Yet Another Value Podcast - 1 Main Capital's Yaron Naymark on some general investor skepticism with $IWG.L thesis

Episode Date: February 2, 2025

Yaron Naymark, Founder of 1 Main Capital, is back for the fifth time on the podcast to provide an update on his thesis for International Workplace Group plc (LSE: IWG), and how he overcomes the general investor skepticism associated with the company. For more information about Yaron Naymark and 1 Main Capital, please visit: https://www.1maincapital.com/ Yaron's original YAVP appearance talking $IWG.L: https://www.youtube.com/watch?v=QmVjVOoG6Sc Yaron's last YAVP appearance talking $IWG.L (June 2024): https://www.youtube.com/watch?v=FkZng2PSdxM Chapters: [0:00] Introduction + Episode sponsor: Daloopa [1:31] Overview of $IWG.L and why it's interesting to Yaron [10:36] Valuation [13:42] Franchisees happiness levels with IWG / IWG's "secret sauce"; competitive advantage [21:44] Funding is an obstacle? / RevPAR [33:00] Overcoming general investor skepticism [44:36] Recent transactions in the IWG (shared space) industry, and what that means for IWG valuation / why doesn't Regis own WeWork right now [53:15] Valuation [57:02] What the most likely reason Yaron thinks the thesis doesn't play out / final thoughts Today's sponsor: Daloopa Earnings season is hectic—there’s no way around it. But what if you could take back the time you spend on manual model updates? With Daloopa, you can. Daloopa automates your audit and update process, instantly pulling accurate, fundamental data from filings and reports directly into your models. That means no more wasting hours on repetitive tasks. Instead, you can focus on analyzing trends, refining strategies, and staying ahead of the competition. Stop letting manual work slow you down. Set up a free account today by visiting daloopa.com/YAV and see how Daloopa can transform your workflow.

This podcast is sponsored by Delupa. Earning season is hectic. There's no way around it. But what if you could take back the time you spend on manual model updates? With Delupa, you can. Delupa automate your audit and update process, instantly pulling accurate, fundamental data from filings and reports directly into your models. That means no more wasting hours on repetitive tasks.

Instead, you can focus on analyzing trends, refining strategies, and staying ahead of the competition. Stop letting manual work slow you down. Set up a free account today by visiting Delupa.com. slash yavie and see how and see how dilupa can transform your workflow that's the lupa d a l oopa dot com slash y a v all right hello welcome to the yet another value podcast i'm your host andrew walker if you like this podcast mean a lot if you could rate subscribe review wherever you're watching or listening to it i've got a smile on my face because having on today my friend you're on namark from one main capital and as i told him the last time i saw him in person you

got to wear the shirt the next time you come on and he is a member of the five timers club If you're watching on YouTube, he's got the yet another value podcast shirt on. Your own, how's it going? Good. How you doing? Doing good, man. Excited to have you. Before we get started, quick disclaimer, remind everyone, nothing on this podcast is investing

advice. That's always true, maybe slightly more true today because Geron and I are going to be heading back over the pond and talking about an international stock doing an update. So people should remember nothing on this podcast, investing advice, consult financial advisor, international stocks, carry extra risk, tax uncertainty, all that sort of stuff. So I think disclaimer out the way, your own, you, it's been an interesting year for IWG. We've done a podcast last year on IWG. I think we were chatting.

We thought an update pod might be interesting. So I'll turn it over to you. Maybe you can quickly give a refresher on what the who IWG is, what the IWG story is. And then we can kind of start diving into what happened to them in 24 and what we're thinking about going forward. Yeah. So IWG is the largest co-working flex office company in the world. It's been around longer than we work, longer than industrious, it's significantly larger than them. You know, if this is the first time you're hearing about IWG, you probably have heard of WeWork, and maybe not of IWG's brands, which consists of Regis, spaces, HQ, signature, and the likes.

But anyway, you forgot about one. I'm coming to you from the Commons office right now. I'm long IWG from the LeC perspective. Yeah, there's actually a longer tail, but those are the big ones. So, you know, co-working has become a larger part and more relevant part of the office market over the last, you know, 10, 20 years. Significantly, so over the last two, three, four years, you know, if you look back a decade ago, might have made up less than 1% of total office space. Today, it's low single digit percent of the office space. And, you know, that number continues to increase.

IWG has grown to 4,000 locations globally, primarily through reinvesting its cash flow, which has been positive. So it's been a profitable company, reinvesting its cash flow in the new locations. And it's recently embarked on a capital light strategy where it has a managed and franchise model where it goes to building owners and tells them that they can, you know, the IWG can create a co-working space in their building for, an upfront fee paid to IWG, and then an ongoing management fee, which comes out to about 15% of revenues. The landlords put up the CAPEX themselves. They pay the IWG a 15% management fee, and IWG runs it for them as part of its 4,000 and growing network of co-working spaces. The stock is incredibly cheap today, but that includes very limited contribution from this managed business. I think the managed business is starting to inflect and is going to create

substantial value for IWG shareholders going forward to give you a sense today IWG generates almost zero EBITR cash flow from this managed business. It still trades it seven times my 2025 free cash flow number. So it's about a $2 billion market cap today. I think they'll do about $300 million, probably slightly under, but about $300 million of free cash flow this year. And so seven times my free cash flow number this year very cheap on its own. The core business is growing and should continue to grow, but the management fee business is about to go from zero of EBITDA free cash flow to hundreds of millions of EBITDA free cash flow. And that is an EBITAN free cash flow stream that comes with zero capital intensity, high margins, highly

recurring revenue, and I think will be worth a very high multiple of those earnings as they come. And so I think there's a lot of growth and earnings and free cash flow here from a very low starting evaluation. I think that's a recipe for really strong stock performance. And there's a lot of other interesting stuff that I think make the stock more timely. I think, you know, we've spoken about IWG in the past and someone might ask, you know, why now? Like, why were you wrong before? And there's a lot of reasons we could talk through all of them. But just to summarize, I think, you know, two and a half years ago when I first got involved with the stock, they started signing these management agreements and the management agreements take time to design, build out,

open, fill, and convert into management fees. I was really excited about the KPIs. In the first year, they made a big push towards these management agreements. They signed 400 of these locations. Again, back then, their global base of locations was maybe 3,000. A year later, they signed about 800. This past year, they probably signed close to 1,000, maybe slightly under, but about 1,000. And those KPI's got me really excited, but they never really converted into system sales, EBITDA, and free cash flow. And I think that lag is finally starting to hit the income statement in 2025 and 2026. It's going to accelerate even further. And so as we sit here today, the core business profitability has improved substantially from two years ago coming out of COVID.

