Good morning, and welcome to the International Workplace Group third-quarter trading update. This call is being recorded. Today's call is hosted by Mark Dixon, founder and CEO. I will now turn the call over to Mark. Please go ahead.
Thank you very much. Good morning, everyone, and thank you for joining us today to listen to our results for the third quarter of 2025. As a global market leader in our industry, we continue to build our network, and with that, our revenues, and the motor around our business as we continue to sign and open significant numbers of locations to grow our national and global networks and our platform overall. This is what our customers and partners are looking for. That is the scale of the business. And the ability to work for both of these constituents. Q3 has seen continued positive momentum for the group. We have, in the past, been very clear about our plan. Quarter to quarter, we are talking to you about how we are executing on this plan and delivering on it. As we said, we would.
Our strategy is to consistently deliver the results, which moves towards our medium-term target of at least $1 billion of EBITDA. Underlying here in Q3 and our outlook forward is one of very strong momentum as we come to the end of the year. As the world of work continues to evolve, the structural growth in flexible working, combined with our unrivaled market position, continues to grow and has resulted in a system revenue growth of 4% year on year. We expect an acceleration on this, both compared to the first half of the year, and we expect further acceleration as we go into 2026.
The incremental investment in management franchise that we spoke about at the interim results has resulted in further capital-led expansion in our network and coverage, with a 40% increase in both signings and openings year over year in the quarter, and a rapid growth in fee income from that. Signings, openings, and corresponding growth in fee income continues to show great promise and are part of the momentum that we are talking about. The growth in the network is extremely healthy globally. Q3, we signed another 335 locations across the network in total. In the first nine months, we signed 831 locations. These signings are across the managed and franchised and company-owned, but if it is company-owned, almost all these leases are very similar to a managed contract, and therefore both capital-light and asset-light. So very, very low CapEx required.
Coming back to my point of scratching the surface of growth, whilst we have over 1,500 locations open in managed and franchised, or 245,000 rooms open, we have a further 190,000 rooms signed but not yet opened. A lot more growth will come through on the basis of what is in the pipeline. All of that together only just scratches the surface of the potential of the size of the network. This pipeline will underpin growth in this division into 2026 and beyond. What is of equal importance is that these locations are also filling up in line with our expectations, critical clearly for our partners and ourselves. Our strategy to grow occupancy in the company-owned segment, as previously outlined, is working well and feeding through now into revenues.
Although revenue in the quarter was flat, overall, open center revenue was up 1% for the quarter year over year, an improvement compared to the second quarter in 2025. These higher occupancy levels are expected to drive revenue through Q4 and into Q1 2026. The work we've done that Charlie and I have talked to you about will help drive revenue growth through into the company-owned segment. It's a combination of both price and occupancy. We have occupancy improved and improving, and the price is coming through now as we hit the end of Q3 and into Q4. That sets us up very well for 2026. Structural and consumption trends continue to move in our direction. As we continue to expand our network and coverage, we're rapidly growing our exposure to enterprise customers who want to use that network. We've put more investment into it.
It's not more overall; it's a switch in investment, switching our sales resource and marketing resource more behind the growth in enterprise customers. We're ramping that up, and that is bringing with it some very good returns as we start to sell the whole network as opposed to an office in one place. We've always sold the network, but the network, as it grows, is becoming more attractive. We have more to talk about to larger sale customers, and we are winning those. That will be a theme as well during 2026, and we'll talk about that a little more at our investor day in New York. With that, I'll hand over to our CFO, Charlie Steel, to run through the details of the numbers.
Thank you, Mark. As Mark said, we delivered underlying quarterly system-wide revenue growth of 4% year on year to over $1.1 billion. Managed and franchised, in particular, sees new rooms being signed and, importantly, converting into openings at pace. In the third quarter of 2025, we opened 62% more centers on a net basis than in Q3 2024, and we have almost doubled the number of managed centers open at the end of Q3 2025 when compared to the end of Q3 2024. Managed and franchised system revenue has grown by 29% year to date to $574 million, and showed growth of 36% in the quarter on a year-on-year basis. This system revenue growth is translating into a very healthy fee income for IWG, and specifically recurring management fees from our management partnerships.
