F45 Training Goes Public

not opened for trading. Bid bid his eighteen, ask his nineteen. So looking to open up here on the first trade. Adam Gilcrest, He's a co founder and CEO of F forty five Training. Uh he joins us now, Adam, thanks so much for joining us. I know you're having a busy day here watching to see when your stock opens. Love free to give us the kind of a thirty second view of F forty Training. What's the story? Well, Nessily, thanks very much for having me on your program. Obviously

a very exciting day. And look at forty five is, you know, I think an incredible business. Because we tried to answer a really simple question, which was you know how do we get people to fall back in love with the gym, and really f forty five is a forty five minute workout. We do it in classes of

seven up to thirty six people. A typical franchise e you know has you know, on average, two hundred members and we charge our members somewhere between fifty dollars and sixty dollars a week, so we're a premium brand um And it was built on three key pillars. Number one was innovation, where we have six thousand exercises in our exercise and cyclopedia, so every day you turn up, it's

a different workout. Number two is motivation, like training in teams is just so much more enjoyable being, you know, in a community versus you know, sitting at home, you know, running on a treadmill or going for a run around a park by yourself. And the third key pillar was you know, what we describe as simply as results and results for us is via this simple modality of high

intensity interval training. So the workouts being forty five minutes, you know, change each day, but it's it's often like forty seconds of work twenty seconds of rest, and you can really get some effective results in a in a short period of time. So look, we're great. It's a great business because we changed so many lives. People love coming to forty five and we've really achieved, you know,

a wrap it up. One one major milestone is you know, having more visitations with our members than any other gym in the world, so they turn up on average two points seven times per week. I want to quickly just get to the market dynamics of what we're seeing. Notable, of course, actor Mark Wahlberg is an investor Franchises member of the board. A year ago in June, you tried to go public via a spack with Crescent Acquisition Corps. Today of course, trying to just take the traditional I

p O route. Why this why the switch? We we we ran a dual process and we had a better um structure that we we accepted, and we believe that a traditional IPO would be you know, positioning the business um for more success. And you know, we're we're really pleased with where we're at at the moment, and you know, we're really excited to hopefully watch the first trade come

through in the next half an hour. Hey, Adam, you know I'm here with Taylor Riggs, and she's one of those crazy nutty people that runs marathons all over the world. I just can't relate at all. I did, in fact, during the pandemic actually start getting on a peloton, so at least I'm getting some exercise. Talk to us about how your business has been impacted by this worldwide pandemic. Well, of course, it was an extremely challenging year last year, and you know, at one period of time we had

our franchise is closed. Um. What we have noticed, however, is the fact that you know, people want to get back into the gym, but more importantly, people want to be part of communities. People don't want to sit at home on a bike. They don't want to sit at home and do zoom dinner parties when restaurants are reopened. I asked that question all the time. You know, when was the last time you had a zoom dinner party

if restaurants have reopened. And what we're finding now is our cohorts that are two months reopened are performing better with visitation than they were pre COVID. So what that says to us is the fact that we're going to bounce back far stronger than what we were pre COVID, And look, we think the most important thing in life is obviously number one, your family, but you know number two should really be your health. And if you look

at the importance of health. You know, we were talking about of Americans this year will die of heart disease, will die of cancer, and thirty percent of other things, but of that heart disease. You know, we we look at that and we say we can address that. We can change people's lives. We can you know, what we described as preventative health. So really, you know, we think this pandemic has been extremely challenging. We applaud our franchise

Ease for pushing through it. We are the we're going to have the lowest rate of closures in the world, with less than one percent of our studios not reopening in comparison to the rest of the industry which is currently and that's really sad to see so many great you know, young entrepreneurs and business owners go broke. So we hate seeing the industry contract, but we will see some major beneficiaries. Forty five is one of them. Planet

is another, and we're really fortunate. A few months ago that Entrepreneur magazine ranked US in front of Planet as the world's fastest growing fitness franchise or so when we sprinted past Planet, you know, that's one of the two milestones I said. Obviously I wanted to be a faster growing company in the Planet and the next one for us is going to be our earnings. So when we go past them in earning, that will be the next sort of goal that I've got for the head office here.