Occupancy is still back up in their core locations. And so EBITDA is almost doubled, you know, probably 70%. If you're not looking at it with deducting partner contributions and up almost 100% over that two-year period, if you are deducting partner contributions from EBITDA's up a lot. They've generated a few hundred million of free cash flow. They've paid down debt with it. And the stock's basically got nowhere. So flat stock price, lower net debt, significantly higher EBITDA, and we're two years closer

to these management fees starting to contribute substantially to earnings and free cash flow. On top of that, you know, some of the problems that have led to the stock being depressed, I think are in the process of getting rectified. You know, one of those is the stock is listed in the UK today. You know, it's a very small percentage of their business actually comes from the UK. Most of their business is in the U.S. And this really does belong on the U.S. Stock Exchange, whether it's the New York Stock Exchange or NASDAQ. And the company has been working on doing what it needs to do to eventually.

get a U.S. listing, you know, the biggest steps have been converting from IFRS accounting, the GAAP accounting, converting from Sterling reporting to U.S. dollar reporting. So, 2024 was the first year the company reported in U.S. dollars. 2025 will be the first year the company reports in U.S. Dollar Gap instead of IFRS. Gap accounting makes it significantly easier to understand the accounting of this business because of the lease structures of their own locations. And so from just an ease of understanding the financial reporting, it's getting easier.

It's getting easier to relist this onto the U.S. eventually. And the company has said that they want to start buying back stock once they get down to one-time-and-dap-to-ebit-thought, well, they're going to achieve that level this year in 2025. At that point, they're going to be able to start buying back stock, which I also think really helps, you know, re-rate the shares. You know, I don't think we're playing for, we don't need a re-rating to do really well here. I do think free cash flow is going to grow significantly over the next few years. I should keep reiterating that.

But I do think, you know, those things will help a potential re-rating. Another thing that's worth flagging is there was just a real validation towards co-working a couple weeks ago. CBRE, which is the largest, most sophisticated commercial real estate player, probably globally, bought industrious. They already owned 40% of it, but they bought whatever they didn't own. So now they're going to own 100% of it. They paid an $800 million enterprise value for industrious. Industrius has about 200 global locations. Again, we have 4,000.

Industrius probably did $4 to $500 million of sales worth $4 billion of system-wide sales. Industrious, you know, barely generated any EBITDA on their 4 to 500 million of sales. You know, that's my understanding. And we generate substantial EBITDA on our $4 billion of system-wide sales. So CBRE sees that co-working is going to be a part of every end user of office space's real estate portfolio and they want to have an offering for their clients. I think that provides strong validation that coworking is, you know, going to be, it's here to say.

It's a durable business. IWG is the largest by far in the space, the most profitable along its operating history. And so I think that validation is a big stamp of approval and kind of tells us that seven times free cash flow is way too cheap, especially if you compare that to the free cash flow or you bet on multiple paid by CBRA for industry. So I might have other points that I think about as we continue talking, but I'll stop there and see. No, no, I'm laughing because I don't know one of their points you can have those up. But you touched on a lot of things that I did really want to ask you about. But let me start with, let's start by setting the stage just valuation

wise. Roughly, as you and are speaking, IWG is trading for 163. I don't know if it's pounds or sterlings i can never remember what the listing is but if i said hey your own this is a 2.2 billion dollar market cap company three billion dollar enterprise value company would would i be talking about correctly there it's about a two billion u.s dollar market cap and about 700 so i'm not sure if you're looking at pounds or u.s dollar depend because they report in u.s. dollar now yeah i think i think i switched over and either way we don't have to split out So probably 700 million U.S. dollars of debt and a two-ish-billion market cap. Perfect, perfect.

Just a high twos of enterprise values. So I guess the first place I want to start this year, the company has said, hey, in the medium term, and you can correct me if I'm wrong, I don't think they've ever defined what the medium term is. But we're going to hit a billion dollars of adjusted EBITA. And we can pick apart that adjusted EBIT on a second. But do you think that, look, if they're going to hit a billion dollar in adjusted EBITA, it doesn't matter if this is a coal mining company. company or, you know, a tech growth AI startup, like $3 billion an EV is probably too cheap if they're going to do a billion dollar just to do a lot. Do you still think in the medium term that kind of billion dollar number is in play?

Yeah. So the medium term, I believe, is 2028. They didn't guide to that year specifically, but a lot of the charts in the investor date that's actually what I had in my head, but they never specifically said it. So I thought it was worth just telling, yeah. Yeah. Yeah. So the slides went out to 2028 on all the charts.

So I'm assuming that's what medium term means. Um, I think that's that the billion dollars is very much in play. I mean, there's some get puts and puts and takes. Um, I think the, the two positives are in their core business, which is co-working and the negative is in Worko, which is a business that they, you know, they bought an asset called Instant. They merged part of their virtual office business into instant in that business has disappointed since the investor day, but the other two segments, which is the coworking

spaces they manage for other parties and the coworking spaces they own and manage for themselves have significantly outperformed, you know, my expectations, and I think their internal expectations since they put that target out there, WERCO, which is underperformed, is underperformed to a lesser extent than the outperformance in those two other segments. So I think the billion is still very much in play. Hopefully they're able to beat the billion, which I think they will. You know, CAPX is a very small part of that EBITDA looking out to 2028. There's taxes, very low interest expense because they're going to have almost no net debt or they're going to have actually net cash by then. And so the, you know, billion dollars plus of EBITDA probably converts into 700 million or so

free cash flow. And, uh, you know, yeah. And as you said, 700 million free cash flow, the net debt's going to be very low at that point, even if they hold it steady at this level, like 2 billion market, $2 billion, $2 billion, a little bit over market cap, $700 million free cash flow. Like, that's really interesting. Let me start with the biggest question. I talk to, you mentioned, the most interesting part that, you know, a significant part of the free cash flow at that point is coming from management fees. And, you know, I, I own KKR from 2018 until the start of early 2024. And I always thought the management fees were undervalued by the market. And eventually the market realizes that, you know, a secularly growing capital light, predictable, high margin revenue stream is

worth a high multiple. And I, you know, I see a lot of similarities between that management fee side of the business and the management fees. I think it's worth, I think, you know, I think if the stocks, if over half of pre-cash flow at that point is coming for management fees, I think there's a shot. You get a really big multiple on this stock. And, you know, I think that's the upside case. Then let me try and be a good host in response to that, because I do have questions on that as well. So I want to just ask, when you when you talk to people, franchise or I guess the franchisees, when you talk to the buildings, the franchisees that are doing this, do you hear that they are happy? with the iwg solution here yes so um you know i i've spoken to dozens and dozens of building owners i've started conducting surveys as well in the most recent survey i did was like two three two three months ago got a little bit over 50 building owners and uh you know i asked a ton of questions but one of the questions i always ask in every survey is on a scale from one to five how happy are you with your current relationship with iwg and uh it's been a

pretty consistent that four and five, so meaning four and five is the happy, five is the happy as you could be. Four and five makes up a majority of those responses. Threes have made up single digit percentage of the responses. And then there's been very few, if any, ones and twos across the search. Do you think there's a selection bias there? Like your broker is looking for people to talk about it and the people who are unhappy with it aren't willing to pop on it? No, I don't think so because they do give negative feedback on what HiWG could do better or what they're unhappy with. And by the way, those responses are consistent with conversations I've had with building owners myself, who've been very impressed with what IWG has been able to do.

