Yet Another Value Podcast - Vadim Perelman's Basic-Fit thesis $BFIT

Episode Date: January 13, 2022

Vadim Perelman goes through his thesis on Basic-Fit (BFIT) and why he thinks it could be a ~10x in ~10 years. Key topics include a detailed walk through the unit economics and why competitors won’t be able to open new gyms once the company “fortresses” their markets.My notes on BFIT: https://twitter.com/AndrewRangeley/st...Vadim's BFIT write up: https://punchcardstocks.substack.com/...Chapters0:00 Intro1:00 BFIT intro6:55 The key BFIT question: is 30%+ ROIC sustainable for gyms15:00 Why winning the "land grab" precludes competitors in local markets20:55 How BFIT's scale gives them a cost advantage25:00 Quick mentions of BFIT's marketing and rent advantages30:00 Comping BFIT's costs to UK low cost peers32:50 Why aren't we seeing a faster land share grab by competitors?40:15 Why isn't BFIT pursuing a franchise model?46:55 Could BFIT's ROIC go higher over time as penetration goes up?51:35 What bear cases does Vadim worry about?56:35 Store aging risk / underinvesting in MCX59:45 How BFIT uses their scale to bring down employee costs and create a moat1:05:15 Closing thoughts

One. All right. Hello, and welcome to yet another value podcast. I'm your host, Andrew Walker, and with me today, I'm happy to have Vadim Perlman. Vadim is a, he told me he's just a guy, he's an investor. I followed for a long time and really respect him. But, Vadim, how's it going? I'm good.

How are you doing good? Hey, let me start this podcast the way I do every podcast. First, by reminding everyone, you know, nothing on this podcast is investing advice. Everyone should do their own work, get their own advice, whatever. Nothing on here is investing advice. Second way I start every podcast is with a pitch for you. my guest, you know, I was telling you, and when we were talking for, I followed you for a long time. I remember all of your write-up so well. You know, you had this great write-up on Sears a long

time ago that was saying, hey, the short interest is so high. If you just buy it and hold it for a year, you're going to make all your money back in short interest. I mean, you're exactly the type investor I like to follow. Concentrated, does great due diligence. And I think that's going to sign through in this company we're going to talk about today. So I'll just turn it over there. The company is basic fit. You had a write-up a couple weeks ago, I'll include in the show notes that I thought was one of the best write-ups I've seen recently, and it's just a super compelling idea, so I'm excited to talk about it. All out of the way, I'll turn it over to you. What is basic fit? We might call it B-Fit, and why are we so interested in it?

Sure. Basic Fit is the leading low-cost fitness provider in Europe. So for viewers, listeners, who are more familiar with the U.S. market, think about planet fitness. The only real difference being the planet fitness is 90% franchise, basic fit owns all its stores. But in terms of sort of the business model, the product itself, it is the planet fitness of Europe, if you will. Yeah, go ahead. Oh, I was just going to say, you know, I love the planet fitness illusion because I think people doubted planet fitness for the past 10 years and all the doubters have been proven very wrong as they've grown, share like crazy and stuff. But I'm sure you'll get there. but one of the things I wanted to talk about was the planet fitness comparison

and how a low cross provider like Planet Fitness or Basic Fit can take so much share and grow in the market. Yeah, so, you know, if you think about gym as a product, fitness as a product, and let's talk about sort of physical locations first, and we can talk about what's happening online, opportunities, et cetera. But if we take the product of going to the gym itself, There are really two important things in a consumer's mind, which is price and convenience. Now, of course, you have the full spectrum from, you know, high-end boutique, you've got equinoxes,

you've got the low-cost providers, which are still a small, relatively small part of the industry. You have this very, very large middle tier of gyms that are, you know, sort of neither here nor there, I call them purgatory gyms because, you know, they don't provide you the same bells and whistles that in Equinox, which is a much more upscale, called a luxury product. But they have the higher cost structure because most of them have pools and spas, the wet facilities, which are very expensive to run. Now, from a consumer perspective, one of the things that people point out as a negative to me is actually a huge positive, which is that it really is sort of a commodity product. right? And there are important benefits of that, advantages of that. But, you know, if I am going to sign up for a gym membership, largely I care about price and I care about location, right? Every consumer study, and, you know, it'll make common sense as well, people don't want to, you know,

walk or drive 45 minutes to go to the gym. It's a chore for most people to begin with, right? There's a mental cost that you have to sort of impute and overcome. So people want, that's the majority of people want it to be cheap. They want it to be close by. And that's how they sort of, you know, rationalize themselves that, you know, oh, I think I'll go, you know, six times a month, ultimately then end up going twice, right? But they say, okay, well, if it's, you know, 20 bucks a month or 20 euros a month, then it makes sense. You know, the, if the, as the price point moves up, then people tend to sort of ask a question, is it worth it? Which is why you've seen to answer your question, low-cost fitness as a category take meaningful share from everything

else and actually, very importantly, expand the market. So the whole TAM has gone up because the number of people who can, who will sign up for a gym, one is priced at, you know, 20 bucks, 20 euros, you know, whatever it is, the low-cost providers. That's a number of people. That's a much bigger number than the people who are willing to spend, you know, 40, 50, 60 bucks a month for a product that, you know, they sort of don't want to be a customer of in the first place. Yeah. When I was in my prior life as a private, in private equity, I cover gym. So I might give a couple anecdotes there. But, you know, one of the things Planet Fitness says is I think they're like 30 or 40 percent of our members have never been to a gym before. These are the type of

people, they work out once or twice a month. You know, they're not going to pay for a $60 gym membership. But as you said, they'll pay for a $10 a month or $20 a month gym membership just for the psychological benefit of, I go once or twice a month and I can say I'm a gym member. But we would do work and there were people we'd find to be like, yeah, I pay $20 a month. And the only time I go, Planet Fitness would have pizza Tuesdays. And they'd be like, the only time I go is on pizza Tuesdays. I walk in, I get two slices of pizza and I walk out, which just always cracked me up. They were using it as a pizza service. Maybe B-Fit will get that dominoes multiple. Who knows? Right. Well, not banking. I don't think you need that at the price that you pay today.