On that note, of course, you're pricing the shares at sixteen dollars a piece right now indicated open anywhere between seventeen fifty eighteen fifty share. What are you doing with the proceeds um The first thing we're doing. I mean, we've been a very fiscally conservative company since two thousand and thirteen. In fact, there's no other company that's sold more franchises than us uh and and look, we're we're

excited because we've never had an unprofitable quarter. And that fiscally conservative approach has now been applied to the capital raising where we're number one paying back all of our debt. So you know, that's that's that was my first and

my ultimate goal. We will have a revolver in place of a hundred million dollars and we're going to thirdly also put some additional capital onto the balance sheet, so you know, we'll have horsepower of eighty million on the balance sheet, hundred million dollar revolver and you know, if you look at our earnings into the future, we are

unleave it. So you know, our peers currently have you know, anywhere between four and six times, so we have a lot of capacity to look at opportunities in the future. We recently purchased Flywheel for five million dollars, which was an incredible buy. So you know, the secondary is one investor selling out. I'm not selling any any stock in this I p O and I think that really you know, spoke to the and really resonated with a lot of our investors because I said, look, I'm here for the

long term. I'm not selling any stock. We're excited about our future, but more importantly that the pipeline of potential franchises buying has never been healthier. UM, so it's an exciting period for us. All right, Adam, thank you so much for joining us. We know you're having an incredibly busy day today as your company goes public on New

New York Stark Exchange. Adam Gilchrist, co founder and CEO of FT Trading, again that stock is bidding bid asks seventeen and a half, eighteen and a half after pricing UH their shares at sixteen dollars to share. But it's interesting to see how that industry, um Taylor, is going to recover. You know, how will consumer behavior change in terms of going back to the gym and the innovation that's been going on in that industry. And you know, Paul,

he was talking about those statistics around heart disease. I mean, that's another pandemic frankly that we've been ignoring. I think sitting around in this pandemic has made us realize we all need to get back to the gym exactly right. So hopefully again we saw a contraction. Hopefully that industry can continue to recover. Well, that more coming up. This is Bloomberg, all right. That was Charles Evans, the president and CEO of the Federal Reserve Bank of Chicago, speaking

with Bloomberg's own Michael McKee. And we also had FED Chairman j Pal He was UH in front of Congress today making his comments as well. Let's get kind of an overview a little bit of a recap. But what we heard from these FED officials. We do that with carlver Cadonna. He's our top economist for Bloomberg Intelligence. So Carl kind of piecing together what we heard from Mr Evans of Chicago and FED Chairman Pal. It doesn't seem like this FEDS incented to do anything other than kind

of stay the course here. They feel like they're they had the hand on the tiller. Yeah, that's a very key theme to focus in on here, the kind of central committee of the Open Markets Committee, so that the centrists are that you know that the key leadership really is not responding to the inflation data. Uh. The way that the kind of overall messaging from the Fed is a sounding like the Fed has taken up more hawkers shifts.

So the hawks on the committee have become more vocal, more concerned about what's happening, whether it's commodity prices, gasoline or or consumer inflation. But that the j Pale's the Richard clarenas uh, the Chicago FED president, that Charles Evans, who's a voter this year. Uh, they are confident. Uh. And Evans specifically said he's confident that the inflation flare

up will be transitory. Powell has echoed that theme. So they're acknowledging maybe that the price pressures have written more than they anticipate did and it looks like it will be able slightly longer duration than they anticipated. But they still are very much of the view that things will moderate in the back half of the year as we start to see some moderation in overall economic growth. We

were chuckling a little bit yesterday. If members of the House, members of the Senate are asking about inflation, you know, it's something that their constituents are going to them and saying, hey, we're feeling this. There are real world inflation pressures. And then there's the economic models. How does Powell square the two? Well, I think the you know, the models anticipated that we would see an opening here, but they under anticipated the

magnitude of the price pressure. So, you know, very difficult to model what reopening a twenty one trillion dollar economy looks like micro chip shortages and those sort of factors. So, you know, we kind of understand as we look at economic growth relative to potential growth, you know, how that inflation plays out. Um, But what's interesting here if we think of, you know, what the models would forecast, inflation

is a lagging indicators. So if we're seeing great growth now, that's going to cause inflation further on down the road. And typically the lag is about six quarters, so a year and a half. Right. The inflation we're seeing now is not the result of an economy operating beyond its potential. It's just this kind of supply, the growing pains of

of reopening, turning the key, and restarting the economy. So it's a very different type of inflation, and that's why the FED is responding it in such a different capacity. Another way of thinking of this, if we take you know, consumer inflation. So yes, prices are rising, but we have to divide between goods and services. Services are things the FED can very much control because service price pressure reflects

what's happening in the domestic economy. A lot of goods sector inflation merely reflects what's happening with exchange rates or inflation coming from overseas. So the price of goods coming from China getting unloaded at the port of Long Beach on the West Coast. Uh, that's not an lation the FED can really control, nor do they want to control

that inflation. If we look at what's happening right now, CPI goods is off the chart, flaring up, CPI services very much running in line with the average of the five years prior to the pandemic. Well, we just heard a real inflationary data point today, Greg Jarrett Bloomberg Radio in San Francisco paying more for his taco and his taco flower rice is an extra dollar. So it is real.