You know, I've spoken to building owners who gave IWG locations to manage that they currently had leased to a smaller co-working company, and the smaller co-working company was not able to make their rent payments because they were like, this location's bad, with this, you know, co-working doesn't work in this building. And they've given it over to I, to manage and IWG fills it at higher ends per foot and operates it very well. So I've had anecdotal stories, you know, from conversations that I've had with building owners. The surveys help as well. I think in general, you know, IWG is helping them convert empty space into monetized space

at rates that are probably higher than they would get even if they were able to fill that space with a triple net lease. What do you think the secret sauce is? like when I think about obviously IWG knows a few people I think I've gotten a little more skeptical on I don't want to put words in your mouth on the network effect of having like a hundred thousand units and me being able to be like my home base is in New York but when I travel to Boston I can go to I you can address any of that but when IWG goes into a space and takes over from a small co-working and dramatically improves the operations you know if chick flay takes over a space that's run by Andrew and your own's fried chicken Chick-fil-A is going to weigh increase the revenue, right?

So what is the secret sauce that this big IWG brand does that increases revenue in the same way a Chick-fil-A would improve Andrew and your own's fried chicken revenue? Yeah, look, it's a lot of small things that build on themselves to create a significant competitive advantage. I mean, customer acquisition is really important. You need to have a big funnel, and you need to convert those leads into signed contracts. So you need a big funnel, you need high conversion. You need to know how to price.

What is their advantage? in the funnel when a lot of their upcoming locations, I'm going to have questions on this, are going to be suburban, right? What is their advantage in the funnel in suburban? Because if you told me urban, I couldn't believe it. But when they move, if they've got no location in my hometown of County, Louisiana, and they make a move there. It's not like they've got any, they don't have existing sales space. They don't have an exist. How are they going to get people there that Andrew and your own's local co-working were not, right? Because in my mind, suburban, if you want an office in a suburban, you just look around for the nearest office space and kind of go there.

So how do they improve the leads there? Yeah, a lot of people just go on Google and do you need to have a good customer acquisition. I guess they're probably much better at SEO, right? Because I think that's 100% right. So I think, you know, the brand, about 70% of their locations are the Regis brand is very well known. But I do think the ability to marketing scale, right, and market sales and marketing budget. budget and then knowing which keywords to buy and then importantly how to convert those leads,

right? That's really important. I don't know how many co-working spaces you've signed up for, but I've, you know, I'm on my second one, but I've shopped around a lot. And there are plenty of places that I've reached out to that they don't get back to me or they get back to me a week late. IWG, if you put in your information, you will get a call within five minutes from someone, right? And they're trying to, they're trying to get you to sign a contract right then. And they're throwing promotions at you and they just know how to convert these into signed contracts. And then once you're a signed contract, I think retaining you is also really important. So they know how to retain because they have years and years of operating history.

They know how to price because in a lot of these locations, they have, you know, plenty of locations within one mile, three miles, five miles of where they're opening new ones. Or if not, they know other areas that have similar demographics, they have similar levels of occupancy, similar levels of co-working as a percentage of the total office space. And so they have a pretty good sense on how to maximize pricing. For ones that are getting built out for the first time as co-working, they know how many, you know, depending on the demographics and what type of space it is, they know how much common area, you know, open floor space to put where people are willing to share floor space

with other colleagues, how much private office space to put, how much conference rooms to put, and how to price each of those things. And so I think it's important to fill the space, price it efficiently. They also have, you know, 15% of center level revenues normally come from ancillary products and services, not necessarily signed contracts. And so that's really important, being able to charge for a conference room by the hour, selling coffee, selling, you know, phone answering services. So the receptionist could answer the phone in the front.

By the way, I'm in a Regis right now. They could answer your phone and be like, this is one main capital. Oh, can I speak to your own? Okay, hold on. Let me check if he's available. they could collect your mail for you. If you're out of the office for a week, they could tell you what mail you got.

These are all services that they charge you for. They don't do for free. And, you know, smaller operators don't necessarily know how to monetize each of those line items. And so I'm laughing because, oh, I was just going to forget smaller operators. I remember in 2016 when Mark Jackson was saying,

hey, we works getting 3% of their revenue for ancillary services. We've been doing this for 20 years. You cannot make a co-working space work unless you're getting 15, 20% Yeah, 15 to 20% for them. And by the way, also, they know how to keep cost low, right? They're one of the largest office furniture buyers globally.

You know, I think behind the U.S. government, they might be number two. They know how to staff, you know, with minimal headcount. They know how to keep cost low in terms of the operating expenses of the location. They know how to build these spaces out cheaply. It's just a lot of things that compound on themselves to get to a place where they were earning. and on their own locations where they were putting up the capital themselves, they were still earning after tax returns on capital in the 20s, right? And so we work was earning in the negatives, right?

And a lot of the smaller players also aren't making money or if they are making money, they're not making a lot of money. So I think all those things are really important. This podcast is sponsored by Delupa. Earning season is hectic. There's no way around it. But what if you could take back the time you spend on manual model updates? With DeLUPA, you can.

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and see how Delupa can transform your workflow. That's DeLUPA, D-L-O-O-O-P-A.com. Let me ask you slightly different. There was a commentary on the Q3 call where they said, hey, the main obstacle right now to us, I believe it was to signing up franchisees and managed spaces, is ability to fund. And that was kind of surprising to me because in my head, most of these franchising leases, not all of them, but, you know, it's not like its ability to fund a new building. These buildings are already built. In my head, the space is generally out. And, you know, if they switch over to Regis, they're basically saying, hey, this space isn't

working for X, Y, Z reason. And yes, Riggis probably needs to come in and slightly shift the floor plan, put it in some furniture and everything. But that's not a huge hall versus the cost of a building. So it's a little surprised by them saying funding is an obstacle. And this doesn't change one thing or the other. But whenever I see something that surprises me, I like to check because sometimes it indicates there's a really big misunderstanding in your part.