This line shows growth of 83% year over year to $11 million, and growth over 130% in the nine months to the end of Q3 2025. Increasingly, this is becoming a meaningful contributor to the group and dampening operational leverage. RevPAR is evolving as expected, as Marc said. Given the network growth, the managed and franchised segment should deliver more than $1.6 billion of annual system revenue, and our corresponding fee income will show extremely healthy growth once all rooms currently opened and signed reach maturity. Given the momentum in signings and the experience our partners see when our rooms are open, we're increasingly confident this division has years and years of growth ahead of it. The company-owned division saw flat revenues year over year, driven by 1% growth in revenue from open centers.
As we explained at the half-year stage, we have grown occupancy year to date, and this has continued in the third quarter, and this will support revenue growth into Q4 and into 2026, as Marc mentioned earlier. Note that we continue to sign and open new locations in this business, but the vast majority of these have no CapEx requirements, and the company has no minimum leases. RevPAR continues to develop as expected, and we have seen RevPAR growth in Q3 versus the half-year stage. Importantly, even after 18 months, RevPAR in our managed and franchised division has continued to grow, suggesting that RevPAR at maturity could be higher than $250 that we have previously talked about. Digital and professional services saw flat underlying revenues in the quarter, and reported revenues being impacted by the one exit contract that we've mentioned before.
Our capital allocation policy has been very clear since its introduction at the investor day in December 2023, and I'm pleased to state that we have returned over $100 million of capital to shareholders in 2025, and we will update the market further regarding our capital allocation policy at the investor day in December in New York. Net financial debt increased on the quarter as we accelerated the share buyback program to take advantage of lower prices and repurchased $47 million of equity in the quarter, and customary working capital movements, including the payment of tax and VAT in this quarter. We'll be repaying $173 million of the 2027 convertible using RCF liquidity in December, which leaves us with only $5 million of maturity until the RCF renewal in 2029. We expect net debt to reduce in Q4 in line with previous guidance.
We confirm our guidance for the full 2025 financial year provided with the H1 2025 results as follows. Center growth and signings to be higher than in 2024. No change to adjusted EBITDA or net debt guidance from the half-year. Reiterate commitment to maintaining a triple B flat credit rating. Share buyback of at least $130 million in 2025. Free cash flow to shareholders of at least $140 million in 2025, and on track to deliver EBITDA of at least $1 billion in the medium term. As we've mentioned, we're holding an investor day on December 4, where we'll outline our medium-term framework and update the market on our capital allocation policy. With that, we'll hand over to questions.
Thank you. If you would like to ask a question, please click on the raise hand icon. When you hear your name, please unmute your microphone before asking your question. We will now take a few moments to collect your questions. Our first question is from Michael Donnelly. Please unmute your microphone when prompted. Your line is now open. Please go ahead.
Thank you. Can you hear me okay?
Yes, we can.
Good. It's just one from me. Thanks for the detail there, Marc. It's good to see in the statement that pricing and occupancy are trending in the right direction. Could you give us a little bit more color on the levels of each of those metrics at the moment and how close you feel they might be to aspirational levels? Thank you.
Charlie, you might want to correct me on this, but how close they are to aspirational levels? We're not close to aspirational levels. There's a lot more to go, number one, but what's happening now is that we have both occupancy and price improving at the same time, and that will lead to a better revenue growth in that company-owned group, same center growth. What we're trying to do, I think next year, and we talked about this, is just make sure that we're looking at it clearly, the cohorts of what's important here. It's a question of how much information we give. When I'm talking about good momentum and Charlie's talking about good momentum, what we can see is that the margin in the company-owned, we can see that improving into 2026 as a result of better revenue and costs broadly flat, up a bit, maybe down a bit.
That's what we see. Charlie, agree on that broadly?
Yes. I think it's important to note that if you just outperform the margin by, so that you outperform the revenue with costs by just 1% a year, every 1% on that is worth $30 million. We've still got a lot to play for in that segment. As Marc said, we've got good visibility going into 2026 around both pricing and occupancy. All to play for there.
