Yet Another Value Podcast - 1 Main Capital's Yaron Naymark returns to share update on International Workplace Group $IWG.L

Episode Date: June 10, 2024

Yaron Naymark, Founder of 1 Main Capital, is back for the fourth time on the podcast to provide an update on his thesis for International Workplace Group plc (LSE: IWG). 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 Chapters: [0:00] Introduction + Episode sponsor: Fundamental Edge [1:47] Quick $IWG.L pitch[6:45] CEO recently sells block of shares, putting into perspective CEO's ownership [11:43] $IWG.L inflection - ramping of management franchise [18:11] December 2023 investor day [21:00] $IWG.L bear case [28:45] Franchise revenue margins / understanding IWG market [33:11] Discrepancy between informed IWG analysts vs. speaking with building owners / impact from WeWork [38:23] Competitive environment (post-WeWork emerging from bankruptcy) [42:56] Why didn't IWG take out WeWork and why IWG should own WeWork [52:10] What worries Yaron about IWG thesis (if management franchise business hits a wall) [56:36] Enterprise and final thoughts / US Listing / Buybacks and Dividend / Catalysts for 2024-25 Today's sponsor: Fundamental Edge You’ve probably heard about the Analyst Academy from Fundamental Edge by now. So instead of repeating the basics, let’s talk a minute about what the Academy is and is not. The Analyst Academy is a practical course on the tools and skillsets required to succeed in the buy-side analyst seat. The instructors have experience from firms such as Maverick Capital, DE Shaw, Citadel, Balyasny and ExodusPoint. But what is the Academy NOT? It’s NOT a course on stock-picking. It IS a rigorous guide to learning a process. It’s NOT a guide to pod shop investing. The Academy attracts a wide range of equity investors, from multi-managers to long only to family offices. Rather than teaching a particular style, Fundamental Edge equips learners with the essential skills required to hit the ground running and support their PM. It’s NOT a financial modeling course. Modeling is, of course, part of the curriculum and plays a central role. But the Academy is more than that. It teaches idea generation, thesis communication and how to add value as an analyst. To learn more and access a 10% discount code, go to fundamentedge.com/YAVP

You've probably heard about the Analyst Academy from Fundamental Edge by now. So instead of repeating the basics, let's talk a minute about what the Academy is and is not. The Analyst Academy is a practical course on the tools and skill sets required to succeed in the by-side analyst seat. The instructors have experienced from firms such as Maverick Capital, D. Shaw, and Citadel. But what is the Academy not? It is not a course on stock picking. It is a rigorous guide to learning and process. It is not a guide to pod shop investing.

The Academy attracts a wide range of equity investor. from multi-managers to long-go-only to family offices. Rather than teaching a particular style, Fundamental Edge equips learners with the essential skills required to hit the ground running and support their PM. It is not a financial modeling course. Modeling is, of course, part of the curriculum, and plays a central role.

But the Academy is more than that. It teaches idea generation, thesis communication, and how to add value as an analyst. To learn more and access to 10% discount code, go to Fundamentedge.com slash YavP, or just see the link in the show notes. All right, hello, and welcome to the yet another value podcast. I'm your host, Andrew Walker.

If you like this pod, it mean a lot. If you could rate, subscribe, listen to it wherever you're watching or listening to it. With me today, I'm happy to have one. I thought it was the third time, but I looked it up. It is for the fourth time, my friend. You know, fifth time you get the, uh, the S&L style jackets for the fifth time. My friend, you're own new, how's it going? I'm good.

How are you? Doing great. Really excited to have you on. Before we jump into it, I'll just do a quick disclaimer. Nothing on this podcast is investing advice. That's always true, but we are talking about an international stock, even if 50% of their revenue is in the U.S., and they're always talking about relisting to the U.S. But, you know, an international stock carries a little bit of extra risk.

So please do your own work, consult a financial advisor, all of that. Your own, I can't believe it, but it's been almost 15 months since we did our pitch on IWG, and you reached out to me and said, hey, there's a lot going on. The thesis continues to play out and want to do an update pod on. Obviously, I love having you on, so I want to do it. So we are talking at the beginning of June, 2004. Why don't we just quick, people can go listen to the first podcast for a really comprehensive overview of the overall thesis. But why don't we do a quick, here's the IWG pitch, and then we can hop into the updates and everything.

Yeah. So IWG is the largest co-working flex office company in the world. They have about 3,500 locations today. They've been around since the 80s. They were founded by the current CEO, Mark Dixon, back then. You know, he still owns about 25% of the company today. And they, you know, it's been a very incredible kind of owner-operator, self-funded growth story with good unit economics. You know, they've basically self-funded the growth from the first location, which Mark opened with, you know,

undergrant of his own money or something like that. And, you know, they've used the cash flow from that first location to open more locations and all the cash flow from additional locations to continue investing and growing the network. And that's how he's been able to retain, you know, such a large ownership stake in the company while also, you know, having a lot of other expensive hobbies on the side. And, you know, they've grown responsibly, unlike, you know, WeWork, which burned 20-something billion dollars to, you know, open hundreds of locations. IWG was able to generate cash, buy back stock, payout dividends, and get the 3,500 locations. So they've done it in a responsible capital-efficient way. A few years ago, you know, coming out of the pandemic, they really started transforming the business away from, you know, their traditional owned and operated locations where they sign leases,

put up the capital, and then sublease the space to individual tenants towards their managed and franchise business where they allow. other people to either sign a franchise agreement with the company and pay the company or royalty to use their brand and, you know, IP or management agreements where IWG will come and actually run a co-working space for the building owner and take a management fee for those services. You know, those, that part of the business was a few hundred locations coming into 2022. It'll probably break a thousand locations this year. And they are probably going to start adding a thousand or so a year for the foreseeable future.

So the entire network today is 3,500 locations. You know, they signed in 2022, they signed 400 management agreements. In 2023, they signed about 800 kind of capital life management agreements. This year, I expect them to sign 1,000 plus. And that's on an entire network of, again, 3,500 units and a managed franchise network in the 100. So we're pretty quickly approaching a place where they will be opening a significant amount of new locations every year. Those new locations will drive management fees significantly higher.

The managed and franchise business probably lost 20 million pounds last year in EBITDA. It's going to be about break even this year in terms of EBITDA. I think it'll probably generate 25 million pounds or something like that of EBITDA next year and, you know, looking a few years out, it will be in the hundreds of millions. So, you know, relative to the current size of the business, the business at about 400 million pounds of EBITDA last year, and that's with negative contribution for managed and franchise, that business will start to contribute several hundred million dollars of EBITL

looking out a few years, which is significant growth. That growth will come without CAP-X. It's a much more stable profit stream than their legacy business, less operating leverage is worthy of a much higher multiple. And I think we have a big, you know, opportunity to both get free cash flow growth and multiple expansion, which is obviously, you know, that's the dream. Yeah, it's the dream. It's the dream.

