Uzo, its 3Q later. Buybacks have started earlier than anticipated but in a more moderated manner, Im forecasting $100-150m by year end. The $580-620 EBITDA target, perhaps they hit topline / beat by 5% = 620 - 650m. Debt now seems pinned at $700m.
Im getting to a FCF/Sh of $0.21 - 0.25c.
Unfortunately it would appear the failure rate between signups and opening is at ~50% or there is a capacity lag in supplying the design and service offerings to new spaces as openings for the past 2x Q's do not seem to be tracking signings unless Im missing something.
It would be great to hear your update / perspective.
Hi friend! I hope another increase in buybacks in Q3 but it dependes on how capable is the management on this new franchise model and FCF generation. I think this is the most difficult part on short/mid term, if they execute as guided, the stock will explode but we have no certainty that this will happen and it may become a story of promises that does not generate as much FCF as expected.
With respect to your second statement you are right. They are not executing as investors would expect in terms of center openings, around 70% signings to openings and in Q3 even close to 50%, the question is it because of lack of staff, are they finding better opportunities now and are they signing better locations and leaving aside those signed a year ago with worse prospects? If that ratio goes up it will be a time to start raising prospects, for now, that 70% seems about right. However, the idea seems the same and even with that 70% it seems undervalued as long as they bring value to the clients, which I think they do. Best regards!
I am reviewing the 2024 signings and open rooms they guided for 2025 and 2026 with the 2024 annual results and, for H1 2025, it is in line with what was seen previously at 63% but, coincidentally there is a substantial jump in H2 2025 and onwards. It seems that, as they guided, they should accelerate the signing to opening ratio from H2 2025 onwards. I don't know if it's that up until now their focus was to sign locations and then focus on opening them or that the locations they are signing are of higher quality and higher visibility. The 2026 ratio is close to 90% if they don't ramp up signings this 2025 which doesn't seem to be the case looking at Q1 2025 signings. Honestly I would rather see a good conversion in openings than signings for signings sake. I had not stopped to look at this parameter, thank you very much for commenting! By the way I am using 12 months of signing to opening for ease of accounting.
Do you have any concerns on the overhead in M&F? It's been growing on-pace with fee revenue, and has yet to inflect to profitability, despite 154k rooms at $378 REVPAR. I'm assuming it will begin to slow down, as a lot of systems are being put in place, and I assume a lot of it is going towards sales and marketing which I expect to produce strong ROI. I'm not sure how it's possible to model the profitability of M&F
Hi uzo thanks for the update and the great write up. Have you done any work on the downside scenario at the current prices. Is there any or the risk reward is fine in your opinion.
Thanks for the excellent content Uzo. I am long as well. I am working through my own modeling and had a question. You have EBITDA increasing by $110M from '25 to '26. I am arriving at a smaller growth number even when using what I think is your assumption set. For M&F, I use your 145k new room assumption, a $250/mo RevPAR (based on their guidance for the currently signed set) and the 1H2024 12.2% contribution margin to get to ~$53M of additional EBITDA. For O&L, I believe you assume no margin expansion 25->26 so its just 2% growth off a base of about $466M giving ~$9M. And then for Worka I do $140M*1.07*.07 = ~$10M incremental EBITDA. Adding those up gives $72M incremental EBITDA vs your $110M. Where is the differential coming from?
For O&L i bake in further 100bps of margin expansion in 2026...$60m
M&F....$44m
Worka...$8m
new managed locations i model in a cohort fashion: $250 revpar for new locations at 18 months age, but those locations grow / mature at $285 after 28 months...and these numbers inflate by 2-3% each year (in line with revpar growth). Obviously this is above where they are guiding but i think they are being deliberately conversative - and im trying to model what i think will actually happen.
On WeWork - if a deal is reached wouldn’t this throw the outcomes in your table back by a few years given the task to integrate the two together and extra debt load?
Also, if they are seriously interested in making a play for WeWork would they not be building a war chest instead of throwing everything at buybacks?
