International Workplace Group plc ($IWG)

Good morning, everyone, and thank you for joining our trading update for the first quarter of 2026. We made a strong start to the year with continued momentum across the business and clear progress against our strategy. And most importantly, we've delivered a 4% revenue growth at the Group level. And System revenue grew at 9%. That's the best we've seen so far. So we're very pleased with that as well. And all of this despite a clear backdrop of macroeconomic uncertainty and geopolitical events. Anything in particular, developments in the Middle East affect our business directly and indirectly. I think the fact that we're presenting these results today reflects the resilience of both demand and the strength of our model, our global platform. The key message from this quarter is a straightforward one. Our capital-light model is scaling, demand remains robust and the business is becoming more and more predictable, more cash-generative and more resilient. As you've seen in the numbers, we continue to grow the platform in every way, and we did again so in this quarter. I think, in particular, the Managed & Franchised platform where fee income grew strongly and signings accelerating meaningfully was a very good performance in the quarter. Over the past years, we've been really pressing the accelerator on our Managed & Franchised business. And as a result, we've reduced our capital intensity, keeping the growth but reducing capital intensity. And this has enabled us to both grow faster and clearly with much less capital and generate structurally higher returns as we do this. What we're now seeing is that model working at scale. The growth in signings, the expansion of the pipeline and the increase in recurring fee income all point to one thing. We're building a much higher quality earnings base. At the same time, it's important to highlight that the company-owned segment has returned to headline revenue growth as our strategy now converts into higher top line for these units. So we're now seeing both growth in the capital-light platform and growth in the company-owned units. And together, that provides a much stronger and more balanced platform for the Group. Turning briefly to the macro environment. Globally, there's clearly a higher level of uncertainty, whether that's in politics, whether that's in the expectation of inflation and just broader economic volatility. The world has become a much more uncertain place. But based upon the decades of experience we have in this industry, this sort of pattern can be benign and sometimes it can even be helpful for our business. Periods of uncertainty can accelerate demand for flexibility, not reduce it. So when we look at that uncertainty, we can see a lot of uncertainty around the changes that AI will bring. I mean, in fact, we believe that AI changes everything. It certainly is within our business, but we think that's going to affect many businesses around the world in the coming years. And what that is causing is an uncertainty into the future headcount requirements for companies, how many people and where do they want those people, the remaining people. So companies are hesitating from making long-term fixed commitments and are seeking more flexibility. And they're changing also how they take space and generally taking less space, not more. So flexibility, less space really plays into our strategy and what we can offer. So coming back, just reiterating what companies are looking for. I think top of the list, with all the uncertainty and pressures on costs, which seem to be universal in the world today, I think the #1 thing is companies don't want to spend CapEx, no CapEx, #1 thing. Any finance director or CEO I speak to, that is the #1 thing. The second is they want more flexible situations in everything they're doing. Flex, they put a high value on. It doesn't matter whether that's space, doesn't matter that's renting equipment, doesn't really matter what it is. They want flexibility. They clearly want shorter-term requirements, and they're clearly moving to lower space requirements. We can see that happening. Lower space requirements, excellent for us. That is our business. We do small and medium space; we don't do large space. And that's certainly becoming a very clear trend. They're also seeking globally scalable solutions. Again, in a world of uncertainty, difficult and changing global politics, the ability to just access a solution that's ready to use, they put high value on. So all of this is greatly helping our model as we move into '26. It always helps us. We're seeing an uptick in the tailwinds here as we come into this year. As a result, our enterprise inquiries are strong. The activity from those inquiries is increasing and conversion into sales is robust. So we've got all this background macro going on, but we are seeing actually quite positive trends and good tailwinds in the business. So let me move on and just cover a different point, which is looking at our company-owned portfolio. We have a lot of conversations with investors, in particular new investors, where we endeavor to explain this portfolio. This portfolio is a highly attractive part of our business, very cash-generative and very low risk. And that is the part that's misunderstood by the market. This portfolio over many years has been largely derisked and hedged. And therefore, it is not a cyclical element in our business. It is not a high liability part of our business. It is very flexible. It is very much aligned and very similar to the other part of the business, which is managed space. So we will work on this as we go through 2026 and beyond to ensure that new investors and existing ones fully understand the very attractive aspects and considerations of our company-owned portfolio. The other key driver is the continued expansion of the network. We signed a new record of 380 deals in the quarter and opened more than 200 centers. But you shouldn't just look at it as growth for growth's sake. The important thing is to understand that this further enhances the flywheel that is our business. By adding more cities and more network and more depth in the cities that we're in, we created some network, a platform here that is much more relevant to our enterprise customers and to all customers. That relevance drives more demand. More demand drives more partner interest. We're able to fill up and monetize more space for our partners. And clearly, additional scale has huge economies of scale benefits, and we continue to achieve those. And that's partly why we're optimistic on our ability to control costs and not take the full hit that inflation will bring this year. So we're now at a scale where the flywheel is clearly accelerating, and we're clearly seeing the benefits. So just to summarize, we've delivered growth in revenue and in the growth of the platform despite the backdrop economically and geopolitically, our Managed & Franchised business is scaling strongly. Our growth segment is growing top-line revenue. The overall risk profile of the business is much lower than is often perceived, and we're going to work on that during the course of this year and very attractive opportunities in addition to all of that to buy back stock, and we'll continue to do this as we move forward, and Charlie will talk to that some more. So with that, I'll hand over to Charlie, our CFO, who will take us through the numbers and other matters.