So I think, you know, we're on the cusp of the inflection. Stock has basically done nothing since, you know, we spoke 15 months ago. Stock has basically done nothing since 2013. Actually, you know, since then, it's revenue has grown a lot. network's grown a lot, EBITDA's grown a lot, but the valuation is compressed a lot. And for a variety of reasons that we, you know, discussed in the last podcast, happy to go through them again. But I really feel like we're on the cusp of a big inflection here and figured it, you know,

it was worth catching up. For what it's worth, I reached out to you before Mark Dixon had a big stock sale last week. And, you know, and that was an additional kind of wrench that was thrown in that I'm sure we'll talk about. But I still feel very strongly that, you know, the thesis is impact. So I figured I would, you know, get on here and kind of talk through it with you. You know, I think I'm remembering from the first pod we ever did, way back in the depths of COVID days, I said,

Euron, you know how you know you're a good guess? Because every time I'm about to ask a question, you answer it before you do. And that still applies today, if I'm remembering correctly, because the first question I want to start about, you know, just, it was last week, I think, maybe two weeks ago. I can't remember what his time these days. But Mark Dixon, the CEO, he sells a block of shares on the open market and the stock draws down. you know, about 10%, probably down about 5% as you and I are speaking. And it's, it's, Mark is the, to me, having followed this company for a while, kind of the biggest question mark, because on the one hand, I really like him.

Owner, operator grew this thing. I remember during 2016 when he was selling everyone, guys, we were going to explode. Like, what they're doing today is what we did during the dot-com bubble. We blew up. They have learned none of our lessons. I guarantee you they're going to explode. I like Mark. He's a straight shooter.

He's built this business. On the other hand, there's just some. quirks about him that have given me some unease. And one of them is, you know, you see this inflection. A lot of our friends are invested in IWG. I see this inflection. He's talking about, hey, I've got quotes from him. We've got a huge runway.

We're generating more and more crash as we grow, all this sort of stuff. And then he sells a block right before the inflection. So I did just want to ask you about like the dicks and sale and everything because it kind of diverges both owner-operator and this big inflection that's coming. Yeah. I mean, to put to put in perspective, he owned 286. some odd million shares before that sale. He sold 35 million shares. So he still owns 250 million shares. There's a billion outstanding. So he still owns 25% of the company. You know, he over the last, you know, few years, he's put in 100 million plus pounds of his own capital

into the business. You know, most of that came in during the pandemic. There was an equity issuance that he subscribed for more than his pro rata share on. He put in 90 million pounds then. He's also bought stock in the open market. Do you remember what the equity issues was that? Was it at 200? I can't remember. It was in the maybe 225 or something like that. He's kind of selling this right now at slightly below break even.

Yeah. He sold at 195 and he bought in at 225. He bought stock aggressively in 2018, 2019, 2020, very aggressively with that 90 million by 2021 and 2022. You know, I think he really believed the stock was on the cusp of working. If he was wrong then about it being on the cusp of working, maybe he's wrong now about it being on the cusp. So I see how there could be some doubt in his mind of like the stock really should work here, but I really thought it should work in 2018. I really thought it should work coming out of 2020 and 2021 and 2022.

So I really think it's going to work now, but who knows? And I'm tired of living like a poor man when I'm really rich because, you know, coming, he he's the CEO of IWG, you know, he makes a few million pounds a year, like low single digit million pounds. That doesn't fund the lifestyle, right? Two million bucks. Two million pounds a year is not fun the lifestyle, especially a billionaire like him who has nice hobbies. And so do you see this little small violin that I'm playing for him right now? You know, how he used to fund a lot of his hobbies, I believe he does, he has had some stock sales, you know, over time. And but really he was getting dividend income, right? This used to be a dividend payer in going through, you know, coming up to the pandemic, at which point they turned off the dividend. And so the dividend went away. He still continues making his, you know, small salary for a billionaire. And not only did he stop getting a dividend.

He actually put in 90 million pounds and bought back stock, you know, besides that. So he put in 100 million pounds of his own liquidity into the stock at a time where his dividend got shut off. And, you know, all his outside interest didn't really go away. And I think he thought, okay, I'll tighten the purse strings personally for a little while until the stock triples and then I'll sell down my stake and it'll be fine. But after some period of time, this is just my read. Like he hasn't told me this, but my read is he's probably like, okay, I'm done.

being patient, how much longer do I need to keep waiting to live like a poor man when I'm a rich man? And like, why should I, you know, keep living the way I don't want to live? Like, the whole point of being wealthy is to be able to live the way you want. And so like, all right, fine, I'll sell 35 million shares. I'll get my 90 million pounds back or whatever, I guess, you know, $90 million or whatever it was. I'll be able to live, you know, fund my outside interest. I'll still own 25% of the company. If the stock goes up 5x from here, I'll still be very happy and a very rich man, and it is what it is. I think I don't read too much into it.

He still owns a lot of stock. I don't think it calls into question anything he's said about the business over the last few years. If I could just say, Andy, one thing that does jump out to me, having covered the company for a while, you know, I think it was back in 2018, Brookfield, if I remember, Crockley, got very close to buying an IWG, and then the deal kind of fell through an IWG. you know, instead, as you're saying, Mark Dixon bought stock and the company bought pretty aggressively on the open market, right? So if you think back to then, he almost had an exit and instead he said, I see a lot of value here. And then COVID kind of changed everything. And then, you know,

he put, as you said, he put money in, he's bought stock. That's six years of delayed gratification on a thing. And yeah, they've got the inflection coming. Like, it is weird to sell now. But he's been waiting a long time. And he's still, he's still very, very exposed to. an inflection. Let's talk about that inflection. A big part of the thesis. I mean, look, I think a lot of IWG's business is interesting. But the real thesis here, I think the really sexy thing that's flipped you onto this is the managing franchise room. So I just, when we talked 15 months ago, the managing franchise, it was a little more nascent. You know, they were talking about huge growth. You mentioned a little bit up front, but I just want to dive into, you know,

we're 15 months post that first podcast. How is this performing and how is the ramp up of these management franchise units going. Yeah. So, you know, when you speak to management, they say, look, 2022 is the year of signings kind of accelerating. 2023 was like a real big signing year, 800 locations. So that was kind of the signing period. 2024 is the opening period where we're going to see openings really accelerate. And I think, you know, if you look in 2022, there were like under 500 total

managed and franchise locations in the network. this year, I think that'll more than double between two and three X. So I think we'll probably end with, you know, close to 1,200 locations on the managing franchise side. But those all won't contribute meaningful management fees yet because you need to ramp those locations. So you basically have signings, then openings, then the revenue impact and financial impact. And so I really think 2025, we will see the big inflection on revenue and EBITDA. And that inflation will continue to accelerate. So it was like 30 million pounds. You know, I'm talking in pounds because up until the end of 2023, this was a G, you know, Sterling reporting company in 2024, everything's going to change

the dollars. But in my head, I'm, you know, my model and everything, I'm still thinking pounds until this, you know, next year I'll update my model. But 30 million pounds a year of fees. That includes royalties from the franchise side and management fees from the managed side and signing fees for when new agreements are signed, there's an upfront payment kind of paid upon signing. It was about 30 million pounds a year. I think this year it's going to be like 50 million pounds or something like that. Sorry, it was 30 million pounds, I think in 2022. In 2023, I think it was like 50.