That's good to hear. Thank you.
Our next question is from Paul May. Please unmute your microphone. Your line is now open. Please go ahead.
Hi, guys. Just a couple of quick questions from me. I had some income in this morning. Could you explain the reason for the change in the revenue recognition in the managed and franchised fee income, just to give some comfort on why it's now including the gross revenue from starter kits rather than net revenues? Then second question. Can you provide some color or comfort on how you plan to get to the $140 million of the free cash flow generation for the year, given, I think, in the first nine months, you're about $30 million, so this leaves quite a bit to go in Q4? What color and comfort can you give on that, say, around network and capital movements and so on? Thanks.
Yeah, sure. So Paul, to start with on the revenue recognition on the starter kit, previously, we used to buy starter kits on behalf of clients when we were opening new centers and then just take a margin on that. What we're now doing is buying them in advance and then selling them out to clients as we open new centers. We are effectively taking risk on that inventory now, which we were not doing before, and that's the reason why it's moved from a net basis to a gross basis. In terms of.
I'll just step in on that one. Paul, the important thing here is we're simplifying the opening program for our partners. Before, what we had was complicated. We had to deal with a lot of different people in order to get a center open. We've consolidated that so that in 2026, we will speed up. You have a one-stop shop for openings, which will—it's one of the blockages that we need to unlock to get more of the signed centers opened. It just takes away a whole swathe of administration. It doesn't really change much, but we do have to, as Charlie says, we've got to recognize the revenue. There's no risk in it, would be fair to say, Charlie.
Yeah, exactly. There is in terms of we're taking inventory risk on it, but from the perspective of, and that's how the accounting works on it. In terms of how we sort of have a forward order book and can see that, we've got good visibility.
Yeah.
On the second question around the $140 million of free cash flow, yes. Paul, in Q3, we spent more on working capital. Very deliberately. Some of that included, for example, some tax and VAT payments. That will be higher in Q3 than in Q4. We do have visibility towards the end of the year on that $140 million. That's the reason why we can reconfirm that guidance today. Thank you.
Our next question is from Alex Smith. Please unmute your microphone. Your line is now open. Please go ahead.
Yeah. Good morning, guys. Can you hear me?
Yes, we can.
Yeah. Perfect. Just a quick one for me. The investment in, well, the incremental investment in the managed franchise division is clearly already delivering an acceleration in growth. Do you expect that to continue over the coming 12 months? More importantly, do you reckon you now have the right headcount to kind of deliver that platform for growth, or is there potentially more headcount or more investment needed in the short to medium term? Thank you.
Answer that, Charlie. Yeah. More investment needed. I mean, the headcount has gone up and will continue to go up steadily, but it's not to the same quantum, but we'll basically, the network size and the ability to go out and get this done, it's important to seize the moment. We're not holding back on that type of recruitment. It's in the numbers here, but yeah, it will continue to go up. Charlie, agree?
Yes, definitely. I think if you look at the rate we're both signing and also opening these centers in this quarter, it's up hugely, even versus this time last year. We've got continued visibility, seeing that increase even further.
Great. Very clear. Thank you.
Yep.
Thank you. As a reminder, if you would like to ask a question, please click on the raise hand icon. Our next question is from Steve Wolff. Please unmute your microphone. Your line is now open. Please go ahead.
Hi, Hyle. Just a quick question then on the managed and franchised. The signings and the pipeline replenishment are obviously going very, very well. Could I just check whether you feel the fee income part of that Q1, Q2, Q3? Could I just see if I could just check those figures with you, Charlie, and whether you felt that that was keeping pace with some of the progression you made on the top line? I appreciate the timings of openings. In terms of the openings themselves on the signings, could you just sort of say whether you have an emphasis or preference for managed versus franchised within that cohort? Any changes, where is it skewed to the portfolio now geographically as you make these signings?