But yeah, yeah, I was going to say, you know, the number of 30, 40%, so it's 40%, both for Planet Fitness and for Basic, is the share of joiners who are first time sort of gym consumers. And, you know, the reason for that is that it's a low enough price point that they didn't have access to before. And that's really sort of the story of this segment of the industry and why it's been winning, which is that for, you know, for a long time, people just didn't have a low cost, a low cost option. And so, you know, if in whatever radius you draw around their house, around their office, you know, the best you could find was, you know, $40, 40, 40 euros,

whatever it is, you know, it wasn't very compelling. And as you said exactly correctly, when there is an offering at, you know, 15 bucks, 20 euros, all of a sudden, you know, the TAM expands substantially. And now you have a lot of people who go two, three times a month. And that's okay, right? That already pays for itself. That's their rationale. So I've got lots of questions, but I think the majority of the questions all come back to one point.

You know, Befit says, and I think you believe that they're, I mean, their current gyms, we can look at what they were doing in 2020 and say they do. They get a about 30% return on capital when they open a gym. And if they can continue doing that going forward, you know, obviously this is going to be a huge home run and we can talk valuation all that in a second. But that 30% return on capital number is the key question to me because, as you said, a gym is a commodity product. You know, if I've got two gyms within reasonable distance, one's $20 per month, one's $15 per month. They have basically the same amenities. I'll go to the $15 per month one. So when I look

at that 30% number, I say, how can B-fit with a commodity product continue to operate and open stores at 30% margins because at some point doesn't someone come along and say, well, why don't we just copy the B-Fit model, you know, and we'll lower our price point. So we'll lower our price point a little bit under B-FIT and we'll get 25% returns on the capital. And then B-Fit has to say, well, we'll go under them and we get 20%. And you kind of have this race to the bottom. So we can talk about revenue advantage, cost-advantage, whatever.

But the overall question is, why is that 30% margin sustainable? Yes. First of all, the number is north of 30, right? because on a typical 1.2 million euro investment, I mean, they use a, they use internally 30% as the bar. But in reality, it's something like 35, 37%. We're value investors. We've got to be conservative. We've got to either here nor there. You would argue, okay, well, why doesn't the 37 become four, right? Yeah. And so I think this is the point that, you know, without taking a closer look, everybody misses, because that is sort of the most intuitive, you know, we're all taught,

you know, aren't markets perfectly. competitive and, you know, is there excess, are there excess returns to be had in commodity type products? And by the way, this is why when I first looked at it, when I was first pitched it, I sort of said, you know, valuation sounds interesting, but like, so what? And then it's why Planet Fitness was one of the most popular shorts in the world in 2016, 2017, and we've come through a pandemic and the stock's probably like a five-x sense then despite Exactly. So there's a very logical explanation that I'll take you through a very economic explanation for why that ends up not being the case. If you think about, if you think about, let's take a typical city in my write up, you know, I name Limoges, which is a city in France, but, you know, let's take 100,000 population city in France.

As an example, and it's a pretty typical sort of case. the national penetration, national gym penetration in France is about 10%. Right. So in that market of population, 100,000, you expect 10,000 members to be up for grabs, effectively, right? Now, the average price point that people pay in Europe is about 40 euros that's very close in all the countries. So, you know, on average, before BFIT comes in, assuming there's no one else that's that's, that's, offering this model, you have an implicit advantage when you come in. Now, what is the cluster strategy, which I think is key to understanding this thesis? What Befit will do is they will come

into a city like that and they will plop three clubs at the same time, right? They will pick the locations that make the most sense, right? So they won't do, you know, obviously three, three boxes next to each other, they will try to cover the most, you know, the largest part of the population, whatever that is. Yep. And they will look for the best locations. And by the way, that's an important point, right? Because as a, you know, public company, as by far the best possible credit tenant in this

industry, if you're a landlord and you're choosing between, you know, Andrew and Vadim, Jim, LLC, and basic fit, you'll probably give it to basic fit as, you know, as nice as we look and sound. So they will build the three boxes to cover the largest percent of the population using this concept that people want to travel seven to ten minutes max, right? And so they'll obviously think about where they will locate. Okay, so they will open up and they will open up with their standard price point, right? The price point is the same for every location. So it'll be the 20 euros a month, which is a much better value prop than what is currently available in those markets.

Okay. Now, what happens then? Given the scale, and this is one area where scale comes into play, one of the advantages of scale is that they have the marketing bandwidth, the dollars, both on a national, a regional, and a local level, you know, through online, all every, every channel that you can think of, they will be much more effective at getting the message out there with this now better value proposition, right? So that's not that that is already meaningful. So they'll basically blast the message that, hey, you know, hey Limogne, we have, you know, three locations

at an incredible price and you should join. Okay. And so, you know, a couple of things will happen. One, they will obviously attract, as we talked about, those members who are first time users because now it's, oh, 20 years a month, and they're blasting out the message across the entire city. Okay, so that makes sense. And actually, when you go on message boards, there are people in these little towns, cities, saying, oh, my God, finally basic fit is coming. So there's already national sort of brand value to basic fit because people don't live in a vacuum and basic fit is all over the place, right? online, everywhere, even in places where BasicFit is not currently available, people are sort of clamoring for that option. Okay, so they will have roughly 40% of their joiners come from this bucket of first-time users. They will have, I think, on average 30% that are rejoiners.

That's obviously down the road, right? Right now, it's day one. And the rest will come from sucking up, you know, the large fraction of the, you know, consumers, the gymgoers who now have a better price point that is convenient. And now, by the way, there are three locations plus all of Europe and all the free online content. So, you know, they come in with a really good, really, really good value proposition to the consumers. And so they will at, you know, sort of maturity, which they call 24 months into it, they will reach 3,300. members per gym. Okay.

So they've done that, right? And I sort of, I draw the parallel between this and other infrastructure type assets that are expensive to, you know, sort of put the capital in the ground. But once you have it, you have it. And so now Andrew and Vadim Jim LLC says, oh, my God, isn't this an incredible business? I'm finding on substack and, you know, PowerPoints that it's a. 35 or 30% returning capital business. Why don't we go into it? We're smart guys. We have access to money. And so we say, okay, let's go and try this. Let's go to Limoges. Okay, so we go to Limoges

and we start talking to a landlord and we find a spot. Okay, so we find a spot. But now we have a really big problem, right? Because if we do the math, then in a city of 100,000, we will have about 10,000 members, right? And of course, now the penetration is not 10% in that city because we added to the total addressable market, right? But fine, there aren't that many other people for you and me in our new LLC to go and grab. Right. And so you have to think about, okay, what is our value prop to the residents of Limoges? So for people who say, well, you know, it's really easy. you just build a new club and lower the price. Okay, so if we're saying that it's a commodity product, which it basically is, right,

there's not a whole lot of innovation that you and I or any mom and pop or even other chains can bring to bear to this product, right? And so, you know, if you think about other infrastructure type assets, let's take cable. So, you know, you've got, let's say, a charter. I was going to respond and say, oh, it reminds me a little of cable, not the same thing, but go ahead, go ahead. So I'll tell you one key difference, which is actually, at least on that front, in favor of beef fit. I'm not arguing that this is a cable company, right? But it has elements.

