bucks extra, we'll deliver it straight to you. So I guess that's the last piece of the competitive aspect I want to ask. Yeah, I think I think these are all very good points. And DHL, for example, and EPD, own the back-in infrastructure and the fulfillment. And so you're right, the physical piece that they're missing is the lockers. But what they're actually missing is at the checkout, they're missing customers. Customers would have to choose to use a different service. They'd have to choose to use D.HL. And so DHL could subsidize that because they have the volume. That's what I would do if I was in D.HL's position.

But customers would have to. have to choose and to have it delivered to this location. And for whatever reason, DHL just hasn't prioritized that. It's such a small portion of their business. So they actually do operate lockers in Germany. So the reason why Inpost hasn't expanded in Germany is because DHL does have this locker system in Germany. It is generating attractive union economics for their business. Although it's sort of hard to parse out. You got to speak to the management. team in order to understand that it is a part of their business. But it's such a small sort of subscale portion of their business that there's not prioritized to focus on it. Just like with

Allegro, there's lower hanging fruits from the focus elsewhere than it is for them to focus on investing in this area. And so technically they could, but you could invest it to put the lockers in, but then you'd have to get customers to choose to use you instead of Impost, which is already sort of built into their auto checkout sort of mechanism. It's like, this is my preferred location. I'm going to have to deliver it to that. And so Inpost didn't have to do that when they were scaling because they were the only player in town.

And here's this person offer, or here's this company offering me a lower price on my delivery, faster delivery speeds, more secure, more convenient, et cetera. I'm going to go with Inpost. And now they've done that and they've built that, they're incredibly hard to compete. with. And so, go ahead. So let's stick with incredibly hard to compete, right? These guys have 45% of the Polish market, roughly, and in the Polish market, out of home delivery, I believe, is what is called, is 60% of the market, right? So these guys are critical to Polish. But I do think, and you can correct me from wrong, I'd love to hear from you, if you're buying the story,

clearly the management team, they're set on expanding, and they're set on expanding through growing some expansions they've done. France and UK, they highlight. They're set on inorganic growth, too, buying into view markets. And there's a really interesting call option where they say they want to create a pan-European delivery service. I am a little skeptical, but it is an interesting call option. But the reason I ask all this and throw these stats out is they have, to me, it seems like they've won and established the right to win in Poland, right? They've built out the network. They've overcome the chicken and the egg problem.

But then I look at them trying to build a network in the UK in France, wherever you want to go. And I say, all right, they've got 2% share in the UK. I don't understand why they have the right or why they even could win at this game in any market outside the core one where they've kind of already established it, if that makes sense. Yeah, so that's a good question. And I guess you mentioned the UK and France. We could talk about France sort of. Sure, sure. I only mentioned, for listeners, I'm looking at page six of their November investor deck.

You can Google in post investor deck and see it. And UKney and France are the two that are mentioned alongside Poland. So they've been investing in the UK for over a decade now. And they've been struggling to gain scale. It's been a real challenge for them. And their APMs have generated subscale union economics. And they've just been gradually growing until recently. And so the question should be like, what's changed?

And there's really two things that have changed. probably the big thing is that they've acquired minseys, which is sort of the back-in distribution fulfillment center. And so what they were lacking was the back-in, so they had the lockers, but they didn't have the back-in sort of logistics muscle to deliver these parcels on time and at the lower cost. So they were outsourcing the delivery, which wasn't really cutting the cost quite as significantly as what it's like in Poland, basically. And so now they've been able to do that. The value proposition is effectively what it is in Poland now in the UK.

And sort of additionally, they found some alternative ways to attack the market in the UK to gain volumes. And so one of them was partnering with eBay and some of the other customer-to-customer Solution. So, you know, Andrew, I want to send you a t-shirt and you pay me $10 for it, you Vimmo me or you buy it on eBay or something like that. Instead of me going to Royal Mail and having to physically go to their office, have it delivered to you in five to seven days, and then deliver to your doorstep at a, you know, 10 or 15 pound cost, basically, to deliver that. now I can deliver via inpost and it costs me very very cheap so that's that's one way

which they attack the market the other one was they were prioritized at the checkout by fashion retailers e-commerce fashion retailers and the reason why they were is because returns is a very big issue yeah for fashion retailers so roughly 30% of all orders in fashion get returned and And if it's dresses or skirts, it's more like 50% of items are returned. And e-commerce, fashion e-commerce is a very big deal in the United Kingdom. It's sort of like on the forefront of the fashion e-commerce, basically. Like, it's the most penetrated industry in the world. And in post, by offering the cheaper delivery, the significantly cheaper delivery,

it dramatically alters the union economics for these businesses. It makes them significantly more profitable and because they are not doing the last mile to the door and they're not doing the last mile on the return, which, again, a sizable percentage of them is you're literally collecting those cost savings twice, basically. And so it affects your unit economics dramatically. And so some of these fashion retailers who previously were operating businesses with negative union economics, negative customer sort of LTVs and hoping the gain market share, Now all of a sudden it's much more profitable.