Yeah. So I'll cover the first point, then maybe hand over to Mark for the second point. In terms of the fee income, as we mentioned, the system-wide revenue to the top line on that has increased 36% quarter on quarter. That basically corresponds to the recurring management fees that you see up 83%, going from $6 million in Q3 2024 to $11 million in Q3 2025. Then there's the fee revenue, which also includes JV fees, other fees. That includes things like the starter kit fees, signing fees, and the like. Those ones are a little bit more lumpy because that depends on kind of when we're receiving and signing up the centers. We've seen those just do go up a little bit quarter on quarter.
Obviously, you've also got the summer that kind of ends up being a little bit odd because if people are around in August, you can sometimes sign more of these things or sign fewer of these things. We're definitely seeing the momentum in that also going into Q4. The one I'd probably just focus everybody on is the recurring management fees because that is, by definition, recurring. That's really where we're seeing that growth engine coming through in terms of the fees on the managed business.
Sorry, what's the numbers on that recurring then, purely on a Q1, Q2, Q3 basis?
In the nine months in 2025, it's $30 million, of which Q3 is $11 million of that. It's up hugely quarter on quarter as well.
Okay. Nine months, so 11. Within the first half, then you've got 19 million. You've done 11. You've done 11 in Q3 versus 19 in. It's broadly flat across the periods, 10, 10, 10.
No, it's up sort of. Nine up to 11, and then that will continue to increase in Q4. Our guidance for the year is to do $45 million on that, and that guidance still stands.
Okay. Perfect. Thank you. And then geographically, your preference for managed over franchise, Mark?
Very few franchises. All managed because it is much more streamlined. As I said a few months ago, we are getting the opening process much slicker so that we can speed up the conversion of sites from a signing to an opening. Almost all managed, and that is what you should expect going forward.
Okay.
Our franchisees are also doing well, so there's some growth in franchise revenue. But there are few franchises, really. Regionally, this is across the board. I mean, we've always had strong performance in the US. We've now started to switch more, so we're getting strong performance in the European zone and in Asia and Latin America. The numbers are going up. We're getting very good monthly numbers now that are coming in, but it's more spread. This is as we put the teams in place, then we start to get more performance. The US team is in first. We're growing that as well, but we've just now got the teams in many other places, and that's what it's related to.
Okay. You mentioned, just finally on those points, in terms of the RevPAR of, what is it, $344, you mentioned that's potentially, likely to be possibly sustainably higher than the $250 you'd done previously. Is that largely as a result of the enterprise customer part, or you'd mentioned before pushing out into the regions was possibly part of that, was pulling that number down? What's the thinking behind that? Because it's staying so high.
Steve, the RevPAR of $250 should be looked at in the context of the $216 on the managed. Because it is the managed RevPAR we have guided to $250. The reason why it is $216 is obviously you have got the openings that we have just made within that so that they dilute the RevPAR. As we get more and more open and the openings are a smaller percentage of that, you will start to see that go up even further. The reason for that is we are just seeing that actually these centers are doing incredibly well. Yes, some of that will be from new enterprise customers, but we are already seeing centers that have been open for a while on the managed segment being above that $250 RevPAR.
I think the point is that we have got no reason to see that sort of dipping either back down or that the new ones coming through will not perform in a similar way. It is slightly too early to tell, but that is the direction of travel.
Perfect. That's great.
Just to add to that, Steve, it comes back to a really simple equation. We put more people and more resources into growth. We're getting more growth in centers. We have this year also been putting more investment, switching investment, and making additional investments into the enterprise sales team. That is having significant success in terms of new type of revenue growth. We've always had enterprise, but it's growing that enterprise proportion. We will continue to set that investment. What you will see is the mix. We're not really talking about that. I think, Charlie, I'm probably precursoring the investor, though, but the mix. We expect to continue to change with more platform users using the network. The proportion of that revenue, of our revenue, goes up in terms of those groups. That supplies a new layer of revenue growth.
We're putting the investment in to get there in those enterprise salespeople and a whole support structure that goes with it. That is paying off already. We're just going to put more into it now. It's all in the numbers, by the way. We're not changing any numbers going into next year. That is part of the overhead investment that we think is going to pay off and give us additional revenue growth in 2026.
That's great. Thanks, both.