So just wanted to ask you about that piece. Yes. So anytime you're going to even sign a 10-year lease. with a new tenant, you're giving TI allowances. So you need to come up with cash to help the build out of that location for your new 10-year tenant. In general, that's a much smaller amount than when you're converting it to a co-working space yourself. The numbers I've gotten, you know, from talking to building owners and from some of these surveys are that, you know, if you're trying to convert something that was previously a co-working space

or maybe a law firm that had a lot of small kind of cubicle offices, you know, maybe the the costs are $20, $30 a foot. You can get up to $100 or $150 a foot for the really nice locations that you want to convert. And so, you know, the average location size, I think, is $12,000 square feet that they're signing. There's some there are $10,000 or some that are $18,000. So if you put $50 or $100 $100 a foot, I'd call it $15,000 square feet, that's a lot of CAPX. The building owner needs to put in. Now, generally, they should be earning a good return on that CAPX, right? They're going to get their market rent plus a spread and the way to think about that spread is IWG typically right on their own locations is earning center level EBITDA margins of 30% after rent right and here rent goes

to zero and so that that 30% is the spread they were earning after paying rent the landlord doesn't have rent and so like that uplift goes up significantly when you're not paying rent you still have to take off the 15% management fee but that that's kind of how to think about the return that they're getting on the CAP-X. And so they get their market rent plus a return on the CAP-X they're putting in. But you need cash and you need confidence to do that. And not only confidence from the equity holders, but also confidence from the lenders, we need to sign off on these types of leases.

And so, you know, an environment where building owners are thinking of giving back the keys to the banks or going to the bit, you know, maybe they're distressed. They're looking for an extension on the loan. They're going to the bank saying, how would you think about this? The banks typically like 10-year leases, guaranteed rent, landlords obviously like that as well. And they need to get comfortable and have some kind of confidence to make an investment of that magnitude into their locations. Now, the confidence comes from, you know, one, the broader economy, which, you know, with interest rates going up and office not doing that well, that's been tough. But then also from word of mouth and seeing their peers doing it.

and seeing IWG saying, look, we've done this 500 times before for other buildings that we've managed a thousand times before and look at the results. And so I think as you have more and more of these popping up managed locations, not only in the IWG network, but also within industrious and within the smaller players, you know, there's serendipity labs. There's a variety of other ones that are going to management agreement route as well. And I think in general, banks are getting more comfortable with it. Landlords are getting more comfortable with it. And so when I speak to small operators, they're saying it's getting easier and easier to convince landlords to go in this direction. Five years ago, you would pitch this to the landlord and they would look at you like you're taking crazy pills. And now everyone kind of gets it.

And so that, that I think hurdle is getting easier to overcome. The interest rate and economy hurdle is still, that's where they've gotten held up with a lot of their signings that they signed one or two years ago that are taking a little bit longer to build out as, you know, the building owners are like, okay, I get the model. I'm on board, but do I really want to put a million bucks of capex into this location right now with the economy and interest rates doing what they're doing? And so it's been slower to open new locations than we would like, but they're still opening. That was a fantastic answer. Do you think we work a la, I've looked at a lot of QSR franchisors recently, do you think IWG would be well-suited to say, hey, you're having trouble financing, right? We'll do the conversion and we'll lend you the money, which a lot of, we'll lend you, or we'll lend you half the money, which a lot of these

guys do. And in return, you know, we'll just take it off the top on the franchise fees for the next few months until we get paid at a pretty healthy interest rate. Do you think that would make sense or would you not like to see them go that direction? I've actually spoken to people to try to figure out if there's a way to get, you know, a credit facility. I'm not sure I'd want IWG to do it off their balance sheet, but if you could find a third party who's willing to finance it, the duration on these would be very short. The payback would be pretty quick. But because the pool of management agreements is growing, you could actually have, get some pretty big outstanding balances and keep rolling them as you're growing the network.

And if there was a way to have a third party put up the capital, but we would just, we would basically pledge our management fee to that third party to reduce the risk for that third party, even the management fee on our blended management business, not necessarily on that one location. That's something that I think could be really interesting. I'm not sure how likely they are to do something like that, but I think that would be great. Just the thought I had. Let me ask one more thought, and I hate to get too, too deep in the weeds, but Q3,

Revpar on the management agreements is $412 in the quarter. They say, hey, once everything fully run rates, it's going to be $3.15 on things that are already opened, and in the long run, we think it's going to be $250, right? And now what's happening is you're going from, you know, my midtown, New York City, shared office space to I use Kenner, a Kenner shared office space, right? The ref bar is going way down because you're opening more suburban locations, which command much lower rents. And I guess my question is, as all of these new signings happen and they go much more suburban, I have two questions. A, can they still kind of hit their numbers and their growth rate as, you know,

it's going to take, if you got to work that math out, it's going to take three suburban locations to match one New York City location in my example. And B, is the moat in suburban, we talked about on the cost side, but I would like to discuss a little bit more like, is the moat that unique in suburban locations? Because if I'm in the suburbs, I'm probably driving, I've probably got a home office, maybe, I don't know. I mean, I'm more thinking from a sole entrepreneur space, but it does seem like it's not as strong as in our urban location. So I threw a lot out there and just turned that over to you. Yeah, so ref par has been coming down for a couple of years now on the managed side. Part of that is it's more suburban locations.

The other part is you're just opening new kind of emptier locations, right? You're opening them at 30%. You're opening them at 30% occupancy and then they eventually scale. But if you're opening a lot of new ones, that drags down your rep par. They've got the slide in their deck for that. Though I do think they say, hey, here's the rep par once all of these are. fully skilled which should adjust for some of that right yeah i mean i yes i think once you get down to the rep part they're talking about which i think the one the rep part they're talking about still

takes into account that a bunch of the locations are not full yet because they're new um you know if you normalize to maturity they're the ref part they're talking about i think it would end up being higher um once you get to that that point rep part should start going and getting closer to the system right as you fill these look at these newer locations. But RevPAR has been coming down because you're opening in the burbs and you're opening newer locations. I think the important thing to note is that I think most of the decline of REVPAR is through the system. RevPAR should still decline a little bit in 2025 because you have a ton of new locations opening. But I think from 2026 and beyond, it should start to grow.

Maybe 26 is flattish. But I think it just started to grow in 26, maybe 27. in. And from that point, it should be slightly below the corporate locations because corporate have a bigger city mix, but not that much below. I think, you know, it's good that you brought that up. That's one of the reasons why I think the stock hasn't really worked over the last years. There's a bunch of reasons we can talk through them. But that's one of the reasons is that, you know, initially when I was looking at these KPIs, you know, I'll just, to say it bluntly, My out-year numbers, my 2028, 29, 20-30 numbers have come down substantially from when I bought the stock, right?