And because these fashion companies then prioritize imposted checkout, now the volumes have just absolutely spiked. And you can look at it. They're now doing in the UK and Italy because they kind of, they don't really parse this out as well as I would like to. So the UK and Italy is currently broken down. It's doing roughly 120 million of parcels right now. So it's scaled very, very quickly. And the utilization rate is better in the UK than it actually is in Poland, which is their most well-built-out industry. And so the demand is there and outpacing supply.

And so they just can't get these lockers in UK fast enough because now they've been working at this chicken and egg problem for well over a decade. Now it's sort of cross that chasm and scaling very rapidly. And you see that in the union economics. You see that in utilization rate of the APMs. And yeah, and so revenue is scaling very quickly. They literally had a 30 percentage point swing in their EBITDA margins in the last 12 months. So I went from roughly 19% negative 19% EBITDA margins last year through the first nine months of the year to now well over 11%. It's 11% EBITDA margins.

And so you're talking about a 30 percentage point swing in EBITDA margins in 12 months. That just really speaks to not only the gaining scale, they're gaining volume, they're gaining revenue, but they're doing it profitably with the union economics that actually worked for them for the first time. You meant, I mentioned really 45% share in market share in Poland. And I believe that's market share of out of home, which out of home is about 70%. But so, you know, roughly 45% of market share of Poland out of home. that's probably a third of all Polish deliveries are going through inposts. Do you know how that market share and out-of-home have trended over time in Poland? No, I can't speak to it too much because it's a little bit difficult to find historical data.

Okay, no words. Out-of-home is, look, I agree with you. You mentioned anyone who's looked at online knows that the return in the last mile delivery issue is the killer, right? That is a huge cost. And this is why so many, this is why Omni Channel has gotten so big for the U.S., you know, every retailer is pushing, hey, pick it up in store, or particularly return in store. Returns are so huge in store, especially if you're a retailer and your Walmart and they return it in store and you give them a credit, well, then they're already in the store

and they can spend it again, right? But everyone pushes for return in store. That's the big one. So you can see why that in post is just an absolute manna from heaven for these. fast fashion in the UK, though I would point out for the fast fashion, like, that will get competed away, right? Everybody gets the same efficiency gains, so the efficiency should occur to impose, which is actually nice for them, but eventually it'll get competed away for them. Neither here nor there. What was I going to ask? Oh, I was going to ask Poland. I mentioned

70% out of home in Poland. In the UK, if I'm just looking at their slide, I think they say two door is over 70% in the UK. I suspect two door is the majority. The majority of the majority of of delivery in most developed markets. Again, maybe I'm end of wanting because of my domestic experience, but I suspect to do is the worst the most. It is in one day, not necessarily in France. But I want to ask, what's so unique about, we mentioned the regulatory in Poland of why that's happening,

but, you know, where is that trending elsewhere? Are most places moving to kind of out of home bigger? Are most places kind of moving to like I see U.S. and I see the Amazon lockers and I don't feel like they're getting used that much. I actually think they've pulled back a little bit. So what's so unique about Poland that's pushing it more and it's growing? Why aren't other places trending there? Yeah, so Poland, it has a large percentage of its people living in urban areas, basically.

