Yet Another Value Podcast - Working out Basic Fit's Value with Buckley Capital's Zack Buckley $BFIT

Episode Date: October 13, 2025

In this episode of Yet Another Value Podcast, host Andrew Walker welcomes back Zack Buckley of Buckley Capital Partners to discuss Basic-Fit, Europe’s largest gym chain. Zack shares why the market has been overly pessimistic on the name, despite long-term growth potential. They break down what went wrong post-2020, unit economics, and whether Basic-Fit can finally deliver on expectations. Zack also outlines the opportunity in France’s 24/7 gym shift, the underappreciated moat in Basic-Fit's cluster strategy, and why he sees the stock potentially tripling. It's a conversation packed with deep due diligence, strategic insights, and a firm outlook on value creation.______________________________________________________________________[00:00:00] Podcast and guest introduction[00:02:41] Basic Fit’s business overview[00:03:15] Why market misjudges Basic Fit[00:04:40] COVID’s impact on gym cohorts[00:07:48] Zack’s in-person gym visits[00:10:12] Unit economics explained[00:14:00] Capex and depreciation debate[00:15:36] Member per store growth importance[00:16:32] 24/7 France investment case[00:18:38] Staffless gym impact analysis[00:20:22] Basic Fit’s sustainable moat[00:22:43] Differences with Dental Corp[00:24:38] Low-cost model’s retail parallel[00:28:13] Franchising potential is minimal[00:31:50] Marketing spend not a concern[00:34:38] Path to $90 price target[00:36:51] Why past forecasts failed[00:38:26] Thoughts on management team[00:43:39] Valuing via replacement cost[00:46:47] Risk of future underperformance[00:48:48] European gym vs. U.S. context[00:50:25] Demand across European markets[00:53:50] Competitor threats and strategy[00:56:43] Cautious growth after 2021 boomLinks:Yet Another Value Blog - https://www.yetanothervalueblog.com See our legal disclaimer here: https://www.yetanothervalueblog.com/p/legal-and-disclaimer

You're about to listen to the yet another value podcast. Today I have on Zach Buckley from the at-we-name Buckley Capital Partners. Zach is coming on to talk about Basic Fit. This trades over in Europe. Obviously, see the disclaimer at the end of the podcast. Lots of risks for Europe trade in stocks. But look, it's a, A, Zach's a super sharp investor. So I always consider myself lucky whenever I can have them on the podcast. But B, I consider myself especially lucky here because basic fit is a name that I have followed for years. I did a podcast back in 2021. when I was a young whippersnapper and hopefully I've improved as an interviewer, investor and everything since then.

But I've been fascinated by the name ever since. And I kind of wanted to talk to him about, you'll hear it in the podcast. I was bullish back then. This stock has gone nowhere to down since then. And I don't understand why it hasn't worked. And I wanted to plug into why it hasn't worked. I wanted to dig into why now is an interesting opportunity. And Zach's got great answers to all those questions.

So hopefully you listen, really enjoy it. I think you will. We're going to get there in one second. But first, a word from our sponsors. Today's podcast is sponsored by try trotta.com. Look, I've talked about Trada before on multiple podcasts. You've definitely heard me talk about them if you've been listening. It's a fantastic product.

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How fantastic? If there's a stock on there that I'm going to do a podcast on, the number one way I'm prepping for it these days. I'm going and I'm reading it and seeing what people who really know the stock are talking about, what upsides they're talking about, what risks they're worried about, and all that sort of stuff. You're about to listen to a basic bit podcast. I was disappointed that I couldn't kind of crib off the research

and see a basic bit interview because there's not a basic interview on Trada yet. But hopefully I'll get one on there. But look, they've got a deep, deep library covering hundreds of stocks. I think it's a fantastic product. If you haven't checked it out, go to try trotta.com. That's try, T-R-A-T-A-T-T-A-T-T-T-T-O-T-T-O-com. And I think you're really going to enjoy it. All right, hello, and welcome to yet another value podcast.

I'm your host, Andrew Walker, with me, J-M-J-M-Haddy-M-O-N. I think, Zach, it might be the fourth time. I'm missing it, but one of a popular repeat gets, Zach Buckley from Buckley Capital. Zach, how's it going? Good. Thanks for having me on. I'm really excited to talk about the stock we're going to talk about today. Before we get there, quick disclaimer, remind everyone, nothing on this podcast,

investing advice, always true. We're talking in international stock today. people should remember my domestic listeners, maybe a little bit of extra concerns, risk, whatever it is there. But, Jack, the company where we talk about is basic fit. And I'll just stop right there and ask you, what is basic fit and why are they so interesting? Yeah, so basic fit is the largest European gym chain. So it's, I think of like planet fitness, but across Europe.

And so they have been absolutely dominant in that field. They've been around for a long time now. They've grown their gyms at a very high rate with very strong economics over time. I think there's a number of reasons why it's, exciting today and kind of why it's misunderstood, which I'm obviously happy to get into. Great. Let's start. Yeah, let's start high level. First question I always like to ask, you know, market's competitive place, why is basic fit right now in Alpha Opportunity? I think there's been so much negativity around the name the last four years that most,

almost everyone has thrown in the towel. And the remaining people that are still around are so pessimistic. and downtrodden on the name, but they just agree that it's so cheap that they can't not be invested. But I don't think there's anyone who's actually optimistic about the fact that they could really beat numbers by a significant amount

and the business could actually improve dramatically relative to investor expectations. And I think that's what I'm excited about because it's hard for me to get to a place where consensus estimates are correct for 2026. And if that's true, you know, you'll get a multiple re-rating on top of quite a bit higher numbers.

And so I'm quite excited. about it. I'm laughing because you hit the nail on the head. My first question I really want to ask is I followed Basic for four years. Vadim Perlman came on and pitched it four years ago. I really liked the story then, to be honest with you, I still really like the story. But as I've told Bulls, or I think I mentioned this on the Jim Group podcast, I look at the stock chart, which is flat over the past four years. And I just say, I was bullish then. I don't know what I missed or why this, I kind of don't know why this hasn't worked. So I just ask, you know, people are going to pull up the stock chart, C-flat, numbers probably below what people were hoping for four years ago.