I'm not sure, but I'm going to call you out here because this is food away from home, restaurant meals, which are part of this labor shortage that we're seeing in leisure and hospitality sector, restaurant whatnot. If we look at food at home, so grocery store prices, I continually hear everyone's saying, oh, prices are going up. Prices are going up. They're going up, but they are going up at a very very slow pace. So if we look at grocery food, we can see that there's actually a

deceleration taking place. So we keep talking about categories that are, you know, part of the re opening, while there are some categories that are actually decelerating as we reopen. In grocery prices for the most part, are are in that category. So they were high during the pandemic when everyone was scrambling for grocery deliveries and whatnot. They are very significantly decelerating.

And yesterday, as I was looking through the CPI basket looking at those food categories, most of them are running below one percent even so my kale is cheaper. Paul, Oh, good for you. I know what kale is. Come so Taylor, stop complaining about those restaurant prices and go home and cook your food. When we do see tapering, what's it gonna look like. I think it's gonna look very boring

to financial market. So the Fed is being very clear that this will be signaled well in advance, and so they'll have time to refine that message if the market does kind of react to the news. But what we're hearing from folks like Evans and also from j. Powell, this is not something that we're going to be hearing about at the lie FO MC meeting right there. Going to discuss this for several meetings, so the July meeting into September, we might hear about it at Jackson Hole,

we might hear about it at the September FOMC. I suspect that the delivery of that message is going to come later than a lot of market participants are thinking at the moment. I think still the best case scenario has probably deliver the message in the fall. UH start the program at the start of next year, so in early and you taper basically over the course of next year. So by the end of the FED will no longer be purchasing securities to expand their balance sheet. They'll just

be replacing things that are maturing. Just quickly twenty seconds you go equal taper, nbs and treasuries. That's a very interesting question. J Pow was pushed on that a little bit today and he said that probably mortgage purchases are having more of an impact on the housing market than treasury purchases, although both are impacting. So I think that there is an incentive to move more aggressively on mortgages. All Right, car ricka Donna, senior economist for Bloomberg Intelligent

joining us here helping us break it down. Here we have FED Chairman pal Uh and Mr Evans from Chicago FED looking at these markets. Here. Works just started, you know, week one of what is going to be a very active earning season, and again, a lot of investors are looking for numbers that come in really strong to kind of support the multiples we're seeing in this marketplace. Let's bring in a professional that does it for a living. Hugh Johnson, Chairman, ce IO and member of the Investment

Strategy Committee of Hugh Johnson Advisors. It's about one point five billion dollars in assets under management based in Albody, New York. Here, thanks for joining us once again here, All right, what are you really looking for in this earning season? He needs to see some really big beats to justify these valuations. Uh, not real big beats, but

certainly beats. We've gotten very used to the fact that when we've been looking at earnings, and I'm not talking about just this earning season, but we've had a continuous outpouring of earnings for the last three months, and in each case, the earnings have been coming in a little bit better than not significantly so, but a little bit better than expected. And every time we see that, um it gives a little bit of a boost to the market.

So the market has been really driven by good earnings reports for the last three months, and I think really we're looking for the same thing in this earning season, a little bit of a let's just say, a beat on the upside. Now, Now, remember keep in mind that more recently, about a little bit less eight percent of the companies that have been reporting have been reporting earnings that have beaten estimates, and that compares with the number

that's the long term number of six. So companies are getting used of reporting earnings a little bo expectations and that's kept the kept the bull market alive, even though we're a little bit concerned about valuation. Before we get to valuations, I wouldn't ask if we're in on earnings peak margins as we're thinking about some of these inflationary costs that ceo s are mentioning, and they are mentioned

mean them a lot. They certainly are. And if you take a look at the Beige Book yesterday and the reports from all the districts of the Federal Reserve UM, that's the one thing that jumps out at you is that companies are telling us that there's a little bit of margin pressure. And there's a little bit of margin pressure, largely because the upward pressure that they're starting to see. It's not significant, But they're seeing upward pressure on wages.