And so I think that's pretty much the primary reason, as well as the fact that I mentioned earlier that the out of home, or I'm sorry, the two-door delivery method was just never established. And similarly in France, actually, so out-of-home is a very large percentage of deliveries in France as well, which is why in post-acquired Mondaul Relay, which we'll talk about in a minute. But, you know, I think in order for out-of-home to be established

and to grow, especially in these places where two-door is already established, like the UK, there has to be a company that can deliver these packages in a repeatable manner quickly at a cheap cost and be integrated with merchants. And so, you know, in post is the only one currently capable of offering that. And so they have over 50,000 partnerships with merchants and merchants like it because of the cost savings. And so therefore they prioritize it at the checkout. And so it's a very key piece of digital real estate,

the in-post occupies in the checkout process of these merchants that helps them to gain market share and sort of push the out-of-home. And so, you know, if the out-of-home market share increases from 2% to 4% in the United Kingdom, there's a very high probability that Inpost captures the lion share of that incremental market share capital efficiently because of their because they're high utilization rates and payback rates and things like that. Perfect. I want to talk some of the very interesting call options that they've mentioned on their calls that I think they're. But I just let's quickly pause here and just say value, right?

As you and I are talking, I think Impost was trading around 17 to 18. I guess it trades on Euroneck, so I guess it's Euros, 1750 euros as you and I are talking, right? We've established good business, Modi, particularly in Poland, tailwind. from growth of online and shift to out of home, right? I think all that we've talked about and everything. So those are nice, but, you know, we haven't talked to valuation. So I'll just pause there and toss it over to you. Like, how do you think about valuation here, you know,

when you're blinded and thinking you've got a margin safety? What do you think imposes work today? Yeah, so if you convert the market cap from euros, because they report in Polish's loading, right? And so when I refer to revenue and ebidah and things like that, I'm referring to Polish Lodi here. And so I think it would be helpful to convert the market cap to Polis Lodi, which is roughly 37 billion post-slody. The enterprise value of roughly $44 billion, give or take. And so when you look at what in post is doing currently, so this gets back to your question about alpha.

Like, where is the alpha in this opportunity? I'm going to bake that into this. So the Polish business alone is training it roughly 17 times next 12 month free cash flows. And that's just the Polish business. Now, that is driving 80% of total EBITDA, 60% of total revenues. But you have this UK, Italy, Mundau Relay business that is doing 10% EBITDA margins, is 10 to 15% EBITDA margins for Mundau Relay, and is in this process of growing,

like I mentioned, it's been a 30 percentage point swing at EBITDA margins for the UK business, which is growing much more profitably. So you're getting operational leverage that's not currently there that will likely be there in the next two or three years. Because the business is operating at similar unit economics

that as they build out that route density, the flywheel just kicks in and the incremental revenue drops increasingly to the bottom line for the non-Polish businesses. That's already happened in Poland. They're generating 46% EBITDA margins. It's pretty much been that way for the last several years and likely will continue to be within 100 basis points of that going forward. But again, you're buying the Polish business at roughly 17 times free cash flow.

And if you were to exclude the growth capex in the Polish business, it's more like 13 or 14 times free cash flow. For a business that the Polish business is growing revenues north of 15%, probably a 15% complementing of growth rate over the next five years. And free cash flow well north of 20%, probably 25% to 30%. So you're buying the business today at 14 times standstill free cash or 17 times sort of the regular free cash of the business that's going to grow 25 to 30%.

and you're getting the rest of the business effectively for free. So some of the parts analysis is, you know, this, the international businesses, they just haven't proven themselves yet that they will replicate the Polish profits, basically. And so until they do, they're not getting credit for it. And I understand that. but it results in sort of an asymmetric return profile for this business

where you have a very low likelihood of the multiple compressing significantly because, again, like I said, it's trading in the teams for the Polish business alone. And you have a business that is growing with incremental operational efficiency. And so the multiple would have to compress very significant. to offset the incremental leverage of the business in order for this to be sort of a true disaster downside scenario with significant upside. So the core, the Polish business, like I said, is growing in the high 20% free cash flow range, likely over the next three to five years. The international business is well into the 40 to 50% range year over year. Because the revenue

to itself. I mean, the UK business is growing north of 100%. And the free cash flow is growing, you know, significantly over that as well. It's operating from a very low base. But, you know, the opportunity is pretty massive for the international business. So, yeah, there's a, there's a high degree of asymmetry on a business that is generating very high returns on incremental capital. So I hope that answers the question. No, that's a good, but let me just, push on one piece of that. So, you know, I love some of the parts and free call option stories, right? But sometimes you'll talk to, I'll talk to investor, we'll talk and they'll be like, oh, you're getting a free call option. And the base business is worth 100, and the call option,