Like, why, why hasn't this just, why hasn't this already worked, I guess would be my question. Yeah, I think the short answer is they've missed numbers for a long time now. So they had an investor day in 2021. I mean, they missed those numbers terribly. They had an investor day, believe in 2023. They've missed those numbers as well. So they just haven't hit numbers in a long time. They were always too optimistic. Essentially, what happened was, is the gyms from 2016 to 2019 had certain unit economics and payback periods, and they assumed those unit economics would continue, but the 2020 to 2022 cohort did not continue because it was COVID period.

So they opened up a lot of gyms during COVID, and those gyms did poorly. So first of all, they opened up the gyms too quickly, and so arguably they didn't have the right people in place to be running those gyms, so sometimes they weren't making the right decisions. And secondly, they were doing it during COVID, which is just a very hard time to be opening up a lot of gyms. And so there was a really bad member and user experience because there was a, you know, they would start. They might be open for six weeks and then they'd have to shut down and then they would open again. They weren't able to get to the same member numbers per gym because oftentimes you needed like a vaccine card to basically to enter

the gym. There's some nationalities or some religions that weren't getting the vaccines in those geographies. And so those automatically weren't coming. And so it just was a bad time to be running gyms, and they opened up a lot of gyms during that period. Now, that bled through results, really, from 2021, I would say to 2024. The cohorts started to get the same. So 23, 24, and 25 are performing the same way that 2016 to 2019 are performing. So there's a reason to believe why things are going back to normal have already gone back to normal.

And those gyms from 20 to 22 have seasoned and are almost getting. to a mature level, but are still not quite there. So part of the issue is that the member experience oftentimes wasn't as strong. And so that led to bad Google reviews as an example. So like if you look at the Google reviews in Spain, like in Barcelona, versus in Paris in France, there's a big delta between the two. So average in Paris is probably, and I'm guessing just based off of me looking at it and kind of eyeballing it is probably maybe 3.3 to 3.5 for a Google review.

average in Paris. Barcelona is probably a four-two. So there's almost a point of difference in Google review between where they are in Barcelona and where they are in Paris. And ultimately, that does drive customer decision-making. Like, they are very focused on driving up their Google reviews over time. And they can't fix all of this. It is, you know, they are working to grow and improve the Google reviews every single day. So each shift manager is supposed to get about two Google reviews. So that's about two shift managers per day. So you're looking at that four Google reviews per day.

But if something has three or four reviews, you know, getting four reviews per day is going to take a long time to shift that higher. That's just really interesting. I've never thought about gym managers getting rewarded on Google reviews. And I guess they're, are they just telling people on their way out like, hey, don't forget to drop us a Google review? I don't know. That's just really interesting.

I haven't even thought about that as kind of shifting everything. Yeah. So just as part of my due diligence, I went over this summer in August, and I visited gyms in Luxembourg, and then I visited gyms in Barcelona. What a rough trip. People like these value investor managers, they don't understand the hardships. Did you say Paris, Barcelona? Man, I can't.

Just really. Luxembourg. And so it was interesting in Spain. The new person who is co-heading IR, her name is Heather, came out to meet me. and then the Spanish country manager and the regional country manager for Barcelona. So it was the four of us. And I learned a lot of understanding the gym

on like an economic, unit economic basis from that trip. It was really interesting touring the gyms, especially the Spanish country manager, was just extremely well-versed. He had worked for McFit, which was one of their competitors for a long time. He had come over in the Spanish acquisition, right? Because Basic Fit acquired the Spanish gyms of McFit,

and so they got him in that acquisition. And he was just very knowledgeable, very interesting to talk to. And so that was one of the things I learned from him was just, you can fix this, right? And it is fixable, but it really takes time. And it's not something that's going to happen overnight. And so those gyms that opened with issues, you know, again, it could be like the air conditioning might have broken down. And so if the air conditioning is not working in your gym in August and Spain, you know, that's obviously a problem. Or say, southern France, because Spain never had these same issues.

And so there were just a lot of things to fix that probably occurred because of rapid growth that are now being fixed. and like the benefits of those being fixed are starting to flow through the financials, which is why I'm excited today. Let's talk about the unit economics real quick. So, you know, one of the things I always loved about basic fit is they argued, hey, we do this portressing method, right? Which I believe you've said, everyone said,

it's reminiscent domino's pizza, right? You put five units in a city instead of one, and then it's stuff for your competitors come in. You get economies of scale on the local marketing. Maybe for a gym, you know, somebody has one by both their home and their office, so they join it because instead of having to join two gyms, they can just get one overall membership. But let's talk. I've always been attracted to that story, but I think

bears would say, hey, they're opening low-cost gems. This is about as commodity of a product as you can get, and it's going to get competed down to cost of capital. So let's just quickly talk about what does the unit economics of a new box look like here? Yeah, so their goal is to get a 30% retirement invested capital for all gyms. And their average buildout ends up being about 1.3 million per gym. It depends a little bit because of whether obviously square footage can be different. It can be different like city versus countryside because they are expanding in like the countryside, smaller towns in France.

But in general, let's say on average you're looking at about 1.3 million in buildout cost and getting to say that scale roughly plus or minus 450,000, you know, per box, you know, say 400 to 450,000 free cash flow per per year. unit. So those end up being kind of the unit economics. Now, obviously, the ramp, you know, generally speaking is quite quick. But those, again, that 2020 to 22 cohort is still sort of nearing maturity. And so that will be a big boost for them over the next few years as that helps them. So I hate to drove out into like an accounting concept. But I think the other thing I've heard from Bayers or I've thought about is you just laid out the math to 30% returns. Let's just make

it the numbers very easy and say, 1.3 million investors. and you get $400,000 of, I think it's kind of box level EBIT. Is that okay to use? I know you said $450,000, but if you're okay with $400,000 to make it easy, let's do that. All that math is fine. So I think one of the things I would hear bears say is, hey, these guys are pitching this as the maintenance cap X on these units is like $50,000 per year, which would be, you know, on a $1.3 million investment, it would imply like 25 years of depreciation-ish to,

replace it. I think bears say, hey, that is way too low for a gym, right? Like, you probably need to be replacing these things more frequently than once every 10 years. So like the actual maintenance costs here is more like 130 to 150,000. So if you take 400,000 minus 50,000, the bullcase maintenance cap X number, that's 350,000 of unlovered cash flow per box before, before corporate overhead and everything. That's a great return. If you kind of bump it up to 150 or 200, thousand, the numbers start getting really skinny. So what, do you, A, do you understand what I'm saying about, I'm sure you do, but about the maintenance capax and be like, where do you, where would you shake out on that there? Yeah, I think a lot of the buildout is not just the machines, right?