This year, I think it'll probably be 75. And then I think it's going to start growing significantly in the coming years as these locations open and ramp. EBITDA was it was a $20 million dollar EBITDA loss last year they say it'll be a round break even slightly profitable this year so we're going to see an incremental 20 million pounds of EBITDA between last year and this year and managing franchise I think that 20 will add you know we'll probably we'll probably grow EBITDA by 30 or 40 million next year as revenue inflects and then we're going to start jumping substantially from there so we're going to start seeing the operating leverage here I think you know we're a couple years away from

from seeing hundreds of millions of dollars of revenue and EBITDA from this segment. I think we're going to see the big inflection, you know, back half of this year and into 2025, which is why I think it's so exciting. I think up until now, people have doubted that, you know, what they're saying about these signings is true. And I think we're starting to see it reflected in revenue and, you know, EBITDA will follow as well. And just to add on to what you said, they've said, hey, from signing to open takes 10 months. And then from open to full ramp takes 17 months. So, you know, even though we're 15 months away from our last podcast, and that feels like forever to you and me, it feels like forever saying when listening, like, if you think about that, if they signed 800 units last year, right?

So they've signed a thousand units plus since we talked. None of those units. None of those thousand units are really delivering anything for the company in the trailer financials, which is just kind of crazy to think about. Correct. Yeah, so, yeah, I think, you know, 40 million of EBITDA next year, probably 100 million of EBITDA in 2026. and that's from negative 20 in 2023, that $100 million of EBITDA in 2026 will still have meaningful growth in 2027,

2028, 2029, and it's not crazy to think that 100 million pounds of EBITDA is worth the current enterprise value, right, today. And it has meaningful growth ahead of it, plus you have the owned and operator locations, plus you have Workout. I think when we spoke last time,

I laid out a path to free cash flow, you know, growing a few, a few multiples from where it was back then. I still think that's very realistic and reasonable. I don't think it's crazy to think we're going to have high hundreds of millions of pounds of annual free cash flow looking out to the end of the decade on an annual basis. And I think the multiple has room to run significantly as well. And that's how multivaggers are made when you get massive free cash flow growth and multiple

expansion. So I continue to think that this is intact, you know, on that basis. And I think we're, you know, a year and a half closer to actually realizing that in income statement. Brett Coffron, founder and lead trainer of Fundamental Edge, barely remembers his first year as a hedge fund analyst. Most of that year was spending a blind panic. Was his research any good? Was he learning fast enough? What did his PM really want from him? Training on the by side was non-existent 15 years ago when Brett was a new analyst at Maverick. Then he actually got demoted. Then he worked harder, found mentors, and asked for uncomfortable

feedback. Eventually he turned it around, learning by osmosis from the talented people around him, and rose to managing director. But is this the best way to develop talent? Brett doesn't think so, and that's why you founded Fundamental Edge. The Fundamental Edge Analyst Academy provides students with the tools, frameworks, and confidence to excel in any fundamental equity analyst seat in the industry. Lose the panic and fast track your career on the by side. Find out more info about their next cohort at Fundamentedge.com slash YafP. Or just see a link in the show notes.

The company had an Investor Day back in December, 2003. I don't believe there are transcripts of the Investor Day anywhere, which is kind of frustrating. but I listened to it at the time. I know you listened to it. I think it's worth us, you know, they laid out a lot of the thesis that if you had listened to our podcast, you would have heard.

But I do think it's worth touching on the December Investor Day and just talking about any takeaways or anything you learned there. Yeah, I was able to go in person. It was great. I mean, they had a lot of the senior leadership team there. They all stuck around after the Investor Day.

And I got, you know, to spend time with basically each of them. You know, I stayed around for, probably an hour or two after the investor day ended and just got to know them a little bit better. I think this personal guy networking doing everything. It's a big position for me. So I spent a lot of time doing maintenance work, not just talking to the company, but talking to building owners, talking to other industry professionals, whether it's people at, you know, big brokerages and then talking to people at, you know, competitors. So that was definitely a helpful day. The biggest takeaway was, you know, they guided to a billion dollars of EBITDA,

just about 800 million pounds up from 400 million last year. They said that was over the midterm. I think, you know, if you kind of push them on when the midterm looks like, it sounds like it's probably 2028-ish. So from 2024, from 2023, which was 400 million pounds of EBITDA, to 28, that's five-ish years. I think EBITDA doubles. That million, that billion dollars of EBITDA, I asked Mark what he thinks the free cash flow

conversion looks like on that and he was like, I don't know, 70% plus. So 700 million US dollars of free cash flow, I think the multiple at that point will be significantly higher because a lot of that free cash flow will be coming from much higher quality revenue and earning streams. I don't think it's crazy to think it's 15 times. I don't think it's crazy to see it at 20 times free cash flow. If you tell me it's 12 times for cash flow, I don't think that's great either.

But I think it's 15 times is kind of a decent bogey. And that puts us right around $10 billion versus I think it's probably $2 billion today. So that's the five bagger. I think it could probably do better than that on all fronts. And they will say there's a fair bit of conservatism. They feel like in their model. So I think the numbers could end up being higher than that, and the multiple could end up being higher than that as well. And I would just say, I can't remember it was the Q4, I think it was the Q1 call.

They've been reiterating that one billion number. So let me pause here. I've got a few more questions I want to ask, but you see the inflection happening. I think I see it. A lot of our very smart friends see it. Like people can go on seeking Alfar or wherever and look at fund letters, and there are some very smart funds that are in IWG. And many of them say, hey, shout out to your own for giving me the idea. the stock is flat over the past 18 months.

I do know people who look at it and like kind of vomit in their mouth a little bit. So what is the bear case? What are people who look at this company and pass or what are people, you know, why is it flat over the past year? Why is the market not seeing what so many value investors seem to be seen here? Yeah. I mean, there's so many bear cases that you hear and that I think sound good at kind of first plush that when you peel back the onion could be disproven.

You know, I think the biggest one when I first started buying my shares was that this management franchise isn't real. And Mark has always kind of overpromised, under-delivered. And this is just another over-promise that he's- I, 100% of it. When they first came out with this, every person I talked to be like, this is Mark, man. Come on. How many times he told you we've got this big, bro, you like, come on.

