The share price fell 20%, likely reflecting a mix of inflated sell-side expectations and a more back-half-weighted earnings profile than investors expected.

After three years of treading water, investors no longer trust management to hit its margin targets. Yet at 2.2x EPS and a 40% free cash flow yield, the margin of safety looks enormous.

I. Quarter at a Glance

Concentrix reported Q1 FY2026 revenue of $2.50 billion, up 5.4% as reported and 1.9% on a constant currency basis. Adjusted operating income was $295 million (11.8% margin), and adjusted EPS came in at $2.61. All three metrics fell within the guidance range provided in January.

The company delivered within guidance on all metrics and maintained its full-year outlook unchanged.

Unfortunately, consensus remained above the top end of company guidance, setting up what looked like a miss. A reset of expectations would improve the setup for next quarter.

II. What the Quarter Confirms

AI Is Not Killing the Business

Q1 provided the strongest evidence yet that AI is not hollowing out the business. Technology-related wins increased 61% year-over-year. Signed annual contract value for AI-inclusive solutions more than doubled sequentially.

Concentrix’s proprietary AI products have a clear commercial structure. iX Hello (fully autonomous customer interactions) is priced on a consumption basis – minimal upfront fees, with revenue scaling as automated contacts grow. iX Hero (AI-powered agent augmentation) is sold on a per-seat subscription. Both models are highly scalable and should become margin-accretive as adoption scales.

Management confirmed that ARR was tracking ahead of its target of $100m or more by fiscal year-end. Software has turned from a costly speculative venture into a growing, profitable revenue stream, with synergies emerging across the CX business.

Three years after ChatGPT, the bear thesis – that AI would hollow out the CX industry – has not materialised.

Revenue Continues to Grow

At 1.9% constant currency growth, Q1 2026 sits squarely within a modest long-term growth range. Full-year guidance of 1.5–3.0% growth is maintained.

Growth was not uniform, however. Banking, financial services and insurance grew 15%, driven by broad-based demand across fintechs, large global banks, and new entrants. Retail, travel and e-commerce grew 11%, while media and communications grew 6%, largely outside the U.S.

On the other hand, technology and consumer electronics declined 3%, driven by softer-than-expected client volumes and onshore-to-offshore mix shift. Healthcare also declined 6%, impacted by changes in Medicare membership and Affordable Care Act participation. These two verticals represent roughly 30% of revenue and bear watching.

Capital Allocation – Focus on Debt Management

The company refinanced $600 million of senior notes, replacing 6.65% coupons with 6.50% coupons, and plans to retire the remaining $200 million of August 2026 notes from free cash flow.

In addition, CNXC repurchased approximately 1.05 million shares at an average price of $40 per share – a pace that the company should be able to maintain throughout the year.

Full-year adjusted free cash flow guidance of $630–650 million was reaffirmed, complemented by approximately $40 million in aggregate asset sale proceeds.

Management committed to reducing net leverage below 2.6x adjusted EBITDA by fiscal year-end. Based on EBITDA of roughly $1.5 billion, that implies net debt of about $3.9 billion, or $0.4 billion below year-end 2025.

III. What the Quarter Challenges

Margins: The Open Question

While revenue remains firmly on track, margins are still the central vulnerability of the thesis. Q1 – as expected – did not resolve that issue.

Adjusted operating margin came in at 11.8%, down 180 basis points year-over-year and 100 basis points below the full-year FY2025 level of 12.8%. The trajectory has been consistently downward, as shown below:

Management attributes this to a combination of factors: investments in AI products and platforms, new deal ramp costs (early-stage programs running at negative to low margin before reaching scale), excess physical capacity (quantified at 20–40 basis points of drag), restructuring charges, and the revenue mix shift toward offshore delivery, which temporarily duplicates parts of the cost base.

The margin weakness initially looked transitional. That may still prove true, but the transition has already lasted a year longer than I expected.

That said, for the first time, management laid out a clear bridge: cost actions should generate approximately $40 million in annualised savings (40bps); capacity absorption should improve as roughly $100–150 million of incremental revenue comes online in the second half; and transformational deals should reach mature margins.

CFO Andre Valentine explicitly guided to “stable to slightly expanding margin in Q2, a bigger uptick in Q3, and a further step up in Q4.”

The full-year adjusted operating income guide of $1,240–1,290 million on approximately $10.1 billion of revenue implies a full-year margin of roughly 12.5%. This would still be a step down from FY2025, but the exit rate in Q4 needs to be above 13% for the math to work – this would represent meaningful progress.

Margin recovery is the single most important variable in the investment case. If Q3 margins do not clearly step up toward 12.5%+ and Q4 toward 13%+, the “transition” narrative loses credibility. I remain cautiously optimistic based on the specific and quantifiable drivers provided by management, but am acutely aware that this is where the thesis will be won or lost.

IV. Updated Financial Picture

My updated estimates are only modestly more conservative and still assume that margin recovery begins in the second half:

Source: Company filings and guidance. FY2026E near the low point of guidance. FY2027E based on author estimates: 1.5% CC revenue growth, 30bps margin expansion, continued debt paydown and share buybacks.

At $25 per share, the stock trades at 2.2x FY2026E adjusted EPS (at the low end of guidance). If the company guides to FY2027 EPS above $12.5 in January 2027 and the multiple re-rates even to 4x, the stock would be worth $50 or more – 100% upside from current levels.

If the market refuses to rerate, and assuming the leverage target is hit, then the 40% FCF yield can be directed to buybacks / dividends, offering similarly strong returns to shareholders.

V. What to Watch

1. H2 2026 margin inflection. This is the make-or-break variable. Management guided to stable to slightly improving margin in Q2, a clear step-up in Q3, and another in Q4. If Q3 margin does not approach 12.5%, the investment-phase narrative weakens materially.

2. iX Suite ARR. The progression from $60 million to $100 million+ is important because it validates the transition to a services and technology integrator. If they hit $100 million by year-end and continue to show synergies with the services business, it changes how the company should be valued.

3. Weak verticals. Technology and consumer electronics (-3%) and healthcare (-6%) represent roughly one-third of revenue. Healthcare is impacted by Medicare and ACA enrolment changes and may not recover for a couple of quarters. Tech is a mix of volume softness, automation impact, and offshore mix. Stabilisation in either vertical would materially lift the group growth rate.

4. Offshore migration. Management guided to roughly a 2-point headwind from onshore-to-offshore movement for the full year. This depresses reported revenue but should be margin-accretive once programs reach scale. The question is whether this finally converts to margin improvement, or whether it becomes a persistent revenue drag.

5. Leverage reduction. Net debt stands at $4.5 billion (~3.1x LTM EBITDA). Management’s target of below 2.6x by year-end would require meaningful progress. Every dollar of debt repaid improves the cushion ahead of the 2028–2029 refinancing window.

6. Geopolitics and tariffs. CEO Chris Caldwell noted that Middle East exposure is approximately 1% of revenue and client sentiment is “cautious but fairly steady.” Andre acknowledged being “prudent with the current geopolitical situation” in setting guidance. This is a tail risk rather than a base case, but the global delivery footprint makes it worth monitoring.

VI. Conclusion

Q1 FY2026 was neither a catalyst nor a disappointment. It confirmed the broad trajectory: revenue is still growing, AI monetisation is accelerating, and guidance was maintained. The weaknesses I flagged previously – principally margin compression – remain largely as expected.

The core thesis has not changed. Concentrix is not a business being killed by AI. It is a business investing heavily to position itself as an AI beneficiary – and the commercial evidence increasingly supports that view. The market, however, demands proof that this investment translates into margin recovery. That proof needs to emerge in Q3 and Q4.

At current prices, the risk/reward looks even more asymmetric than two weeks ago. The stock is priced for severe deterioration, while the business is positioned for growth.

Patience is required, and the margin story must deliver – but the fundamental building blocks are in place.

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Disclaimer: I am long Concentrix. This is my investment notebook, not financial advice. Always do your own research.

For a specific set of our companies, the conflict – and the multi-year posture it forces on the US military, its allies, and the energy complex – is a structural tailwind. Let’s look at some opportunities within the portfolio.

I. Energy: Towards Balkanisation

I’ve written extensively about trade dislocations post covid / tariffs, and this is just the latest – and most dramatic – proof point. The crisis in the Strait exposes the fragility of global supply chains – lack of oil reserves, lack of inventories, lack of pipelines, lack of tankers, wrong product in the wrong place, etc.

In the short term, service companies with exposure to the Middle East and Eastern Mediterranean have their shares under pressure due to near-term revenue and asset integrity risks.

What about the long term though? I see a future resembling industrial supply chains – near-shoring and added redundancy. Expect more drilling regardless of price (e.g. NOC activity similar to what India is doing), structurally higher inventories, shorter supply routes.

For US E&P companies, this is unambiguously positive. Antero Resources (AR) and Diamondback Energy (FANG) are operating in the Appalachia and Permian respectively – geographies that are insulated from the conflict itself and are direct beneficiaries of any sustained elevation in oil and gas liquids prices. I think the narrowing of the Brent vs WTI differential is a very telling signal for US producers – the ability to dispatch oil safely and quickly to refineries and global markets might eventually command a premium.

For oilfield services, the logic is potentially even stronger. If energy gets balkanised into smaller, regional markets, then drilling activity could accelerate regardless of prices.

If the US accelerates domestic energy production – then onshore oilfield services are set to benefit. While share prices have been strong for a few quarters, they do not yet reflect any future increase in activity, in my view. In particular, fracking supply is getting tight after three years of fleet attrition, to the advantage of companies such as Propetro (PUMP).

Offshore drillers also stand to benefit. Already buoyed by technological advances and large discoveries, the sector should see tailwinds thanks to its relative insulation from geopolitical conflicts, with key growth regions such as West Africa, Mozambique, Brazil, Guyana and Suriname far away from conflict zones. Transocean (RIG) and Tidewater (TDW) are my top picks – quality assets and management teams.

Key risks to the thesis: the two extremes. On one end, complete normalisation with Iran, leading to increased supply to the market and derisking of the Strait of Hormuz. On the opposite end, complete blockade of the Strait, leading to misery across the world – and very significant oil demand destruction.

II. Defence Services: The Long Tail

When the US assembles its largest military presence in the Middle East since 2003 – two carrier strike groups, pre-positioned assets, sustained operations planning – the immediate optics are about hardware. Missiles, drone wars, jet fighters, etc. But the less visible, longer-duration story is about services.

Service companies have been sold, likely on fears that the current conflict takes absolute priority and slows down unrelated contracting. Over the long term though, I struggle to see how this conflict doesn’t boost spending – in particular related to new capabilities.

Amentum (AMTM) is the clean and cheap play here. With $47bn in backlog and a business built around the management and sustainment of exactly this kind of prolonged military posture – logistics, base operations, intelligence infrastructure – Amentum earns more when the US is operationally engaged, not less.

The Air Forces Central Command contract, the DTRA threat reduction work, the drone maintenance IDIQ – these are all products of a world where the US is actively forward-deployed. More conflict, longer tail, bigger addressable market.