So if you take a charter market, right, you have, you know, big guys like AT&T and Verizon, who can try to deploy fiber. And they have. Malone talks about how none of them made money. Fine. But at least in that case, you know, Verizon AT&T, when they come in with fiber, they actually have a better product, right? They have faster internet. So there's something to think about as a consumer, because now you can say, okay, I've got 100 megabits per second in my charter, but these guys are promising gigabyte. And so maybe I'll switch, right? It's not just price. But here, like,

what are you and I going to do to attract the right number of members where we can actually turn a profit. It's not going to be unconvenience because we just talked about how we have, you know, basic fit has this cluster of three gyms in this, in this case. You and I, we can talk about what happens if we try to build three if we have the whatever four million euros to spend, right? But if a mom and pop wants to just replicate the model, then they have to compete on price, right? And they opened up one shop. And then you have to think about, okay, what is the math for this Kamikaze couple, mom and pop, right? Or you and me. What is their return on capital? Because now we start going through all the line items that, you know, you need to, both revenue and cost.

On the revenue side, we talked about how they had to, you know, had to drop price. So maybe instead of 20, it's 15. Okay. Now, the question is, okay, so how many members will we get? Well, it's unreasonable to expect that with one location, you will steal all of Basic Fits 3,300 in the location that's closest to you. It doesn't happen that way because, you know, A, it takes time, B, people are relatively sticky, not, you know, within reason, right? So if somebody comes in with a much lower price point, over time, you will take their members, which is why Basic Fit takes the members of guys who are charging 40.

But if somebody comes in 15 versus 20, and I'm already a member, and I'm not going that often, probably takes me some time to get there. And not everyone will do it anyway. I'll probably mention New York Sports Club a couple times in this. But again, when I was in my prior life, I would go to the gym and there'd be a New York Sports Club on one block and it would charge $100 per month or something. I'm in New York City, so the prices weren't played. And New York Sports Club is the biggest rib off in. the history of the world. But there'd be a New York sports club on one box, $100 a month. And there'd be like a crunch fitness, basically across the street, which would be $60 per month.

And if you went into both of them, the crunch fitness was newer, nicer amenities, more stuff, less crowded. It beat the New York sports club on every single dimension. And yet the New York Sports Club had more members because once you start paying, it's really damn sticky. You know, now New York Sports Club also, like, refuse, you had to basically send them a certified letter to get out of your contract and stuff. But yeah, no, they do ignoring things like that. Yeah, but you see that, you know, it's not as if consumer response is immediate, you know, things are not, people are not robots, right? So it takes time. And if you're not going that often anyway, you say, whatever to hell with it.

And you're rationalize it because, you know, you and I have one gym, but these guys have a thousand in Europe and you say, well, I'm going to Paris next month. I'll work out there. And so, you know, let's say that best case. you know, you and I, with our lower price point, steal half of basic fits, sort of local members, so half of the 3,300. And actually, what ends up, you know, what you get to, if you assume that, is you're getting to roughly the number of members per gym that is the average today in Europe, like 1,500, 1,600, in the 63,000 gyms that are in Europe, right? So small, you know, these independent gyms, you know, they get to whatever. That's roughly the number, 15,600 members.

Okay, so now you do the math, 1600 times 15 euros, you know, per month, so year. Okay, so that's one. So now, you know, revenue is, whatever, 40%, less than 40% of what basic fits is, right? And you still have the cost. Now, on the cost front, that's an important point that is, you alluded to in your notes that obviously we should talk about. Because you have a couple different, you know, you and I building our own are going to have a somewhat different cost structure versus a basic fit. So one is the capital outlay required to go in and build it, right? So basic fit has big discounts on the equipment that they get. They're by far the largest customer in Europe, you know, with 1,000 existing gyms plus the 250, 300 that they're opening

every year, they are by far the biggest. So they have a discount. Let me ask that, and we can go line by line through the cost, because there are some costs. And I agree, they're going to have some advantages. But, you know, I had just kind of been thinking of it, all right, you have a thousand stores, you're buying equipment. Like, yes, you're going to get a little bit of a price discount, but, you know, fitness equipment is a commodity. They're probably already operating at pretty thin margins and capital returns. Like, how big of a discount or cost advantage can you really get buying equipment with a thousand versus one mom and pop store? So they get 30 to 40% less, a price that is 30 to 40% lower than a mom and pop.

So, you know, bigger scale, bigger scale gyms will be somewhere between there, right? I'm sure kind of get prices that are no worse, right? Probably better. But they bring so much volume and they play the two guys off each other, the too many manufacturers, that the discount, you know, ends up being, they say, 30, 40%, somewhere there, right? Now, the equipment, the actual fitness equipment of the 1.2 million upfront investment, that's like, you know, 350, between 300 and 400,000 of actual equipment that they get at the discount. So right there, you're saving $100,000 versus your random mom

and pop competitor on just the equipment if I'm doing that math right in my head. Yeah, yeah. But, you know, the other stuff, you're definitely not getting 30,000. to 40% off concrete, things like that, you are getting some discount, right? Because you're building three at the same time. We've got the architects, but it won't be, it won't be massive. Right. So it will cost you and me more, right, but it won't be an order of magnitude more, obviously, but it starts to add up. So it'll cost us more than the 1.2. Let's just sort of work with that. Let's even call it 1.3. And now we have the OPEX. Now, well, before we get into OPX, because we are ramping a slower and be into fewer members, we also have a meaningful

amount of cash that we're going to need to burn before we get where we're going. That's one of the big advantages for basic fit, which is it takes four months to get to a cash flow break-even and profitable, right? It takes 24 months to maturity to get to their target profitability, but it takes roughly four months to get to the point where you are now cash flow profitable. So that window where you're consuming capital, you know, burning cash, as you ramp up into all of your marketing, it's pretty short. And so we should come back to that because that's an important point that also drives sort of their ability to grow versus anyone else's ability to grow. Anyone else