Nobody's going to have managed. In defense of Mark, you know, he has been a visionary. he's, you know, very much delivered against his vision of a much larger business, more profitable, self-funded, efficiently capitalized. And, you know, he's definitely had some big, ambitious, long-term goals that, you know, may have seemed unrealistic at the time. And maybe he's just, you know, sometimes to build a market, you have to talk about a market, right, that doesn't exist today and kind of be ambitious and set ambitious targets and goals. and that, you know, investors should understand that when a CEO or a founder speaks about these big ambitious goals that they don't mean near term. I think, you know, and he did have, you know, some kind of midterm targets of moving the business towards, you know, capital light more quickly by selling down owned locations and that, you know, I think he was on the path to doing that, but the pandemic and WeWorks troubles kind of threw that off. and that was that was not his fault.

We work also destroyed the integrity of, you know, big city markets around the world, whether it was London, Chicago, New York City, and that was not his fault. They also had free money to compete. So not only destroyed the pricing integrity, but they became a comp where it was just a distraction. So there were lots of things that I think investors kind of blamed him for that I don't think were necessarily his fault. But I definitely thought that was, you know, something to look into and better understand that he had this reputation of over-promising under-delivering. So on this managed side, I really wanted to try to independently confirm that what he

was saying was true. And the nice thing about this business and this end market is there's lots of people willing to talk to you, building owners, whether they own three buildings or whether it's a real estate private equity firm that owns 50 buildings, people at the brokerages, whether it's CVRE or the other brokerages, people at competitors. Everyone just, you know, it's real estate. Everyone loves to talk and give their opinion and you could, you know, reach out to people on LinkedIn, which I've done. I've spoken to dozens and dozens of building owners.

I've conducted surveys of building owners as well, just more methodical surveys where I've gotten responses, I've done feedback, and I've been able to independently confirm and verify everything Mark has said about this managed business, in terms of unit economics, in terms of pricing structure, in terms of anything he said, I've been able to independently confirm and I feel comfortable with it. You know, then there's kind of the macro type. This is commercial real estate, it's office, it's levered, it's cyclical, it's UK listed. All of those I think are silly. I'm happy to address any of them that you think are, you know, kind of holding people back from buying the stock, but I don't think those are real if you believe this management thing, the unit economics are real and what Mark says is real, you know, that should overwhelm any macro or office related headwinds that people are concerned about, but if you think

think that's not the case. I'm happy to address them. The most important thing that I've spent a lot of time trying to understand that I think if you're really kind of intellectually honest as an investor that should worry you is when a company is growing this quickly, there's a risk that they grow too fast. They have all these new building owner partners that they're managing real estate for now. And, you know, in order to get those signings, there's attention where you want to overpromise up front. So they give you their building to manage. But then you run the risk of disappointing them down the line because you overpromise. Then they're unhappy. And if they're unhappy, this is an industry where everyone talks to everyone. They'll tell the next 10 building

owners that they know that this sucks not to sign any management agreements with IWG. They won't give them any more of their buildings because they own 10 and they only gave them one so far. And so, like, if that were to happen, where they bid off more than they could chew, they have a bunch of frustrated building owner partners. I think, you know, no investors would put a multiple on the management fee because they would assume it's just going away. They would DCF it, but not put a, you know, it wouldn't be a very durable cash flow stream. I, um, I think personally, I think that's the biggest bear case for true long term investors, not trader type investors. Um, and, uh, you know, I've gotten comfortable that so far to date that has not been happening. You know, I've, like I said,

I've spoken to dozens of building owners myself on the phone. I've reached out to on LinkedIn. I've conducted surveys. The last survey I conducted, it was just under 50 building owners that have had at least one managed partnership location open with IWG for at least six months or more. So they're not newly signed and just opened, but at least six months having been opened. And only 7% of them were, you know, we asked them to rate on a scale from one to five house, They were, where, you know, one was least satisfied and five was very satisfied. And we got 7% were twos, which was unsatisfied.

A vast majority were fours or fives with a big kind of fat three in the middle. And so, you know, it was like 70 something percent were fours and fives. Seven percent worth, were twos, which was dissatisfied. And then you had the remaining at three. So they're generally happy. they generally think that IWG has delivered more revenue than they projected for them when they took on the managed partnership agreement. They generally all say they're going to sign more managed partnership agreements with IWG. And by the way, I focused heavily on the U.S. and North America because that's their biggest market.

There is some, you know, Europe and Canada and stuff like that, but vast majority was the U.S. And I think, you know, their existing building owners are going to sign more of these locations. they're happy with the way the partnership is going. And that, I think, is the most important thing. So as the number is trying to show up on the income statement and as people get more comfortable that that's true, I think the stop at work. Did you ask in the survey you did how many, if they plan on opening more buildings with IWJ? I did ask.

They said, yes. I didn't say how many more. That's awesome. No, that's really, look, you know, it's sometimes funny. This will blend into the next question. Sometimes, like, you'll do a lot of work and you'll talk to management team and then, you know, put a podcast up or talk to it. other investor, and they'll be like, oh, this fair case, like, obviously this is going to happen.

And it'd be like, well, I've talked to the management team. I've talked to the building owners and all of them are saying something different. Like, I understand your opinion. But when you talk to, you know, 100 people on the ground who are all saying, yes, this is really working for us. Like, that's different. Two questions on this. First, you know, I'm with you.

One of those tough things with a franchise business is because the franchise revenue is so high margin, when you're investing into a franchise business, it can look great until the day it implodes, right? because it's always going to be very high margin until it's the franchisee's health that really matters and you might look great while your franchisees are struggling and then they all pull the plug, right? If that was going to happen here, we mentioned, you know, what was it, it was 400 stores in 2022, 823, over 1,000, hopefully this year. If that was going to happen here, would it have already happened like if the managed business just didn't, or would it be

more like a 26-27 thing? Yeah, if landlords were to be unhappy, I think, it would be, you know, six months, 12 months post-opening because expectations are very low for the first few months of opening. No one really expects to open at full capacity, utilization, occupancy. Can I push back on that just slightly? I do hear you, like, they wouldn't have pulled the plug yet, but if they were unhappy or having initial worries about it, wouldn't you not see this 1,000 building growth rate? Because as you said, real estate talk. So if they were a little concerned about it, they wouldn't open their second or third managed unit or they would have, you know, I own the building, you and the building next door, I'd say, hey, this IWG

thing, I'm a little concerned about the initial results. Maybe don't sign that contract with them. Wouldn't the growth have slowed? It's such a big market, right? We're talking, like, think about how many small buildings there are in this country and in the world. You know, vacancies in Q1 or 2024 reached an all-time high in the U.S. They're 20% of the office market. That's an all-time market. There are so many desperate office building owners that have empty space that don't know what to do with them. I think you could probably still sign you, right? You could always find a schmuck to sign a bad deal, like in a big, in a big desperate market. And so I'm not sure it would reflect yet in signings. I think it's a harder thing

to assess, which is why, you know, I think for the true intellectual kind of business analyst, that's the one that that is probably scariest, you know, it should be the scariest. It's like, what if, what if their, all our landlords will be unhappy? And I, I just don't think that's accurate. I think the fees will, will come through. I think the free cash flow will come through. And I think signings will continue. Now, eventually, the signings would fall off. But I still think the market's big enough where you could, if, you know, if you're overpromising so many people in such a small market and so many are desperate, I still think you can get signings. But, Look, these people who are signing these deals, it's not like it's like a free call option for them.