In addition, projects like the Golden Dome, in which Amentum is a prime contractor, are likely to accelerate. Anti-missile and anti-drone defences, cyber capabilities, intelligence, naval engineering and sustainment – Amentum is at the centre of all of it.

AMTM doesn’t make the hardware, but it keeps the whole show running. That’s a less exciting story to tell, but it’s a stickier one – cost-plus, long-duration, renewed by necessity rather than by discretion.

What could threaten the thesis – again, the two extremes. Total peace, or a crisis so severe it forces the US Government to slash expenses.

III. Marine Infrastructure: The Least Obvious Leg

Orion Group Holdings (ORN) is a specialty contractor. Two segments: marine construction and commercial concrete.

Similar to AMTM, it is being sold on fears of contracting moving to the right, with a near term impact on backlog and revenue growth. Over the long term though, the need to upgrade marine capabilities and capacity becomes even more urgent.

Orion’s marine segment – $545m of 2025 revenue – is built around ports, docks, submarine dry docks, breakwaters, and coastal infrastructure. The company is currently executing a $460m US Navy submarine dry dock at Pearl Harbor. Its opportunity pipeline has grown from $3bn to $23bn over two years, driven by naval expansion, port upgrades, and coastal rehabilitation.

Here is the thesis: sustained conflict and US military posture in the Middle East and Pacific accelerates naval spending. More ships need maintenance. More forward operating infrastructure needs to be built or upgraded.

The US Navy is Orion’s largest single customer. Few if any meaningful competitors with the same combination of specialised equipment, safety record, and bonding capacity. Orion just closed the McAmis acquisition, expanding into the Pacific Northwest, Alaska, Hawaii, and Florida – exactly the geographies relevant to a military that is thinking about force projection.

A reminder – thanks to the Jones Act, competition is limited – and likely to stay that way.

What could threaten the thesis – less obvious. This is structural, and more about China and decades of underinvestment than anything else. Failed execution would be a risk. Timelines shifting to the right – but that is of little concern to long-term holders.

Bottom Line

None of these are pure-play conflict stocks. That’s the point. The conflict accelerates what was already happening. That’s a different risk profile than buying something that only works if the war goes a certain way.

TDW, RIG, PUMP benefit from the need to replenish inventories and reserves, and the likely upcoming regionalisation of oil flows, but they’re winning regardless.

FANG and AR are US onshore assets – they’re not at risk, and they’re at a discount to where I think energy prices and needs are heading.

AMTM has $47bn in backlog that gets consumed faster when the US is engaged. ORN has a $23bn naval infrastructure pipeline that is policy and needs-driven, not event-driven.

Markets sold these names on Middle East fears. This is a short-term move reflecting exposure to the region or potential for contract delays as the Pentagon has its hands full. The long-term impact, in each case, is firmly in the opposite direction.

The market is offering a discount on exactly the companies that should be getting a premium. Short term vs long term. This is our opportunity.

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Disclaimer: I am long the companies mentioned in this article. This is my investment notebook, not financial advice. Always do your own research.

While the share price is currently suffering from AI fears and the situation in the Middle East, I view the latest set of results as thesis-affirming.

Let’s review them following the three drivers of long-term performance that I highlighted in my first note on the company:

1. Convert the signed M&F pipeline into opened, revenue-generating centres

2. Sustain fill rates and prove landlord economics at scale

3. Expand company-owned margins toward the 30% gross margin target

I. M&F Centres Openings and Pipeline – accelerating

IWG opened 733 M&F centres in 2025 – a 33% increase on 2024, and a record. They signed 1,089 new M&F agreements, up 28%, and the signed-but-unopened pipeline sits at 227,000 rooms, up 25%. Over 3 centres opened every working day. Openings are expected to grow further in 2026, supported by a robust pipeline.

M&F now represents 40% of locations. At the time of writing the original piece, “soon to be half” felt like a medium-term aspiration. Including the pipeline, we are already there.

The goal of 1,000 openings per year was still on the table, expected within 12–24 months. Bottlenecks are real – people, logistics, landlord capex financing – but management reiterated that these are being addressed successfully. Momentum confirms it.

The 307,000 rooms now generating revenue in the M&F network (up from 185,000 at end-2024), combined with the pipeline, imply over $1.8bn in annual system revenue once this generation of centres matures. That’s a number that barely existed two years ago.

A point worth noting – the increase in discretionary marketing costs related to the opening of new centres. It stood at $46m in 2025, roughly $63,000 per new centre. While this is framed as a win-win – which I agree with – it is likely required to maintain an attractive RevPar curve for new M&F centres. The good news however, it that such an increase (in line with the increase in new openings) is already contemplated within the 2026 guide.

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II. Landlord economics – confirmed

Management confirmed our analysis during the call: landlords are earning roughly 1.8× the yield they would have earned from traditional leasing.

For the “new” M&F cohorts, RevPar currently reaches the $250 target at 30 months, a year later than expected, but continues to ramp after that. Slower ramp, but higher end point.

The 60 M&F closures in 2025 were mostly legacy franchisees from older vintages not renewing, plus a handful of old managed partnerships. From the current generation of agreements – almost zero closures. This is a further proof point of the health of landlord economics.

Compelling landlord economics explain why signings are accelerating – landlords have seen it work and are increasingly engaged. More importantly, institutional real estate investors are beginning to adopt the model. Management noted this explicitly: “once institutions change – pension funds, et cetera – then you’re really onto something.”

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III. Company-owned margins – gradually moving higher

Adjusted gross margin on company-owned centres improved to 26%, up ~100bps from 25% in 2024.

Management confirmed that 2026 margin expansion will primarily be a function of price and occupancy, with some ongoing cost work.

That price x occupancy algorithm is the result of promotional activities in 2025, which increased occupancy (and the sale of added services), initially at the expense of price.

Promotional offers are now in the process of rolling off, with no impact on retention so far. This backs management’s 2026 targets.

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IV. Other modelling items

A few things from the numbers and the management call deserve their own section.

Recurring fees are compounding fast

Fee income hit $126m in 2025, up 60%. Within that, *recurring* management fees – the annuity-like portion – grew 140% to $45m. Management guided to $80m for 2026 – in line with previous guidance. If this trajectory holds, recurring fees alone could hit $125m by 2027.

At 10–15x – the lower end of what comparable fee businesses trade at – $125m of recurring fees is worth $1.250–$1.875bn – over 50% of the current market cap, before you price a single dollar of company-owned earnings.

M&F centres a tailwind to working capital

Working capital contributed a positive $45m in 2025, including $19m from late payments. While this was a one-off, we should bear in mind that the M&F business will be a tailwind to working capital – roughly $10m per $100m of incremental M&F revenue.

Capex is settling higher than I modelled

There was some payment timing noise in 2025 under US GAAP (capex incurred in 2024 for managed real estate was settled in cash in 2025). Normalised, management expects growth capex to average ~$50m per year going forward. Maintenance capex should run at ~$100m. Total of $150m on an ongoing basis, slightly higher than the $125m I modelled.

For a business generating $605m in adjusted EBITDA (mid point of guidance), those are modest numbers.

The platform overhead is highly scalable

When asked how many more M&F centres the central organisation could absorb without meaningful cost increases, the answer was simple: “a lot.” Some investment will be required eventually, but fee revenue should scale much faster than the cost to support it.

AI is driving demand, not threatening it

This came up repeatedly in the results presentation. Companies pouring capital into data centres and AI infrastructure are cutting everything else – including owned real estate. Mark Dixon referenced one of the world’s largest tech companies: their CFO told him they want to spend “every last dollar on data centres and AI” and have no interest in locking into long-term office leases. The more AI dominates the corporate capital allocation conversation, the stronger the case for flexible workspace.

Middle-East Disruption

Centres in the region are mostly M&F. Revenue is contracted. Impact will be felt through the lack of renewals / new customers and lower sales of added services.

Regarding the potential impact of utility costs – they are usually borne by the landlords, not IWG. Except in the ~40 centres owned (not leased) by IWG in Europe.

Essentially, no threat to the 2026 guide from current events.

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V. Bottom Line

When I wrote the original piece, the argument was: this is a transition that should yield handsome returns, if IWG can execute. What FY2025 shows is that execution is on track.

Three new centres opening each day. Landlords getting 1.8× their alternative yield. Almost no M&F closure. Recurring fees up in line with the long term plan. Owned centres margin up 100bps.

Yet the stock still trades at roughly 5.7x EBITDA.

The hotel franchisor comparison I made in the original piece – Marriott, Hilton, IHG, trading at 15–20× – came up in the results presentation in almost the same words: “We’re Marriott without a Hilton.”

For now, the market is not buying it. The gap between where IWG trades and where comparable fee-based platforms trade is either justified by execution scepticism, or it’s the opportunity. The 2025 results make the scepticism harder to sustain.

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Disclaimer: I am long IWG. This is my investment notebook, not financial advice. Always do your own research.

TL;DR: Bears said AI would kill the business. It hasn’t. Growth is accelerating. Margins compressed but should recover. At 2.7x adjusted EPS, the opportunity is asymmetric.

When I first wrote about Concentrix roughly two years ago, the stock was already deeply out of favour. The narrative was simple and compelling: AI would automate customer interactions, hollow out call centres, and structurally impair Customer Experience (CX) businesses. The stock was priced as if the business were heading into an irreversible decline.

To me, this was an all-too-familiar story. We have seen versions of it before – with email, with the internet, with offshoring. Each time, the same fear: that technology would eliminate the need for human interaction, and that efficiency gains would translate into revenue losses. Each time, reality proved the bears wrong. Take Teleperformance – Concentrix’s closest peer – which has grown CX revenue every single year since 2003!

Two years later, my position is underwater. I was way too early, which is to say very wrong. With FY2025 behind us, it feels like the right time to revisit assumptions, and ask an honest question: was the thesis wrong?

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I. The Business and the Debate

What does Concentrix do?

Concentrix is one of the world’s largest customer experience (CX) specialists. They design, build, and operate customer-facing functions on behalf of their clients – from creating comprehensive CX strategies, to building the platforms (websites, chatbots, call centres), to optimising processes and leveraging data for continuous improvement.

Ever had to change airline tickets? Complain about a defective product? Make an insurance claim? Report social media content? Chances are that CNXC or one of their peers was on the other side.

The benefit to clients is twofold: improved customer engagement and satisfaction, and cost optimisation. Clients span technology, consumer electronics, travel, e-commerce, media, financial services, healthcare, and beyond. CX outsourcing has historically been a remarkably stable business, with long and sticky contracts, growing in line with GDP.

The Key Debate

The bear case is straightforward: generative AI will automate a large portion of customer interactions, structurally reducing the need for human agents and decimating CX providers’ revenues. The most extreme version of this thesis implies that companies like Concentrix are melting ice cubes – their core product will simply cease to exist.

My counter-thesis has been equally clear: AI is more likely to be a growth driver than a revenue cliff. There are several reasons for this:

1. AI is likely to lead to a growth in CX outsourcing. It is currently estimated that 66-70% of CX is still done in-house. More of this work can now be outsourced for better outcomes at a lower cost – leading to an expanding TAM for AI-enabled CX specialists.