Number One, they've had to compete very very actively in the markets to try to get people to come to work for them. They've given a lot of non cash benefits for those to those people to get them to come to work for them. And then of course there's the supply problems, which we hear about every day. The supply problems of course, meaning that of course that they're not getting the supplies. The backlogs are very significant. Uh. And and that's creating some a little bit upward pressure

on the prices that purchasing managers have to pay. So you bet margins are under pressure. And uh if we believe German Paul that a lot of these pressures, labor pressures as well as the supply pressures, are gonna obey as we moved through the remainder of two thousand twenty one. All Right, you, given that you're in the camp with that chairman Pow, where are you guys allocating capital these days? Um?

Given where we are, well, I tell you, you know, it's a good, great question because we're still bullish on a long term basis. We really do believe in our sort of mantra, which is time not timing is a secret to success in the financial markets. But on a short term basis, we think things are a little bit high. You know, we've had really great markets and two thousand twenty and of course the first part of two thousand twenty one, and I think the markets a little bit

ahead of itself. Particularly now. Remember we're we've really seen the peak and g d P and ernest growth in the second quarter, and they're those numbers are gonna still be positive, but they're gonna come down. We're not gonna see those kinds of growth rates. So we really think we're a little bit ahead of ourselves and they're due for I don't want to say a major correction, but a little bit of a pull back, and we're waiting for a pull back to prices that make a little

bit more sense. When we do see that pullback, we're not going to be the inflation team. We're gonna be looking very hard at consumer discretionary stocks, very hard at communication services, some of those companies you know, the facebooks of this world. We're looking very hard at those, and those are where we're going to start to add to our portfolio. Google is another one. Apple is another one. We'd be adding to those, but not at these levels.

We want to see a little bit of a pull back to levels that make a little bit more sense and a little more compelling. Are you going to be adding to those based on a call that yields may not rise. Yeah, we would be probably adding to them, and I would say in a longer term basis, keep in mind something very important, and that is when you're looking at Apple, Facebook, you're looking at these companies, some

of them communication services, some of them technology. We've often referred to them as being volatile and economically sensitive, that they depend very heavily on the economy doing well. That's no longer the case. These companies have been doing well, giving us the kind of revenue growth, that kind of cash flow on their balance sheets, that kind of free cash flow, and their earnings reports that spen very steady, even though the economic conditions, as you know, have been

very volatile and difficult. And and that's the kind of company that's almost I hate to say it, it's not an offensive or bowl. Market sectors. These are starting to act like defensive sectors are good places to be if the economy goes into a period which I think it's gonna and that is where we see the growth rates of the economy of earnings, employment, you name it, are gonna slow down. They're gonna be positive, but they're gonna

slow down. And those are the kinds of companies I think you want to all Right, you thanks so much for joining us to really appreciate that. Hugh Johnson, Chairman CEE IO and member of the Investment Strategy Committee of Hugh Johnson Advisers, based in Albany, New York. It's gonna be interesting a tailor to see, how you know, to the extent we do get a pullback in this market, which some people are calling for, including Hugh Johnson. You know,

where will people put their money? Will be still in that rotation trade into the cyclical names, it's the reopening names into the reflation trades, or will it be into the tried and true apples and amazons and facebooks of the world. You know. John author is of our bloom Bergers Opinion out with a great note this morning saying that guilds aren't behaving the way we might think. If you think inflation is going to be higher, maybe you get some of that cyclical trade. Yields should be risering,

but they're not. So are we pricing in a Fed policy mistake? Really really good column here debating the future of yields. Yeah, exactly right, And you know it's it's tough to see where a pullback comes. We've had so much uncertaint yet the market continues to pool hire. Would there be a mistake perhaps from the Federal Reserve? Would that be the catalyst? We'll have to see more coming up,

This is Bloomberg. Let's bring in David Diets here. He's managing principal senior portfolio manager at Pepack Private Wealth Management, nine point four billion dollars under management, located in Bucolic Summit, New Jersey. Hey, David, let's start with the bond market. Boy, ten year one point three four, the thirty year still below two percent at one point nine. What's the treasury market telling us about growth? Do we need to be concerned about growth on the back side of this pandemic? Well,