They're putting capital into these buildings, right? One of the questions I asked the building owners was, you know, if you were to sign a traditional lease with a, you know, a 10-year tenant or something like that, how much, how much TI allowance, like tenant improvement allowance would you have to provide to them? And most of them said zero to $5 a square foot. So if someone signing a 10-year lease, you give them five, you know, three, four bucks a square foot to, to help renovate that space, you subsidize that for them and then you give them some free rent on top. Under this managed partnership agreement, most of them are putting 50, 60, 70 dollars a square foot into these locations. They're paying that. IWG is not paying that. They're putting a bit so like, you know, going back to maybe a little bit closer to your point of like, yeah,

you would see signing slow if people were doubting it. I still think like you could find desperate people to sign these agreements. But like these are not, this is not like a free call option. This is a very expensive way to try to generate revenue and occupancy in your space. And so the fact that people are, and by the way, they're signing, I think they pay 25 grand out front to IWG to sign these agreements. So they're paying 25 grand plus the average location, I think is like 12, 13,000 square feet times 50, 607 dollars per foot. I mean, this is a million dollar for the average building owner this is a million dollar expenditure and these aren't you know these aren't like massive massive these these aren't brook fields these aren't blackstones like a

million bucks it's a lot of money for these guys um so they're making a real investment into the iwg brand network uh you know this is a real partnership so um let me just yeah one other you've talked to a lot of building owners a lot of people in the space uh you just talked about a few but I look, what do you think when you talk to maybe a slightly informed analyst who's looked at IWG, who's looked at WeWork, but who hasn't talked to all these building owners that you have? What do you think the main kind of discrepancy between what you're hearing from the building owners or what you think about, how they're thinking about the partnerships versus maybe like the analyst who looks at this with a skeptical eye?

Yeah. I mean, look, there's, there's some who are just like, look at, I genuinely believe look at the stock chart and see that it's got nowhere for nine years. like this is a trading sardine. This isn't a company that's created enduring long-term value. And there's, you know, I think we talked about this in our last podcast where, you know, there's lots of companies that have to grow into their valuation over 10 or 15 years, even though they're great companies that continue to grow per share value over time, but just need to de-rate because the multiple got too high. I genuinely believe that's the case here. Not only did the multiple get too high,

the operating environment outside of the company's control got very challenging for a variety of reasons the pandemic was one we work was another um you know brexit was another and um so so i think that's kind of the simple one that's very easy to push back on the other one is look i've been to their locations they're old they're tired i read the customer reviews the customer reviews suck you know that the end user is not the building owners i i sent you i have a i wg space right now i sent you my review of the management and everything a few weeks ago. Yeah. I actually, you know, sometimes I send kind of anonymous, not anonymous feedback that I get from other people to management. I'm just like, hey, here's what people are saying. Or I got feedback from the building

owners, you know, and I, you know, a bunch of them, a bunch of the building owners said they would love to have more real time visibility into how their locations doing from an occupancy and pricing standpoint. Like, they can't just log in and see like, here's what my location is generating in terms of revenue like they have to wait till month end reports and they're like why is that so i i've sent that kind of feedback to them i will i need to i need to compile yours and send it to them as well um in terms of you know the quality of the locations i think this was a for-profit business that made locations as nice as they needed to be to fill them you know that's that's kind of what a business is trying to generate cash and profits could you know could and should be doing over

time. Obviously, they don't want to sacrifice on on the quality of the experience for the end customer, but like clearly they've been able to fill the all the other locations over time. Do you think we work had an impact on that? And this is end of one, right? But I was at they were able to spend 20 billion plus dollars making way nicer locations, way more capex per square foot, way nicer buildings, right? So higher rent per square foot, more upfront capital in terms of build out costs. So it's a better. locations, nicer overall building, nicer space within the building, and they didn't need to charge for all that premiumization because they had free money to burn. So that impacted the big

cities for sure. You know, the other thing I'll tell people is like, you know, we'll get to the customer satisfaction part in a second, but just on the quality of the locations, I personally still think there's too much variability. I think you can walk into one region. Now, spaces in HQ and signature are kind of newer brand in general. Regis is kind of the oldest one within the network, but that happens to be 70% of the footprint. I think you go walk into one Regis and be like, oh, this is nice. And you walk into another Regis and you're like, this looks like my middle school from, you know, the 80s that, or 90s that hasn't been refreshed in a really long time. And I think that will naturally become, you know, way less of an issue as the network grows, right?

The network is 3,500 locations today. It's going to double and triple in size with all these new locations where the average age of the location is coming down meaningfully. It'll just make it easier to kind of have them all. The average age of a location will come down, but also to refresh the old ones will be, you'll have more cash flow to do that. And I think it'll just be easier to do it all. So I do think the quality of the network will go up significantly over the next few years as all these new locations open up. in terms of, you know, the reviews from end customers, look, you have millions and millions of users of this space. Like, if you're happy with the space, you're not going to go on Reddit,

right? Like, I just went into a Regis. It was amazing. And if you're upset, you're going to go and be like, I had a bad experience for the following reason. And so, like, I still think it's a small percentage of customers that walk in and are like, I'm never going to Regis again. They happen to be loud. I don't think that's indicative of the company's ability to fill this space because they've been able to fill a space. They've opened tons of new locations over time. They've been able to fill them. All these new locations they've opened in the last year or two years, they're filling them. And so I don't think that's realistic that they're not, you know, that something's changing, especially with all these new locations that are nicer and brand new,

like they're going to be able to fill them. We are talking June 4th. We work emerged from bankruptcy. We've mentioned we work a few times. We work emerged from bankruptcy last week. I think it was May 30th. So I do just want to ask, you know, WeWork has been, I think they lasted longer as kind of a irrational pricing competitor than anyone thought because they kind of got a SPAC boom cash infusion, but and SoftBank was probably crazy. But they lasted longer. They've emerged. There's a big FTPs focusing on WeWork talking about rational price and everything. But I just want to ask, you know, with WeWork having emerged, how do you think about the competitive environment today versus let's call it 24 months ago and kind of evolving over the next? next 12 to 24 months.