if it plays out, is worth five, right? So that's a little chair on top. That's a little kicker. Whereas, hey, which I discussed earlier this year, you know, the base business was worth, I'm just going to use 100 again, whatever. The base business was worth, the base business. business was Swedish snooze. The call option was American snooze, right? So if the call option played out, it could be worth 600 or something, right? So I guess I just wanted to put you on, like, can you tell me like the Polish business? Let's just assume the Polish business covers the entire market cap EV or whatever right now. Obviously, England, France, these are big markets bigger than Poland, I believe. They could be huge, but they're starting from such

a small base that if you like, I'm wondering if you run it four or five years, like, are these real needle movers? Or are we talking, hey, once you like kind of DCF it and start thinking about the capital involved, like they're nice businesses, but it's the five, not the 600 I laid out. Yeah, you're talking about a business. The international business could be significantly larger than the Polish business within five years, at least larger, if not significantly larger than the Polish business today, which is going to do $3 billion of Ibadah this year. And so the international business alone could do significantly larger than that. So, you know, if you frame it this way, the Polish business, the market size is one and a half billion parcels. I think it's actually

1.4 billion parcels. And in post is facilitating 700 million parcels. So they have 50% market share of the addressable market in Poland, and that is generating roughly $6.5 billion in 2024 and $3 billion, Zlodi of EBITDA. And so keep in mind the 1.4 billion parcels in Poland. So if you look internationally, the United Kingdom is roughly 4.5 billion parcels addressable market a roughly one and a half billion dollars in each of France, Spain, and Italy.

So 4.5 plus 1.5 plus 1.5 plus 1.5 plus 1.5. So you have a 9 billion parcel market size, which is roughly six times the Polish industry in general, basically. So 1.4 billion in Poland, 9 billion in Europe. And again, Inpost has 50% market share of that $1.4 billion in Poland.

They have roughly 4% market share of the European pie, the 9 billion parcels. So they don't have to replicate 50% market share in order for this to pay off. As a matter of fact, if they just get the 10% market share, which is basically double their existing market share, slightly more than double, their existing market share in Europe, you know, that's a. nine billion parcel town, so you get the 900 million parcels. It's roughly nine Zlodi per revenue per parcel. So you get to 8.1 billion of revenue for the international business. A 46% market EBIDA would be 3.7 billion EBITDA, which is bigger than the bigger than the Polish business. Will they do the same EBITO margins cross? I mean, you know, one of the reasons I think they have such high EBITA margins and needs to spend more.

time studying it, but you've got 50% of the Polish market, right? That's a lot of fixed cost leveraging and stuff. I'd suspect, though, I don't know. I suspect you get a lot lower margins elsewhere just because 50% of the market is, that's a lot of volume, that's a lot of fixed cost driving through. Yeah, no, it's a great question. And unlikely to be achieved if they only have 10% market share. Right? So, Inpost has 50% market share in Poland. So, you know, that gives them the pricing power, which is why Allegro couldn't into the market. They tried and they failed and, you know, I mean, we'll see what happens, but it's unlikely to continue. So, you know, uh, yeah, so maybe they don't generate 46% EBITDA margins, but, you know,

even if they do 25 or 30% EBITDA, you're still talking about two and a half to three billion dollars worth of EBITDA, which is, you know, if you slap a multiple on that, which is similar to what the Polish business is being valued at, sort of a mid-teens, free cash flow, you get another incremental sort of 100% increase relative to the stock price today. And that's not counting the Polish business, which is, again, growing free cash flow in the high 20% range. There's so much I want to hit. I don't think we're going to have time for all of it, but there's one particular aspect. I was reading the Q3 call and I wanted to ask. There's a lot of call options that they think they have here. And one of particular, I thought,

was really useful. And again, I would like to talk to all of them, but I don't think we're going to have a chance because I've got several other questions that. They mentioned introducing gamification elements into their app, into their customer experience in order to increase the use of imposts. And they said that it's having a real impact. And I just thought that was so interesting because, hey, I don't see FedEx or UPS or anything offering like, hey, have 10 Amazon boxes delivered to you and get the 11th free or whatever, right?

I could be wrong. Maybe they do that for business customers. I don't know. But I also was interested in it because a lot of the call options, not all, but a lot of them involve more penetration into the ultimate, like, consumer customer, right? And if I was a merchant, like some of these call options is taking a lot of the consumer away from me. And at some point, I'm starting to think, hey, Impost is really stepping on my toes here, right? So there's two things I wanted to ask you about here.