So, so certainly I would agree that machines need to be replaced, you know, faster than every 25 years. Planet Fitness franchisees would agree with you too there. Yeah, but we've talked to a ton of people in the space in terms of equipment suppliers. We've talked to Planet Fitness franchisees. I've talked to a variety of people in like the gym ecosystem. And I haven't seen anyone disagree with the KAPX numbers in terms of like operators in the space. So I think we triangulated and reverse engineered it through just speaking to a bunch of

different industry practitioners. And we haven't seen anyone that largely disagrees with it. So I think people that are making that contention might be doing the math, just thinking about the equipment, but there are so many other parts to a gym building. about outside of equipment and a lot of those other assets are longer lived than the equipment is. So I think some of the assets you would point to is probably like a gym needs showers, right? And you've got to build out probably a lot of piping for the showers, the toilet trees, all that sort of stuff, which is not really expensive. Like, but have a long, you know,

obviously a longer life. But like how long would that longer life be? Because if I'm just thinking about like, of the 1.3 million, I can't remember the exact twist, but I think everyone agrees. the equipment needs to be replaced, and if you think that doesn't need to get replaced pretty frequently, go to a gym that's four years old and hasn't replaced the equipment, and you'll notice it real fast. But you would have to replace the piping at some point, right? If it's 20 years, now maybe the maintenance, maybe they're properly depreciation, but like how do you think about that end of the depreciation, I guess? Yeah, look, I think it's like flooring walls, obviously, these ceilings, like all of that build-out bathrooms.

You know, that's a big component of it. And I think those are longer-lived. I mean, you have a wall. Obviously, you might need a new coat of paint on it, but you don't need much beyond that. So, again, I think of it more in aggregate when we've, again, we've spoken to a bunch of different people in the industry. And in aggregate, I think the Kappax numbers are very reasonable.

Okay. And I visited a bunch of the different gyms. And, like, I visited old gyms. I visited new gyms. And they all look, I mean, of course, like a brand-new gym looks better. But they all look pretty, so like, I never walked in a gym where I was like, this gym looks terrible or like I'm not happy in this gym. They all looked very nice and all the gyms I went to were packed.

So in terms of, I know it's a small sample size, but I've been to gyms in Amsterdam, Luxembourg, Paris, Barcelona, you know, across the system, they all look pretty similar and they're all, you know, nicely laid out and they all were quite packed. Cool. Okay, that's perfect. Let's turn just high level. What are we playing for here, right? If this works, and if this works in three years from now, they're growing, before we get there, growing members.

I think when I've talked to some bulls and prep for this podcast, the one thing, as you said, a lot of bulls are, have either thrown in the towel or they're quite frustrated. And what they've said is, hey, when is this thing finally going to grow members? And they don't mean overall members because they are going members. They mean members per store, because if you grow members per store, you finally start getting the real operating leverage to think everyone's talking about. So when does this start growing members for sure, I think, is where I want to start. I think now is the short answer. I mean, by way of background, I've been following it since 2021. We've mostly stayed out of it, I would say, until 2024.

We were involved to some degree. But ultimately, like, we've been profitable in the name of my average cost is in, like, the low 20s, even though I started following it when it was in the 40s. And the way we're able to do that is using alternative data. So we've been tracking it with all data. the last like three or four years we saw the weakness and we stayed away when the you know when the business is really weak and you know the alt data more recently has gotten much stronger and so i think the business and the stock would have probably taken off in 2025 had they not done the

24-7 investment so they did a 35 million dollar investment for the rollout of 24-7 shims in france but i think it was the right decision you know ultimately i think they'll get a very good return on that so it's just kind of you want to describe what that investment was because i was going to ask about that at some point. Yeah, sure. So when they did their March earnings call this year, they announced, I think, a surprise investment, again, because they have started to have strong member trends really in the past six to 12 months. But they threw investors off because they made a 35 million euro investment in basically keeping about 330 of their gyms in France open 24-7. I was definitely frustrated when I initially saw it. And I was skeptical of whether that was a good

idea or not at the time, but I totally buy into it now. I definitely believe it was the right decision. Essentially what the math is, is they think there's a very high chance that they're going to get that investment back. So they are lobbying the French government, working with the French regulators to allow these gyms to go staffless. And to the extent that they are able to get them staffless, they will get back almost the entirety of that investment. So let's say they put in $35 million, they probably get back $30 million of those costs. Because right now they have to have a person in each one of those 330 gyms all night. I went to one of them. I went to a gym in Paris at 1130 at night. I worked out from like 10, 1030 till midnight. And it was packed. I mean,

there's a lot of people in there. I was definitely, I know. I was surprised. There was a lot of people in there. It was pretty cool. I had to go like out of the suburbs. But it was, it was definitely it was a cool experience and definitely validated the thought process. The other thing that validated it was that the Spanish country manager when I met with them said the gyms that they're turning 24-7 in Barcelona or in Spain are getting about 30% more members per gym, which is a crazy high number and much higher than what Basic Fit is guided. And who knows, maybe that's anecdotal or a small sample size. But I think the point is, is people just want to have that flexibility of going 24-7. And so what Basic Fit has guided is they'll get back that $35 million investment by 2026.

So they're making this investment. And the way they get it back is first, member growth, right? If you get 30% more members, that's probably covering or more than covering the investment day. And then your second hope is France changes the laws. And as you said, of the 35 million, 30 if it goes away because you no longer need these things full-time staffed. Exactly. So you'll end up, say, a net positive 30 to 40 million in EBITDA because instead of having 35 million in costs and that just being offset by the incremental members, you'll have 5 million in cost and you'll have probably 35 or 40 million of incremental EBITA from the new members that are coming because of the 24-7 policy.

So this is an interesting one, and I thought a lot about, for the right analogy, and I think I said on one. Like, are you familiar with Blue Laws in the United States? I'm not. I don't know. So Blue laws in the United States, they're largely legacy, but they are still in places. They forbid sales of alcohol on certain days, largely on Sundays, right? And they used to be pretty popular, and they got overturned.