2. AI is also driving consolidation that benefits the larger players. CX outsourcing is a highly fragmented market, with the top 8 players barely holding a 30% share. The gap in capabilities is driving customers to consolidate vendors, to the benefit of large players.

3. AI offers an opportunity to move up the value chain, by designing, implementing and managing full CX offerings (from the tech platform to the human or AI agent). This leads to stickier and larger opportunities. No one is better positioned to do it in a safe and cost-efficient way than legacy CX outsourcers, thanks to their deep domain expertise.

Against those arguments is the view that AI will dramatically reduce the need for human interaction and / or have a deflationary impact on prices. And while there are signs of that in CNXC’s earnings, I would contend that automation has been a decades-long, ongoing process, which hasn’t prevented the CX market from growing.

The CX industry successfully navigated the rise of the internet and “pre-GPT” AI – both turned out to be additional sources of revenue and efficiency gains rather than existential threats. The bear case therefore relies on a “this time is different” type of argument.

What the Valuation Implies

At ~$33 per share, the market values Concentrix at roughly 2.7x FY26 adjusted EPS. That multiple only makes sense if you assume a rapid and sustained erosion in earnings power.

In other words, the bears have completely won in the market’s eyes – even as the business continues to grow.

Interestingly, credit markets appear less pessimistic than equity markets. Concentrix’s 2033 notes are trading at a yield of around 7.4% – higher than earlier this year but very far from distressed.

Equity and debt markets are telling two very different stories.

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II. Reviewing My Calls: Where I Was Right

The central disagreement with the bear case was not that AI would not change the industry – it clearly would, and did. Instead, it was that AI would not destroy it, and potentially even help it grow.

Unlike narratives, facts are stubborn. More than three years after the launch of ChatGPT, Concentrix is still growing. Tellingly, growth has accelerated each quarter since bottoming at 1.3% in Q1 FY25, exiting the latest quarter at 3.1%. This is no small feat in an environment where many expected the business to be in structural decline.

More importantly, the company is winning business of higher quality, and at an increasing rate. From the latest earnings call:

• 9% increase in new wins year-over-year

• 6% increase in pipeline annual contract value

• 14% increase in transformational deal values

• 23% increase in cross-sell and upsell deals

• 37% increase in values for new service areas

This is critical. If AI were already displacing CX providers in a meaningful way, we should be seeing it in the pipeline and new business first. We are not.

Instead, what we are seeing is clients asking Concentrix to help them deploy AI safely and efficiently, not replace humans entirely. Automation is being used to remove low-value, low-margin, repetitive work. Human agents are being pushed up the value chain, dealing with complexity, judgment, and exceptions.

This aligns with what I originally believed: AI is a productivity and capability tool for CX companies, not a death sentence.

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III. Where I Was Wrong: The Margin Story

That said, some humility is required.

I underestimated how long the transition phase would last – and how much the cost of building new capabilities and acquiring new customers would weigh on margins.

The expenses of onboarding new, more complex contracts, investing in proprietary AI tools, integrating the Webhelp acquisition, and re-architecting delivery models are very material.

The company invested $95m in new capabilities, capacity, facilities, security, and footprint in FY25 alone. They spent an incremental $25m on go-to-market capabilities and another $25m+ on their iX Suite AI platform.

Similarly, offshoring has accelerated beyond expectations as clients push for cost reductions – 4% of onshore volumes shifted to offshore centres in FY25. This migration incurs duplicate costs for a period of time before the margin benefits materialise.

The chart tells the story plainly. LTM adjusted operating margin peaked at 14.2% in Q3 ‘23 and is expected to decline to approximately 12.2% by Q2 ‘26. This is a meaningful compression – roughly 200 basis points of margin lost over ten quarters.

I also underestimated how unwilling the market would be to look through this transition phase. The bear thesis seamlessly pivoted from “revenue destruction” to “margin headwinds.” But isn’t this thesis creep? The original fear was that AI would kill revenues. Revenues are growing. Now the fear is that margins are compressed. Margins are indeed compressed – but largely due to investments that are driving future growth and – likely – profitability.

In hindsight, I was right on the direction of the business, but wrong on the timing and the severity of the margin impact.

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IV. Why CNXC Is Not a Dead Business

Current evidence strongly suggests that Concentrix is not a dying company. It is a business undergoing a transition toward a higher-quality, managed service / AI integrator business model.

The Revenue Quality Transformation

Pure call-centre work – the low-complexity, high-volume interactions that AI can most easily automate – now represents only 5% of the business, down from 7% just a year ago. Management was explicit: they achieved this reduction largely by deploying their own technology to automate work, and by walking away from low-margin business.

Conversely, CX-adjacent services – including data annotation, analytics, financial crimes and compliance, IT services, and digital assets – now represent approximately 20% of revenues and are growing at high single digits. The company is successfully diversifying its revenue base toward higher-growth, higher-value services.

The vast majority of revenues now come from managed services that blend technology, data, and human expertise. And more than 40% of new business wins include Concentrix’s own technology as part of the solution – well ahead of initial expectations. The company is not fighting AI; instead, it is integrating it into its core offering.

Client Stickiness

Average tenure among the top 25 clients is now close to 18 years. 98% of the top 50 clients rely on Concentrix for more than one solution. This is not a business with customers running for the exits – quite the opposite, as integration is deepened by AI solutions.

The AI Software Opportunity

Perhaps most encouraging: CNXC’s iX Suite AI platform has reached $60m in annualised revenue and is now profitable – as committed at the start of the year. From a speculative venture, it has turned into a contributing line of business and commercial differentiator.

In short, the company is moving from experimentation to execution, and is rapidly improving the quality and stickiness of its revenue base.

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V. The Numbers: Summary P&L and Return Opportunity

With the qualitative picture in place, let’s look at the numbers. Here is the simplified financial picture:

Source: Company filings and guidance as of January 13, 2026. E = Estimate based on company guidance and model assumptions. CC = Constant Currency.

My assumptions for FY2027: Revenue growth of 2% (constant currency), operating margin expansion of 40bps (as investment phase matures), share buyback rate of 1% per quarter (net of share-based compensation), and debt paydown of $250m annually.

Opportunity

Given the recent past, the current valuation meaningfully discounts management’s guidance. But in my view, they likely learned their lesson and guided margins very conservatively.

Assuming Concentrix meets its guidance, generates increased FCF and accelerates debt repayment, I expect the multiple to progressively re-rate. If in January next year, the company guides to FY27 EPS > $13, a multiple of 5x gives a share price > $65 – roughly 100% upside from current levels.

Is 5x a demanding multiple? Hardly. Business services peers trade at 6–10x, with similar growth rates. Teleperformance has traded at an average of 20x in the 10 years prior to GPT release. Even 5x assumes the market continues to apply a meaningful discount for AI risk – just not quite as extreme as today’s 2.7x.

And if the market refuses to rerate the stock, the 25% FCF yield will ensure appropriate shareholder returns, especially as the company reaches its leverage target in late 2027 or early 2028.

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VI. Risks

What could derail the thesis?

1. AI disintermediation. Many CX AI pilots have failed, slowing adoption. Integrating models, workflows, data governance, and human escalation paths is complex – and this complexity is part of the opportunity for integrators like Concentrix. However, the risk is that CX tooling becomes so turnkey (and trusted) that large enterprises are eventually able to implement and operate it safely and cost-efficiently without external partners.

2. Revenue growth disappoints. If macro weakness, price competition, or aggressive offshoring cause revenue to disappoint, the stock will likely suffer. The company remains a very modest grower (1.5–3% constant currency for FY26), leaving little room for error.

3. Margins don’t recover. Management is guiding to sequential margin improvement in the back half of FY26. Unfortunately, that’s a slippage from last quarter, which itself was a slippage from the previous quarter. If investment costs persist or intensify, or if competitive pressures / AI force pricing concessions, margins could remain compressed or decline further.

4. Debt. The acquisition of Webhelp in 2023 led to a large debt load that will need to be refinanced in 2028-2029. At $4.3bn, net debt represents a multiple of close to 3.0x EBITDA and 6.7x levered FCF. I expect this to impact near-term shareholder returns as progress needs to be made ahead of refinancing. On the positive side, debt repayment should quickly reduce interest expenses, leading to faster FCF growth.

Key mitigant: Valuation. The primary mitigant is valuation. At under 3x adjusted EPS, the market is already pricing in significant impairment. For the stock to decline meaningfully from here, the outcome would need to be worse than the near-death scenario already embedded in the price.

If I am wrong and the business declines 10–15% over several years, the stock probably goes sideways. If I am right and the business stabilises and grows modestly, the stock likely doubles. The risk/reward is asymmetric.

While sentiment could push the stock lower than fundamentals dictate, the 25% FCF yield provides downside protection if one is willing to be patient.

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VII. Catalysts

Catalyst #1: Execution

The most important catalyst is simply meeting or exceeding the plan. If Concentrix can continue to grow revenues modestly (1.5–2%+ constant currency), deliver on its margin guidance (sequential improvement in H2), and generate free cash flow as expected ($630–650m in FY2026), then the market will eventually be forced to reassess its assumptions.

Specifically, margin recovery is key. Management guided to sequential quarterly increases in operating income in the back half of FY26 as they remove duplicate costs, complete transformational deal implementations, and drive automation. If the company can demonstrate even 50bps of margin recovery in the coming quarters, it would signal that the investment phase is maturing and the transition is succeeding. This would cause free cash flow and EPS to jump, likely triggering a re-rating.

Catalyst #2: Capital Allocation

CNXC generates substantial free cash flow – $626m in FY25, a 32% increase and over $150m more than the prior year. Management has committed to share repurchases at a similar pace to FY25 (when they bought back $169m of stock at an average of ~$47/share), continued debt reduction toward target leverage, and maintaining the dividend.

Buying back stock at under 3x adjusted EPS is highly accretive. While the debt load limits share repurchases in the near term (to a still respectable 6–7% of total shares per annum), I expect the company to reach its leverage target by early 2028, in time for refinancing. After which, the 25% FCF yield can be entirely dedicated to accretive buybacks or M&A.

Catalyst #3: Market Recognition

Sometimes, the market simply takes time to recognise value. Each quarter that CNXC grows – rather than contracts – chips away at the bear thesis. As CEO Chris Caldwell put it: “Despite three years of speculation, we are proving that AI is a tailwind for our business.” Time is on our side.

Markets increasingly move on momentum, and a sustained reversal from here would likely feed on itself and turn the current doom loop into a virtuous circle.

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VIII. Conclusion

My conclusion today remains strangely similar to two years ago.

Concentrix does not need heroic growth to justify a materially higher valuation. It simply needs to: (1) continue growing modestly, (2) execute on its margin guidance, and (3) continue to reduce debt and buy back shares.

The last two years have not been clean: margin guidance was missed repeatedly, and debt reduction has been slower than I would have liked as transition costs crept up. That’s fair criticism.

But the core thesis – that AI would not destroy the business – has held. Revenue is growing. The company is winning new business. AI is being integrated, not resisted. Low-complexity work has been reduced to just 5% of the business. The quality of revenue has never been higher.