will need a lot more cash to go and absorb the ramp up of the stores that they just built. Yep, right? There's a big cash requirement. So on the OPEX, there's three big buckets, basically. There's labor, right? So, you know, one of the big advantages of basic fit is there's a lot of automation that they spent years developing to bring the, you know, FTEs per store down and they're working hard to bring it down meaningfully further, right? The other thing is you get leverage from having three stores in the, you know, that city versus just one. So you have the benefit of, you know, you've now, your outsource guys are cleaning three gyms, but you do get some benefit there. And so, you know, you're, you know, you and I doing it, assuming that we don't want to live in the gym and clean toilets and rack weights, we will have more labor intensity in the store. So, so that's, that's what. And one, you didn't mentioned three gyms in a market versus one, you're going to get scale on your marketing costs as well, right? So it's going to be harder for somebody opening one gym to steal your

members because they're spending marketing for one gym. You can actually spend twice as much and it's half as much on a per gym basis because you have three gyms in that market. So that, yeah, I don't mention, it's very important. I'm glad you brought it up. It's not in the four wall number. Yeah. So I'm getting to the like, oh, good point. Good point. I was just trying to build off the book for you. No, but you're exactly right. Because as we ramp up, pop during that cash burn period we have you know you and i are going to have to go and find those members you know we need to put the same billboard up that they put up for three we need to compete and now put up one right process the same but they're getting it over three gyms you and i don't have

the same scale you're exactly right um okay so there's labor uh and and we'll get into labor when we talk about the things that they're doing to drive value uh going through forward, right? The second bucket, let's talk about rent, right? So their rent per, you know, whatever, per meter will be lower than you and I entering. It won't be order of magnitude lower, but landlords want basic fit and they give them preferential rates because with that credit of a tenant, the value of the real estate is actually much higher, right? Because completely different, you know, risk profile and a very different cap rate. when you put in a basic fit versus an unknown operator, right? So they'll have some advantage there.

And if I could add one more, two more things that, A, you mentioned because if they're the first mover in the market, which we're going to come back to that point. But if they're the first mover, they're going to get the prime location. So our secondary location will be, you know, it'll be one street over. It's not going to be quite as ideal. And then B, because basic fits proved it out, you know, landlords want tenants that drive traffic. 20 years ago, I think they didn't want gyms, but now they want tenant that drives traffic. And if BFIC can say, hey, the average gym has 1,000 members, ours has 3,000 members, then there's probably going to nudge towards basic fit a little just because the extra traffic increases the value of everything else that they

have around it. For sure. By the way, that is the story of Sears, right? Why did Sears end up owning all that real estate? Definitely don't want to get into Sears. But why did it end up with all this real estate? Because people gave them free rent in the malls that they didn't own, because that's back in the day, whatever, 100 years ago, 120 years ago, what brought the traffic to the mall? Yeah. So, yeah, so there's an advantage. So basically, you and I are going to have a simple choice. Either we want the same rent as basic fit, but we have to take an inferior location, or we have to pay up for having locations that are of comparable quality to basic. Okay. And, you know, it won't change the math dramatically. But that's an important consideration. So that's rent, right? And you

definitely don't want to be in a location without parking, for example. So, you know, that's, but even if you and I find something that's great, great location across the street, we still have a big problem, which you'll see. Okay, so that's, that's rep. The third bucket, which is sort of other, it's utilities, it's cleaning. And I think there's going to be some advantage, but, you know, I don't want to overstate sort of, you know, we're not going to, you and I will not have a massive disadvantage on cleaning because, you know, if we want to outsource it, we can, you know, hire an outsourcer. And yes, basically, we'll have an advantage because they're amortizing over three so they can have a cleaning crew that goes around the city and does it. But, you know,

you don't need a, you don't need to believe any of the stuff to, to see where I'm going. Okay. So what's going to end up happening? If you actually do the math, you're going to see that you will, you and I will make no money, we'll probably lose a bunch, right? Because you're always, already working with a revenue base that is less than half, right? And with a revenue base that's less than half, even if you have the exact same cost structure as basic, keep in mind, four walled margins are 50 percent, right? So take $100 of revenue, 50 or cost. You and I are already starting with 40 of revenue. So that's tough. And so, you know, this goes to the very heart of once you have these clusters, why it's so hard for somebody to, you know, build a competing cable

network that's in our market. For you and I to do it and open our box of the same product, the same thing, very, very difficult to make the math work. We have to count on price as a differentiator, right? So lower the price, fine. Get the message out. That's expensive, as you said. And then, you know, depending on how far we drop the price, now we have to play for, you know, a big share of, you know, one basic fit locations members. So if we get half of them, which is already, you know, quite good, but you can work with, you know, 70%, which is hard to do, right? Because a lot don't go, right? So if they're not going, they don't really can. It's hard to get them.

And so you're going to have a cost structure in reality that is much higher than basic fit. I'll give you one interesting data point. So gym group, which I don't know if you've looked at, but it's one of the two major UK-based operators, low-cost operators, right? So there's pure gym and there's gym group. Yep. All publicly traded in London, smaller, about 200 stores, gyms. and their same size, 1,500 square meters, roughly, you know, 15, 16,000 feet, their cost per unit is 60% higher than basic fit, right?

So if basic fit costs for wall bases, again, are, let's call it, 420,000 euros. These guys are at 670. That's a big difference. How much of that is rent? Well, how much of that is running materials? I would just imagine rent and materials is higher in England versus all of Europe just because England's an island and you got to ship things on and it's a lot smaller. Or am I misimagining that? It's not meaningful because like, you know, in these secondary tertiary cities, like I'm, you know,

go outside of London. It's not, you know, I think, I think one bias that people have also when they think about Peloton, things like that, people based in New York, you know, California, not the entire world doesn't look like that, right? So, and same in Europe. You know, it's not just Paris. We've got, yes, you have a lot of gyms in Paris. You go to DeMotion, there's nothing. I was there for a visiting family.

There's three basic fit gyms and like a bunch of like small stuff. So everybody's a basic fit. So my point in saying that is that it's very, very optimistic and unrealistic to say that, oh, and you know, people have expressed this future. Like, how could it be that unit costs are different? because you know you can hire employees i can hire employees well it turns out that you know through automation basic fit needs fewer employees and they're working to reduce that further let's put a pin in automation because i want to come back to that because i do think that is an interesting aspect but i don't think that's like the most interesting driver here if that makes sense one one quick like off the

top of my head thing like your argument for why basic fit has an advantage with jim that i was going to say isn't this an argument for why we work should have worked, but that's just so different. It's not even working. Yeah. Let me go back. So when you started describing why basic fits, you know, this fortress strategy, why it works, why, and then you went through all the unique economics of why you and I couldn't go into a B-fit market that's already built out and compete with them, right? But the key assumption in there was assuming there's no one else offering this model, right? So basic fits going into a market where there's no low-cost gyms. that are already broken out.