When I first was buying the stock, this was a brand new concept, this management agreement thing, the KPIs were really good, signings, and all we were able to do is look at signings and what they said the unit economics are, which are an upfront license fee, 15% of sales. and we had to assume what an average location looked like in terms of revenue, occupancy, price per foot. And so initially, you know, I probably thought the management fee per location was going to be a million dollars of average center level revenue times 15% would be 150,000 of management fee per location. It turns out it's going to be substantially below that because, you know, your traditional center was about 20,000 square feet.

the new managed centers are in the burbs and they're probably closer to 12,000, 13,000 square feet. And then the rent per square foot and the traditional center includes city and outside of city. And most of the managed locations are outside of city. And so you're probably looking at like 40-ish percent lower revenue per managed location. And then on top of that, because of, you know, what we spoke about just earlier, it's taking longer to kind of build these locations out and fill them. And so signings have been really good, probably better than I thought, but openings and then the conversion of those openings into revenue has been, you know, my numbers have come down. But, you know, the counter of that is I think I have much more confidence in my out of your numbers today than I did when I first bought the stock.

And order of magnitude, like, yes, sure, numbers have come down with the stock. You know, if I used to think this could be a 20x type of type of investment opportunity, I now think it could be like a 5 to 10x over. But by the way, we're like two or three years closer. Yeah, yeah, yeah. So we're two or three years closer. My confidence in those out-year numbers has gone up, even though the numbers themselves have come down. But I think that the decline in ref bar were almost through.

And I think the fee revenue is starting to really accelerate into 2025 and beyond. Let me ask you a weird question. But I talk to investors about a lot of different companies. I think there's no company I talk about more where people are, I mean, if I was, there are some shady management teams out there. But right, like, IWG has Mark who owns 25%. He's kind of the godfather of the industry. He called the WeWork class, which is actually how I came first came to know and like him. He's been doing this for 25 years.

Like the new management return machine is awesome. I don't think there's a company with like that set of characteristics that I talk to follow where people are as, skeptical of the management team as they are here. And I'll just point you to a few places. Like, I know you and I, we can talk about the capital allocation. I think the capital allocation plan, in my personal opinion, is insane. And I know a lot of other people. And I know people who say that when they say it, they use that as a hammer, right? Like, if they've got an insane capital allocation plan, it's because they're seeing something you're not. And we can talk about that. The adjusted EBITDA numbers. You mentioned the partner contribution ad back.

I know a lot of people who get tripped up on that. I know a lot of people who get tripped up on some other stuff and the adjusted EBIT on everything. But, you know, if I just took it all together, like if Mark owned no stock and they were issuing shares like crazy to try to grow, a la, we were six years ago, I could understand the skepticism. And I do understand the skepticism, but I'm just surprised by the degree of skepticism given 25% owner, Godfather of industry, called a lot of this. So again, that's a huge ball to throw at you. But I guess I'd just love to get your thoughts on all of those pieces. Yeah. I think. they've shot themselves in the foot a lot of times over the last um call it five to seven years um

there have been some so there's been some self-inflicted wounds which you know that's them shooting themselves in the foot there's been a lot of just market headwinds that they've had to overcome over the last call it decade right we've spoken about this in some of our prior podcast you had um the dot-com bubble burst they managed through that you had the gfc they managed by the way these are are short-term leases. These are like one-year leases, you know, shorter duration than one-year in many instances. And so when you have a very bad economy, like you could occupancy could decline vacancies go up and they've managed through that because they have a really good business model with really good lease structure. As we've spoken about this before, their leases tend to be in

SPVs and they could hand the keys back in any of their own locations anytime they want, which gives them a lot of negotiating leverage with landlords and downturns. So they've gone through two big recessions since 2000. They've had Brexit. which led to a weakening of the UK office market. They had WeWork, destroying the pricing integrity of a lot of big cities because they had $20 billion of capital. They were able to light on fire. You had COVID.

And so all these are just examples of things that we've navigated through very successfully, I would say, because of cost discipline, because of insider alignment, and because of focus and the understanding of how to run this business. The self-inflicted stuff has been a lot of it has been shareholder communications. I'm not going to say it's all shareholder communication. Some of it is actually fundamental performance. But the shareholder communication, you know, they talked about getting to capital light much faster and in a manner that, you know, probably depended too much on outside forces to convert the

cap light, you know, selling some of the own locations to third parties to convert that into capital light, a la like Hilton selling down their hotels and retaining the management fee and franchise business. they spoke about that pretty aggressively at a time where the likelihood of succeeding in actually converting that quickly was probably not as high as you would have wanted it to be before you're talking about that to your shareholders. That's one thing. So they overpromise on a speed getting to Capitalite. They started floating the U.S. relisting too early. They weren't ready to execute against the U.S. relisting, and they started floating it in Yahoo and FT articles.

And then, you know, and then they have to be like, oh, it's not going to happen as quickly as you guys think. So, like, they dangled that in front of shareholders. They, you know, took leverage up to buy instant. In my opinion, in my opinion, they overpaid, for instance. They bought that in 2022. But they took leverage up almost to a billion dollars at a time where EBITDA was depressed coming out of COVID. So reported leverage got up to like four times net debt to EBITDA to buy an asset that I think was not that great. And now they're talking about they want to get to one times net debt that you would have.

before they start buying back stock, they're over one, but they're less than one and a half at this point or something like that. And so the fact that they're saying, we really need a way to get to one times before we buy back stock in our own business, which is better than what we bought when we took leverage up to four times in 2022

is a little bit hypocritical. I think they probably could start buying back stock earlier and they're choosing not to for credibility reasons, which I think it's actually doing the output. with equity holders. Maybe it's giving them credibility with that, you know, with lenders, but definitely not with equity holders. They, you know, had this capital markets day in late December of 23 where they put out the billion dollar medium term target. In that, they talked about Worka, which is what they folded instant into, growing double digits for as far as the

I can see. That was in December. Then they came out and talked about annual results in March and said, actually Work is not going to grow this year. So it's like, you just told us, this business is going to grow double digit as far as the I can see. You had the opportunity to tell us as far as the I can see, except for 2024. And then you didn't tell us that at the capital markets. They told us that when you reports, pull your results, which seems like you kind of like, you know, they probably knew about that at the CMD day. I'm not sure why they didn't disclose it.