New York, I think they largely overturned them in 2006. You couldn't sell alcohol anywhere, and they largely overturned them in 2006. It could be miscarrying. But when a blue law gets overturned, like, if you're an NFL team, that's a bonanza for you, right? If you couldn't sell alcohol on Sunday and now you can sell alcohol at the stadium on Sunday, absolutely bananas, huge profits. If you're a liquor store, it's good for you, right? Now you can operate on Sunday, you can sell, but it kind of creates a one-time temporary windfall,

but eventually more liquor stores get built out, right? So that is a commodity business. I think you get a one-time windfall as all the current liquor. micros get a boost, but then it gets competed away. I guess where I'm driving out is this. If in France, if they overturn the staffing laws, like, I think basic fit will definitely in the short term, because they're already set up for it, and the short term get a big boost from that. But is that sustainable? Like, wouldn't a lot of other gyms switch to 24-7? Or if that really increases the membership amount, aren't you going to see more gyms built out? I think it just broadly goes to like how competitive

is this model on how big of a month do they have. And I would make the argument that they have a significant moat. The best unit economics, I think, across the basic fit system are in Amsterdam. Amsterdam is a lot of their oldest markets. And there is extremely high revenue per gym and EBITDA per gym. I think their EBITDA margins in Amsterdam are like above 50%. So these gyms get better over time. They get, you know, more customers over time.

And they perform, you know, better over time in the sense that there's the clustering strategy just it doesn't really make sense to build another gym, right? So it is to some degree a land grab where like once you have a gym in a geographic area, it's somewhat of a local monopoly. And so opening up a new low-cost gym right nearby is not going to be a great decision once that option already exists. So they're winning that land grab. And so I think overall, sure, there will always be more gyms opening up.

And it will always be competitive to some degree. But I think this is a huge benefit to them that will last for a long time because the other thing is, is not only will they have the 330 gyms that they're currently open, have the cost go away, but then they can potentially open up the other, you know, 500 gyms in France. And it won't be all the gyms. There's about 875 gyms in France today. Some of them will never operate 24-7. But let's say 6 to 800 of them can operate 24-7. That will be a big boost because you will also get the benefit of all of those. So I strongly believe that it will benefit them

and I don't think all the economics will be committed away. Okay. Let me, I want to turn to some base rates here. Actually, when we were private for this, I think the last time you came on the podcast was DentalCorp. We talked about DentalCorp, and I believe you had sent them a letter saying,

hey, it's time to sell. And the reason I mentioned this is because good for you, you know, less than a month ago, DenselCorp announced an acquisition at a pretty big premium. And I was kind of thinking about DentalCorp and basic bit. And they have a lot of rhymes, right? These are consumer-focused businesses. I think people had shareholders had gotten pretty frustrated with the stock price.

There had been some rumors around acquisition stuff. Like, I understand I'm drawing loose parallels. You know, it's Canada versus U.S. loose parallels. But do you think there's any, is there any rhymes to the two of them to you? I think the difference between Basic Fit and Dental Corp is Dental Corp had already run a strategic process. So they had shown a willingness to sell. I don't think basic fit has an interest in selling. And so I think the reason I wrote the letter at the time was really to show how

undervalued basic fit was relative to where it was trading. But I think we will get that value in the public markets. And I do think the public markets would value basic fit correctly. I think you just need a period of time where they're actually beating numbers, which is why I'm very excited. I'm excited for Basic Fit to stay public at this point. I would not want them to go private because I think the opportunity that they have in the next 18 months is huge.

huge relative to where consensus estimates are. And so I think they'll be able to significantly beat expectations over the next 12, 18 months. And I think the stock will rewrite as they do that. Actually, what you said in the public markets brings me nicely to my next question. Because when I was just trying to like kind of base rate this, you know, you and I have talked separately and I've done several podcasts on exponential fitness. I was just trying to frame this like, can I think of a single example of a fitness concept in the public markets that has done that has worked out well for shareholders? And there is one, Planet Fitness has worked out extremely well for shareholders. I think Lifetime Fitness has been hit or miss. It went private,

but I think it probably worked out well for shareholders. But other than those two, I can't think of any, you know, Jim, and this is across multiple geographies, you know, Jim Group out in the UK has been a 10-year pretty negative, basic fix flat for a long time, plenty of others. But why do you think this has been such a tough sector? Obviously, I guess is the market just saying, hey, aside from one or two gems, maybe basic it is, this is just such a commodity business, you can't make money in these things, or is there something else I'm missing? I would make the argument that basic fit has done well, but I think certainly could have done

better and so I guess using basic fit as its own example you know I think basic fit in the public markets once it gets to fair value I think will be a reasonable return right like I think say over a 10 year period I think fair value today is probably around 60 euro and so that would be like you know it IPOed somewhere in the 12 to 15 range I believe so you're talking about you know three 400 percent upside in 10 years it's not like an unbelievable outcome but I think that's pretty acceptable I would say um I think plan and fitness is a great outcome but I think you've had a lot of subpar, like smaller gym businesses is probably part of the issue. And then I think a lot of them just haven't been the right concepts.

Like I think I think basic fit and plan and fitness are the right concepts, right? You have low cost, which I think is really important across really all of consumer, right? I think that's part of what attracts so many people to basic fit is whether it's Costco or Amazon or Walmart. There's so many different, or Ross or T.J. Max, there's so many different winners across consumer. in the low-cost vertical. And to be fair, there's a ton of losers across consumer, you know, like in retail specifically, I mean, there's tons of retailers that fail over time. And the best-performing retail stocks in the last 30 years have really all been low-cost.

And so I think that's what attracts people to low-cost gyms as well because it rhymes and kind of feels the same as the retailers. I think the other benefit is, like I said, there's that local monopoly. I think of it kind of like cable or like you mentioned dominoes, like once it's built, it's the economics are much harder for any gym in that area. And so you really do that cluster strategy really does create like a local monopoly. Yeah. Look, I love the cluster share.

Again, if you do the cluster strategy and you're building them so that there's kind of no room for anyone else. And, you know, if there was only one gym in New York City, it'd be very clear that there's room for more gyms in New York City. But if you build, you know, properly like one gym every five blocks, I don't know what the number is. There's no room for anyone. You've got all the economies of scale from the advertising. you've got the economies of skill. If someone works in FIDI and they live up east side, they sign up for one global membership and they go to both of them.