Thanks again for the value you have provided with this article, very concise for an amateur like me.
they would only do a wework deal if it was matterially more accretive / beneficial for shareholders than not doing it (ie the outcomes i lay out), so am not worried about that. I wouldnt expect them to build a war chest. They could have made a move during the recent bankruptcy process. If an attractive wework acqusition opportunity emerges (which isnt guaranteed + timing + terms are very uncertain) they can evaluate their financing options at that time (be it equity or debt).
Thanks for sharing your work on this. Very helpful/interesting. If I understand correctly in the last 12 months net rooms open under Managed and Franchised have gone from 110k to 169k so 59k opened. In your model and managements investor day the annual amount is supposed to be more along the lines of 125k. Should we be building half the number of openings than management's guidance in our models? Thanks.
would read my original write up which covers this...owned is a v small proportion....and on leased they can exit everything within 6 months (given SPV / bankrupcy remote structure) and the heavy restucturing has been done already. Closures is the best proxy, which are trending at normal levels (4% / year).
Great read, thanks. New to this name so forgive my ignorance.
Has management focused on geographical locations that they feel are in demand enabling quick sign ups from landlords and higher demand from co-workers than might otherwise be the case as the rollout progresses?
How Are occupancy levels trending and are they sustainable, With what seems a laser focus of signing landlords above all else is the company going to cannibalise itself leading to lower occupancy rates/attractiveness going forward
the company is the largest player in a flexible office, but flex is a very fragmented market and a tiny but growing proportion of the total office market, which is massive so am not concerned about cannibalisation...the company isnt going to impact the supply / demand picture. The company was growing its space 10% / year pre-covid, I model a similar growth rate going forwards (9%), but the growth is now capital light (via managed partnerships), with most new locations in suburban locations. Think of IWG like Holiday Inn - my original write up covers this point in more detail....similar to hotel company iwg discloses revpar instead of occupancy given a significant share of high margin revenues come from non-lease revenues.
Uzo, its 3Q later. Buybacks have started earlier than anticipated but in a more moderated manner, Im forecasting $100-150m by year end. The $580-620 EBITDA target, perhaps they hit topline / beat by 5% = 620 - 650m. Debt now seems pinned at $700m.
Im getting to a FCF/Sh of $0.21 - 0.25c.
Unfortunately it would appear the failure rate between signups and opening is at ~50% or there is a capacity lag in supplying the design and service offerings to new spaces as openings for the past 2x Q's do not seem to be tracking signings unless Im missing something.
It would be great to hear your update / perspective.
Hi friend! I hope another increase in buybacks in Q3 but it dependes on how capable is the management on this new franchise model and FCF generation. I think this is the most difficult part on short/mid term, if they execute as guided, the stock will explode but we have no certainty that this will happen and it may become a story of promises that does not generate as much FCF as expected.
With respect to your second statement you are right. They are not executing as investors would expect in terms of center openings, around 70% signings to openings and in Q3 even close to 50%, the question is it because of lack of staff, are they finding better opportunities now and are they signing better locations and leaving aside those signed a year ago with worse prospects? If that ratio goes up it will be a time to start raising prospects, for now, that 70% seems about right. However, the idea seems the same and even with that 70% it seems undervalued as long as they bring value to the clients, which I think they do. Best regards!
I am reviewing the 2024 signings and open rooms they guided for 2025 and 2026 with the 2024 annual results and, for H1 2025, it is in line with what was seen previously at 63% but, coincidentally there is a substantial jump in H2 2025 and onwards. It seems that, as they guided, they should accelerate the signing to opening ratio from H2 2025 onwards. I don't know if it's that up until now their focus was to sign locations and then focus on opening them or that the locations they are signing are of higher quality and higher visibility. The 2026 ratio is close to 90% if they don't ramp up signings this 2025 which doesn't seem to be the case looking at Q1 2025 signings. Honestly I would rather see a good conversion in openings than signings for signings sake. I had not stopped to look at this parameter, thank you very much for commenting! By the way I am using 12 months of signing to opening for ease of accounting.