And I think at today's share price, you know, as we're talking, I think if it's at like 42 or 43 per share, you could debate if the current store base where they've already got the franchises and stuff is worth 50 or 75% of the enterprise value or whatever. But there's no doubt, like, this thing has to grow for its work, I think. So I guess my question would be like the assuming there's no one else offering this model, why isn't this a massive land share grab where, you know, pure gym in England is moving into every market.

that BFIT isn't. And you and I are going and saying, oh, my God, 30% returns on capital. Let's go to every market that BFIT isn't in right now. And let's, let's fortress it before BFIT's in there. Why, why hasn't there just been this land rush that's going to prevent BFIT from, you know, there are a thousand stores right now. They want to be 3,000 stories by 2030. Why can't you and I beat them to that? Yeah. So I think that goes to the heart of the growth aspect of this. By the way, I disagree with a comment that you need a lot of growth to make math work on the existing stores, you're just not paying a big multiple on just, you know, stable stores, right? So I don't think, I think the entire enterprise value is basically in the earnings

power of the existing stores, right? So that's one point where I would sort of contend. I might have been a little, you know, I was just kind of looking at it. I think it's about three and a half billion EV at the current share price and they're projecting. Say again. It's three three three. Three three. And then they're projecting 240 in 2022 EBITDA, which will include a little bit of growth. Now, all the stores, as you said, won't be fully mature at that point. But I was just kind of looking at it saying, oh, you know, I'd probably pay eight to 10 for a mature, stable business like this. And it's trading, you know, I just thought you've got to get a little bit of growth from there to justify the share price.

Well, yeah, so that number, right? I'm looking at this as the earnings power, the reason I'm looking at 23 and also in the math that I put out, although I have all the years. But 23, I think, is a much more relevant sort of earnings power year to check because, first of all, you know, the stuff that's, the growth that's coming that's gone on until now, those will be fully ramped up by 23. Right? Because 20 is a weird year, a lot of closures. And so that maturation process really hasn't happened. But so I'm looking at 23. And on my math, I have 23 earnings power of over 500. Over 500. Yeah. And how many stores do you I've opened then? So I've got, in 23, I've got 1,400 average. Yeah, I don't want to get

caught up in the area. But, you know, right now it's about 1,000 clubs and your 23 is 1400 clubs. And probably all of those aren't mature at that point. But I, I do think, hold on. Hold on. If we talk factually, right, they said they're going to open 250 to 300 per year. Yep. Right. So 1250 by the end of 22, right? assuming they are at the low end of the $250 to $300, they're at $1,500 by the end of $23. So the average number of clubs for 2023 is exactly there, right? So that's just the math of- Yeah, but again, I still think that's coming back to you need a little growth

from the current store base to justify the share price. But I don't want to get bogged down to that because I think the more interesting question is like, you know, why is this not a land rush where you and I are going and like, we're just going, everyone's going to go and get to it. And BFIT's not going to be able to get to 3,000, like, because they're only going to be able to build out two more years of markets before everyone saturates or something. Yeah. So, I mean, and I think that's the, uh, the more important question, uh, than the one that I think people do get bogged down in, which is, well, you know, if, uh, which is very simplistic and just without, you know, running the map, people say it,

well, why can't people go into their existing markets? Because I think the existing markets are deeply entrenched and they build a moat when they do so i'm pretty i'm pretty convinced on that though i will talk a little bit longer term in a second but i'm reasonably convinced on that at this point sure so so let's talk about the growth now um what does the landscape look like right now you have 63,000 i think is the number that i saw um for europe in terms of number of jims um of those the top six players are still tiny right so basically Fit being by far the largest is 1,000 of those, right? And then you get down to, you know, 400, 300 pretty fast, right? So the number, I think, it's like 2,500, 300, 3,000 in the top five players, right? So, you know, it's still largely a mom and pop market. And the question is, okay, who is going to go and build the number of clubs that you need to actually go and saturate these markets with this low cost model? And so, you know, Basic Fit is going to add supply of, of 250 to 300, roughly, which is the size of, you know, more than, more than a gym group per

year, right? And when you look at, for example, McFit, I saw somebody asked about McFit in the comments on Twitter. McFit is very, very cash constraint. A lot of these guys are levered, they're highly levered, right? COVID didn't help. And so the access to capital and the internal cash flow isn't there for people to go and build out thousands of clubs. That's the reality of the existing scale players. And so I think you're totally right. If all of a sudden people rushed in and built these clusters using the low cost and soaked up the available sort of members up for grabs, they would have a cable network that we would

have a hard time competing with. And so, you know, but you look at the pace of openings of everyone else. and BASIF it just dwarfs everyone else combined in terms of how many clubs they build relative to all the other big players in the industry. We're not talking yet about, you know, guys also dying, which is happening. Obviously, it happened in the U.S., by the way, it hasn't really happened in Europe yet. Because during COVID, you might know this. Government subsidized pretty heavily, which they didn't so much in the U.S., right?

So you've seen supply shrink, I think like planet talks about 22%. We talked about yesterday, actually, of gyms by count, but most are smaller, right? But still, it takes capacity out of the market. You haven't seen that in Europe. And, you know, the larger operators think that you'll see that, but whatever. Yeah. But to answer your question, I think it comes down to that capital needs to come from somewhere, right? you don't see, you know, Blackstone funding a basic fit competitor.

And so people, by the way, have also really not wanted to get into basic fits market because market so, because Renee is known as an absolute, this is for public consumption. So, so I'll live it at that, but you understand. So he's a very, very competitive guy and fiercely so. And so strategically, I think it's, this is a land rush model, right? You want to be the first, you want to be the first to franchise a, sorry, not it's a fortress, a, an area. I think we're agreed on that. And you just laid out a compelling case for why the other people who might even try to fortress it are probably pretty capital constrained.

And, you know, BFitt's got, we'll talk about the FTEs, but BFIT's even got some capital advantages over them even without that. But, you know, it does strike me. Planet was so successful. because they went with a franchise model, right? And a franchise model lets you leverage other people's capital to really go out and expand very quickly. And when I look at Befit, my first question was, why don't they just franchise so that they could, you know, if they really opened up franchising, they could get to 3,000 stores by 2025 if they had some really aggressive franchisees or something. So why haven't they pursued a franchising model? It's a great question, one that when I first looked at it, I sort of had the exact same reaction.