You could see how it can be a really attractive model where I'm not saying you're going to earn, you know, Nvidia like returns, but why you would earn an above average cost of capital on a business that is pretty, you know, once you start going to the gym, when are you going to cancel your membership, right? Like it's going to be one of the last things you're going to cancel,

even in a recession or something. So I'm rambling a little bit. I think that's what's so attractive about it. Yeah, I'm very convinced, like, this model has worked for a long period of time, and there's no reason that it won't get stronger over time. Like, it is working very well. It has worked very well for a long time, and I think it continues to get stronger. I mean, again, the reason I think now is kind of the time is, like,

the alt data is very strong now. So it is showing that, you know, members are doing very well. And the company also confirmed that. So they spoke at a ING conference in September where they basically said things are going very well so far on Q3. So I think, again, expectations are very low. I think they're finally going to get

into this beat and raise cadence where people are not expecting things to be that great. And I think Q3, you know, Q4 and 2026, that, you know, they will be very strong. There's a number of things that set them up, both on the member side, but also on like the cost opportunity side to be very strong.

they four years ago if I remember correctly they were pretty they said no franchising right we're we're going to buy these boxes ourselves so the returns on invested capital are pretty good I think they've started some nascent franchising efforts and I'd love to just dive into and tell me if I'm wrong I'd love to just dive into kind of the change of strategy there and if you think that presents further upside how you think about the franchising strategy I mean I think the franchising will be a blip on the total, like, it won't matter. It will be relatively inconsequential compared to the overall performance of the business. I think at most franchising could end up being maybe 10% of the value if it's successful three to five years from now. So like, let's say I think

it'll be a $90 stock five years from now, roughly. Maybe it could be a $100 stock if franchising is successful. It matters some, but it's not changing the fact that my five-year price target is roughly 90 you know so you don't you don't see them leaning like full out because it's not lost to me planet fitness hugely successful uh franchising model domino's pizza who they're copying the who kind of comes up with the fortressy model franchising model like it does seem to me there would be some benefits to really leaning into this with a franchising and i hear you it's really hard if you've got a thousand franchise stores and a thousand corporate stores all that matters for the corporates because the economics are so much higher but they could sell

all the corporate stores and turn themselves purely into our brand and franchisor, but you're just not seeing that. You think it's a cheer on top. They're not going to do that. So it's just, yeah, it's just practically speaking, they won't do that. So they're not planning on refranchising corporate. And so when you look at, you know, yeah, it just won't be material. Like I would, I would hope that they can build it to, again, 10% of the business would be optimistic. And honestly, I think 5% to 10% of the business is really the right number. So while I think it's the right strategy to pursue, just run the math, say they're opening up 100 corporate gyms and 200 franchise gyms per year, like run that math for the next five years. You know, you get to, let's say, a little over 2,000 corporate and right around 1,000 franchise.

It's nice, but it's not going to dramatically change the earnings. are the business at that moment. Now, maybe it does, if you look out 15 years, but again, I think most people are focused on like the next five to 10. So even there, I mean, if you really want the, as you said, it's a chair on top and it's nice, but if you really want franchising to move the needle, just because a franchise fee is 5% of revenues, right? And it is high margin, but it's kind of one, 10 franchise stores, the profits from them equal one, maybe 0.75 corporate store. So unless you sell it, sell it or go whole haul with franchising, it doesn't really change it like you're betting on corporate. On the H1 call, they mentioned that they're cutting their marketing

percentage, their marketing spend as a percentage of revenue. And I thought that was something really interesting because, you know, with the fortunacy model we've talked about, you really hope that the marketing spend, that's your customer acquisition. That's your customer re-acquisition cost, right? So you wonder, hey, if they're cutting this, is there an issue? On the other side, you're saying, hey, maybe they're cutting it because they see, hey, we're fully franchise, we're fully fortress. There's no, there's no more need for us to do this. The returns for other people aren't there.

I was just interesting that. Anytime somebody cuts marketing, I always wonder, are they taking short-term gain for long-term pain or if there's something else going on? Yeah, I didn't read much into it, to be perfectly honest. I don't see it as being a huge swing factor for them either way. I think, I think the big swing factor for them in the next six to nine months is really, are they able to get France staffless and how are they incremental members per gym?

So just to kind of lay out some of the math, you have, you know, cumulatively as much as like $65 to $70 million of EBITDA and really filled into four buckets. So going basically 24-7 and getting the benefit of those gyms is about $28 million of EBITA per our calculations. I'm pretty conservative. I think on a run rate basis, you have about another, say it's 7 million and 26 if they get half the year, but it's probably 14 million to get those

other France gyms. Then if you're insourcing the labor, meaning if they don't get the French legislation, that's about another 17 or 18 million to be able to cut. Because right now, what they have in that $35 million of cost is they have contractor employees because they want to be able to fire those people. It's hard to fire people in France. And so they have all those employees as contractors. And so they cost about twice as much. So if they decide, okay, we're not going to win this legislation. They'll end up insourcing those employees, and that'll cut the cost in half. So that's another 18 million of EBITDA. And then if they do win the staffless, let's say that's another 12 million. So there's those four buckets to me are really the four

most important drivers of what can create a beat relative to where investors' expectations are. Just to give you an idea, if you go back and look at where consensus was in late 2024, basically before they changed to this model, you know, 25 was at 385. 26 was somewhere around 450. So not that long ago, say 12 months ago, 450 was the baseline of Evita for 2026. And now you have all of these things

that theoretically should be additive, right? Like if you get France to go staffless and you get the benefit of having the higher members per gym, theoretically you could do better than 450. Now, I'm not saying they would. or at this point, I don't think they will because I think their numbers have come in a little bit. But I still think, you know, consensus is at $390 for 2026. I think $450 is doable. Now, I think a few things have to go right for them. But to me, those are the main drivers of really value

creation. I didn't say the next 12 to 24 months. The marketing budget being fiddled with or changed a little bit is not, I'm not too concerned about that. You know, they've been very consistent with marketing over time. So it makes a little sense. Just saw the change and thought it was record. You mentioned earlier that you said, hey, I think Basic Pit is a $90 stock in a couple years. Can you just walk me through the math that gets you to kind of, you know, the stock's 25 right now. $90 would be quite a good return. Could you just walk me through the math that kind of gets you there? Yeah. I mean, in short, I think they get to somewhere in the ballpark of, say, six euro share and free cash loan, it trades around 15 times. I think what year it gets there is up for