I still believe this is a business that is more likely to emerge as an AI winner than an AI casualty. The market is taking much longer than I expected to recognise it – which means my timing was poor.

But at under 3x earnings, with the business still growing and generating significant free cash flow, I remain comfortable holding the position. The next year only needs to show progress on margins for the stock to work very well.

I hope you enjoyed the read, and welcome any feedback.

Hugo

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Disclaimer: I am long Concentrix. This is my investment notebook, not financial advice. Always do your own research.

If I had to devise a worst case scenario – both human and economic, it would likely start this way.

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I. Why Hormuz Matters – and Who Gets Hurt

Markets are repricing fast this morning. WTI is up ~6%, Henry Hub ~+3%, and Dutch TTF is pushing toward ~50%. Those are eye-catching moves – but the key question isn’t today’s print. It’s whether the curves are assuming the shock is brief and self-healing. I’m not convinced they should.

The Strait of Hormuz clears roughly 20 million barrels of oil per day – over a quarter of all global seaborne oil trade – and approximately one fifth of all LNG, primarily flowing out of Qatar. There is no real bypass. Saudi Arabia and the UAE have some pipeline capacity in aggregate, but it tops out at around 2.6 million barrels per day. That is a rounding error relative to normal Strait volumes. The common misconception is that OPEC spare production capacity provides a cushion. But if the Strait is materially impaired, additional barrels simply cannot get out – spare capacity and deliverable export capacity are not the same thing.

The distribution of consequences is sharply uneven, and this is the part I think markets are underpricing.

Over 80% of the crude and LNG moving through Hormuz flows to Asia – mainly China, India, Japan and South Korea. China alone sources half of its total oil imports from the wider Middle East. These countries face direct physical exposure – not just higher prices, but potential volume disruption. That risk is compounded for China given the parallel squeeze from U.S. sanctions on Venezuelan supply.

Europe’s exposure is different in character but no less consequential. When Asia is forced to outbid the global LNG pool to compensate for disrupted volumes, Europe must match those bids or go short. At the worst possible moment of the year – when it needs to refill its already low storage levels.

The United States sits in a completely different position. It is now a net energy exporter, with domestic production sufficient to buffer the domestic economy from direct supply disruption. Americans will feel this in inflation at the margin – higher energy costs feed through to goods and services – but they are not staring down a refill crisis or a physical shortage. That distinction matters enormously for the policy response and the economic consequence across the three blocs.

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II. Europe’s Specific Vulnerability

Europe enters this period of disruption in a structurally weak position. Gas storage across the continent is sitting near 30% full heading into the refill season, which begins in April – roughly a month away. The EU’s formal policy target is 80% by November. The gap between those two numbers is not just large; it was already nearly impossible to close under benign conditions.

When timing becomes unreliable, price is the only release valve. Europe ends up bidding against Asia – not because it’s optional, but because policy turns refill into a requirement. And this isn’t abstract: you can see it in energy‑intensive equities already. Higher gas prices compress industrial margins, filter straight into power markets, and raise household utility costs. If disruption lasts more than a few weeks, that transmission channel stops looking like a tail risk and starts looking like the path.

This point is important. Even without Hormuz disruption, Europe’s refill math was challenging. Disruption does not create the problem from scratch – it removes the narrow margin of error that existed, and turns a difficult situation into a crisis.

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III. What the Curves Are Saying – and Why I Think They’re Wrong

Right now, both oil and gas term structures still read as “temporary.” The back end of oil sits in the low-to-mid $60s. TTF drops hard after the near-term spike and lands in a range that effectively assumes conditions normalise without much drama. The message is: ugly now, fine later.

I think that comfort is misplaced, for two reasons.

U.S. oil supply is less responsive than the market reflexively assumes. The easy narrative is that shale steps in the moment prices spike. But the U.S. supply engine doesn’t behave like it used to – and consensus is still pricing in the old reflexes. The DUC inventory that once acted as a quick-response cushion has been worked down. The sector is more industrialised, more disciplined, and less willing (or able) to chase a one‑week price signal with a surge in output. A brief spike doesn’t translate into meaningful new barrels.

Europe’s refill problem is structural, not cyclical. As set out above, the refill math was already almost impossibly tight before this week. The curve’s assumption of smooth normalisation fails to account for the policy-driven nature of European injection requirements, the starting-point weakness in the benchmark countries, and the direct competition for LNG cargoes that disruption in Hormuz forces upon the global market. The curve will be right if disruption fades quickly. It will be badly wrong if disruption persists for even a few weeks into the refill window.

When the market finally accepts persistence, the repricing usually shows up first in the middle of the curve – the point where “near‑term disruption” becomes “longer‑lived constraint.” We’re not fully there yet. But the evidence is starting to lean that way.

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IV. Portfolio Positioning

None of this is new to us. Since 2020, geopolitical dislocation has been a core theme in how I construct the portfolio. The events unfolding this week are exactly the type of scenario I have been building resilience against. Here is why I think the portfolio is well positioned.

Energy exposure – the right kind. Approximately 25% of the portfolio sits in oil and gas names, split between U.S. onshore producers and global offshore operators. Crucially, very little of this exposure sits in the affected geography – these are assets that benefit from higher commodity prices without facing the operational and logistical disruption that Middle Eastern producers now face. Beyond hydrocarbons, I hold positions in alternative energy, including solar and uranium. Both stand to benefit as higher fossil fuel prices improve the economics of clean alternatives and accelerate the policy case for energy diversification.

Defence. Regional conflict of this scale reliably accelerates defence procurement and budget expansion. Our positions in Amentum and Iridium give us direct exposure to this dynamic – one through mission-critical government services and defence contracting, the other through satellite communications infrastructure that becomes increasingly essential when conventional connectivity is disrupted in contested areas. Both are well positioned for an environment where defence spending is rising structurally, independent of any single conflict. Additionally, Cloudflare and CrowdStrike are top cybersecurity providers that stand to benefit in an uncertain world.

U.S. reindustrialisation. Geopolitical instability of this nature tends to reinforce the case for supply chain onshoring and domestic industrial investment. Our positions in Wesco and Herc Rentals sit squarely in this theme – both are leveraged to the sustained build-out of U.S. industrial and infrastructure capacity. If anything, events like this week’s accelerate the political and corporate urgency behind that investment cycle.

Limited European and Asian exposure. As argued above, Europe and Asia bear the brunt of this disruption – through refill crises, direct volume shocks, and the second-order consequences for industrial competitiveness. Our portfolio maintains deliberately low exposure to both regions. This was a considered choice, and this week is a reminder of why.

Taken together, these positions do not make us immune to volatility – nothing does. But they mean that the portfolio is exposed to the parts of the market that tend to benefit from exactly this type of geopolitical dislocation, while remaining largely insulated from the parts that suffer most. That is not luck. It is the result of building the portfolio around structural themes that I have held conviction in for years.

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Conclusion

The U.S. will feel Hormuz disruption in inflation – real, but manageable. Asia faces a direct physical supply shock, with China particularly exposed given its dependence on both Iranian oil and broader Middle Eastern flows. Europe faces a slow-motion refill crisis that could force a painful repricing of gas precisely when its industrial base is least equipped to absorb it.

Today’s move will grab the headlines. If disruption lingers, the opportunity shifts from spot to structure: watch the mid-curve, where the market is forced to admit duration and reprice availability. That’s the moment the curve stops assuming normalisation and starts embedding scarcity. I am watching closely.

Hugo

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Disclaimer: This is my investment notebook, not financial advice. Always do your own research.

IWG is the world’s largest flexible workspace operator – 4,400+ centres across 120+ countries, larger than the next ten competitors combined. Yet it trades at just 6x forward EBITDA. That multiple reflects the perception of a lease-heavy, capital-intensive business with cyclical exposure and a chequered history.

Fair enough – that’s what IWG was.

But over the past few years, IWG has changed how it grows. New centres are no longer funded by signing long-term leases and deploying capital into fit-outs – they’re instead mostly opened under management and franchise agreements (“M&F”), where the landlord funds the space and IWG earns recurring fees with no capital at risk.

This pivot only works at scale – and scale is where IWG is unmatched. More locations attract enterprise demand, which improves fill rates, strengthens landlord returns, and drives further signings. As the model matures, scale compounds.

This model is not easily replicable – and very valuable: CBRE paid $800m for Industrious – with only 200 locations – rather than trying to build a competing network.

A few years into this transition, approximately one third of IWG’s network now operates under M&F agreements – soon to be half as the signed pipeline converts.

Still – none of this matters if IWG can’t execute. The opportunity exists if, and only if, the company delivers on three goals:

1. Convert the signed M&F pipeline into opened, revenue-generating centres

2. Sustain fill rates and prove landlord economics at scale

3. Expand owned-centre margins toward the 30% gross margin target

IWG is an execution story – not a thematic bet on “the future of work” or a macro call on offices. At constant multiples, FCF growth alone should deliver attractive returns – I project free cash flow more than doubling between 2026 and 2029. A re-rating as the business model proves out would be additional upside.
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I. Business History

The Coworking Pioneer

International Workplace Group (IWG) – originally Regus – has been a pioneer of flexible office space since 1989. Founded by CEO Mark Dixon, Regus grew rapidly by leasing office buildings long-term and subleasing space short-term to businesses, essentially pioneering the “serviced office” model decades before coworking became mainstream.

Early growth came with significant strain. Following the dot-com crash, Regus’s overextended U.S. operations filed for Chapter 11 bankruptcy in 2003 as technology clients defaulted en masse. Regus had to be restructured; lease liabilities were ring-fenced within separate subsidiaries, and capital discipline improved. Regus emerged from bankruptcy in 2004 with a fundamentally altered approach to risk.

This near-death experience proved formative. It embedded a conservative philosophy around leverage, lease exposure, and capital allocation – lessons that would later differentiate IWG from the next generation of flexible workspace entrants.

Growing Pains: WeWork & COVID

Fast-forward to the mid-2010s, and a new competitor burst onto the scene with a charismatic founder and a cash-burning blitz.

WeWork, funded by SoftBank, burned $2–3bn annually, pricing below cost and paying above-market rents. This deeply distorted the competitive landscape and compressed the industry’s margins. At its peak, WeWork operated over 500 locations and dominated the industry narrative, despite never approaching profitability. For IWG, WeWork was bad news: pricing pressure, rent inflation and landlord confusion over the sector’s economics.

IWG remained disciplined and was vindicated in 2019 when WeWork’s IPO collapsed under scrutiny of governance failures and mounting losses. While a nuisance for the industry, and a stain on its reputation with investors and building owners, the WeWork saga had one important positive aspect – popularising the coworking concept and accelerating customer adoption.

Just as the competitive landscape began to normalise, a second shock followed. In early 2020, COVID-19 triggered global lockdowns and a sudden shift to remote work. IWG’s revenues fell sharply, and its share price declined by roughly 70% over the year.

Management responded decisively to preserve liquidity and flexibility. IWG raised £320m in equity in May 2020 and used its subsidiary structure to renegotiate or exit loss-making leases. Around 100 U.S. subsidiaries entered Chapter 11 to force rent renegotiations. In addition, IWG placed Regus (Jersey) plc (guarantor for ~500 leases, 15% of the group’s total) into insolvency, effectively voiding the insurance policy landlords thought they had.

