International Workplace Group plc (IWG) Earnings Call Transcript & Summary

Good morning, and welcome to IWG 2024 Q1 Results. Hosting today's call will be Mark Dixon, Chief Executive Officer. This call is being recorded. I will now turn the call over to Mark Dixon to begin. Please go ahead.

Thank you. Good morning, and many thanks for joining us today to listen to our results for the first quarter of 2024, in what is still a truly fascinating time for the hybrid working industry. We are clearly the global leader and well positioned to drive further growth as the market itself expands. The commercial market itself is changing as more and more occupiers want to move to a hybrid way of working and more investors want to supply it. And this gives us a unique opportunity as we move forward. There continues to be more and more research papers done by professional firms, universities and many others. And all of them share a similar view that hybrid and flexible work will become the norm for around 30% of white collar workers and used by at least 50% of white collar used workers from time to time. So this is clearly a huge potential market, and we're uniquely positioned to capture that market across our network. And this quarter's performance is another good market and step on this journey. Q1 '24 has seen continued momentum for the company and we're delivering on what we said we would with network and coverage growth, fee income growth in our managed and franchise business and margin expansion in our company owned and leased business and continued investment in worker positioning it for the future. We're reporting this morning on continued momentum in our first quarter of '24 with system-wide revenues of $1,035 million, a 2% year-on-year growth on a constant currency basis. Our capital-light growth strategy is also continuing to deliver. We continue to sign up many new locations, which will underpin our growth strategy going forward, signing of new locations and rooms continues. And importantly, this is now evolving into more and more openings. Openings of new and managed rooms in -- new managed rooms in the first quarter is up over 200% year-on-year. Many of these capital-light locations have opened, and we've seen excellent performance in creating revenue for our partners. And as we previously guided, it takes on average 10 months from signing to opening and further 18 months to revenue maturity. So the pipeline is signed, but we have many not yet open rooms. And those open over the past 18 months are already giving us great visibility for revenue production over the next couple of years, and we give you some indication of that in our release. Our active management of costs, including those associated with supporting this accelerated growth has enabled us to maintain our strong financial performance this year and our continued commitment to reduce our net financial debt throughout '24. And with that, I'm going to hand over to our CFO, Charlie Steel, to run through the numbers and other matters.

Thanks, Mark. As Mark said, Q1 saw revenue momentum year-over-year, delivering system revenue of $1,035 million, representing a 2% constant currency growth. Given the earlier occurrence of Easter, this is a pleasing result. All 3 of our divisions are performing in line with our expectations. Managed & Franchised continue to see new rooms being signed. And importantly, this is evolving through some new openings, which were up strongly year-on-year. Managed & Franchised signings were up 37% year-over-year when looking at the number of locations, and we exit Q1 2024 with 50% more rooms open than the sales for Q1 2023 -- at the end of Q1 2023. System revenue growth for the division grew by 15% on a constant currency basis and fee income is evolving as expected. As we previously explained, it takes on average 10 months from signing to opening and a further 18 months to revenue maturity post-opening. We exited Q1 with 138,000 rooms in the pipeline of rooms that have been signed and not yet opened versus the 140,000 rooms that we currently have opened in this division. Revenue per available room, or RevPAR, is also evolving as expected. It's worth noting the significant proportion of the new rooms being signed and opened are in more rural and suburban locations, which generally deliver a lower RevPAR on a like-for-like basis. The results of this pipeline is that once these rooms are open and matured, the system revenue of these 279,000 rooms will be around $260 million per quarter, nearly 2x our current quarterly revenue with very healthy fee income. Our Company Owned & Leased division is doing exactly what we've explained it would do. Revenue growth was flat year-over-year as we continue to manage the network. And given we closed loss-making centers over the period, the contribution margin in this division increased by 300 basis points for Q1 2024 versus Q1 2023, coming in at 23.9% to deliver $191 million of contribution. Note that we've continued to sign and open new locations in this division. But worth noting that the vast majority of these are capitalized in nature. So our net growth CapEx will continue to fall in line with our data strategy. Worka, as previously guided, revenue growth has been slow to start the year, and we anticipate improvement as the year progresses. Worka remains focused on capturing the full value chain from the structural opportunity in hybrid working and has continued to invest and develop the platform. We remain focused on improving the margin in Company Owned & Leased, growing fees in the Managed & Franchised business and controlling overheads across the group. We will continue to increase both coverage and system-wide revenue in a capital-light format. As a result, we are confident that both 2024 EBITDA and net financial debt will be in line with management's expectations, which are unchanged from when we delivered these at the full year results. Capital allocation will continue as guided during our Investor Day in December 2023, with net debt reduction in 2024 as we progress towards our target of 1x net debt to EBITDA. It's worth reminding that we've also restarted paying dividend alongside our full year results, and we will have a progressive dividend policy going forward. Additionally, as we've discussed previously, we're looking to manage the maturity profile of our debt during 2024. So management continues to monitor market conditions. Additionally, the adoption of U.S. GAAP as our accounting standard remains under consideration and will make a decision in the coming months. We are pleased that the transition to U.S. dollar reporting has been successfully completed, resulting in a clearer presentation of our business given our exposure to the United States. Thank you. And now we'll hand over to Q&A.

[Operator Instructions] Our first question comes from the line of Sam Dindol.

Congratulations for the results. Two questions from me, please. Firstly, on the Managed & Franchised. Obviously, a very good momentum with 179 signings in the quarter. Is that a number you'd like to sort of stay stable or rise over the next few quarters? And if you got any sort of visibility on that? And then secondly, on the Company Owned centers and the RevPAR, I appreciate you don't give occupancy in price anymore. But could you give us some sort of -- any sort of broad commentary around how those things are trending.

I'll go on openings. So openings, we expect to be able to sort of continue with that momentum, Sam. I mean one of the issues for us is just gearing up to hopefully increase that number as we get into '25, but it's putting all the logistics in place to absorb a higher number of openings. So we're keeping it sort of steady throughout the year. We may do more, but I'd rather not sort of promise more at the moment. But it's still a very good number for this year. And then your second question, Sam?

Just on -- in the Company Owned, can you give any sense of occupancy and price within the flat RevPAR? Just any broad commentary?

Hope you'd be saying, Charlie?