First, the gamification elements. It's so unique. I just was hoping we could talk about that. And then, B, do you worry that a lot of these call options start stepping on their customer's toes? And maybe, you know, if you're Allegro, you rethink. oh, we didn't want to invest in building out these APMs because we were finding it was expensive, not a great use of our time. But if in post is going to start taking payments in the consumer experience and rewards program, maybe we have to because they're starting to become actually

an existential threat to us. Yeah, you know, I don't know specifically about Allegro there, but I think for most merchants, they're fine with it because the customer is still buying through that merchant, basically. They're still buying the good through that merchant. So in post pay, they actually don't generate any revenue. on in-post pay. In-post pay is effectively, we have your payment information stored. This is how you do one-click checkout.

And the payment is still facilitated by that merchant, actually. So they're not capturing any portion of the payments sort of fee. It's just a way to make it more convenient for the customer and to ensure that they deliver through the in-post ecosystem, basically. And so even if there are alternative solutions, you don't even consider them. You just click in post pay and it's one click checkout basically. So it's just a way to increase the convenience. It's not going to generate any revenue for them.

It's not going to help expand their margins or anything like that. It's just going to increase volume per customer, basically, which is really what they're trying to maximize. And so you talk about like this gamification of the, of the, you know, user experience. So they've actually sort of taken that from a Latin American company called NewBank. So NewBank has sort of gamified their app in order to increase the amounts that people use to take out loans for, basically, personal loans. And then when you pay it back, you get these rewards and you increase your loan amount. And so, you know, I don't think NewBank's the only one who's gamified. I mean, Robin Hood, it is gamified trading.

Yeah, yeah, of course. Yeah, there's a lot. New Bank is one of them. And there's a person on Twitter who has talked about this. Wolf of Harcourt has talked about this. It's been pretty helpful. But, you know, when you go to Poland next year, you will see that virtually everybody has the in-post app on their phone. And they use it to, you know, track their deliveries, to, you know, scan the QR code at the APM machine or at the pickup drop-off.

location and so in post can facilitate sort of a loyalty rewards program in there which you know gives you points and things like that which helps to uh i don't know i don't really know exactly it's sort of a new feature that they're talking about here that could increase loyalty and the reason why they do this is because a large percentage of their volumes comes from these super heavy users that they talk about in their first half earnings report. So it's roughly 15 or 20% of their total users drive 65% of their total. Not a surprise to me at all. Yeah.

Yeah. And so these are people who have more than 40 packages delivered per year via Inpost. And Inpost wants to find ways to reward those people because they're high value clients. No, I definitely hear you. 15 to 20% I definitely, like I get a box a day delivered. from Amazon. I'm roughly, I'm being a little loose, but you know, and my wife maybe gets a box every other week. So, like, I'm a high value user. I definitely hear you, they're rewarding their high value users, but if I was Amazon and In Post was in the United States and they were taking

Andrew and they're saying, hey, it's going to be simpler. Just pay on our app and track with our app. I would be very worried if I was Amazon because that's one step away from Inpost starting to be like, hey, Andrew, why don't you order your next case of protein bars through us or something, right? And we can pressure up. I'm being serious. It sounds. It sounds. silly, but that's how you turn it out in the next place. And it's like, it's a backdoor competitor, so it's something that would be worried. All right. Gosh, darn, I have so much more I want to ask, but we are running short in time.

A reminder that today's podcast is sponsored by FinTool.com, the chat GPT for SEC filings and earnings transcripts. Just ask your question, and FinTool will pull the best answer from the relevant documents, whether it's a snippet from an earnings call or a key point from a filing. If you're an analyst or portfolio manager, try FinTool today at fintool.com and take your research to the next level. That's fintool.com. Two last questions. There was a short case around in post a few years ago.

You started to mention it, but I want to mention it again. A lot of people look at the CEO, who is still the CEO who founded this company, and they say, look, as you said, he went land grab mode in late 2000s, early 2010s, and almost bankrupted the company. That's how Advent got involved. And he's, yes, it's a nice Polish business, but I think a lot of people look at him expanding in England, expanding all across Europe. He's got visions of becoming a pan-European provider.

I think a lot of people look at it and say, look, you know, it's an oil man. They can say they're not going to drill oil and they're going to return cash flows to shareholders once it comes. But never trust them because there's always another oil wells get drilled. I think a lot of people look at them and say, look, this man wants to empire build. He wants to go build up a lot of stocks. He's been clear that he's going to do M&A. He's been clear that he's going to invest all the proceeds and grow this business. That could be great.