I think you put your finger on it. This is the most perplexing problem because we've got all sorts of metrics suggesting there's inflation. All the economists are telling us that we're coming out of the pandemic induced slumber and growth is ahead of us for seeing great corporate earnings. But that bond market that yields just keep falling, and typically yields fall when fixed income investors see, uh, the lack of inflation, lack of growth, and so which is

right here? I still think that all signs point for and expanding economy. And here's the thing. If you go a year ago, uh, Matt, you know you're you're interest rate to attain your treasury about a half of one percent. At the start of the year, we're under one percent. Now that is true. We ratchet quickly all the way up to about one point seven top in March. Now we're just over one point three. But still I think the end is up. Remember two thousand nineteen we saw

the ten years highest two point nine. All signs are saying that ultimately we're going to normalize, maybe not in the next three months, but over the next twelve months. So I gotta see interest rates ultimately moving up. And I think actually the stock investors will appreciate that. Are you positioning a portfolio for higher inflation? Because I hate to say it, every single question that Powell is getting it's on inflation. Um, so you know, no one knows

for sure whether it's transitory or more permanent. I mean, in some things, everything in life is transitory ultimately. But I think it's it's a risky game that they're playing here, because if it turns out that it's not transitory, the problem with monetary policy is to act for the lag and so they would be very much behind the eight ball. And of course the real wild card is how to consumers act here. If consumers start to think inflations around the corner and they rush out the stuff and order,

it will become self fulfilling. So we are certainly tilting towards areas of the market I think can benefit UH from inflation. I think if there's inflation, ultimately higher interest rates, that's manner from heaven for the financials. Of course, you've got your cyclicals, your industrials, your materials, your energy place all should do it better with prices going up. All right, higher interest rates in your scenario good for financials, as

you just mentioned. I know in the past we've talked about Wells Fargo, that's a name you've liked, and that they reported some numbers this week stock's done really well this year, up nearly fift What is your calling the financials and Wells? Well, so, the financials, I do think that they are trading at about discount in terms of price to earnings, price to book than they normally do, and of course the overall stock markets elevated, so I

think that financials could provide an opportunity. But I do think it all comes down to the economy and interest rates. If the economy picks up, then the loan demand will kick in. That the kind of a thorn in the side right now, not a lot alone demand. Of course, they're build to charge higher rates. The fitnesstrants to go up, So then uh like generally would overwege financials drilling down why Wells Fargo? You know, Wells Fargo has one of

the best franchises here in the country. Coast to coast, gives the tremendous economies to scale. I actually like the fact that they're not focused on a lot of trading activity that some of the New York banks focused on because that tends to be cyclical. They're kind of middle market um consumer lending and so forth, and historically they've been good judges of credit quality have been conservative. Uh, they've of course still associated with a lot of bad activities.

A couple of years ago, a new guy in there from Bank of New York I think is writing that ship. And of course, as you pointed out, just had a great earnings announcement. They got they went through the stress test with flying colors, They doubled the dividend. They announced the stock buyback of eighteen billion. That's about ten percent of the value the overall companies. Another ten percent of

the shares go away. That's good for stock investors. Finally, here when we talk about some of the loan demand with the banks, you have to talk about housing prices and some of the housing stocks that have started to roll over. I'm just taking a look at the I t B for example, the E t F of housing stocks, as lumber has also started to roll over. What do you make of the housing sector? Well, you know, I think it's a little bit like with the the the

interest rates and the tenure treasury. I think there was too much acceleration too quickly. We're seeing a pullback. Marcus, do not go on a straight line. I gotta believe that the two or three years from now lumber prices will be higher. Of course that's a tricky indicator because of relationships between Canada United States. Um. You, you are

absolutely right. The housing stocks, the paulties and Lenar's have kind of come back down here, but remember they practically doubled from a year ago, so they were due for a pause here. Um uh. In with with better employment situation, I think people that demand for housing will continue to stay strong. All right, David, Thanks as always for checking in with us. We always appreciate getting your thoughts and opinions. David dts And, Managing Principal Senior PM for p Peck

Private Wealth Management, getting his thoughts on this market. Still likes the cyclical trade, still likes that reflation trade, that reopening trade, and again with rates where they are lots of questions there, but we'll have more coming up. Thanks for listening to the Bloomberg Markets podcast. You can subscribe and listen to interviews with Apple Podcasts or whatever podcast platform you prefer. I'm Matt Miller. I'm on Twitter at Matt Miller three. On fal Sweeney, I'm on Twitter at

pt Sweeney. Before the podcast, you can always catch us worldwide at Bloomberg radio