Thanks, Mark, and good morning, everybody. Let me take you through the financial performance for the quarter, which we've been pleased with. System-wide revenue accelerated in the quarter, growing to $1.17 billion, up 9% year-on-year, and Group revenue accelerated to grow by 4% year-on-year to $958 million as company-owned grew more in the period. As Mark highlighted, the key dynamic here is continued shift towards the capital-light business. Growth is increasingly being driven by our Managed & Franchised platform, which is higher margin, more scalable, provides greater visibility and more cash flow. In Managed & Franchised, system revenue grew strongly, 41% year-on-year in Q1 to $260 million and fee income increased by 70% year-on-year. Recurring managed fee income grew 80% year-on-year to $16 million for Q1, reflecting the acceleration of openings and the maturity curve of centers. This has been the key number we have guided to as it reflects the recurring revenue from the growth in the managed network. We continue to see strong partner demand with signings and openings both accelerating. This provides a high level of forward visibility on our future system revenue and fee income. The revenue potential of the Managed & Franchised business continues to grow further. We now have 336,000 rooms open across the Managed & Franchised segment and a further 231,000 in the pipeline of rooms that have been signed and not yet opened. When all of these rooms are open and mature, potential annual system revenue of Managed & Franchised is over $1.9 billion. In the company-owned business, revenue grew 2% year-on-year, and RevPAR increased 6%. Performance in the first quarter of the year has been in line with expectations, and we are maintaining our full year guidance as outlined with our results in March. That is adjusted EBITDA in the range of $585 million to $625 million, company-owned revenue growth of at least 4%, recurring management fee income of $80 million and maintaining our investment-grade credit rating. As Mark said earlier, our direct exposure to the Middle East is limited, but we are cognizant of the macroeconomic uncertainty and volatility. The impact of the Middle East conflict on the global economy remains unknown and includes global inflationary pressures, which may impact the company. These have risen during the quarter, and we are taking proactive steps to reduce them in Q2 and beyond. Despite the macroeconomic backdrop, signings and openings have continued to accelerate post previous investments. Enterprise customer inquiries accelerated, sales have risen and pricing is positive. On financing, net debt increased to $858 million during the quarter. This is primarily driven by share buybacks as we took advantage of lower prices, but also annual bonus payments and working capital timing effects. As you remember, in late 2025, we updated the date on which we invoice. In Q1, as part of an ongoing program to modernize and automate the business, we have updated the process by which we receive invoices. This update has reduced payment days significantly during the quarter. We expect this to normalize over the course of the year. And as a result, net debt should reduce from current levels by the end of this year. This program will also help us realize cost savings as we continue to improve efficiencies across the Group. Importantly, our balance sheet remains strong. Our debt is at a fixed rate. There are no near-term financing requirements, and we maintain -- committed to maintaining an investment-grade rating. On capital allocation, as the business continues to become more capital-light and cash-generative, we're able to return capital to shareholders whilst also continuing to grow. We have already returned over $70 million to investors so far this year through share buybacks and over $230 million since our Investor Day in New York in December 2023. This is a direct outcome of our model. We have announced $100 million of share buybacks so far for 2026. As we did through the course of 2025, we will update the market accordingly in due course. So in summary, we delivered 9% system revenue growth, 4% Group revenue growth. We've delivered strong growth in the Managed & Franchised business, continuing to grow our pipeline to add potential future revenue, company-owned delivering revenue and also RevPAR growth and allowing the flywheel to continue turning, which in turn leads to increased returns to shareholders. Thank you very much. And with that, we'll open the line for questions.