I've spent time with Renee talking about franchising, getting his thoughts. By the way, one of the reasons I love this thing is the guy is literally thinking 10, 15, 20 years out of what this looks like. And I think that's the biggest driver of why he hasn't wanted to franchise. franchising creates, yes, it accelerates the go-to-market for sure. You've seen that with planet. But it has two, at least two, pretty negative side effects, I would say, or conflicts. One, when we talk about, let's say, the Omni Channel, which is starting to happen, and, by the way, another benefit of scale is basically if it's able to offer now the Peloton solution, they'll have, any others. There's just a job post yesterday that I saw of, you know, product manager to

develop other things in addition to their bike. Fine. So they're able to do that with scale. But when you have a franchise model, you immediately, like it's, it works pretty well until now you have an Omnichannel, right? Because if you have, let's say, a franchisee in some city or some region in France. Well, now basically it wants to offer, you know, a bike, a tread, et cetera, maybe other ancillary stuff, online subscription, whatever. Now you have a very uncomfortable need to somehow share the economics, and that's very, very tough. You've seen it with the broadcasters, you know, again, sorry for the domestic focus, but CBS. You know, CBS doesn't own the New Orleans CBS station. That's often owned by a next star. And then when CBS says, hey, the future is

in the cable bundle, the future isn't a direct to consumer. Well, you've got a really awkward conversation with someone who's paying you literally millions of dollars of year to be your CBS franchise in New Orleans. And you're going to go to them and say, hey, we don't need you anymore. We're going direct to consumer. And they're going to say, well, you sure need us now because we still pay you millions of dollars. And that's not going down, but it's not going anywhere for the next five years. So you better cut me in onto that direct to consumer thing, even though I don't provide a lot of value to it. Right. Exactly right. So I don't think this is the biggest thing, because obviously five years ago, he could not,

nobody could have foreseen that that would be attention in the business. Nobody was talking about Omnichannel back then. But I think a more meaningful component is basic fit is absolutely obsessed with driving down unit costs. They are under no illusion that this is a commodity-like product and you need to be the low-cost guide because that's what drives your, it's what drives your unit economics. So it drives down your break-even point in terms of what you have to charge members per month and still get high margins, right? So, you know, another interesting data point, slight tangent, but an important one,

I think for independent guys, the break-even is like 28 years a month as a membership fee, right? And you need to obviously charge more than that because you have CAP-X needs and, you know, you need to have some profit. For basic fit, it's like 10 per member, per month, per month, Remember, for Basic of a 10, independent guy, 28, that's why basically can price at a 20 and still have 50% margins. The other guys have to be higher, smaller space, higher costs, et cetera, et cetera. Right.

And so the obsession with cost control is something that you can really only do effectively, from their point of view and I agree with it, if you truly have control of your costs, which you do not do if you have, you know, if you've got franchise. is it's really hard to control the quality, the cost. Now, you might argue, well, it's sort of their cost structure. What do you care? But long term, you do care, right? And so, you know, having all of the cash flow, 100% of the stack gives you the ability to reinvest it, et cetera. I mean, you look at planet's EBITDA. It's, you know, it's actually not that high because they're only charging 7% of the top line. Now they're, by the way, interestingly, you know, reacquiring their best franchisee. But I think it's a one-off. I don't think it's a trend. The planet will become, you know, asset heavy. But that was interesting yesterday. But anyway, so those two things are

important, having control of cost and obviously product quality and consistency. And by the way, you know, if one believes, as I really do, that they are able to redeploy capital at, you know, a pre-tax north of 30% return on capital, I sort of want all of that to myself. Like, why would I, in the long run, want to give up those excess returns to a bunch of franchisees who themselves are going to earn outsized returns. I'm much happier, too. It's the classic franchise argument, though, I do think there is something to, well, if you're getting 30% returns, slap a franchise fee on it, your franchisees will get 20% returns on capital because 10% of it will go to you and you're getting infinite returns because you don't really have

to invest anything and you grow a lot faster. Sure, sure. But, you know, the flip side is you don't capture, you're giving up a big chunk of the total dollars earned to someone else, right? Because I don't think people are going to be super excited by a 14% return on capital to do this. Now, I will say, because this return of capital keeps coming up and it's important, I'm going to say something incendiary. Oh, there we go. But not in poem form, in prose. So I actually think those returns and capital are likely to go higher over time, not lower. And I'll tell you why.

If we draw the analogy, just for the sake of a mental model, of an infrastructure-type asset like a cable company, think about cable or cable internet, let's say, 20 years ago. So you have the cable, but the market comes to you over time. Right. So today, when they lay cable and they build these clusters. they're building it in countries with, take France as their biggest market, 10% penetration, which they will move up. But I believe that over time, and by the way, you don't need to believe any of this

because it's really not in my mouth. But I do think that's the way that things will play out from here. I think that penetration is likely to head higher to get closer to where, let's say, the U.S. is today over time. Isn't the argument there? I don't think, you can tell me if I'm wrong, and we don't have to get bogged down in the point because this is just a Super Bowl case, right? But if penetration goes higher, I don't think their returns on capital go up materially, though they might get some more scale that lets them drop their cost more, especially if the FTE reduction comes in. But it would just be a market that used to be able to support three B-fits. Now that penetration's higher, it can support five B-fits, which, by the way, you will get, it doesn't affect your four-wall return, but it will affect your overall returns because you'll get a little bit more leverage on the SG&N. the marketing and all that. I hear.

We're talking about two different things. So you're talking about prospectively on new markets where they're, that they're yet to penetrate. I'm talking about, let's take the city where they today lay the cable. They built the three stores, right? As, you know, demand for gyms goes up in those cities, they are going to be the outsized beneficiary of the incremental gym membership. You know, so, for example, somebody turning 18, today different from somebody who

18, 20 years ago in their propensity to, to join a gym. Again, don't need to, you know, get crazy here. But I think that the gap between where the, where Europe is and where the U.S. is should narrow over time. And by the way, the U.S. is still heading higher as planet does more and more. One more pushback on that, just because I think it's interesting, not because I'm trying to contest the point too much. But isn't your argument there? Like, as penetration goes higher, they get more members at their current installed base. So are you suggesting that their current gyms could support a lot more members? Because I kind of thought their current gyms, not that they were overflowing, but they were

already pretty close to, you know, there's the calls where if you get, I think it's like three members per square foot, the gym's going to be pretty crowded at peak times and people might be unhappy and you can't go. Aren't they pretty close to kind of the limits of what these gyms can support? No, not at all. So I would say, like if you ask them the question and I'll give you the data that I think, you know, make sense of it. They would say that, you know, up to 4,000 members per gym, it's very comfortable. Yep. Right. Now, let's take, you know, Planet, which has six, seven, eight thousand, depending, you know, the box.