I think the competitive environment will be better. I think we work is less distressed coming out of bankruptcy than they were going into bankruptcy. They're going to be less, you know, prone to just discounting aggressively just to get cash in the door. And they were able to reject the worst of their leases. I think they rejected, I don't know, 150 leases or something like that. They were able to renegotiate another couple hundred.

and they probably just, you know, took on the remaining leases. So definitely less distress. I still think, you know, there's going to be competitive. Like at the end of the day, office space is kind of a commodity product, right? Buyers are sophisticated. They can go shop. There's tons of available options in any local market. And I think a competitive environment will be better.

But it's not like I think it's going to be a massive. step change in profit, lead to a massive step change in profitability. I think marginally the big city markets will become better for IWG and for WeWork. I still don't think it's going to create this massive new competitor that's a huge risk to IWG because we work, even though they've restructured their leases, they came out with a clean balance sheet or they got rid of all their debt, they equitized it and basically got rid of a lot of the that the business still isn't, like, even with the restructured leases and the getting rid of the interest expense, the business is still not making money. It's crazy. Like, you look at the

projections they filed with their, with their plan. And like, in order to get to a place where I think they will be free cash flow break even after maintenance cap X, I think you need occupancy to be, like, 10% above where IWG's occupancy is. And, and IWG's occupancy is, is more, helped by the fact that people have moved outside of the big cities coming out of the pandemic. We work still has to fill these big city locations. It's very hard for me to imagine they're going to end up with 80, you know, mid 80s occupancy while taking up price. And even if they do that, they're not going to have that much excess free cash flow that

they could use to open new locations. So I think they're kind of going to stagnate, right? Maybe they make some cash. Maybe they burn some cash, but not in even if they make some cash, it's not going to be enough to open a ton of new locations and aggressively compete with IWG. Um, you know, almost all their locations are owned and operated. They've, you know, I think they want to go the management agreement route. They have a good brand for it, but they don't really have operating history that instills a lot of confidence in building owners. Right. If you're going to go to a building owner and say, hey, let me manage your space for you and I want a 15% management fee. They're going to be like, do you know what you're doing? Can you generate a profit for me? And I think IWG will go to that same building owner and be like, they never even generate. a profit for themselves. How do you think they're going to generate a profit for you? And so I think IWG still has, you know, leg up on WeWork from that perspective.

So I don't think WeWork is going to be able to open a lot of new corporate locations because they're not going to generate a ton of cash. I don't think they're going to be able to compete aggressively for these managed locations because they don't have a longstanding history of showing that they could profitably operate these locations. And they don't even know, you know, most of these managed locations are coming in rural markets for IWG. WeWork doesn't even know how to operate in rural markets. They've only operated in big cities. So not only have they operated unprofitably, they've only done so in big cities. They have no idea how to do it profitably or in small cities. So I don't think the management's out of the business is going to

see a ton of competition. And I think the most likely outcome here is still, you know, I was hoping IWG would find a way to make a run at WeWork in the bankruptcy process. I still think the most logical conclusion here, hopefully it happens. Who knows what the odds are that it does, is that, you know, IWG will want to get home. Why do you think, I want to go back to the manager in a second, but let's just stick on that. I thought IWG would buy WeWork in bankruptcy as well, you know, rejects all the leases almost, reject everything, take the name because I do think the WeWork name is a lot

better, keep everything a little bit distributed, but make WeWork kind of the core. You basically paid for the name, some of the good leases, and then you've taken the competitor out and done that. I was a little surprised. Like, IWG seemed like the natural best buyer to me. I don't even think they sniffed around at buying the whole. whole co i do think they took some of the leases if i remember correctly but they didn't really snip around the whole co for why do you think that why do you think they didn't take it out

they definitely picked off some leases right that that we were rejected they picked up as management agreements or capital eight agreements you know maybe variable rank um personally uh i i think that i think that i think the bid ass was was too long i think uh you know my impression is that mark is a very patient man, a very shrewd, tough negotiator, and probably was like, I don't need to pay anything. This business has never generated a profit and never will generate a profit under someone else's ownership. And so why should I pay someone for the upside that I could bring to this business myself? And, you know, my sense is that those who are controlling the bankruptcy estate said, you're going to be able to generate a huge profit with this. So you should pay up for

some of it and the bid ass was too wide. And so, you know, maybe they're both trying to call each other's bluff. Maybe he's like, all right, I'll wait it out. In another year or two post-bank post-exit, you'll finally realize you can't do anything with this. So if I sell it, you know, if I buy it for a dollar, that's a dollar more than you would get otherwise. And they think, all right, if we just prove to him that we have the ability to keep kicking the can down the road forever because we're operating at free cash flow rate even and he really wants it, he'll have to pay us for some of the upside because we're not going to be four sellers, right? We're not four sellers.

I wish what I wish I would have done is hired an Evercore or someone like that or Huland or, you know, someone that wasn't already involved in the bankruptcy. Engage them in November of last year, October, December, January and said, which bonds do we need to buy to be in the full-term security? And then we, right, and then we'll be heavily involved in the bankruptcy process. and maybe get involved that way. I'm not sure if that's possible. I'm not a restructuring guy,

but I wish they would have just hired, like, a consultant that knows what they're doing in the bankruptcy process and figure out if there's a way that they can get involved without it being, like, an auction. But that just... If I could just... I hear you and all that, and I really would have liked IWJ to take them out.

But I do think there was still, like, despite everyone having been burned with WeWork, I think there was a little bit of a speculative bid because Adam Newman was in there, you know, he was in there to the last second trying to get them. And the Uriene, is it Uriene? The guy who bought them, I think he's got a very sober thought here,

but he already had some equity in. And it did seem to me like a guy who's very successful and had a lot of money and was kind of looking at it being like, I am the one. Like, did it work for them? No, but it can work for me. Yeah. Look, they might have just been a little bit of irrational pricing. And IWG thought, hey, as you said, this is going for more than we think it's worth.

We'll get it at the next one. Yeah, look, you already was one of the biggest equity holder, They're one of the biggest owners of equity. They were also a lender, but they're also a service provider to WeWork, a technology service provider. So for him, it was, you know, we work as a big customer of ours. If IWG buy them, they probably won't be a big customer of ours anymore. So, well, Lou is a big customer at our core business. Plus, you know, I already have money invested in the equity in debt here.

Let me just see if I could lower my average cost and do well on the other side. So it's probably a combination of both of those things. I think, you know, the secured bond, I think, got down to, what, 20s, 30 cents on the dollar? Like, you could, you could have made a play without trying to, like, negotiate with another side just by buying in the open market bonds. I'm not sure how realistic that is, but that's kind of in my ideal world. Let me move back to the management. You know, the one thing I want to yes hand when you were saying, we work probably isn't an management. Even if WeWork was going to building and saying, hey, let us manage your business.

building, you want the WeWork brand. You don't want the Commons brand or the Regis brand. You want the WeWork. You want the Ferrari of co-working space brands. I hear that, but guess what? It takes a long time to do the sales process. You have to go, as you said, it's not just, I live in New York City. So I tend to think of, you know, the big building with a Wework in it and a Wework side. That's not most of what IWG doing. They're doing the Regal and the suburban places where, you know, there's a three-story building and they take floors two and three. And to go get those, you have to build infrastructure, and then you have to go literally building owner by building owner, shaking hands, signing those deals.