Though contentious, this “solvent liquidation” reduced lease liabilities, shed loss-making locations and stabilised the group. It did burn bridges, but the current pace of openings suggests this is mostly a past issue. This contrasts with WeWork, which was unable to weather the storm and eventually filed for bankruptcy in 2023.

What Doesn’t Kill You…

By late 2020 and into 2021, IWG began positioning for recovery. As countries and economies reopened, employees came back to the office, favouring flexible arrangements. Demand rebounded strongly in 2021-2022, driving revenues back to pre-COVID levels in 2022.

In parallel, IWG accelerated investments into its nascent managed and franchised business as well as its technological offering, allowing it to scale further while preserving the balance sheet.

IWG’s history is defined by survival and adaptation. From the dot-com crash to the Global Financial Crisis, from WeWork’s excesses to the COVID collapse, each shock forced a refinement of the operating model.

The result is a business with battle-tested risk management, a conservative balance-sheet mindset, and operational flexibility that newer competitors lack. This history is essential context for understanding how IWG approaches its markets today.

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II. Market Opportunity

Why Companies Choose Flexible Space

The growing appeal to customers is driven by a combination of operational, financial, and strategic considerations.

For small companies and start-ups, initially at the heart of the coworking “revolution”, the ability to move into a managed space quickly without capex, a large deposit or a long commitment is invaluable. As is the ability to network, collaborate, and maintain employee engagement.

For enterprises, the appeal is also straightforward: flexible workspace converts fixed capex into variable opex, eliminates fit-out delays, and allows scaling presence up or down as needs change. In a hybrid work environment, the ability to offer employees distributed locations closer to where they live – rather than a single central HQ – has become an additional driver.

At its December 2025 Investor Day, IWG disclosed that enterprise is now 18% of its customer base and 45% of revenues. Further, 85% of Fortune 500 companies are customers. Examples of deepening relationships with large corporations such as Ciena and Kyndryl (below) are telling and validate both the market opportunity and IWG’s ability to serve clients at scale.

Opportunity and Competitive Position

IWG operates in a large, fragmented, and structurally growing market encompassing coworking, serviced offices, and other flexible workspace formats.

It is estimated that flexible workspaces are growing at a rate of 10–15% in the U.S., yet penetration remains low, estimated by Yardi Systems at just 2.2% of total U.S. office stock – roughly 152 million square feet as of Q3 2025. This low starting point implies substantial runway if adoption continues to grow.

Within this landscape, IWG is the clear global leader – 4,400+ centres with over 1 million rooms across 120+ countries; seven times larger than its nearest competitor and larger than the next ten combined.

The most important competitor is not another coworking operator, but traditional office leasing itself. The primary growth opportunity lies in converting even a small additional share of the vast conventional office market into flexible formats – a few more percentage points of share shift toward serviced and flexible models would have a transformational impact for scaled operators like IWG.

For much of the past decade, WeWork was the most visible flexible office competitor – even if much smaller than IWG. That chapter is now closed. Following its restructuring, WeWork operates just under 600 locations globally, and roughly 150 sites in the U.S. – compared with 4,400 and 2,000 for IWG.

Beyond WeWork, competition is fragmented. Many operators are local or regional, often focused on single cities or niches. In the U.S., Industrious is a notable player, operating a landlord-partnered management model under CBRE’s ownership. Other competitors include Servcorp, which focuses on premium CBD locations, Impact Hub, which targets socially oriented coworking, and a range of smaller specialist brands.

Traditional real estate players have also experimented with flexible offerings – CBRE with Hana (now folded into Industrious), and large landlords such as Boston Properties and Hines offering flexible suites within their portfolios. None, however, approach IWG’s scale or geographic reach.

With structural tailwinds, an underpenetrated market, and a rationalised competitive landscape, the debate shifts from whether flexible work will grow to who is positioned to execute at scale – bringing IWG’s business model into focus.

III. Business Model & Strategy

IWG’s business model has evolved significantly over the past decade – from a capital-intensive owner-operator to an increasingly asset-light platform. This transition rests on several competitive advantages (scale, brand, operations) that position IWG to grow at an accelerated pace and generate increased profits, while materially reducing execution and capital risk.

Strategy and Competitive Advantages

IWG’s commercial strategy is straightforward: leverage its scale, brands and operational maturity to capture a disproportionate share of flexible workspace demand.

Scale: IWG’s global network, combined with its unified digital platform and ancillary services, makes it the only provider able to offer truly global, turnkey solutions to large enterprises adopting hybrid work or expanding internationally. This creates tangible margin advantages through higher occupancy, procurement efficiencies, and operating leverage. At scale, these advantages become self-reinforcing, as utilisation, partner economics, and network expansion reinforce one another:

Brands: unlike most competitors, IWG operates through a broad portfolio of brands (Regus, Spaces, Signature, and a dozen others), allowing offerings to be tailored to specific locations, price points, and customer segments. This contrasts with Industrious or WeWork’s single-brand approach, which has a limited ability to adapt across markets.

Operational maturity: over time, IWG made structural changes that substantially derisked the business. Leases were compartmentalised within SPVs, enabling orderly exits or restructurings where needed, while 30% of leases now include a degree of flexibility – such as revenue-linked rents – effectively converting part of the fixed cost base into variable costs.

Owned Portfolio: Focus on Margins

The owned estate – still roughly two-thirds of the network – is no longer the growth engine, but it remains the earnings base. The priority is returns rather than expansion.

On the revenue side, pricing actions and targeted introductory offers are used to drive higher occupancy and customer lifetime value. Data and analytics increasingly inform layout optimisation and dynamic pricing.

Meanwhile, the cost base is being progressively streamlined through procurement efficiencies, leaner support operations, technology implementation, exit of loss-making centres, and rental savings following the 2022 commercial real estate downturn.

Together, these initiatives are lifting margins as utilisation normalises. IWG is targeting a gross margin of 30% on owned centres vs. ~25% today and continues to make steady progress.

The Shift to Asset-Light Growth

Around 2019, IWG began a deliberate pivot away from lease-heavy expansion toward an asset-light growth model. The objective: continue expanding the network while reducing balance sheet risk and capital intensity.

This transition rests on two pillars – franchising and management contracts.

Under a franchise arrangement, a local partner funds the lease and fit-out and pays IWG for access to its brands, systems, and operating know-how. A notable example is Japan, where IWG franchised its entire business in 2019 for a lump sum plus ongoing royalties of 4–5% of centre revenues – unlocking capital, creating a steady high-margin royalty stream, and transferring operating risk to the franchisee.

The managed services model is now the primary growth engine. Here, IWG operates a location on behalf of a property owner – running sales, marketing, and day-to-day operations – while the landlord provides the space and funds the fit-out. IWG typically earns 10–15% of site revenue (~13% on average), significantly higher than franchise royalties, with no capital deployed.

Critically, the company retains operational control and customer ownership under its managed structures, while 100% of fees drop through to gross margin - with no capex and only limited opex.

This asset-light approach has quickly become dominant. Nearly all new centre openings are now asset-light (mostly under management agreements). In H1 2025 alone, IWG added 271 new centres, 249 (92%) of which were asset-light.

As a result, total capex for new locations is expected to have remained below $25m in 2025 – an immaterial figure relative to the size of the network. This reflects both the structural shift to asset-light growth and a deliberate push on supply-chain efficiency – enabled by scale. As disclosed during IWG’s Investor Day, the cost of opening a new centre has halved since 2023.

Execution Reality: Openings, Pipeline, and Pace

Rapid growth has not been frictionless – openings have materially lagged since the strategic pivot. For example, 19,000 rooms were removed from the reported pipeline in H1 2025, due to still being unopened after 24 months.

Management acknowledged that the early onboarding process lacked pace and effectiveness, an issue that has since been addressed through additional resources and iterative process improvement. Centre openings have meaningfully accelerated as a result.

Growth is now accelerating. IWG is targeting over 1,000 M&F centre additions per year, securing prime locations in secondary cities and suburban markets where flexible demand is growing fastest.

M&F locations represented just 14% of the network at end-2022; today that figure is approximately 33%, and including the signed pipeline, is on track to reach 50% in the medium term.

Customer Experience: A Necessary Condition for Success

Flexible workspace is a low-switching-cost product, with short contract durations and usually some local alternatives. As a result, customer experience is not a “nice to have” but a prerequisite for maintaining centre utilisation as the network scales.

Regus has historically faced criticism around rigid contracts, uneven service quality, and surprise fees — issues that limited customer retention and brand perception. In response, IWG has simplified contract structures, reduced friction at renewal, and increased focus on on-site hospitality and service consistency.

Since these initiatives were implemented, Regus’ Trustpilot score has improved from 2.7 to 3.8, despite a significant increase in the number of operating centres. While brand dilution and service inconsistency remain risks at scale, greater operational focus and full control over managed locations materially mitigate these concerns.

Sustained improvements in customer experience are essential to the investment case. Without them, higher churn could overwhelm the benefits of scale and impair centre fill rates. With them, scale reinforces utilisation, partner returns, and the asset-light flywheel.

Why Landlords Partner with IWG

Economics

The economics of IWG’s M&F model are compelling for landlords relative to both traditional leasing and self-operation.

Based on U.S. franchise disclosure documents, it is possible to infer typical partner economics. I will assume a typical 15k sqft, 200-room centre (U.S. centres are typically larger than the 160-room M&F network average, reflecting higher minimum floor areas), located in a non-prime suburban location.

Under a traditional office lease, a landlord might achieve ~$15-20 / sqft in rent (~$255k), often contributing $20–40 / sqft in tenant improvement allowances (~$450k) – capital effectively gifted to the tenant. That is, if they are able to lease at all – the traditional office market in non-prime locations is particularly difficult.

Under a Regus-operated flexible workspace, the landlord usually invests ~$85 / sqft in the fit-out (~$1.3m), while retaining ownership of the asset. At a stabilised RevPAR of $300 (higher than average due to U.S. location), the centre generates ~$440k in operating income, implying a pre-tax ROI of 35%.

The incremental capital outlay versus leasing pays back in around four years, while avoiding single-tenant credit risk in favour of a diversified member base.

Additional detail is provided in the Appendix.

Operations

The natural question is why landlords do not simply self-operate and avoid the ~13% management fee.

Here, IWG’s infrastructure and experience create a meaningful advantage. IWG brings multiple differentiated brands tailored to specific locations and price points, a global sales and marketing engine, enterprise relationships, a proprietary technology platform, and 37 years of operational expertise in centre management, collections, and customer service.

Beyond the physical centres, IWG has built a global digital platform enabling on-demand access to offices, desks, and meeting rooms across the network. A meaningful share of group revenue also comes from high-margin ancillary services – including virtual offices, meeting rooms, IT services, and amenities – that increase customer lifetime value and would be difficult for a self-operating landlord to replicate.

While a single-site landlord might self-operate in very specific circumstances (e.g. a prime location that “fills itself”), replicating IWG’s returns at scale is unlikely. A large landlord attempting to build similar capabilities would need to invest heavily in sales infrastructure, brand development, systems, and back-office operations.