debate, but I think they do it. at the latest by 2030. And I certainly can see it happening, I think, maybe the most bullish, probably by 2028. So I think the range is probably somewhere between 2028 and 2030. To be fair, everyone is forecasted this business wrong. I forecasted this business wrong. So I think I'm being conservative enough in giving that range,

but it has been a tough one for people to forecast. And I think being conservative with thinking about the forecasting is smart, With that being said, I think people went overboard. I think consensus has gone too conservative for the first time in a long time. And so that's why I'm optimistic today because, again, we see the business inflecting in the all data. The management team is saying the business is doing well. And now you have consensus estimates that are $60 million lower than they were 12 months ago for 2026. And I don't think there's any rational reason for that.

Maybe they should be 10 million lower or something, but not 60. No, look, as you said, when you said we forecast wrong, again, if you had asked me in 2021, I was like, I would have said, this is a killer compound or growth stock. And as you said, most of the bulls are just so frustrated, so tired on this name. I think it's really interesting. But it's one of the things, oh, I've been wrong for three years running. Like, do I really want to, do I think I'm going to, did it work for them? No, but will it work for me now? Sure. I do think it's understandable why they missed and why everyone was wrong. It basically just comes down to COVID. So people model the 2020 through 2022 gym openings with the same unit economics that they modeled 2016 through 2019. And that was wrong. So there's a reason why everyone was wrong previously. And there's a reason why we should be able to forecast this more accuracy going forward, if that makes sense.

There was a one-time change in basically the unit economics of the gyms. and now that that's really fully worked through the system, it should be much more forecastable going forward. Capital allocation. They have a small share repurchase program, but I wouldn't say it's the type of thing that they're like really leaning into or that they're just like, you know, the compounder bros retiring 15% of the stock.

How do you think about capital allocation? Do you think they should be leaning into the share or repurchase program a little more heavily? It's not like they're crazy indebted or anything. Like how do you just think about the capital allocation here? Yeah. I think it's relatively close to answer the question. I think opening up gyms is a very good use of capital. I think buying back shares is a very good use of capital. I don't think they can make a huge mistake. I don't have a very strong opinion one way or the other. I think I'd probably like to see a balanced approach where they're opening up at least 100 gyms a year and then also using some of the excess free cash flow to buyback stock. I think that would be my preference. makes a little sense but they're creating a lot of value

with a gym opening so I don't feel really strongly one way or the other and I would rather them grow at a more measured pace because we saw what happened when they opened up too many gyms at once now maybe they can do that this time around

maybe that was more COVID but I would want them to be really careful to the extent they were thinking about re-accelerating gym openings because I think they can really open up 100 gyms a year and do that in a way that's very effective and where there's no holes in the system

because of growing too fast, I think clearly opening up 200 gyms put some stress on their system. So I would be a little nervous if they wanted to go back to that unless they had a really good reason or answer why they could do it and why the management team is ready. It's always a little awkward question, but you mentioned the management team there. I think when I said you were coming on for this, the question I got most frequently on the pushback was, hey, Renee, the CEO here has been way too positive for the people. past five years. He's permable. And we mentioned some clear missteps, growth too fast, overestimated the returns for 2022. Do you feel comfortable with the management team here?

And again, I know that's an awkward question to ask, but sometimes I have activism on the mind. And when somebody misses for four years under the row, the stock price is kind of flat. And we're sitting here saying, hey, I think this is a really attractive model. You do have to kind of. ask that question at least. I think that gym CEOs are specialists, and I think that Renee is a good gym CEO. I think that

gym CEOs are not a dime a dozen. There are not that many people that can run a big gym system well. And I think we saw that with exponential fitness, right? Everyone villainized Anthony Geisler, but

the numbers fell apart when Anthony left. And I mean, I'm not saying, you know, unit growth numbers. I'm saying like Stretch Lab AUVs, as an example, fell from 600,000 to 500,000 after Anthony and his team. It wasn't just Anthony. Yes. Anthony left and then all the people associated with Anthony left.

And exponential's business unfortunately kind of fell apart after that happened. The damage in my mind that the short seller did, he never proved really anything in the sense that the SEC said everything was fine, you know, California investigation, everything was fine. And there was nothing that exponential really ever showed that had been done wrong. None of the regulators had any issue with their business practices, but it created an upheaval at the board where all the people who knew how to run a gym business left, and they put in place people that had no experience running gyms. And unfortunately, the result was really bad.

It's, you know, the business has done significantly worse. And so, you know, my answer for basic fit is I would want the team that's there running it now. I would not want any change. And I think it would be a mistake to underestimate their expertise in running this business. That's a really solid answer, by the way. And exponential fitness, you know, and that's why I sold exponential, to be clear. Like, I lost money on exponential. It was a disappointing outcome for me.

But I don't think my research was wrong. I always believed that exponential had not done something wrong, and I was proven correct. but I ended up selling my shares because the new management team didn't know how to run the business. And so it was a really sad and disappointing outcome for me because I spent a lot of time in exponential. I get to know it extremely well. I knew the people involved well. And ultimately, I ended up being wrong because the wrong management team was put in place. And the board realized that, right?