But, you know, I think listeners could probably hear, I see a lot. of moat in the Polish business and a little more suspect in these businesses where they've got 2% market share they're trying to grow. And he wants to do that all across Europe. So the risk I want to ask to you is, how do you think about the empire building risk here? Yeah, you know, you know, I think it's a, it's a very good question. So, you know, if you have a conversation with Raffa, you'll see that he's very ambitious. That's very clear. He wants to build a business. He wants, he wants sort of a reputation for being. this, you know, successful businessman.

And, and I think that previously got him in trouble pre-advent. And, you know, I talked to you about how he was over-expanding land grab and they over-leverage themselves. But they, and then they ran into trouble when this other business sort of went away. And, you know, I think what's pretty clear to me is that Advent in their ownership period installed a level of discipline that I don't think was their pre-advent acquisition. And you see that in their numbers, you see that in their commentary, and you see it in their presentations.

They talk about a decreasing capital intensity of the business and an increasing free cash flow to EBITDA conversion rate, and you see that level of discipline that was not there previously. And so I think the fact that they nearly went out of business in the late 2000s, they have learned some very valuable lessons from that. And they are expanding in a much more conscious manner. Like I don't think you'll ever see them expand to Canada again or anything like that. You know, and if they do, it's years from now. I would not, I would not expect anything like that again. I'm imagining because I've mentioned. the pan-European delivery and there are some ways it makes sense like put something in a box to

Germany if you're a German eBay seller imposes it and puts it in a box in Poland. But I imagine doing it across the Atlantic like it might make sense, but you know across the Atlantic generally the cost is across the Atlantic part of it. I don't think that makes sense because then it brings in freight costs that you're just not accustomed to handle it. It's like they're accustomed to handling everything from the merchant's warehouse to the customer's hands basically. And I just I just don't know that that makes sense. And so you see that via their much more creative way of going about growing in the United Kingdom and not just plopping down lockers and waiting for customers to come. They've been very proactive and disciplined in measuring their payback rate on these things and not investing

in these areas unless they can generate an adequate payback rate. One thing I think is so interesting, like if you think I'm just going to do really crazy numbers, people can correct me, if you think and a package that gets delivered to your doorstep costs $3 or and then a package delivered to an in-post facility costs a dollar. I don't know, right? But that $2, it actually, it's interesting to me because it's already there in Poland since they've got so much of it. But it enables a lot of new use cases, right? When you bring the cost for something down massively, you think about the internet, you think about 5G. When you bring the cost for something down massively, it enables not a lot of new use cases. And you mentioned the eBay example, right, where if you're

an eBay seller and you sell something, they'll let you just put it in an in-post facility and then they'll deliver it to the next and the customer can go get it. Previously, you had to bring it to FedEx and FedEx had to bring it to someone's door. Like, cutting out that cost, it enables a lot more eBay transactions and it enables a lot more retail. It's just an interesting thought to me. It makes, like I mentioned earlier, it makes the union economics suddenly work for a lot of these fashion companies. It expands the market. It expands the market quite a bit. Last question I want to ask, and that was just something really. If this doesn't work, you and I are sitting here five years from now, we're doing our fifth podcast.

You know, we've hit one of your Japanese stocks. We've hit one of your Latin Am stocks. Maybe we've flown back domestically. Then we're doing our fifth podcast. And at the end of it, I said, hey, by the way, Jake, five years ago, you and I talked about in post. And it didn't work. What happened? Yeah, you know, I think what would have to happen is the return on incremental capital would have to decrease very significantly.

Wait, wait, wait. So that would be, it doesn't work to the home run upside, right? But if the return on incremental capital decreases, it's not a home run, but this can still work, right? Hopefully, you don't have an empire builder and you can just go into cash cow mode. If this doesn't work, what happened? Yeah, well, I mean, that's what would happen is they expand aggressively. They continue to pour into CAPEX and the payback's not there. And so, like, if you look at Poland in the last three, years, they've generated, you know, 90% returns on incremental capital. It's just like absolutely absurd. And so what would have to happen in order for that utilization rate not to occur is, you know, maybe, maybe what I could envision here is we go into a deep reception, particularly in Europe. And commerce in general is down. You know, e-commerce probably still takes market share in that scenario relative to commerce, because across Europe,

but still underpinit trade relative to the United States. So e-commerce still continues to take market share, but in general, revenue volumes and things like that are down on an absolute basis. And in-post continues to pour into building its APMs, and the return on incremental capital is not there. They're no longer generating 90% return on incremental capital in Poland. And the returns on income capital are much lower in these other areas.