Notably, CBRE recognised these complexities when it acquired Industrious rather than building an in-house flex offering, illustrating the difficulty of replicating scaled operational capability organically.

These advantages reinforce the asset-light flywheel described earlier. As a result, the upsell opportunity is substantial: IWG works with approximately 4,000 property partners globally – more than 80% of whom own additional buildings – yet fewer than 20% currently have multiple IWG contracts. Converting even a fraction of this base into repeat partnerships would materially accelerate growth without incremental sales cost.

In summary, IWG today operates a two-engine model: an owned portfolio focused on margin expansion, and a rapidly scaling management and franchise platform that converts global scale into recurring, capital-light fee income. The question now is whether this shift is beginning to show up in the numbers.

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IV. Execution & Financial Performance

While growth and capital spend were key features of the “old” IWG, improving margins and capital returns are the dominant features of the “new” IWG.

Recovery and Inflection (2022–2025)

Shortly following the COVID disruption, revenues reached – and have remained at – record levels. Importantly, revenue composition has shifted toward high-margin fee-based income, while the downside is protected by variable rents and SPVs. IWG’s recovery has therefore been marked by improving quality of earnings rather than just top-line growth.

Owned centre occupancy has rebounded to the high 70% range – sufficient to restore solid profitability, with further upside as utilisation normalises. In addition, margins have increased thanks to a focus on cost efficiencies – procurement, G&A, etc. As of H1 2025, company-owned gross margins reached 24% – up over 100 basis points year-on-year – with a path toward the 30% target.

Meanwhile, fee-based revenues from managed and franchised centres, which carry minimal marginal cost and no capital expenditure, continue to outpace overall group growth.

Balance Sheet Strengthening

Improved cash generation has allowed IWG to reduce net debt, secure investment-grade credit ratings (BBB – stable outlook), and extend its maturity profile with no refinancing needs until 2029.

This shift is most clearly reflected in the evolution of the EBITDA margin – note post 2022 figures are not comparable with historical data due to U.S. GAAP transition ($50m negative EBITDA impact in 2025). 2025E and 2026E based on consensus.

Capital Returns and Cash Flow Discipline

With free cash flow firmly positive, and net debt kept below 1.5x EBITDA, IWG reinstated capital returns in 2025, via a $130m buyback programme. With higher FCF expected in 2026, I expect that buybacks will reach $150m in 2026.

This marks a complete psychological shift: after a decade dominated by investment, survival, restructuring, and a capital raise, IWG has re-entered a phase of surplus cash generation.

Management and Execution

IWG’s management team has been shaped by repeated episodes of stress. Founder and CEO Mark Dixon has led the business for more than three decades, navigating the dot-com collapse, the Global Financial Crisis, WeWork-driven competitive excess, and the COVID shock. While earlier expansion cycles exposed the group to fixed lease risk, IWG has successfully adapted its operating model over time.

In recent years, execution has become more disciplined, with a clearer focus on cash flow generation, balance-sheet resilience, and returns on capital. Management has delivered on balance-sheet repair, materially reduced lease exposure, and successfully pivoted growth toward asset-light formats. Notably, recent guidance has focused less on headline growth and more on cash flow generation, leverage reduction, and capital returns – priorities increasingly reflected in reported results.

Appointed as CFO in 2024, Charlie Steel has played an important role in guiding this shift. Since then, financial reporting and communication have improved, central costs have been reduced, and capital allocation has become more structured and predictable. While the business remains operationally complex, the combination of experienced leadership and a strengthened finance function materially improves execution credibility.

IWG today is more resilient, less capital-intensive, and more agile than at any point in its history. With improving financial quality and a structurally stronger model, the foundation for continued progress is in place.

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V. Financial Forecasts

Forward View: Earnings

The forward outlook for IWG is very much dependent on its ability to execute on its strategy rather than macroeconomic conditions – while macro affects the path, execution drives the outcome.

Management has guided to FY26 adjusted EBITDA of $585–625m. Beyond this, it has outlined a medium-term ambition to exceed $1bn of EBITDA, which I see as achievable but contingent on near-perfect execution.

My own forecasts are a little more conservative. I am building a reasonable path towards 2030: how many centres can be opened and filled at scale, at what economics, and with what implications for cash generation.

The key drivers of the model are straightforward:

• the pace of new M&F centre openings,

• the ramp and steady-state RevPAR of those centres, and

• the trajectory of gross margins in the owned estate.

For the M&F division, I assume that IWG can sustain 600 new centres per annum – equal to the Q3 2025 run-rate. In my view, pace has historically been limited by IWG’s lack of capacity rather than actual partner demand.

Given the recent investments made in sales & marketing and the renewed focus on opening processes and logistics, there is room for upside. Indeed – at the Investor Day, Management reported an annualised exit rate of ~1,000 openings and ~1,500 signings for September 2025.

I further assume that the RevPAR builds up in line with current cohorts – reaching $250 by 2030, slightly slower than IWG’s initial forecasts. Notably, current cohorts appear to continue ramping past $250, reaching approximately $300 after 30 months – if sustained, it would add upside to the base forecasts below.

Using an average centre size of 160 rooms for new M&F centres (global, unchanged vs. today), and average fee rates of 13% for management fee / 8% for royalty fees (equal to current and as guided), I get the following forecast:

For owned centres, I assume that growth plateaus at 2% after 2026, while gross margin slowly creeps up as efficiencies are realised and leases continue to be optimised. I come up short vs. Management’s guidance, out of conservatism.

Opex is inferred from 2025-26 guidance and grown at 3% subsequently – as guided. Given that recent investments have been able to generate the desired momentum in signings / openings, I am inclined to agree that no further growth investments are required beyond normal inflation.

Finally, for the sake of valuation, I separate M&F from Owned Centres. I allocate operating expenses proportionally to each segment’s gross margin. The reason is that M&F revenue has already netted out local centre expenses (borne by the partner), therefore gross margins give the best view of the volume of central support required by each segment (IT, HR, marketing, billing, finance, etc.). The output is as follows:

Due to conservatism, I come up ~$80m short of IWG’s medium-term target of $1bn+ of EBITDA. I am also slightly below consensus for the next couple of years. Conversion of M&F signings into accelerated openings, or success with owned centres gross margins would have me revise my estimates higher.

Forward View: Free Cash Flow

Operating cash flow items are derived from the company’s guidance, which looks reasonable. Worth noting – working capital becomes a tailwind over time, as M&F fees are prepaid and IWG bears no corresponding expense.

As for capex, I again accept the $100m maintenance guidance (higher than today as the estate ages) and assume $25m of growth capex going forward – reflecting no to minimal centre growth.

The strategic shift toward asset-light growth means that incremental expansion requires little additional capital, allowing earnings growth to translate more directly into free cash flow – allowing FCF to reach $520m by 2030.

IWG remains a story of execution rather than a macro or thematic play. Today’s ~6x EBITDA valuation heavily discounts the company’s plan — leaving upside contingent on IWG proving the sceptics wrong.

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VI. Valuation

A Few Datapoints

Despite a materially improved growth and risk profile, the market has only recently started to reward IWG’s transformation. As of 25 February 2026, the company’s market capitalisation stood at approximately $3.0bn – 15x my projected FY26 FCF ($202m) and 11x FY27 FCF ($269m).

While this is not optically cheap, I contend that it does not adequately reflect future growth – much of which is embedded within centres that are already open or signed (there are currently 190k M&F rooms signed but not yet opened vs. 245k already opened – but still maturing).

To assess the potential upside, I will refrain from using DCF modelling – too reliant on WACC and terminal growth inputs. Instead, I will look at actual transactions and comparable business models, to the extent relevant to IWG.

The closest examples are of course within the flexible workspace industry.

First among them is IWG, which sold its Japanese business to TKP Corporation in 2019. TKP paid ~15x EBITDA and became exclusive franchisee, paying a 5% annual royalty to IWG. Similar transactions were pursued in other mature markets, without success. Japan was unique and valuations offered elsewhere were reportedly closer to 6-8x EBITDA, considered too low by IWG.

The second datapoint is Industrious, fully acquired by CBRE in January 2025 at an enterprise value of $800m. While financial details are unavailable, Industrious operated 200 managed locations at the time, resulting in a valuation of $4m per managed centre.

Industrious is upmarket and manages larger centres compared with IWG, therefore revenue and profit per centre are likely higher. However, its fee structure relies heavily on performance, making it more volatile and therefore less valuable. Finally, the valuation certainly includes an element of strategic premium, given the uniqueness of the asset and the commercial synergies between CBRE / Industrious.

Sum of the Parts

IWG operates two economically distinct businesses. The company-owned segment bears lease obligations and occupancy risk – comparable to office REITs. The management & franchise (M&F) segment earns recurring fees without owning real estate – comparable to hotel franchisors, CRE services firms, and facilities managers. A single blended multiple obscures each segment’s value; I therefore apply separate comp sets.

Part A: Company-Owned Segment (6–8x EBITDA)

Listed flex peers are inadequate (Servcorp is a micro-cap; Indian operators trade at growth multiples inapplicable to IWG’s mature Western markets). I benchmark IWG against U.S. office REITs, which trade at 11–33x NTM EV/EBITDA. A discount is warranted given shorter lease duration, lease-vs-ownership structure, and higher operating complexity – offset partly by cleaner leverage (~1.3x Net Debt/EBITDA) and customer diversification.

Suggested range: 6–8x EBITDA. Value creation assumed from earnings growth rather than multiple expansion.

Part B: M&F Segment (10–15x EBITDA)

I will cross-check IWG’s M&F segment against four asset-light / fee-based peer groups:

Mid-tier hotel franchisors (Wyndham, Choice at 11-12x), CRE services (CBRE at 14x, JLL 11x, Cushman 7x), and facilities managers (Compass, Aramark at 11x) cluster around 11–12x EV/EBITDA. IWG’s M&F segment lacks the consumer brand power, loyalty ecosystems, and cycle-tested track record of premium platforms (Hilton, CBRE). Its positioning is closest to the mid-tier franchisors, but its business model is closer to the premium names’ M&F model – including recurring revenue and no capex. Suggested range: 10–15x EBITDA. This also considers that M&F is a higher-quality income stream – no capex, no working capital – FCF conversion is nearly 100%.

For the sake of determining the future share count, I assume that 100% of FCF goes to buybacks, as is the case now, retiring 50 million shares per annum on average. This results in a total share count of ~800 million by late 2029, from today’s 988 million. Net debt remains therefore unchanged. Valuation is done based on my estimated 2030 numbers, in order to provide a view of what the investment could return.

The resulting SOTP valuation is as follows:

Note: based on GBPUSD exchange rate of 1.35.

As a sense check, a M&F valuation of $3.5bn would amount to $0.7m per open centre, well below Industrious’ $4m.

Path to Multiple Expansion

The gap between IWG’s ~6x consolidated EV/EBITDA and the multiples above reflects scepticism on four fronts:

1. durability of M&F fees through a downturn;

2. landlord ROI validation and continued partner demand;

3. pipeline conversion at scale (~190k rooms, ~$1.4bn potential system revenue); and

4. competitive moat against CRE incumbents (CBRE/Industrious) and landlord insourcing.