IWG, they did 800 last year, I think. They're going to do $1,000 this year. They'll do $1,000 plus next year. Even if WeWork starts today to hire the people to go shake those hands, it's going to take a long time for them to get there. And every year, IWG signed another $1,000, another thousand. So that's just to say, even if WeWork was going to have huge success here, it's a huge market. It's going to take a lot of time.

It wouldn't put a dent in IWG's growth. here for five years or something. You can add anything on there. I think under IWG's ownership where they could be like, look, we know how to do this in rural markets profitably, but now we can give you that we work branding too. It would massively accelerate the managed partnership growth for IWG under IWG's ownership. We work on a standalone basis.

I don't think they have a realistic product to sell to rural building owners because they don't have a history of generating profits and they don't even not operate. in rural markets, but they also don't have the cash to your point to invest in the biz dev team that's necessary to go knock on doors and pick up the phone and call building owners. I mean, IWG this year is going to be break even on their managing franchise business on call at 75 million pounds of fee revenues. So call it close to 100 million US dollars of fee income, and that's break even EBITDAQ for them, right? Because they have this big biz dev team. We were They mentioned in the Q4, they mentioned, hey, it's not just the biz dev.

We had to build out a general overhead for a supply chain. So we're building a thousand centers. You have to build out a huge overhead so that you can go build these centers that, like, get the bulk pricing and get everything that you need. And again, that takes time and investment. Where is we working to come up with a hundred million bucks a year to bet on something that might not even lead to signings for them, right? They're going to, they're exiting without generating really cash.

So, you know, on the counter, under IWG's ownership, going back to, like, why they should own this, there should be the natural owners that WeWork is like, there's probably $400 million U.S. dollars a year of corporate overhead that WeWork has to have that IWG, you know, I asked Mark a couple years ago before we work really was like on the verge of bankruptcy. I was like, hypothetically, if you were to own WeWork, how much of their corporate overhead do you think you would have to bring in on the IWG side? And he said, zero, you know? So, like, literally if, if WeWork is generating zero dollars of EBITDA, which they will come out with positive EBITDA, I'm not sure if it'll be positive EBITDA less maintenance cap X, but positive EBITDA, but let's just say it's zero of EBITDA and you have 400 million of synergies, that's $400 million of EBITDA, like we should have been able to pay a billion

for this in my opinion. Now, maybe Mark is like, we don't have to. So I'm not going to bid it because we don't have to because it's not worth a billion to anyone other than us. So why should I have to pay that? Hopefully they could narrow the bid ask and figure out a way to make a deal happen. I just think it would create so much value at IWG, even if you have to give upside warrants away, not anywhere near today's price, but like, all right, once the stock triples from here will give you an extra 10% of the company in warrants. And, you know, we think we're going to be up 10x. So you should be happy with that plus some cash today for a business that will generate no cash for you under your ownership. Especially, you know, there are private

coming now. But in bankruptcy, it happens all the time where you get the, you know, some cash plus the warrant call. Like all the best investors, Fundamental Edge believes that the learning process never truly ends. That's why the Analyst Academy is just the beginning of their journey with you. Fundamental Edge alumni gained access to exclusive content, such as the guest speaker series, which recently featured Rich Falk Wallace of Arcana, who discussed the role of factors in fundamental investing. Alumni can also look forward to frequent webinars, case studies, and content from industry partners. Fundamental Edge recently hosted its first analyst spring training conference in Scottsdale, Arizona. Attendees enjoyed a range of speakers, judges' stocks pick competition, and network with fellow alumni.

Mark your calendars for the spring of 2025 for the next conference. visit Fundamentedge.com slash gafp or just see a link in the show notes for more information about the next Academy cohort. I said before we start taping, I was like, oh, it's just an update pod. Update pods only take 30 minutes-ish. Of course, we're going for almost an hour. I have a soft-ish stop that's going to become harder over time. So I want to end with two questions.

I have so many things in my notes that we're not going to get to, but I want to end with two questions. First question. You're a very thoughtful guy. This is a large position for you. I think you mentioned it earlier, but I just want to confirm. when your biggest worry as the story evolves, you know, as we hit this inflection, your biggest worry, is it that the managed business all of a sudden runs into a wall

where, hey, you know, the old contracts are not ramping up and the building owners aren't happy, or is there something else that you're worried about? Yeah, I mean, it's, uh, everything is event path driven. So in the world where management hits a wall, I still think the current business, you can upside just from kind of the current business alone. The current business is still under earning relative to its history, right? We're at 24, 23, 24% EBITDA margins today on the corporate owned locations. That used to be high 20s. Worker is still growing. And there's a lot of costs you would cut out of the business if managed and franchise wasn't working such that it wouldn't

be break-even at today scale. It would generate some profits at the day scale. So if managing franchise doesn't work, I still think profits grow. It's still very cheap. And I still think you get upside, but not five bagger, 10 bagger type upside. But if management franchise doesn't work and the core business suffers because we go into recession and the economy is bad, that's how I think you get real downside here. So the thing that worries me is kind of both of those things pan out, right? Managing franchise hits, you know, Peters out doesn't work and we hit a bad recession. And that's how I think you can get permanently impaired here.

You know, not massively so because the valuation is not that expensive. The balance sheet is in pretty good shape. I don't think we're going to be diluted through expensive debt or equity issuance from here. But I could see how you lose money from here if those things happen. This is famous last words, but I actually do think a recession would be interesting for them just because I do think for all but the largest of largest companies. I think especially COVID and hybrid proved out to a lot of them how important flex can be. And I do wonder if we saw a recession, if we, it's re-spurred the trend to flex, if that makes sense. Both with companies saying, hey, let's do flex.

So when we need to do layoffs, we can, you know, drop our lease space by 10%. And for the building owner saying, hey, you know, we continue to lose office contracts. Let's switch more to flex because they've got that network. They can get people in. We don't have the skill set. The network that IWG brings the skills. That's really important to us. I wonder if on both sides a recession.

I can give you two data points that confirm that view. So one, you know, during the pandemic, coming out of the pandemic, CBR, you bought 40% of industrious. They were surveying their big enterprise customers on the real estate needs. And those, you know, the big enterprise type customers were saying, you know, pre-pandemic, we don't need flex. And during the pandemic and post-pandemic, they're like, we really need hybrid flex. And they're like, okay, we need to have some offering for that.

Let's buy industrious. So they spent a lot of money buying a piece of industrious for that reason. So that's confirmatory from them. I also spoke to someone in the industry who doesn't know exactly, but is pretty well-informed on the space. And he, you know, his best guess was that IWG has low to mid-single-digit percentage of its revenue coming from Enterprise today, but thinks that enterprises just, they move more slowly on the way to flex because HR needs to get involved in CFOs, need to get involved in boards, need to get involved. It's the Titanic. It's not a speedboat, but they're well on the way to moving towards flex.