And it depends on size of gym, right? That's a big. Correct. So I'm looking at per per square meter, the way I'm okay, perfect, perfect. And then we can bring it back to size of box. But, you know, gym groups average, I think, is around 5,000 members, same size box, right? And so that's not. not to say that 5,000 is the ideal size because at 5,000, it gets crowded, right? But 4,000 is not a crazy number. And I think internally that's sort of where they think this should go. Again, not in my numbers, but given sort of other boxes with higher density, it's not crazy to think that, you know, at 4,000 is still fine. And then maybe you build, you know, a fourth box. So, you know, that's either way, you become the beneficiary as the market comes to you, you

capture more. And of course, in markets that are going higher in penetration where you're not there, then you're exactly right. You know, you have to build more boxes. I have a lot more questions. And this is the problem. It sounds crazy. We're going to talk about an idea for an hour, but, you know, especially good ideas, you can really run up on the hour real quickly. But before I ask any more questions, realizing we're coming up on an hour, you know, I think you lay out such a great bull case. People go read his pitch. It's going to be including the show notes. you lay out such a great bull case. Is there anything I haven't mentioned so far on the bear side that kind of keeps you up at night here? Because I know you run a concentrated portfolio,

which means you really have to think through all the bold cases or all the bare cases to make sure one of them is not going to kill you. So is there anything on the bear case we haven't mentioned that we should be talking about or thinking about? Yeah. I mean, so I can tell you what I think about it. I can also tell you why it doesn't keep me up at night. But the longer term, you sort of alluded maybe that's sort of where you were going, because you made a comment that, you know, there are things you worry about longer term. But the thing that would worry me if I, you know, went into the future and saw a future state of the world is if somehow behavior, human behavior changes, right?

And, you know, that's happened in the past. If somebody invents a pill, I mean, just, you know, crazy examples, but maybe not so crazy at some point, somebody invents a fat pill where you don't, you know, you don't need to, you don't need to go to the gym. The reality is most people should go to the gym for health reasons, but most people do go to the gym for the pizza that my friend was getting every Tuesday. Well, that guy's doing not a lot for his health or his appearance. But yes.

So most people do go for the sake of vanity, right, or appearance. And so, yeah, if for whatever, if people are spending all their life in the Metaverse, you know with avatars that are skinny and they themselves are 250 pounds like that and it doesn't matter anymore right you know that it's like it sounds crazy but the world does change right so the pill is it is a far out there risk though it is not inconceivable you know you hear lots of people believe the average person today will live to you 150 200 it's not crazy to think we're going to have a pill that's going to give everybody the eight pack they've always dreamed of maybe a more feasible one in the next five to seven years.

You know, not Peloton. I don't think there can be some substitution for the Peloton All Access Pass versus this. But I think the more pressing one would be something like Oculus, right? You buy an Oculus, you put on the headset, you get the Oculus boxing. I've heard lots of people who love that. And if you imagine AR, you run it forward five years and you think how much better games and stuff are today than they were five years ago, you could imagine a fully metaverse world where kind of like Ready Player One style, you're running on a treadmill. while you're dodging bullets and stuff.

And that's going to be a lot more entertaining than going to the gym, a lot more fun and probably cheaper because you can do it all of software in the, you know, in your own home. Yeah, I didn't look like if you told me that, you know, you went to the future, you saw it and nobody goes to the gym, I would say not a whole lot of sense in owning physical gyms. I personally, you know, people have a workout at home option now. Basic fit is obviously now developing products that targeted. I think they're the best positioned, actually, to increase penetration into that. If we're talking about actual equipment, right, they're not going to do anything on the Oculus,

they're not needed. But, you know, to the extent that people use strength, to the extent that people, you know, want cardio that's not just running outside, then you do need physical gyms. And, again, I would be a lot more worried about the sort of a lot more worried about the middle tier. of gyms that are not that are higher priced. They're not giving you any better of a product. But yeah, if you told me that human behavior changes in a meaningful way for whatever reason, whatever the driver ends up being, fat pill, nobody cares, et cetera, then I would

say, yeah, then this is not good. But, you know, I think that the runway, people have been talking about driverless cars, and that's been the bare thesis on Copart and AutoZone and, you know, that's, you probably, but at some point, you know, one of those will, will hit. And I just don't take a five-year risk. I think it's whatever. If it's 20 years, you'll make all the money back in cash and then so. I hear you, though. I do think like the metaverse work out in your home is, it's probably closer than driverless cars taking over the world. But I completely agree with everything you said. Let me ask you different. Yeah, sorry, just to add one little bit. On the home stuff, I mean, you can

pull up a YouTube that you can work out at home. You don't even need. like arguably the maybe maybe the Oculus makes it more fun I did it I played ping pong I played all sorts of things gives me a headache at some point that'll get better I don't think that's like a real sort of you know that's a real reason not to go to the gym I think also a lot of people want to be at a gym because it's a social place yep one reason I go I mean I can do you know stuff outside you too but I like being among other people and that's a big driver and look I love my Peloton, I love it all, but there is something that you said yourself, it makes more sense to rent a gym than own a gym, right? So for some people buying the Peloton bike, like I love it,

Peloton's a completely different thing, though. But if you want to get every different workout type you can, it makes more sense to pay $20 to be fit than to build a squat rack, get a treadmill, all that type of stuff. One other risk I wanted to ask, right now the store base is really new, but this has come up both in some expert interviews and in the Twitter thread, I said, you know, I worry about the maintenance capax that they allow. I think they sit in their most, recent presentation, $55,000 a year to start, and it goes up to $70,000 per year, which there's expert interviews that say, you know, I think Pure Gym is 100 to $120,000 per club. I don't know how Pure Gym's Cubs compared to basic fit. There was an expert interview that said even 75K, they

thought it was going to be too low. And I just, I said again, I used to cover gyms for private equity. And you don't really notice it until, you know, go to a store, go to a gym that's seven years old and then go to a gym across the street that's newer. And even if the gym's been relatively up kept. Like, it's just crazy how much better a newer gym is. So I worry, right now these gyms seem great. And maintenance cap X, it's an issue that sneaks up on you. And then all of a sudden, boom, it's there. And your gyms are really tired and really old. So do you worry at all about, like, kind of the maintenance cap X or what these gyms look like five years from now? Yeah. So I, so specifically specifically for that reason in my math,