Proof of all four would support multiple expansion over time.

The persistence of a large discount also likely reflects lingering scepticism toward the office sector, complexity in IWG’s reporting structure, and residual association with the excesses of the WeWork era.

For investors willing to look beyond near-term sentiment, IWG offers exposure to a structurally growing end market at a valuation that reflects past risks more than current fundamentals.

Like all investments, IWG is not risk-free. A balanced assessment requires weighing potential catalysts against key risks, and identifying the indicators that will ultimately confirm – or undermine – the case.

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VII. Catalysts / Key Risks

Catalysts

Several potential catalysts could help accelerate a re-rating.

First, continued delivery on IWG’s EBITDA and free cash flow targets would further validate the asset-light model. As fee-based revenues scale and capex intensity remains low, the translation from earnings to cash should become increasingly visible.

Second, capital returns are likely to remain a focus. The reinstatement of buybacks in 2025 marked a shift from balance-sheet repair to capital optimisation. Sustained returns to shareholders would reinforce confidence in the durability of cash flows.

Third, strategic actions could unlock additional value. These include further franchise transactions, selective asset disposals, or acquisitions. The recent shift to USD reporting and U.S. GAAP makes the accounting easier to understand, broadening the investor base. It may also open the door to an eventual U.S. listing.

Key Risks – What Would Break the Thesis

While the structural opportunity is compelling, several possible developments would directly challenge the core underwriting and warrant a reassessment of the thesis.

1. Persistent difficulty filling new centres

The single most important risk is execution on centre fill rates. If newly opened management and franchise centres consistently ramp more slowly than expected, or stabilise at materially lower occupancy or RevPAR, the economics of the asset-light model weaken. Evidence of declining utilisation, rising incentives, or sustained pressure on pricing across new cohorts would indicate that incremental supply is outpacing demand.

2. Pipeline conversion disappoints at scale

IWG currently has approximately 190,000 M&F rooms signed but not yet opened. While some attrition is normal, a sustained increase in pipeline cancellations, prolonged delays to opening, or further large removals of signed rooms would signal either partner hesitation or weakening landlord economics. This would directly undermine the visibility of future fee growth embedded in the current pipeline.

3. Landlord economics prove less attractive than expected

The M&F model depends on landlords earning superior risk-adjusted returns relative to traditional leasing. If, after ramp-up, partner returns consistently fall short of expectations – due to higher operating costs, lower-than-expected occupancy, or pricing pressure – repeat partnerships would slow and pricing power on management fees could come under pressure. A lack of repeat or multi-site partners would be an early warning sign.

4. Fee durability weakens in a downturn

IWG’s M&F business has not yet been tested through a full economic downturn at scale. If a recession leads to sharper-than-expected declines in centre revenues, fee renegotiations, or partner distress, the perceived resilience of the M&F fee stream would be challenged. This would limit the multiple investors are willing to apply to the fee-based segment.

5. Competitive pressure intensifies from CRE incumbents or landlords

While scale and operational complexity provide advantages, barriers to entry at the single-location level remain low. A sustained push by large CRE platforms (e.g., CBRE / Industrious) or successful landlord insourcing could compress fees or slow new signings. Evidence that landlords increasingly choose to self-operate rather than partner would weaken the story.

6. Customer experience deteriorates as the network scales

Flexible workspace inherently carries higher customer churn, but poor service quality, inconsistent experience across brands, or contract friction could accelerate it beyond manageable levels. If IWG is unable to maintain centre fill rates without materially increasing sales and marketing spend, operating leverage would fail to materialise.

7. Capital discipline weakens

The thesis assumes continued restraint on owned-centre expansion and disciplined capital allocation. A return to lease-heavy growth, aggressive owned expansion, or value-destructive M&A would reintroduce balance-sheet risk and undermine the rationale for a higher-quality earnings multiple.

8. Economic macro environment / AI

Macro is not the core of the thesis, but it does of course matter – investors should absolutely expect higher churn and price pressure in the near term in case of a global economic downturn. However, owned centre occupancy troughed in the low 60s during COVID – a shock far more severe than a typical recession for the office industry. Similarly, AI’s impact on white collar jobs remains an open question.

9. Shift to fully remote

As of today, flexible workplaces continue to gain share and grow at an accelerated pace. Yet uncertainty around the future of office work persists. While hybrid models generally favour flexible space, a more dramatic move toward fully remote work could reduce overall office demand.

Bottom line

The thesis does not require perfection, but it does require consistent evidence that new capacity can be filled, partner economics remain attractive, and fee income compounds faster than complexity. Failure on any of these fronts would materially weaken the case for re-rating and warrant a reassessment of the investment.

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VIII. Conclusion

IWG is the global leader in flexible workspace – a market undergoing a structural shift rather than a cyclical fad. The company has survived repeated stress events, from the dot-com crash to COVID, and has emerged with a more resilient, asset-light model.

The opportunity is substantial: a very large addressable market with low penetration and strong tailwinds from hybrid work adoption. IWG’s scale, global reach, and operational maturity provide advantages that are difficult to replicate.

Financially, the business is inflecting. Revenues are at record levels, margins are expanding, cash is flowing, and capital is once again being returned to shareholders. Yet the valuation continues to reflect legacy concerns rather than current economics.

WeWork’s era of excess is over. What remains is a disciplined operator, quietly compounding scale and cash flow. For long-term investors willing to underwrite execution risk, IWG offers exposure to a structurally growing segment at a valuation that has yet to price in the improved quality of earnings.

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Appendix 1: “Investment Committee” Q&A

The following Q&A addresses key concerns that would likely be raised by an experienced investment committee.

1. Landlord Relationships Post-Restructuring

Q: Did the 2020 “solvent liquidation” permanently damage IWG’s relationships with major landlords?

A: The restructuring did cause damage. IWG has a documented history of using insolvency threats as a negotiating tactic. For example, Legal & General, one of the UK’s largest insurers, stopped leasing buildings to Regus entirely.

However, operational data suggests the damage was not universal. IWG signed 899 new centres in 2024 and 674 in 9M 2025 alone – the vast majority through landlord management partnerships. The pipeline includes 190,000 rooms signed but not yet opened. Furthermore, 30% of existing lease liabilities now include variable rent structures linked to centre revenue, indicating ongoing willingness to negotiate creative arrangements.

Conclusion: While some bridges were burnt, the TAM is large enough that this is not a major concern – as evidenced by the growing signing and opening momentum. Indeed – given the current downturn in office CRE, IWG is in a very strong position to negotiate.

2. Structural Occupancy Ceiling

Q: Is there a structural ceiling on flexible workspace occupancy (75–80%) that caps margin upside? Unlike hotels, you can’t turn a room over every night.

A: Industry data supports this concern. Global coworking occupancy reached 68% at the start of 2025, with mature markets in Europe averaging 70–80%. Industry analysts describe a “global occupancy plateau around 72–74%” as structural rather than cyclical. Only about 46% of coworking spaces report achieving near-100% occupancy when mature.

IWG’s current occupancy is in the “high 70% range,” with long-term occupancy up 240 basis points over the last 12 months. Management targets 30% gross margin versus 25% today. The margin expansion thesis does not require breaking through a structural ceiling – it requires moving from approximately 77% to 80%+ and extracting pricing power. The remaining 300–500 basis points of occupancy upside appears achievable but represents a more modest opportunity than hotel analogies might suggest.

Recommendation: 85% is a likely occupancy ceiling that allows operators to maximise revenue while allowing for normal tenant rotation and high-value single-day visitors.

3. Customer Acquisition Cost for M&F Centres

Q: Is the customer acquisition cost (CAC) for new M&F centres stable or rising?

A: IWG’s H1 2025 presentation discloses more than $20m invested in sales and logistics to drive signings and openings, plus $21m in marketing investment, with an additional $4m specifically for the Partnership sales team. With 496 centres signed in H1 2025, this implies approximately $40–45m in sales and marketing spend, or roughly $80–90,000 CAC per centre signed. This appears stable and reasonable – at the current RevPAR curve, it likely takes ~2 years to get it back in management fees.

4. Customer Retention

Q: Is churn an issue and how is it being addressed?

A: Even at mature U.S. centres, annual customer retention is approximately 69%, implying churn of roughly 30%. This is not a flaw unique to IWG, but a feature of the category: average contract lengths are typically 12–24 months, and flexibility is precisely what customers are paying for.

The investment case therefore does not rely on eliminating churn, but on IWG’s ability to consistently replace departing customers through its sales engine, brand reach, and enterprise relationships. At scale, this dynamic favours operators with the largest networks, strongest demand funnels, and lowest marginal cost of customer acquisition. Execution risk lies not in churn itself, but in whether centre fill rates can be maintained as capacity expands.

5. AI Impact on Total Addressable Market

Q: If AI reduces white-collar headcount by 10–20% over the next decade, does IWG gain share through consolidation or lose revenue from TAM shrinkage?

A: The risk is real. However, the flexible workspace thesis may actually benefit from disruption. Companies facing uncertainty prefer operating expenses over capital expenditures and flexible over fixed commitments. If headcount volatility increases, demand for flexible space may rise even if absolute headcount declines. The COVID experience demonstrated that economic stress can accelerate flex adoption as companies seek to reduce fixed real estate commitments.

AI’s impact on the job market over the next decade is anyone’s guess. However, one should bear in mind that the thesis is much more dependent on traditional office displacement rather than overall employment growth. Indeed – growing IWG’s market by 10% only requires flexible office to grow from 2.2% to 2.4% of total… As further evidence, the slowdown in the job market since 2023 has had no visible effect on IWG.

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Appendix 2: Partner Economics

The U.S. Franchise Disclosure Document (FDD) dated August 2025 provides granular unit-level economics for IWG’s company-owned and franchised centres, offering the most rigorous publicly available data on operational performance and partner economics.

Stabilised Centre Economics – Owned Centres

Analysis of 456 mature company-owned U.S. outlets (open 24+ months, 10k-20k sqft) reveals the following stabilised economics for calendar 2024:

Average occupancy is 76.5% and customer retention 68.7% - highlighting the need for continued marketing efforts.

Estimated Partner Economics – Illustrative

While IWG’s owned and franchised centres tend to be larger, Tier 1 locations, managed centres are usually smaller, Tier 2 / suburban locations. Therefore, unit economics will differ.

Based on the FDD, and my best estimates, I will model the following “typical” managed centre:

- RevPAR of $300 – higher than the $250 corporate target due to the U.S. being more expensive than the RoW. Price checks seem to confirm this view. I assume a ramp-up similar to current cohorts – slightly slower than initially expected by IWG.

- 15k sqft average centre size. A room is defined by IWG as 75 sqft, which yields a total of 200 desks for the average centre – larger than the M&F global average as U.S. centres tend to be larger.

- Consistent with the FDD, we’ll assume total fit-out costs of $85 / sqft. Total of $1.3m. Note: this will likely prove conservative. Management stated at the company’s Investor Day that the cost of opening a new centre has halved since 2023, driven by supply chain scale – and that partners are increasingly asking to leverage IWG’s procurement for their own fit-outs.