And this person estimated that it's going to go from 5% of their revenue today to 25% of their revenue over the next five or six years for IWG. And all of that growth on the enterprise side is all going to go to IWG because the enterprises only want to deal with the big international, massive network effect footprint. They don't want to deal with lots of local mom-and-pop operators. and have a bunch of invoices and negotiation to do. And so, you know, those, I do think, to your point, that could accelerate that even further. And I think we're on the way.

Last question on enterprise. I actually completely agree with you. Though I did hear from a few bears who said, hey, Andrew, you and you, especially after our first podcast, because, you know, that's when we public put out there, they were like, look, Andrew, you guys, I think at a prize makes a little sense. They were saying, do you think J.P. Morgan, with all their office space, all their relationships, all their brokers. Do you think they couldn't get like custom flex or flex-ish tight office space where and when they needed it if they wanted to? And I honestly don't know.

And I don't think it makes or breaks the IWG case. So obviously if JP Morgan needs to go through IWG, that's better. I honestly don't know. But I just want to toss it over to you because as we're talking, I'm remembering, I heard that from I think three different people who were pretty thoughtful and thought about it. And they were like, look, the super enterprises don't need it. And I kind of thought the math and evidence that they do, but I just want to throw that to you. Yeah. I mean, every use case is different. If you need one employee or three employees or five employees in a bunch of different places,

do you really want to manage a footprint of 50 different locations across the U.S. that you have five employees each in, even if you had the scale and the ability to do that, you need a team to manage those negotiations. And you need to make sure that, you know, the office space was presentable for your employees and that the lights were working. It's just why not outsource it, right? It's not a huge premium you're paying to IWG to do it for you. It's kind of like saying, hey, do you think JPMorgan, do you think they need to outsource their

main service? Like, they're a huge company. It's like, well, yeah, you know, this is a small spend. And customer, employee safety and employees being productive is actually a lot more important than made service. Yeah, the more dispersed enterprises are willing to have their employees, the more it caters to having someone like IWG do that for you. If you're going to have 300 employees in Denver,

then like, yeah, you could just sign a lease in Denver and, you know, figure it out. But like if you're going to have like five in Denver and five here and five there, like I just think IWG is a much simpler, easier option for you as an enterprise. But again, it's only a single digit percentage of their business today. I think this person has a good handle on it. I'm not sure. But, you know, that growth is, it's optionality.

I don't think it's necessary. This is, all right, this is your fourth podcast. I wore it for the podcast yesterday, a student. We're going to have to have you back on for the fifth podcast. For the fifth podcast, I'm going to pre-ship you. I'm pulling it out. I'm going to pre-ship you, the elite yet another value podcast, five-timers shirt. For the people on YouTube, I'm holding it all.

And I'm pre-shipping it because I've enjoyed these so much, but you've got to promise to wear it for the fifth time. So people, you know, SNL style, they can see you wearing the five-timer jacket. And we'll talk about a new idea because unfortunately for you, I read all your investor letters. So I know, I know what you're working on. And we'll have you back on the, but your own, this was great. People can reach out to your own on Twitter. You can find them very easily.

But this was great, super thoughtful. Really appreciate you hopping on. And I can't wait to have down to your quick points. Yeah, go ahead. All right. So I think a U.S. listing will come. You know, I don't know about the order of like. That was one of my many questions we didn't.

Yeah. So, like, you know, they're just, they're working on so many things that could be creating tons of value for the business. So like the timeline of when each of them comes really depends on what they're prioritizing at any point. But I think a U.S. listing will come next year or the year after, hopefully next year. But if they don't do it next year, it's because something else came up like maybe buying Wii work that distracted them. But U.S. listing will come. I think this will get a higher multiple in the U.S. than outside of the U.S. It will be eligible for indices here. And I think that will create a lot of natural buying and, you know, and active managers here, I think

would probably pay higher multiple than they do in the U.S. listing is the U.S. listing is the one catalyst that I think is so crazy because to me, like my rational, fundamental value investor being be like, why does something trade for more in the U.S. when it trades like plenty liquiding in the UK, you know, it's just switching menus? And every goddamn time it works, every goddamn time. I know why. I know why. Well, go ahead. You tell me why. Yeah, there's in the U.S. people contribute to their 401k or retirement accounts by by buying spy and Russell and other active or passive kind of ETFs or mutual funds that literally drip flows into U.S. companies.

If you look at UK owners, you know, UK resident ownership of UK companies over time, it's been like this. They've used it as a piggy bank. They've literally been net sellers of UK stocks over time. And the U.S. people have been net savers into the stock market over time. I think that's a huge difference. You are probably right. It's just, it blows my mind every time because my rational fundamental of it rain says,

It shouldn't matter when you flip your venue, but it works every gosh darn time. Yeah. And then the other thing is I do think the buyback is going to get turned on. So, right, the dividend got turned off and the buyback got turned off during COVID. The dividend just got turned back on this year in a very small way. But once they get to one times net debt to EBITDA, which should happen by the end of this year, early 2025, they're going to start aggressively buying back their stock. The only way they won't aggressively buy back their stock is if it's up a lot from here or if they have other great uses for their capital, like buying. we work. So like there's just, I think you do have an event path here. U.S. listing, free cash flow

growth, potential to buy we work, buy back coming back while revenue and profits are inflecting. I just think there's there's a lot of good things going on here. Buy back. So this was on my list of questions. Capital allocation. They initiate the dividend. And I'm talking fast because we're going to need top soon. But they initiate the dividend. And I was a little surprised by the dividend because you own a lot of stock. You're approaching one times leverage. The stock seems unvalued. Buy back the damn stock. And I was kind of wondering, They said it's a progressive dividend. I was wondering how much this is smart capital allocation versus Mark saying, hey, I'm going to sell some shares.

I need to turn this back into an income stream. Just quickly on the dividend. What were your thoughts on that? Yeah, I think he needs an income stream. I think, like I said earlier, it used to be his income stream. It got turned off. I think he wants it to turn back on. I think the buyback will come as well with the dividend.

And by the way, we didn't even talk about a gap conversion, which is happening this year, well. So lots of good things from Horizon. Your own, the shirt is going to be in the mail. Appreciate you hopping on. Do you have a hat as well? I had to wear the wrong hat because I had my hat and the baby's room. So I couldn't go get that. But you have the hat? I do have the hat. Thank you. Shirt and hat next time. But you're going to, this was great. We'll talk soon, buddy. And thanks for hopping on for the fourth time. Thank you. A quick disclaimer. Nothing on this podcast should be considered an investment advice. Guests or the host may have positions in any of the stocks mentioned during this podcast.

Please do your own work and consult a financial advisor. Thanks.