[Operator Instructions] So our first question is from Tim [indiscernible].

Can you hear me, okay?

Yes, we can.

A few quick questions from me, please. First, just Charlie, around the guidance on net debt and the movements around working capital. There's obviously been quite a number of moving parts, both at the year-end and then again today. So I don't know if you can group that all together in terms of an expectation for how you think working capital will move kind of December '26 versus December '25? And perhaps specifically, you had the $57 million PSA arrangement as at December. I think you then said that had been settled in January. So is that part of the equation? So that's question one. Question 2 is around, I guess, churn within the Managed & Franchised estate. So obviously, a lot happening, lots of positivity around signings and openings, but there's always likely to be a degree of churn coming out of the estate. I guess, a, what do you see as -- what drives that? And kind of at what level do you expect to see sort of churn within the Managed & Franchised estate? I think about 6% of rooms last year sort of exited the Managed & Franchised estate through 2025. So similar levels going forward, I guess, is the question. And then finally, -- just around the Middle East, perhaps you could just sort of furnish us with a bit more detail as to the extent of your exposure and again, to any extent to which Managed & Franchised activities, openings and inquiries in that region have been affected given the backdrop?

Great. Thanks. So maybe I'll cover the first one, and Mark can cover the Managed & Franchised and Middle East exposure. So on the net debt, as I mentioned just now, we expect to get net debt back down to year-end '25 levels by the end of this year. The PSA will continue to be part of the overall construct within that, but it will not increase. And actually, it should decrease slightly by then. The overall working capital position from a payments perspective, we're now 10 days shorter at the end of first quarter than we were at the end of 2025. And we expect that to unwind back to being net neutral by the end of 2026, as I mentioned. I think we'll get there actually quite a lot quicker than that when we say end of 2026 to be sure.

Okay. Thanks, Charlie. Just on the sort of churn in Managed & Franchised, the churn is basically rooms that we expect to open that don't open more so than rooms that open and then close. Rooms that open and then close is almost rounding error, and that can be adjustments to the size of the center and so on. Rooms that don't open that we think that are going to open would still be the same, about 4%, 5%. No real change to that. And those are due mostly to owners not being able to finance the opening. That's really what the key cause is there. Middle East, your specific question is around activity in new signings of Managed & Franchised operations. There's really no interruption to that. I think basically, the team there in terms of this part of the activity have a clear look through to the other side. Clearly, current activity in terms of sales and performance is down in this area simply because there's less traffic coming through those markets. But in the long term, it will bring opportunities to further grow the platform. It's a very successful but small part of our platform. And it has been very tight pre the conflict. It's very slightly looser now, but I emphasize very slightly looser. So that brings with it opportunities in the long term.

Could you just scale the Middle Eastern exposure for us whether it is in terms of revenue mix or...

It's a couple of percent of revenue, and it's mostly Managed & Franchised. So it's probably about 70% of that, 80% would be Managed & Franchised in that particular market.

The next question is from Paul May.

Can you hear me, okay?

Yes, we can.