I don't, I build it up literally with a full cap X schedule. for gym by age. And then, you know, the average that you see that spit out in the model is the sum of all of those. So I'm not using a 55,000, you know, euro number because they've said so. So that number is artificially lower today because so much of the estate is newer. But in my math, I literally say, okay, year six, we have to replace the cardio. Year nine, we have to replace all the weights.

year 12, we have a whole overhaul of the thing. And by the way, one thing that people maybe don't really appreciate, a big chunk of that one point two is like structural reinforcement of the building that you don't need to do at all. Again, right? It can last for decades. And so, but yeah, specifically to avoid that, I know that TIGA's transcript. And, you know, directionally, of course, it's true that $55,000 is not the ultimate number.

it does tend to go to 70, 80. And by the way, that's what the company said in their capital markets day. They said that over time it goes, I forget the number, but it was like 70 or 75. In my math, which I actually have, you know, sort of very aggressive and, you know, sort of for conservative the way you would think about them, I assume that they will have to spend a lot of capital, you know, at year 12 to refresh the whole thing, et cetera. And by the way, people maybe don't know that there is a CAPEX component that is, expense every year for things like showers, et cetera, it shows up in the other bucket of cost.

It's really capital, but because it happens all the time, they expense it. And so, you know, in my math, to get to my answer, I literally do, you know, at year six for this gym, you know, we have to overhaul all the equipment. So I build that in, ground up to specifically kind of create visibility on that issue. Cool. We're over an hour. The one thing we haven't talked about so far, the one thing we've alluded to but we haven't talked about is the full-time employees and how they can use kind of capital to bring that down over time, which I think creates a huge moat. If you've got time, I'd love to talk about it, but if you've got something else, we can hop and

save that for another day. No, no, we can talk about it. Great. I think it's something. Go ahead, yeah. Yeah, it's something that they have been working out. So, you know, it's not the only line item, obviously. They work on basically everything.

They are meticulous about, you know, the software. for example, they used to plan all the store openings to manage that process. Maybe you saw the Investor Day, at least the slides from the Investor Day. But, you know, they keep in mind, you know, not that long ago, they were opening 100 gyms. You could do that more manually. But now when you're doing 250, 300, you know, creating one and a half gym groups every single year, like we probably don't think about that as investors. But operationally, it's actually very complex.

It's happening all over Europe. And, you know, I can see it being a pain. How many times have you seen a retailer go from 100 to 200 to 300 stores? And then after they get 300, they say, uh-oh, our supply chain is completely insane. We need to stop just so we can catch up. Yeah. So, you know, what I say is that to me, Renee, the CEO, he's like the anti-Rohn Johnson. So Ron Johnson had an amazing idea.

And he said, let's blow up JC Penny because let's try this idea. And so, you know, basic fit is the exact opposite of that. They are very, very thoughtful long term in their planning of this business because they think, by the way, that even the 3,000, 3,500, which is a 10-year target, they think that's still very low. And, you know, they have a lot of reasons for why ultimately the number should be much higher than that. But, you know, they are thoughtful about, okay, well, how do we go from 100 to 150 to 200 to 300 and then, you know, how do we scale this business so that we can build. a lot more than that per year. It's just an example of how measured and thoughtful, pretty scientific, they are about that. And, you know, along the same lines, they work in every part of the operations. And, you know, I was in their security control center and you need like, you know,

three eye scans, a urine sample, and a proctologist in order to get in. It's like trying to get into the NSA. And so, you know, they have, you know, a room in a building that is actually separate that is looking at every one of the thousand clubs they have with sound meters, with motion detectors to see if somebody is not moving or not breathing or screaming or whatever or trying to break in. Literally somebody tried to break in while I was there at like some Belgian club, you know, they call security, et cetera.

But all of those things are. allow them to centralize more of the costs instead of just having, you know, whatever the, the independent average, I think is about six FTEs, by the way. There's six people in an average mom and pop, which should come down because people have to try to stay competitive, but just to give you a sense of sort of where beef it is and where they're ultimately going, which I think, you know, they've already run tests with one FTE, and they'll run tests that are below that. But the goal is, and their approach is, complete obsession with cost. And so, go ahead.

Oh, and I just hit hammer at home for listeners. You go from six full-time employees to one full-time employee. That's a lot of OPEC that's coming out the business. Now, some of it is going to the centralized cost, but your hope is that scales way more. And all in, including the centralized cost, you know, maybe you're running two or two and a half full-time employees versus the mom and pop at six. And guess what? the mom and pop at six, they can't get down to your one or two or two and a half because they

can't afford that centralized overhead. So that's just like, that would be the ultimate scale benefit on cost is what I would say. Yeah. So I just keep it simple for people in terms of just numbers, right? If an average, if an average store, just to make it really easy, $420,000 of cost, $420,000 of margin, right? 50% margin. One Ft, you're going to pay somebody with benefits, you know, $40,000, $50,000, right? So, you know, that's a meaningful, meaningful reduction. You're not talking about a box that does, you know, five million of four wall margin and you're reducing a person.

So, you know, you're adding a couple percent to the bottom line. This is like a major structural change in the cost structure of the business by adding one person because each individual box doesn't have that many, you know, dollars, euros running through it. So these things really matter. And they really matter because, A, first of all, you have two options if you do that. One, you can pass that savings down as price, make it even harder to compete or expand the market further, right? Or you can, you know, retain that margin if you are the only guy with that advantage for, you know, there's going to be some window of opportunity, right? And so it does help you either improve your economics because your costs are lower or improve your economics because you have.

have more members with a lower price but still maintain margin. So it's very important. And that is something that, you know, they've been working on where they already have a big advantage over the mom and pop, but getting it down from, you know, two and a half to one adds quite a bit to margin. Perfect. Well, hey, anything else you want to talk about before we wrap this up? I'm good. Perfect. Well, hey, look, again, this is, I read this thesis. I've seen it before and every time I see it, I'm like, wow, this is interesting. But your write up, which again, including the show links, everybody should go check it out, was incredible. Everybody should go follow you on Twitter because you are now Finchowitz's greatest slam poet.

I've loved the recent poems. They're just unbelievable. But, Bedeem, thank you so much for coming on and looking forward to having you on in the future. Thanks. I appreciate it.