Great analysis thank you
Do you have any concerns on the overhead in M&F? It's been growing on-pace with fee revenue, and has yet to inflect to profitability, despite 154k rooms at $378 REVPAR. I'm assuming it will begin to slow down, as a lot of systems are being put in place, and I assume a lot of it is going towards sales and marketing which I expect to produce strong ROI. I'm not sure how it's possible to model the profitability of M&F
Hi uzo thanks for the update and the great write up. Have you done any work on the downside scenario at the current prices. Is there any or the risk reward is fine in your opinion.
covered this is in my first write up on IWG
Thanks for the excellent content Uzo. I am long as well. I am working through my own modeling and had a question. You have EBITDA increasing by $110M from '25 to '26. I am arriving at a smaller growth number even when using what I think is your assumption set. For M&F, I use your 145k new room assumption, a $250/mo RevPAR (based on their guidance for the currently signed set) and the 1H2024 12.2% contribution margin to get to ~$53M of additional EBITDA. For O&L, I believe you assume no margin expansion 25->26 so its just 2% growth off a base of about $466M giving ~$9M. And then for Worka I do $140M*1.07*.07 = ~$10M incremental EBITDA. Adding those up gives $72M incremental EBITDA vs your $110M. Where is the differential coming from?
For O&L i bake in further 100bps of margin expansion in 2026...$60m
M&F....$44m
Worka...$8m
new managed locations i model in a cohort fashion: $250 revpar for new locations at 18 months age, but those locations grow / mature at $285 after 28 months...and these numbers inflate by 2-3% each year (in line with revpar growth). Obviously this is above where they are guiding but i think they are being deliberately conversative - and im trying to model what i think will actually happen.
On WeWork - if a deal is reached wouldn’t this throw the outcomes in your table back by a few years given the task to integrate the two together and extra debt load?
Also, if they are seriously interested in making a play for WeWork would they not be building a war chest instead of throwing everything at buybacks?
Thanks again for the value you have provided with this article, very concise for an amateur like me.
they would only do a wework deal if it was matterially more accretive / beneficial for shareholders than not doing it (ie the outcomes i lay out), so am not worried about that. I wouldnt expect them to build a war chest. They could have made a move during the recent bankruptcy process. If an attractive wework acqusition opportunity emerges (which isnt guaranteed + timing + terms are very uncertain) they can evaluate their financing options at that time (be it equity or debt).
Thanks for sharing your work on this. Very helpful/interesting. If I understand correctly in the last 12 months net rooms open under Managed and Franchised have gone from 110k to 169k so 59k opened. In your model and managements investor day the annual amount is supposed to be more along the lines of 125k. Should we be building half the number of openings than management's guidance in our models? Thanks.
What are the liquidity issues? - I see a current ratio of only 0.41.
Whats the possibility of impairments on the value of the owned and leased assets given the current state of commercial RE sector?
would read my original write up which covers this...owned is a v small proportion....and on leased they can exit everything within 6 months (given SPV / bankrupcy remote structure) and the heavy restucturing has been done already. Closures is the best proxy, which are trending at normal levels (4% / year).
Great read, thanks. New to this name so forgive my ignorance.
Has management focused on geographical locations that they feel are in demand enabling quick sign ups from landlords and higher demand from co-workers than might otherwise be the case as the rollout progresses?
How Are occupancy levels trending and are they sustainable, With what seems a laser focus of signing landlords above all else is the company going to cannibalise itself leading to lower occupancy rates/attractiveness going forward
the company is the largest player in a flexible office, but flex is a very fragmented market and a tiny but growing proportion of the total office market, which is massive so am not concerned about cannibalisation...the company isnt going to impact the supply / demand picture. The company was growing its space 10% / year pre-covid, I model a similar growth rate going forwards (9%), but the growth is now capital light (via managed partnerships), with most new locations in suburban locations. Think of IWG like Holiday Inn - my original write up covers this point in more detail....similar to hotel company iwg discloses revpar instead of occupancy given a significant share of high margin revenues come from non-lease revenues.