Perfect. I got 3 ones. When do you think this year, you'll be comfortable providing any free cash flow guidance? Appreciate you got the EBITDA out there and some sort of fee guidance. I just wondered at what point you feel comfortable on the free cash flow side. Second one, second and third are a couple of follow-ups post the full year. Just wanted to check on the buyback. I think it was mentioned at the full year that it's expected that Mark would be participating pro rata rather than seeing his share in the company increasing. Just wondered how that has progressed year-to-date and whether there has been some pro rata participation in the buyback and then the third one, the full year M&A was mentioned as a sort of theme or an opportunity. Just wondering if there's been any activity there or whether the current, should we say, geopolitical situation has increased discussions and opportunities there and whether you can confirm if this is larger deals or still likely to be some small bolt-ons as I think was mentioned at the full year.

Yes. Sure. Thanks, Paul. So first of all, on the free cash flow guidance, I think what I'd say on this is the cash flow is good, cash flow is increasing, and we're confident in that cash flow. And that's the reason why we've been confident in buying back a lot of shares so far this year. And actually, we bought back a little bit more, to be honest than we were initially expecting. I think we'll have a lot more visibility going into the year-end when we get to the half year. If you remember, last year, we gave explicit guidance at the half year. And I think we'll sort of have a much more idea of the shape of the cash flow at that point in time. So I think sort of let's just wait a few months for that. On the buyback, Mark has not sold down any shares pro rata. There has to be an explicit announcement, just to be clear on that, should that happen. I think it was just more -- we were talking about the possibility of that happening at the full year, but I'd say there has to be an announcement coming out for that. And then from an M&A perspective, I think sort of the way we envisaged it, and I think just to be very clear, it was always about bolt-ons, minimal amount of cash outlay for M&A. We've got no sort of what people call transformational M&A in the pipeline at the moment.

The next question is from Allen Wells.

A couple from me, please. Firstly, you mentioned your confidence, obviously, in the Flex model in light of uncertainty and you referenced in the statement, engagement with enterprise customers stepping up. It would be great just to get a little bit of color here into those discussions. How has maybe the narrative in those discussions changed, if anything at all over the last kind of 12, 18 months? That's my first question. Secondly, just wanted to touch on the pricing initiatives in company-owned that you talked about. It feels like that's getting a bit of traction when we look at the RevPAR progress. Again, just a little bit of color here on how that's progressing, what next steps are, et cetera? And then third question, just maybe circling back on the kind of the free cash flow and balance sheet questions from earlier. You mentioned, obviously, the unwind of the invoices, the net debt will be slightly elevated. There's also obviously a reminder on the convertible. I think at least when I look across my Visible Alpha consensus, it looks like kind of $725 million to $750 million of net debt and about $180 million of free cash flow. Maybe I just get any thoughts on if you're happy with where consensus is in terms of those sorts of levels. That would be really helpful.

Yes. So maybe, Allen, I'll cover the third one and then Mark can cover the first 2. So on the net debt levels, we're comfortable with that. I don't want to have a sort of backdoor way of giving explicit guidance on the free cash flow levels by talking about that too much. But yes, I said that net debt will come back down by the end of the year. Net debt will come back down by the end of the year. The reason why we highlighted the convertible point is just literally for people who are new to the story, it wasn't any sort of backdoor way of adjusting guidance or anything like that. The amount we're spending on interest cost has not moved since June last year when we issued our second bond apart from the fact that the convertible is now out of the picture. So all of our debt is fixed, as I mentioned earlier, all of our debt is in U.S. dollars. We've got no exposure to sterling rates, and that will be maintained through this year as well.