They fired him a year after they put them in, but it was already too late. Do you think, so just zooming out from exponential basic fit, like you mentioned gym cos aren't a dime a dozen. Exponential was extremely highly franchised and basic pay is obviously you own the gyms. Like, I certainly hear you need a specials for both of them, but I would guess basic fits a little simpler because you own the gym versus an exponential where you need to, you know, also they had five brands. So you're managing five brands sense of franchisees and trying to process out like here. is basically it almost a little bit easier just because they own it. And yes, that's more capital intensive. But, you know, if you want to make a change to marketing, if you want to do promos,

like you can do it, you can respond because you control it versus exponential where you're dealing with a lot of personalities. And the person can always say, hey, I don't need to be a stretch lab. I'll go open. Andrew's super stretch down the street and stop paying you the 5% or 7% or whatever royalty rate. Yeah, I'm not sure. The details are so hard. hard for me to say. I would imagine that managing multiple different gym modalities is harder

than managing one gym modality. And I would think it's easier just to have one concept that works really well as opposed to trying to manage multiple. With that being said, exponential was primarily driven by Club Pilates. Club Pilates was always the vast majority value there. So in reality, exponential really is just Club Pilates in my mind. So you really just need to to focus on Club Pilates and luckily club Pilates just had massive tailwinds which was very beneficial to exponential. My hunch

is exponential is probably tougher to run but it's hard to say. The comparison I think is interesting but I'm honestly not sure. And I know both businesses really well. But it's hard for me to say with absolute certainty. Let me ask you another weird one. Net debt at BasicBit is about a billion and their

market cap is about 1.6 billion. So 2.6 billion EV and and correct me if I'm wrong or off on any of these numbers. It actually sounds, yeah, close to correct. A little bit over 1,600 clubs. And you and I walk through the map that it costs about $1.3 million to open a club. Now, obviously, some of these clubs are depreciated. There is real depreciation here.

But if I just did that math, I would say their club base of replacement cost is about $2.1 billion. So you're paying about $500 million over replacement costs for basic fit right now. Is anything in there I'm saying jumping out as crazy or anything to you? Sounds directionally correct. Yeah, I mean, there might be slight differences in the numbers, but yeah, I think you're in the right ballpark, yeah. Yeah, I just, I have no point I'm driving towards, but that does, like, when I lay out the numbers that way,

and when you were walking through the unit economics, I just thought about replace. Like, that does strike me as pretty cheap because you're getting the basic fit brand. You're getting more importantly that you're getting all the members in place, right? And when we said $1.3 million to build out a club, that ignores, there is real cost of going, marketing, grabbing all these members, getting the recurring fees already set up. Like, paying 500 million above replacement costs for that for, I can't read the tens of hundreds

of thousands of members, if I remember correctly, I don't have the membership number off top of my head. Just, when I lay like that, you're almost talking about like a below replacement level Ben Graham style investment. I don't know if I'm talking myself into it, but I just want to throw that math out there and see what you thought of it. Nothing about that strikes me as wrong. I just, I think about it differently in the sense that, like, I'm just very focused on

what is free cash flow going to be in a conservative scenario and what is that worth. I think conservatively, free cash flow will be 350 to 4 next year and 450 to 550, let's say 5 in 2027. And so this is trading at like five times 2027 free cash flow, roughly, maybe six. at most. And I think it should trade a 15. So, you know, and I get that from talking to a bunch of Planet Fitness franchisees, you know, they pay roughly nine or ten times EBITDA for these businesses. And if you kind of think about what nine or ten times EBTA is, it's about 15 times after tax-free cash flow. So I feel pretty good about this being worth 15 times. And, you know,

right now it's trading it something in the ballpark of five times 27, again, depending on what assumptions you want to make, certain people would probably be lower than that. But I think for, you know, at its most conservative and probably five or 550 at its most aggressive for 27 free cash flows, right? I just think that's really, really sure. You're basically at, let's say, five to six times 27 free cash flow. I think that's really, really cheap for this business. How do we lose money from here? And I ask this because if you had asked me four years ago, how this investment didn't work, I would have had some trouble coming up with it. And obviously, the investment has not worked that well.

Now, multiples come in. I think they've addressing issues. It's quite cheap, same alone. But if you and I were talking 2029, four years from now, and Basic Fit didn't work, what went wrong here? Yeah, I think Basic Fit reminds me of dental in the sense that, like, I always thought both of those were really, really hard to lose money in. They're really simple, consistent, steady businesses that are dominant in their fields. that are pretty easy to value and forecast over time

that have, like, very proven in economic over a long period of time. So I will say, as a starter, I think it's very tough. Just like I thought it was with Dental, I think it was very tough and basic fit. If there was something, I think it would have to be like a, I mean, certainly something like COVID again would make, you know, well, Jim's get shut down, four shutdown down by it.

That's a pretty good tail risk, right? It's easy to have some big issues there. you know, outside of that, I really do believe in what they're doing. I really believe that they have fixed things. I really do believe the right people are in place. So the way you lose is you have the wrong people in place. You grow too fast and you shut your gyms.

It's basically exactly what happened the last five years. They grew too fast when the gyms had to be shut down and they didn't have the right people running them. Now they have, I think, the right people running them. I think they're growing at a measured pace. And gyms are doing very well. it's a hard question to answer. I think the probability of losing money here is very low.

I don't think our multiples are aggressive. I don't think, I think you can use more conservative numbers than I've used and still get too upside from here. So I think it's tough. I'm domestic. You're domestic, though. You obviously hop through a lot of Europe visiting some of these gyms that I'm hoping doing other fun stuff as well.

Are there, I think domestic. listeners probably have a good sense for some of the unique things, Europe, to U.S. and all that. But is there anything in particular when the average U.S. listener is thinking about basic fit, anything in particular in the European gym sector that they should be thinking about or being aware it's a little bit different? I don't think so. I mean, they're very similar to going. If you go to a plan of fitness in the U.S. and a basic fit, I mean, there are similar concepts.

I've been to a bunch of plan of fitness. I've been to a bunch of basic fit. The Planet Fitness are a little bit bigger on average. You know, the gym layouts are a little bit different. I actually like the Basic Fit layouts better because Planet Fitness only has like Smith machines, which obviously Basic Fit has like regular flat bench. But outside of that, I mean, they're extremely similar models.

People talk about Europeans not wanting to go to the gym or not being as going to the gym as much. A lot of that is just access to gyms. As density of gyms gets larger, like Basic Fit increases the usage. of the fitness penetration in the countries of that nurse. Like France, fitness penetration has gone up as a result of basic fit. You know, Spain, Germany, et cetera.

Like, they will go up as a result of basic fit. So Europeans and Americans are quite similar as it relates to gym usage. And so the short answer is they're very comparable. No, look, I was A, fishing for something, but I was hoping you mentioned that. That's one other thing I like about basic fit where, you know, I could be a little sell on this, but gym membership in Europe is under-penetrated versus the U.S. And people are people, and they generally like to be fit. And I'd have to imagine when you get a good quality offering,

I'd have to imagine there's room for it to expand. So you've got like kind of, I don't know if that's fully growth tailwinds, but there is kind of room to run there is one thing I was definitely hoping you'd bring up. Or if you told me, hey, in Europe, there's hard researches. Nobody wants to go to the gym in these areas. Yeah, but that's kind of what I was hoping for. Yeah. It's interesting thinking through the differences actually throughout Europe. So one of the things that the Spanish country manager was pointing out to me is Spain is much more legs focus because people are wearing shorts in Spain much more because of the warmer weather.