And then, and then, you know, Mark had this equity sale into strength last year where he sold down 35 million shares, probably like 10 or 15% of its stock into strength. And it's like, if you really believe the million dollars, the billion dollar target why are you selling at this valuation we spoke about that at the last podcast but anyway a lot of these things I think were self-inflicted communication things I still think they're running the business very well I think the intentions of doing the right thing to create long-term value were there the business plan I think makes a lot of sense you know hopefully communication gets better from here they have a new IR guy they have a relatively new CFO I

understand that those things cumulatively lead to skepticism, I think the important thing to note is that the business model from here relies on them continuing to run their own locations very well, which I think they are, and then signing more management agreements. And it's really nice that you're able to talk to third-party building owners and confirm the details of these management agreements and see that these building owners are happy because you don't have to rely on management and take their word given, to your point, you know, historically some of the stuff that that investors hasn't panned out. So I think the ability to survey building owners, talk to building owners is really important to getting comfortable with this thesis. I think once it hits

the income statement, a lot of the skepticism, and by the way, once it's the income statement and once it's reported in Gap, which is going to be much easier to understand, and once it converts the free cash flow and free cash flow, and they're able to buy back stock with that free cash flow, it's just going to become much more tangible to investors. And I think the fact that it becomes more tangible makes it easier for investors to value and put a multiple on. No, it's just like you read the Q3 call and they say, hey, given the momentum in signings on the managing franchise side, we're competent this division has years and years of growth ahead of it. And cash flow, company owned and lease margins are expanding. Our cash flow is going

up. And you read all these great quotes and then not that stock price is the end all be all, but you look at the stock price. And to, I'm sure everyone's chagrin who's involved, it's flat to down over the past couple years. And then as you said, you look at the Dixon sales or you look get, hey, despite the fact that the business seems to be more valuable than ever, we need to hit one-time leverage before we will buy back shares. Or I guess, we've already talked about the EBIT on numbers, so we don't need to go there. You know, they stopped disclosing occupancy, so I know a lot of people, myself included, you start disclosing occupancy, and you're like, wait, that was a pretty important

KPI, and I think they had good reason for it. But you can talk to that, but I'm not really sure it's that important of KPI for a variety of reasons. I think it makes it easier to just think about revenue per location because occupancy, I mean, if you're mixing the number of dedicated desks per location, right, if you have more shared space, more conference rooms, then, then, and if you're reducing that, occupancy could look different, right? Like, you might not want, by the way, to have signed one-year leases in all your locations. If you can do it, if you can fill your space with a lot of day, you know, users by

a day they tend to pay significantly higher rates and so you can get much more revenue in that location if there's a lot of demand for booking by the day or a lot of demand by to let's say you have more conference rooms in a given location and those conference rooms command really high rates you're not going to get a one-year lease for that conference room and so really i think you should care about revenue per location and on top of that with a lot of new locations opening up that's going to depress occupancy and i think investors are just going to freak out of it right if you can get higher prices with lower with slightly like 10% higher price with 50 bips lower occupancy you should take that all day but like investors might freak out and so I think there's lots of

reasons why all all of that's completely understandable I was just saying like I think they disclosed it till late 2023 and anytime you've got a KPI that for years people have thought was important and management pulls it away even if they had good reason you know I I know I know I'm not alone to be like where did my KPI go like so the ball's getting hidden you know I totally agree I think there's lots of reasons investors have been skeptical here. I think some of them are warranted and fair. Some of them are unfair. I do think Mark, his intentions are, you know, he cares about this business.

He cares about his employees. He cares about the ecosystem of building owners. He cares about the stock price, right? He still owns 25% of this thing. Yeah. You know, I've spoken to people who not only work for him currently, a lot of people who've known him or continue to know him outside of the employee-employer relationship who say he feels slighted. He has a chip on his shoulder. He really feels like the public

markets are not giving him the respect that he deserves. We work on a lot more respect than he ever did, even though they never made money. And, you know, I think he has a window of, you know, five, maybe 10 years. I'm not sure. Does he really want to work until his mid-70s? I'm not sure. but to really get the stock price up a lot. I think he has a window here in the next five years to get the stock price up a lot. And if he doesn't succeed in doing that, it's hard for me to imagine he's going to allow someone else to step in and become Satchanadella and he's going to be perceived as Steve Bomber.

You know, like it's just hard for me to imagine he's going to hand the keys of this empire to someone else at a low starting valuation with inflecting fundamentals, who then gets to take credit for getting the stock price up 5x or something like that. And so I think either he shepherds it to a much higher stock price himself and then rides off into the sunset with a higher stock price, maybe sell some stock down before he does that, or I think he kind of has to sell it to private equity for a big premium. And we know there's demand for these types of assets because industrious just sold for an $800 million enterprise value for a much smaller business. And so great transit, great transition. There have been two transactions over the past year. We work emerges from bankruptcy and industrious, like literally,

a couple weeks ago gets bought for $800 million by CBRE, if I remember correctly. I just want to ask, I don't know the multiple on the CBRE industrial deal. I know very few details. We work. I thought it kind of came out on a crazy valuation. But I'd love to ask you what you think those deals mean both about the industry overall and about IWG specifically, whether that's valuation, look forward, potential ownership, whatever it is. But those are two big deals in the industry, and I'd love to get your thoughts on them.

Yeah, I think, look, they set, industrious specifically sets a really good com, you know, and it's a smaller, arguably faster growing concept. But I actually think with IWG accelerating its growth, now that its signings are converting into openings and the openings are filling, I think the gap in terms of growth between IWG and industrious will narrow significantly. Um, Industrius is kind of a more fresh, hip brand. It's, you know, people on their MacBooks with their AirPods drinking their chai lattes versus like Regis is more me and you, you know, sitting chatting stocks and our Zoom call. Um, by the way, I have a PC. Um, I'm not sure what you're working on, but, um, so I think Industrius is definitely like a more hip, faster growing brand.

Maybe you say command to hire multiple. Does that matter for shared space, though? Like, I hear you, it sounds nice right now, but a year from now, do you want the more hip? Do you want a more hip, we were, uh, share space location, or do you want like a stayed one with an accountant who's going to worth it for 20 years? Yeah, look, if you want more hip, we also have that too. Our space, you're right, we have spaces, um, which is more hip and newer. And so building owners have all the above with us.

Um, I, I personally think I would rather the more profitable. with longer operating history, more operating scale, higher margins, better free cash flow conversion company. I personally would rather that. That's the one I would pay the higher multiple for. But yeah, I think it's a really good comp. Like if you throw revenue multiple or contribution, right, center level contribution multiple, you can kind of back into what you think they're making. You know, IWG makes like 25% center level EBITDA margins. At the peak, we were at like 30, The trough coming out of COVID, we were like, you know, low, low double digits or something like that.