I think just sort of dealing with the sort of traction in RevPAR and price. So this is basically the price went down last year and has been coming up through the third quarter, fourth quarter and then strongly into first quarter. And our outlook again is positive on the sort of curve on future pricing. And we can already see a lot of what's in the book. So we have a pretty good view on this. So we should continue to get improvements in RevPAR on the company-owned and also in the Managed & Franchised as we go through this year, notwithstanding the -- what's happening in the economy and everything else, it's pulling through. And that, to an extent, is based on the demand. So we have -- we continue to have strong demand overall in the business. So it's not just enterprise. I'll come to that in a moment. But overall, demand is strong as effectively, it's more people understand how to use our products. And that's really a key sort of change where people move away from conventional, which is and conventional, just to be clear, is a go out, I take a lease, I then spend money on fitting the place out. I then manage that and then I get rid of it at the end of the lease term or in most cases, not even at the end of the lease term. Highly capital intensive. The risk is on the balance sheet. it's generally a step aside for 95% of companies, they're not used to doing this, and it ends up being a distraction. So they like whether they're small or large, the fact that they can just rent it ready to use now and that as more companies -- leaders of companies understand that, more people want to use it and it's starting to become more and more mainstream. And you'll see that if you research into what's happening in the property industry, there's this move underlying, it's been going on for years, but it's picking up pace where people move away from the conventional space market into the prepackaged easy-to-use markets. It's an obvious move. And we're spearheading that, all companies. If you look at enterprise, there the conversation is very interesting listening to them as I do selected. It's -- they're talking about cash free. Everyone's focused on cash and savings. So does this save me money? Is it capital light for us? Is it flexible? Is it everywhere? How big can I make it? Can you help me, my company make the conversion to having fixed space over to flexible space? Not maybe for all of it, but for a large part of it. We have our own internal consulting firm that's working on numerous projects and exactly this. It takes time for a company to get rid of leases in order to replace them with more flexible space. So we have good movement with that, but the conversations are practical conversations. They're not really sales conversations. They're explanation conversations where you say that here's the range of products that we have. We did share it with actually on one of the Investor Days. I think it was the one before the last one, Charlie, didn't we? What we call the kimono of products. Now once you open the kimono, then companies get it and say, okay, how quickly can we move? It's obviously cheaper, it's capital light. It stops distracting people. We get on with the main business. It's obvious. But that as the platform grows, the marketing, clearly, we're spending a lot more on marketing. More people get to understand; it starts to become more mainstream. And the property industry moves from where it is today, a very, very analog clunky model onto a much more streamlined. I get what I want for the time I want, where I want it immediately. That's what customers want. So that's a long process. Every single month, that process moves forward. That's how we're filling up the centers. That's how we've got 9% all center growth in revenue.

[Operator Instructions] Our next question is from Michael Donnelly.

Can you hear me, okay?

Yes.

Mark, I think this may have been answered from a comment I heard earlier on. But back in March, you noted that M&A will be a more important part of the growth story this year. So I think I heard Charlie say that there was nothing transformative in your sight at the moment. But are there any other comments that you could make about what you're looking for specifically at this stage that would help to drive Managed & Franchised?

Well, it doesn't -- M&A by definition, generally doesn't help Managed & Franchised, but it's sort of growing the -- it grows both, there's 2 groups. One is people joining us and that we have strong performance, but that does not involve any investment because they're joining up with us on the Managed & Franchised to get the benefit of the platform and the flywheel we've described. So we've got good progress in that every month, and that's a very positive move. It's not M&A, of course, but it's something much better than M&A. On the M&A side, it's small activity, very low cost. And so there are companies joining us. Typically, so far, there's not -- there's very low investment. And so -- and they're very accretive, but they're small. And I think that's what Charlie was saying. They're not sort of announceable large. They're small sort of bolt-on things that we're not spending any money on. So Charlie, I don't know if there's sort of any clarity more that we want to give on that. But some are completely free, people rolling with us, and the other ones are effectively people capitulating joining us.

I think, Michael, the key thing I'd say is just minimal cash outlay.

Yes, minimal cash. Minimal cash out and in the beginning, minimal cash in that we will grow.

And the next question is from Steve Woolf.

A couple for me. Just on cost inflation, you mentioned earlier in the chat that you're already seeing a little creep in. Just any thoughts on where that was in particular. Secondly, in the cost reduction plan, not really given very much detail within it. But is there any figure you had in mind regarding the contribution to guidance and any exceptional charges that go with it? Then just thinking of the barriers to sort of accelerate the managed estate, you sort of gave probably the answer to Tim's question earlier. Is it still then the cost element and it's principally used to sort of fit out their existing buildings to get to your demands as it were? And then finally, the proportion of the company-owned that have leases that you'd now say are essentially capital light linked very much to revenues, that kind of thing, please? Apologies.