They don't achieve the operating leverage that's anywhere in the ballpark. of Poland, basically. So like if they go from 10% in the UK and Italy and 15% even down margins via Mundau Relay in France and Spain and some of these other countries, maybe it collapses because the volumes just aren't there, right? So one of the things that we talked about this that is the nice moat is that they've solved that chicken and egg problem. And so the volumes are there to drive the payback rates, to drive the increased customers in volume. And so maybe there's an economic recession, absolute volume is down, and competitors enter, and they're able to take market share. That hasn't previously happened. There are some

lockers that are sitting right next to Inpost that they will spy on those lockers with their cameras. And so Raffa's publicly said this. He says, we'll use the camera to watch these lockers that are sitting right next to us. And whereas we're facilitating 200, been 250 packages in our lockers, the competitive solutions have been sitting there for 18 months and they get two or three packages a day. And so what would happen is that number significantly increases. And one of these companies solves that chicken and ed problem. I don't think there is a very high probability of that happening, but they're still there. Those lockers are still there, they're generating, I don't even want to guess what the payback rate is. They probably

still haven't paid back yet. They're only getting two or three packages per day. But if that were to dramatically change in the midst of sort of an economic recession, then I could see in post-revenue slowing, the business, the international business not gaining the leverage that I expected to, and the multiple compressing. And I think that creates a perfect storm for this business over a three or five-year period. You know, it is interesting, because, you know, If you think in post is a cheaper option, one thing you could imagine is in a recession, consumers want to pinch back their budget, retailers need to keep volume moving. And now, Inpost does have a decent bit of fixed costs here, right?

But you could imagine in a recession out of home taking share, right? Where even if it's something as simple as retailers saying, hey, the item costs 20 bucks, but if you go pick it up from the Inpost package, we'll give you a $2 rebate, $2 gift card, whatever it is, you could imagine a recession that gets more important for the retailers for driving more volume and it gets more important for consumers who are pinching pennies. I don't know. I mean, out of form again, in Poland is already quite high, but it's the type of thing where that money saved is always there. And, you know, I think you fit on it. It's a really interesting business because it saves money. The question is the chicken array problem, can anyone else

overcome that in Poland? And elsewhere, can they overcome the chicken area problem? Cool. Yeah, I think, I think there is a scenario where in the event of an economic recession that they do end up making significant market share. The business is much stronger in the future. So I think it's very similar. You could compare it to sort of the railroad business, very costly to build. Once it's there, the economics are just very, very attractive. No, that's exactly. That's the nice thing about a lot of these things. Like the railroad business, you get a lot of nimbism and stuff. But one thing we didn't mention, you know, regulatory, it is interesting. Once you capture 60% of the market in Erso in Poland, regulatory goes from being, hey, are we going to

correct. I do wonder if regulatory is your friend here, right? If they, Poland increases taxes on new APMs or something. Like, you can get a lot of regulatory capture and that can really raise the barrier for new entrants. I'll 10 seconds if you want to say anything on that. No, that's an interesting point. That's something that I haven't spent a significant time considering. But, you know, it is Poland. It's not the United States. And, you know, that's the very first thing you said. That's a risk with investing in international is, you know, our ability to understand these things is just not the same as it is in the United States. Yeah, cool. Jake, this has been awesome. I'll include a link to Jake did a write-up from about

a year ago on InPost that I think holds up very, very well. I'll include a link to that in the show notes. I should have mentioned that up front for anyone who's interested, and Jake, this has been awesome. You know, the big thing about this podcast that's going to cost me is I said on it that my wife and I are planning on it, but now I've said publicly we're going to poll in next summer. And I don't think my wife listens to a ton of these, and I don't think she listens all the way through. But if she hears it, that poll of a strip is happening. So this is going to be the most expensive podcast I've ever filled. But Jake, I appreciate you coming on. People should check out the link in the show notes. And I'm looking forward to having you again.

Awesome. Thanks so much, Andrew. See you. A quick disclaimer. Nothing on this podcast should be considered an investment advice. Guests or the hosts may have positions in any of the stocks mentioned during this podcast. Please do your own work and consult a financial advisor. Thanks. Thank you.