And so they actually have a lot more leg machines in Spanish basic fit than they do in like an Amsterdam basic fit or a Netherlands basic fit because your legs really aren't being shown off, right? It's only warm in the Netherlands, two, three, four months of the year at most. And even in the warm months, it can often be still like jeans weather. So Spain has, like when a new gym is opening up, so fitness park is probably the biggest real competitor to basic fit. Another, just aside, Planet Fitness is not a real competitor to Basic Fit in Spain. So there was concerns about it when Planet Fitness initially announced they were entering Spain, basic goods stock dropped.

I talked to the Spanish country manager, like it's not a concern of theirs at all. Not that there aren't real competitors. They're real competitors in every geography. Fitness Park is a real competitor. And when a fitness park opens up relatively close to a basic fit, oftentimes what they'll do is they'll say they have like indoor cycling. They'll clear out the indoor cycling. They'll get rid of those and they'll put in just more leg machines

because that's how you really differentiate as you want, because both men and women are using them, there's competitiveness or people competing for these leg machines. So it's interesting to see how specific and pretty, precise they are, you know, how strong their understanding is of like the local, I would say, geographic considerations in just making these businesses better. I guess two quick questions of that. If a local competitor coming and opening up at a gym encourages you to take this indoor

cycling space, clear it out and put a bunch of leg machines in, which I am all for, by the way, more leg machines. My gym is woefully understaffed on leg machines. But if it takes a local competitor to do that, why not just do that already? It seems like that you're basically admitting you're oversupplied on cycling machines and undersupplies on late machines. Like, shouldn't you just go ahead and correct that already before a competitor even comes in? I would agree with you.

Yeah, I don't have another. I'm sure they would have a good answer for maybe why they're waiting. It could be priorities. It could be resources. Like, I don't have the exact answer for you. I would be curious to ask them that question. But I think my hunch is they'll get there eventually. And maybe it's just a priorities where they might be focused on other things.

and that gym is already at, let's say, 5,000 members. Because a lot of the gyms I visited in Barcelona, they're already at 5,000. Like, they're really, really profitable, really busy gyms. And so they might already just be at, like, a great level. And so maybe they'll get there eventually, but people are just happy and going to the gym for now, and so it's not an issue.

And look, it could also be a competitor comes up, right? Like, when you've already, you're kind of overflowing, so you need to appeal to everyone, and then a competitor comes, so you kind of circle down. I can definitely get that. But last question, and then we can wrap it up. You mentioned the competitor moving into Spanish markets. When somebody comes in, the basic bit will open, we'll move out the cycling machines

and put, I mean, one of the things that is attractive about basic bit is the fortressing nature that we've discussed multiple times with this call. So why is a competitor in the Spanish market? Why is a competitor moving down the street or down the block or a few blocks over and opening up? Because I kind of thought the fortressing strategy, the monopoly, as you said, like, why would someone decide to do that? Are they seeing good returns from doing that? Like I said, this is still a competitive market. Even if you're in Amsterdam, if you're in Paris, and you're in Barcelona, any of those places, there are multiple different brands. So like I never want it to, I don't want people to have the idea that there is no competition. It's just that there is, I would say,

healthy competition. So let's say that gym of 5,000, like a fitness park opens up, let's say, half a mile to a mile away. They might lose 500 members or 250, members, like there will be some erosion. They will lose some of their member base just because Jim is such a local, you know, whatever's close to you. Like my, the two gyms that I use, one is in my condo building. And the other one is like a three-minute walk from my office. And to me, Jim, it has to be extremely convenient. And I think 99% of people are the same way. So in general, competitors will be discouraged, but there's still a land grab, right? That gym that has 5,000 can still be real 5,000 numbers can still be really profitable at 3,500 members. And so there will probably

be other gyms that open up trying to take some of that market share over time. And I think they can all coexist and be at a happy medium. Obviously, the question is, would there be overbuilding? And we haven't seen that historically. And so I don't believe that would be the case, right? The gym economics have been very consistent from 2016 until now, absent that, you know, two or three year period from 2020 to 2022. When the gym down the street opens up and, you know, the, the, the local basic fit goes from $5,000 to $4,500 or something, and the new gym opens up. It seems like they're realizing okay to good returns, the new gym. Do you think Basic Fit should look at that and be like, ooh, like maybe we do need to be

leaning more into the franchising and opening up more stores? Does that make sense? Because Basic Fit could have put the store there, and then there's the customers can be shared, and there's no new competitor coming in. I think BasicVit is only looking at the franchise model in new geographies. So I would expect to see a variety of places, but nowhere in their markets where there's... Oh, I was saying basic fit should have just, like, opened up their own corporate store and, like, preempted the new competitor that came in.

Yeah, again, I think it's tough. I think in an ideal world, that makes sense, but I think it's just difficult. Again, you can't open too many gems at once, right? Like, you want to have the right management in place. And that management starts, right? someone might get one gym to start off with grow to two, go from two to four, four to six or seven, like they're growing people's footprints slowly over time. And so it's hard if you're growing people from basically training them at the corporate level

up, it's hard to be able to grow too many gyms at once. So I think it really goes back to growing too fast leads to sloppy decision making. And sloppy decision making I think is a bigger issue than letting other. Jim's open up nearby. No, that's a great answer. And I think that, look, we're in the 2025 and there are still companies working off the 2021 and grow, grow, grow, grow at all cost, boom. And I'm sure there's an AI boom right now. And I'm sure four years from now, there's going to be more than a few companies say, hey, maybe we shouldn't have built out this much data. I'm not saying all AI, but I'm sure there'll be at least one or two to say,

oh, we committed to five gigs of power. That was a lot of power. Maybe we didn't need that much. All right, Zach, it is 3 o'clock. This has been awesome. It's been a pleasure having you back on. Looking forward to chatting again soon, and it's been really fun talking basic bit. Yeah, thanks so much. Really enjoyed it. 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.