Thank you. Our next question is from Alan Wells. Please unmute your microphone. Your line is now open. Please go ahead.
Good morning, gentlemen. Just three quick clarification questions from me, please. Firstly, just to go back on the managed and franchise, the grossing up, the starter kit adjustment that's in there. Mindful, obviously, as analysts that forecast this. Is that going to continue to drive lumpiness like quarter on quarter? Is there a seasonal trend to the inventory build there that we need to be mindful of? Obviously, we kind of model the recurring revenue as a trend, but it's the other stuff I'm thinking of now. That's my first question. Secondly, just on the company-owned, obviously, you talked a little bit about the discounting to drive occupancy over the summer. Mindful, obviously, that has now supported occupancy. Can you just talk to me a little bit about how that discounting program continues from here? Does it carry on, or do you just continue to push pricing?
And then finally, just a clarification question on the net debt side. That big, what looks like a pretty required seasonal swing in Q4 to get to the free cash flow number, is that going to be part of the normal seasonal swing of the way that the business is going to operate moving forward? Is it just going to be an unusual part of the way that the business is ramping this year? Thank you.
Yeah. I'll cover the first, sorry, the one and three, and then maybe Mark talk about the discounting. The first one in managed and franchise. I think part of this is just its lure of small numbers, right? Right now, those other fees are pretty small, and therefore, the percentages look a little bit bigger because it's on small numbers. We don't think there's going to be significant lumpiness in that going forwards. It might sort of move up or down by a million here and a million there, but no more, so not much more than that. From a net debt perspective, no, we don't see that as being seasonal, albeit though the only few things on that is one is we obviously pay dividends twice a year. You do see some lumpiness around the net debt for that.
The second thing is that we also pay interest on our bonds on a semi-annual basis. The third thing is that we have accelerated the buyback program following the half-year results, which has obviously made a difference to the net debt number. Look, we're very happy to take advantage of lower share prices when we see them, and we'll accelerate the buyback program on the back of that, and then straight line it to the end of the year afterwards. As I mentioned earlier, the $130 million of share buyback program for 2025 still stands, but you'll see that the amount that we've been buying on a daily basis does change around a little bit. In particular, in August, we bought back a lot more in August than we were planning to initially.
I think I've just added to that, Charlie. These sort of, if we look at some of these other fees, in particular, these starter packs. That's not really a margin product. So it's revenue, but it's got corresponding costs with it. The key things to look at is the signing fees and the recurring. But the recurring is what's, that is what's important. The other ones, I think, Charlie, we probably need to do a better job at explaining them. They're sort of peripheral and sort of will, as Charlie said, go up and down. It relates to how complicated the centers are. We've just opened our biggest center on the management program so far in Spain. That center, one center, is worth like 10 ordinary ones. That can cause lumpiness. Overall, the margin is what counts and the contribution, and there's very little contribution there.
One, coming back to your question about discount. Now, just to demystify this for a moment, we have been doing, pulling the levers of price and occupancy for 37 years since the business started. It's not a new thing. What was new this year and at the end of 2024 is we started to try simply a different set of levers. That different set of levers works in that the occupancies are 250 basis points, and price is down. The price has come back up again and will continue to rise into 2026 and you hold the occupancy. We are still, let's say, discounting, but the pain was in the first half. Now, it's a normal thing as opposed to something we started that had an initial effect. I'm probably making that sound more complex than it is. The answer is revenue positive now and will continue to be so.
This discount is hugely selective. This is yield management done every minute of every day, just to be clear. We tried new levers. It worked. We still continue with those levers. The important thing is we've got revenue growth, and that was one of our things that the reason we did it was because we weren't happy with the revenue growth. We now have proof that we can get it, and we're doing it.
Great. Thank you.
Thank you. That brings us to the end of our question and answer session. Any further questions may be sent to the investor relations team. I will now hand back to Mark Dixon for closing remarks.
Thank you very much, everyone, for joining us today. We look forward to having you online or in person at our investor day on December the 4th in New York, when we'll update more of the background and more of the bridge to getting to our medium-term target. Thank you all very much.