Let's just say industrious does 20% center level, you know, contribution or EBITDA margin. Then they're probably doing $100 million of contribution, right? And they just sold for eight times that number. If you throw eight times on our contribution, you get multiples of our current stock price. If you throw their revenue multiple on our revenue, you get multiples of our stock price. My understanding is that EBITDA, they don't really generate that much EBITDA because they have a lot of GNA that they're going to hopefully leverage as they open more locations. But if you throw that at EBITDA, you get significantly higher stock price. I think that's a great comp.

With WeWork, it was a little bit more of, you know, I think there was some, there were creditors who were well positioned to buy this bankruptcy. Let's pause there. Why doesn't Regisone WeWork right now? Because Mark has not been shy about saying there would be enormous synergies if he bought WeWorks. And I think both you and I can do the math and say, hey, I can't even remember. We work for what, like $5.50 to one of the creditors. I think Marks talked about hundreds of millions and synergies if he merged Regis with WeWork.

Even if he value WeWorks business at a negative number, hundreds of millions of dollars of synergy would more than cover that bid. So why does Regis not own WeWork right now? Yeah. They really should. They're the natural owner. You know, there were bondholder. Basically, WeWork is now owned by the lenders, right?

The lenders took it out of bankruptcy. They put in fresh capital, but if you have the ability to credit bid, your debt, you're in an advantage position to bid for an asset. So unless someone comes in with an over-the-top bid that satisfies the creditors, the creditors are an advantage position to own it. I think Mark probably could have come up with a bid that satisfied, you know, lenders and superseded their ability to take the set of bankruptcy themselves. I don't know why he didn't do that.

I think, you know, on one hand, he has watched we work be overvalued by others for a very long period of time. And he's like, this isn't worth that. This isn't worth that. And he's been proven right. So I think, like, to sit there and think like, this isn't worth that, again, doesn't strike me as crazy. I think sometimes you need to think about what it could be worth in your hands, not necessarily what it's worth someone else. if you want to win an option. And I think it's worth significantly more to him than to us than it would be to anyone else.

But maybe he figured he might get another bite at, you know, another shot at on goal. And it's just, it's one of those dichotomies that I struggle with at IWG where I'm like, Mark, Godfather of the industry owns 25%. It seems like he should know, he should know we work should be in his hands. And then he passes and it's like, I understand he thought maybe he thought it was worth less. maybe he thinks he can get it for a song, but, you know, let's say he can buy, we work three years from now for a dollar. So he gets it for a $550 million less.

If there were $100 million in synergies, like over those three years to miss out on all those synergies to save nothing of the sales and getting your networks in the right place, you're spending more than $100 million. I was being super low on cost because I think there's revenue. I think there's everything. It's like, cool, you save $550 million, but you probably missed out on a billion and a half of value creation over those three years. And it's just like, and by the way, I think.

having a managed offering with the we work brand probably accelerates the number of signings right when you go to building owners and say hey let me manage your location as a space for a regis I think they might say what is a space is a regis but if you come to them and say let me manage this location for you as a we work a lot of them will just get it much more easily it's an easier sale I think so yeah I think it would accelerate growth I think it would be there are a ton of synergies and I've spoken to them a few times about why I think it's worth paying up for. On the other hand, it takes two to do a deal. And if they're, I don't know what their value expectations were. And if they were being unrealistic, I don't blame him and I commend him for being patient. Because I do think if they were being unrealistic, eventually they might have to become more realistic. Yep.

I think this, Anon, Yardi, who controls 60% of this now, he didn't buy it. It wasn't his software company, Yardi systems that bought it. He personally bought it out at his family office. He's older than Mark even. I think he's in his 70s. And he's very involved in the day-to-day is my understanding at the moment. King Street and the bondholders, they're not in the business of owning assets forever, right? They need to have exit liquidity as well.

And so I think there will be a need to find liquidity here, whether they IPO we work, whether they sell it. If they sell it, I think Mark could have another bite at the Apple. You know, maybe CBRE goes for it too now. they have industrious and they have capital. I still think we, you know, we work with IWG makes the most sense. We could squeeze the most out of it in terms of costs and synergies and operate it the best. And, you know, if they're asking for too much, I commend him for being patient. If he could have bought it for $750 or a billion and he chose not to, which I'm not sure that's possible, right?

I'm not sure. Then I kind of question why he didn't do that. And, you know, I'm still hopeful we get another bite at the apple. Maybe that's why they're not buying back stock yet. Maybe there's a shot at that deal happens. I'm not that optimistic that it's happening anytime soon, right? They just took out of bankruptcy last year. Yeah, yeah. Sometimes you need to wait for things to shake out.

My understanding from talking to people in the industry is that they're still, even coming out of bankruptcy, the business is not performing that well. Even with, you know, right, they pruned the bad leases. They, they were able to get, they were able to obviously restructure the business. But I still think they're really not generating cash. They're not growing the business. And if that's the case, I think there will be another shot on goal of the question, whether you get it or whether CBRE gets it, TBD, but hopefully, you know, we're able to. You're, we're coming up with an hour, so I want to end it, but I've got so many questions.

I've followed this company for so long, and I'm always so interested in so close to blowing the trick on it. Let me just end with this. As you and I are talking, it is Monday, January 27th. As I mentioned earlier, the stock's trading for about 160. I can remember remember his pound or sterlings, but whatever. you said, hey, if they hit the targets over the next five to seven years, you could see a five to 10x. Can you just help walk me through the math of how you kind of get to that valuation? And you can, it can be as easy as starting with, they said the medium term, a billion dollar adjusted EBITDA numbers here so I'll get to free cash flow.

But I'd love for our listeners just to be able to do the math of how you kind of get to such large upside. Yeah, I think a billion of EBITDA, you know, I'm actually slightly over, a billion. I'm closer to 1-1 by 2028. And you've adjusted for the partner contribution. We don't have to spend crazy amounts of time on it. So, you know, a billion 78 is where I am for $20.8,000. By that point, partner contributions aren't 100 anymore. They're called it $75 million or something like that.

So a billion 78 gets down to a billion after partner contributions because the least portfolio is getting smaller and smaller as a percentage of overall EBITDA and in nominal terms. and taxes 200 million or something like that. So, like, you're in the mid to high 700, $750 million of free cash flow or something like that. There's no debt anymore on the business. In fact, at that point, you're sitting in a net cash position. And so, in theory, the share count could be lower even, right? Like, I think you probably have a billion of net cash at that point. And so a billion of net cash plus name your multiple.

seven hundred fifty million of free cash flow of which a significant portion is coming for management fees uh i don't know 15 times doesn't sound crazy to me that gets you to 11 250 plus you know a billion and change of net cash on the balance sheet that gets you to like a 12 pound stock compared to the 170 today perfect and you get as we discussed they just converted to you they're converting to us gap i can't remember it's completely don't know if it's this year's done they're already reporting in dollars. Like, you and I have talked offline about the relisting opportunity. Nobody likes showing UK stocks, but everybody likes selling U.S. stocks.