That's a lot of stuff there. How are we gonna do this, Charlie? So I just...

Why don't you start, Mark, then I will...

Yes. Look, I think if you -- my comments were we need to explain the company-owned Group better. And effectively, the vast majority are extremely low risk and fully hedged. Some of them like that because the rent is variable, but we put them in company-owned. Some of it is structural. There are many ways we do this. But -- and we're going to work out how we can explain better this Group. But people have the idea or generally, investors could have the idea that this is somehow capital heavy, which it isn't and cyclical, which it is, but very -- it's marginal cyclicality. It's not full cyclicality. We've explained and we have shown some people when we've asked the question to explain what happened in COVID. And the company-owned mature Group traded well during COVID. The issue for us was the new centers that were added during that period. That is the thing that caused us over many cycles over many, many decades, okay? So that has now gone. So you've got a Group here that is very well established and has -- is very hedged and managed, it's managed for a downturn already. It's all done ahead of time, not after it happens. So that's #1. And we've got to work out how we can explain that as we go through this year. And we will be adding more things to it. But almost -- I think all of them pretty much are always hedged, but they also have variable elements, which makes them even more flexible, let's say, if the market gets hit by anything. I think then if we move to cost savings, I think the reason -- I don't think, Charlie, we can put a figure on this, as opposed to what we're saying is we don't see -- we think we can counter the impact of what we expect to be rising costs. There's going to be rising costs in energy costs. Energy cost, Charlie, what's that about 4% for us.

Less than that. It's about 1 anda bit percent, but it also impacts everything else as well.

Impacts everything else. But you've got -- so that we expect, overall, we expect more inflation. The inflation is probably going to come later. That would eventually affect salaries, et cetera, in countries where it's linked. Overall, inflation generally is a good thing for us because we're fixed generally on cost, and we can -- that is quite -- can be quite accretive for us in terms of cash. But -- so #1, we're focused on -- we're always focused on keeping our costs down. We've ratcheted that cost focus up more. I think both naturally, Charlie, I think the accounting system with all of its issues over the past, whatever it is, 18 months putting it in, we now have excellent access to data, much more real-time access. It allows us to control costs better than we've ever done, and that will give us a bit more of a cushion. So it's all of that normal stuff plus AI. Now AI will be, I think, a major change to our cost base over the coming years, but it takes time. So we're already using AI a lot, but there's a lot more we can do that would just take time to get it in the business. So that's something that more will allow us to control costs into sort of '27, '28 as the business scales and AI really works with scaled up businesses. So it just takes out fractions of costs all over the place, helps us to manage price better, many, many things that AI will be helpful with a business of our size. And we're very focused on that. We have a team on it. We can see the savings. It just takes time to get them. Charlie, anything you want to add to that.

I don't think so. Sounds good, thanks.

Steve?

Yes, I think we're through that. There's no exceptional charges. And then the final bit then were the barriers to accelerate that, the managed estate. You mentioned earlier, it was obviously -- to Tim's question, effectively was the financing. Is that -- presumably that's the financing element to up the buildings...

Yes, yes. Yes, I mean, it's not our financing. It's their...

No, no, their financing, yes.

Yes. I mean -- I think we've even got through that. I mean it's -- I think it's just -- I think, look, the momentum we've got is quite good. There's also -- we have to also manage -- you've got to do this in stages that are manageable. And the key thing is great performance for our partners, which we're doing, and we've improved incredibly since we started in how we're interacting with partners. We continue to improve that. Yes. So I think this year, we're going to have an acceleration in growth, Charlie. And then after the growth, after we got them open, we've got to manage them. And that's -- we continue to adapt the structure. Some of these countries that we're doing are up tenfold on what they are. So the management has just got to catch up to that.

And our final question is from Dan Cowan.

Can't hear you, Dan.

Okay. Sorry, Dan, we can't seem to hear you there. Okay. Well, that brings us to the end of the Q&A session. I'll now hand back to Mark for closing remarks.

Great. Thank you all very much for joining and for your questions. As always, we're all open for any further questions that we didn't cover, we'd like to cover in more detail. Thank you for your participation. Goodbye.