And if this relists, you know, this could get interesting pretty quickly. Yeah, by the way, like there's a shot. They end up generating much more cash. There's a shot. EBITDINs of being higher. But the real thing is the multiple really could be higher than 15 times at that point, right? Like, it's not crazy to think this trades at 20 times, right? 20 times 750 is 15 billion plus gas.

As you said, they start putting a multiple in that managed service businesses. It could get crazy or there's a chance. They buy WeWorks two years from now. They could buy WeWorks, could add scale, could add synergies, add profitability. Down the line, let's say they do buy WeWork or let's say they buy a bunch of other small, struggling operators and get more scale. Once you get more scale on both sides of the business, the managed side of the business and the owned and operated side of the business, you could split them up,

a la Hilton, which I spoke about earlier. I think you probably need hundreds of millions of EBITDA on both segments so that they could each stand alone on their own. But you could eventually sell, you know, the own business for six times EBITDA, five times EBITDA, depending on what you think the managed side of the business will trade for and buy back stock on the managed side of the business or pay herself a special dividend. And then you're holding on to so that there's lots of things you could do over time to great value. And if public markets don't give you that value, I think there's private equity interest that could extract. that value for themselves, whether it's Brookfield or Blackstone or, right, there's lots of private equity firms that see what value is here and probably are pretty sophisticated in

terms of thinking about how to extract that value for themselves. All right. Actual last question. We've talked about IWG multiple times on and offline on the podcast over the past two years. You know, at some point, the valuation gets low enough and the momentum gets big enough that the market's not going to be able to ignore it anymore. And I suspect, I hope, I suspect that it's 2025. If you and I were talking here 18 months from now and, you know, forget the stock networking,

but the momentum here had sold out for some reason or another, you know, managed signings down, the business isn't working. What do you suspect the most likely reason other than, hey, we're in a massive recession would be? Yeah, it's a recession or you've taken, you've been off more than you could show in terms of you're opening too many managed locations too quickly. you're not filling them, you're not focused on providing a good experience for your building owner partners and that destroys the integrity of your product offering and your reputation and then you stop signing new locations and the market doesn't put a multiple on the management

fee because they think it's not a durable enterprise and I think it's going to be a melding ice cube. This podcast is sponsored by DeLupa. Earning season is hectic. There's no way around it. But what if you could take back the time you spend on manual model updates? With DeLUPA, you can. DeLUPA automate your audit and update process, instantly pulling accurate, fundamental data from filings

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slash YAV. This has been great. Your own name, Mark. Hopefully, next podcast, we're going to have to do a different name than IWG. But look, this is one of the most fascinating stocks. I continue to follow it really closely. I've been longed in the past. I wouldn't be surprised if I'm longer in the future. I have friends who are longer. And it's just a fascinating story. But, you know, as just one or two things that it's a little funky, but it's hard. I'm with you. It's just hard to see like, hey, you've got the base business. You've got the management business ramping up. it's hard to see material downside and the upside if the management business keeps ramping is just enormous.

Yeah. Yeah. I think, look, there aren't many. The reason why it's my biggest position is because I think you could do well, even if I'm wrong on the management side of the business, just based on the current valuation. You can do fine. You know, if we're going to recession, maybe you lose a little bit of money. But, like, I don't think you get diluted into oblivion here.

I don't think you get permanently impaired. We're generating cash. We're a cheap starting valuation. And I really think there's an open-ended S-curve-like growth story here, which I don't really have in my portfolio most of the times because I'm a value-oriented guy. And so we're buying cash shells that find litigation-related ways to blow 10% of their market cap out of nowhere constantly. Like open-ended growth stories don't normally come attached to a business that's trading at seven-time free cash flow. And that's kind of how I view this. I love how you comped to KKR because I was there for KKR, not as long as you, unfortunately.

but it does remind me that with KKR was like, hey, I remember the stocks at 20 and they have $12 per share of balance sheet investment. So it's like you're buying this management. When the stock's cheap, there's always a reason with KKR, to your point. There was a reason. Oh, it's levered beta. You know, where it's peak all in a downturn, the balance sheet's going to get smote and their portfolio companies are going to get smooth because everything is leveraged.

You know, they're never going to be able to raise bigger funds again. They're already so big. Like, there are lots of reasons, but like, the reality is that we're strong secular tailwinds with a really good business at a low evaluation. And I think that's kind of what we have here. You know, I will caveat that by saying, like, I'm always looking for signs that I'm wrong and I'm open to changing my mind and I have changed my mind in the past. So I continue to follow this business very closely because it's a big position and I might change my mind tomorrow and sell my position. about, you know, based on everything I know to date, which I've been doing two and a half years of meaningful research on this name at this point, based on everything I know to date, I think I'm right

and I think it resembles KKR to me, and I hope it works out that way. If you did a survey tomorrow of 50 billion owners and the responses went from mainly fours and fives to mainly twos and threes, would that change your mind? It would definitely make me question what was going on, and I would try to have conversations with those building owners and see if I could understand what was driving that displeasure, but it would definitely be a sign that something's going wrong for sure. No, it's just, I look at a lot of these franchisees businesses.

How the franchisees are responding is always a, it's always a difficult one for me to base because I will find that sometimes the franchisees are just furious because they want to be making more money, and that's the bottom line. And sure, everybody does, but they're like making really good money and they just want to be making more money. But then sometimes it's like, hey, they're revolting because there's real issues with the business and it's always tough to like in the multivariate complexity of you know franchise is happy sad whatever like weighed that against

stock price really down managed business is completely free here all that type so most of the building owners that have these management contracts have multiple buildings and so one of the questions I ask in the survey is how likely are you to give another one of your buildings to IWG in the next 12 months to with a management agreement and so like if they're They all went from fours and fives to like twos and threes, but, but they were still answering four or five on likelihood to give IWG another location, then, you know, that would be one thing. But if they all went to like two and three on both of those questions, I think that would be kind of scared for me.

It reminds me of that French trader who, instead of asking people, are you going to vote for Donald Trump or Connell Harris, said, who do you think your neighbor is going to vote for and was like, oh, everybody thinks their neighbor will vote for Donald Trump, let's load the boat. Like, if all the Frenchers would be like, this sucks, I hated. Oh, yeah, we'd love to open as many as humanly possible under the IWG. It's like, well, your actions are kind of speaking loud at the universe up. We've gone way over.

This has been awesome. I appreciate you coming on, looking forward to. I think it's going to be time number seven when you come back on. We're approaching a 10% concentration in your own name of our podcast. It's been great. We'll shout out soon, buddy. Cheers, thanks. 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. Thank you.