Based on fit-out costs of $1,275,000, the investment is cash positive by year 4 and the ROI at maturity (pre tax and financing costs) is ~35%.

The right way to look at it though is to compare with a traditional office lease. I estimate that for such locations, the rent would be ~$17 / sqft, and the landlord would have to accept a tenant improvement allowance of $30 / sqft. Therefore, collecting $255,000 of rent for an initial investment of $450,000.

Thus, the extra income from the IWG managed space conversion is $185,000 ($440k minus $255k) – on an extra investment of $825,000 ($1,275k minus $450k). ROI of 22%. This doesn’t tell the complete story, however – there are additional non-financial reasons for a conversion: difficulty to rent midsized offices in non Tier 1 locations, owning the furniture / infrastructure vs “gift” to tenant, and no single-tenant credit risk.

Churn and Contract Retention

The FDD reveals zero terminations across the U.S. franchise network over 2022-2024, with only one reacquisition (Ohio, 2023). However, the franchise base remains small (10 outlets), limiting statistical significance. We can take cues from the owned network – 4% of centres were closed each year on average during 2022-2024, a period of higher-than-usual closures. I believe this is a highly supportive data point for the thesis.

Contract terms are favourable to IWG: 10-year initial term with two 5-year renewal options (20 years total), 24-month non-compete, and no early termination rights for franchisees.

Customer retention of 68.7% implies annual churn of ~31%, requiring robust sales infrastructure to backfill departures. This is consistent with flex office industry norms where average contract lengths are 12-24 months, creating inherent revenue volatility even at mature centres.

Implications for Investment Thesis

The FDD data supports several conclusions relevant to the M&F growth thesis:

Stabilised margins are attractive: Median EBITDA margin of 25% on mature centres provides meaningful cushion for landlord returns even after IWG’s 13% fee take.

Ramp risk is real: 24-month ramp to stabilisation means landlords are underwriting 2+ years of sub-optimal returns before reaching target economics.

Customer churn creates operational intensity: 31% annual churn requires continuous sales effort and marketing spend, partially explaining IWG’s infrastructure and marketing fees.

Contract terms favour IWG: Zero franchise terminations and 20-year potential contract duration provide fee stream durability, though sample size remains limited.

Landlord IRR appears compelling: ROI of 35% at maturity, ROI of 22% for the additional capex when compared with renting.

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Appendix 3: Comparable Company Analysis: Valuation Framework

1. Valuation Approach

IWG operates two economically distinct businesses under one corporate umbrella. The company-owned segment bears lease obligations, capital expenditure, and occupancy risk – characteristics that bear similarities with office REITs. The management & franchise (M&F) segment earns recurring fees on system-wide revenue without owning the underlying real estate – characteristics that map to asset-light hotel franchisors and – to an extent – facilities management companies.

A single blended multiple obscures the value of each business. This analysis therefore identifies separate comparable sets for each segment and discusses where IWG sits relative to each peer group on business model similarity, growth profile, and risk characteristics.

2. Part A: Company-Owned Segment

2.1 Why Not Use Listed Flex Peers?

The natural comparables would be other listed flex operators, but the peer set is inadequate. Servcorp (ASX:SRV, 7x EV/EBITDA) is a micro-cap with 136 floors versus IWG’s 2,873 centres. The four Indian-listed operators (9–14x EV/EBITDA) are single-market, high-growth businesses whose multiples do not translate to IWG’s mature Western markets. I therefore use office REITs as the primary comp set.

2.2 Office REIT Comparables

2.3 Business Model Similarities

Revenue model: Like office REITs, IWG’s owned segment derives revenue from occupants using physical space. Revenue is a function of occupancy rates, pricing per unit, and total square footage – directly analogous to the office REIT model of rent per square foot multiplied by occupied area.

Capital intensity: Both IWG’s owned segment and office REITs require substantial capital for fit-out, maintenance, and lease obligations. IWG reports company-owned contribution margins of approximately 25% (2025), which is close to net operating income (NOI) margins for office REITs. Similarly, although those are not widely used metrics for REITs, EBITDA and FCF margins are strikingly similar (15% and 5%, respectively).

Cyclicality: Both are sensitive to office demand, employment trends, and macroeconomic conditions. Vacancy rates, rental resets, and tenant defaults affect both businesses similarly.

2.4 Key Differences

Lease duration: Office REITs typically sign 5–10 year leases with credit tenants, providing long-dated visibility. IWG’s owned centres serve members on shorter-term agreements (often month-to-month or 1–2 year terms), resulting in higher revenue volatility but also faster repricing in recovery.

Revenue per sqft: IWG earns a substantial premium to traditional office rents because it sells “space-as-a-service” (furnished, serviced, flexible). This higher gross revenue per sqft is offset by higher operating costs (staffing, services, fit-out depreciation).

Customer diversification: A single IWG centre may serve dozens or hundreds of members, compared to an office building with a small number of anchor tenants. This reduces concentration risk but increases sales and operational complexity.

Asset ownership and leverage: IWG operates on long-term leases rather than freehold ownership. On a Net Debt / EBITDA basis, IWG is considerably cleaner: ~1.3x (net debt $813m vs. ~$605m NTM EBITDA) versus high single digits for VNO and BXP.

Portfolio positioning: IWG’s owned portfolio spans premium CBD locations (Signature, Spaces) through to suburban and regional markets (Regus). It should not be benchmarked purely against trophy-asset REITs or purely against secondary office operators.

2.5 Implied Valuation Range

Office REITs trade at 11–33x EV/EBITDA. A discount is warranted given IWG’s shorter lease duration, lease-versus-ownership structure, and higher operating complexity. Suggested range: 6–8x EBITDA. Although multiple expansion would be warranted in case of continued execution, I will assume that value creation in the owned centre segment comes from earnings growth alone.

3. Part B: Management & Franchise Segment

3.1 Comparable Companies

3.2 Hotel Franchisors (MAR, HLT, H, IHG, WH, CHH)

This is the comparison IWG itself promotes, and the structural parallels are real. Like hotel franchisors, IWG’s M&F segment earns recurring fees (typically 13% of centre revenue) on locations it does not own. The property owner funds the capital expenditure and bears P&L risk. IWG provides brand, sales and marketing, technology, and operational management – mirroring the hotel M&F value chain.

Revenue model: Hotel franchisors earn royalties as a percentage of room revenue (usually 4–6% for franchise, plus marketing fund contributions), analogous to IWG’s typical 6% management fee + 6% service fee + 2% technology fee. Both business models generate high-margin, recurring revenue with minimal capital requirements.

Key differences: Hotels benefit from powerful consumer loyalty programmes (Hilton Honors 200M+; Marriott Bonvoy 210M+ members) that drive direct bookings – IWG has no equivalent. Hotel demand is diversified across leisure and business travel; IWG’s is predominantly corporate/SMB and more correlated with employment cycles. Hotel brands are deeply embedded in consumer consciousness; IWG’s brands (Regus, Spaces) are less differentiated among corporate buyers. Hotel management contracts run 15-30 years with significant termination penalties; IWG’s are 10+5+5 years (per the FDD).

Brand and location-wise, IWG’s M&F segment is most analogous to the mid-tier hotel franchisors (Wyndham, Choice) rather than the premium names (Hilton, Marriott). Notwithstanding, its business model is closer to the premium names’ M&F model.

3.3 CRE Services (CBRE, JLL, Cushman & Wakefield)

Commercial real estate services firms earn fees from property advisory, leasing, facilities management, and investment management. They operate asset-light models adjacent to the same underlying market as IWG. CBRE also owns Industrious, making it a direct comp for IWG’s managed workspace business.

Revenue similarities: Both CRE services firms and IWG’s M&F segment earn fees on real estate activity they do not own. Revenue is B2B, relationship-driven, and scales with square footage under management rather than capital deployed. Both benefit from cross-selling across a service suite – CBRE bundles leasing, facilities management, and capital markets advisory; IWG bundles brand, technology, sales, and operational support.

Revenue differences: CRE advisory revenue is heavily transaction-driven – leasing commissions and capital markets fees are lumpy and cycle-sensitive, whereas IWG’s management fees are recurring (percentage of monthly centre revenue). CBRE’s Building Operations & Experience segment (~40% of fee revenue) is closer to IWG’s recurring model, but Advisory and Capital Markets are transactional. CRE firms also earn significant AUM-based investment management fees, which IWG does not.

3.4 Facilities Management (Compass, Aramark, Sodexo)

Compass, Aramark, and Sodexo are the three global facilities management and food-service giants. All three earn management fees on services delivered in buildings they do not own – the same structural model as IWG’s M&F segment. The FM group reflects long-term contracted revenues, B2B client relationships, and scale-driven purchasing advantages.

Revenue similarities: Like IWG’s M&F segment, FM firms earn recurring fees on managed properties without owning the underlying real estate. B2B enterprise relationships drive contract wins. Both scale through adding locations without proportional capital investment. Revenue is contracted, with typical terms of 3–5 years.

Revenue differences: FM firms have lower revenue volatility – food service demand is less cyclical than office demand. They operate at vastly larger scale and benefit from purchasing leverage that drives operating margins. FM firms also bear more direct labour cost risk (large on-site workforces) whereas IWG’s M&F model pushes labour to the partner.

3.5 Implied Valuation Range

The expanded comp set easily justifies a ~10–15x range for IWG’s M&F segment – this would be at the bottom of the extended peer group of asset-light or fee-based, B2B, real estate-adjacent businesses. The premium end belongs to scaled platforms with loyalty ecosystems (Hilton, CBRE); the discount end reflects lower growth and limited differentiation (Cushman, Sodexo).

IWG’s M&F business is earlier in its growth trajectory (254k rooms open, 190k in pipeline, implying ~75% system growth ahead), which could justify a growth premium. However, the segment lacks the consumer brand power of hotels, has a shorter operating history as a franchisor, and has not yet demonstrated performance through a full economic cycle.

Suggested range for IWG’s M&F segment: 10–15x fee EBITDA. The lower bound reflects comparable mid-tier franchisors; the upper bound reflects the embedded growth pipeline and the potential for margin expansion as scale builds, as well as near 100% FCF conversion.

4. What IWG Must Prove to Justify a Higher Multiple

The gap between IWG’s current consolidated trading multiple and the multiples commanded by office REITs, hotel franchisors, CRE services firms, and facilities managers reflects ongoing scepticism. The market clearly rewards location (NYC office), as well as proven, scaled, fee-based platforms. To close this gap, IWG would need to demonstrate:

1. Durability of M&F fees. Hotel franchisors earned their premiums by proving fee resilience through various cycles, as well as continued commitment from hotel owners. IWG’s managed segment has not been tested yet. While franchises have generally performed well, they tend to be mature, premium centres. The market will need time to assess the durability of new management agreements.

2. Landlord ROI validation. My unit economics analysis suggests landlords earn attractive returns. If this holds, partner demand should be self-reinforcing. If it does not, the pipeline will stall. Early data is encouraging, as is the growing landlord interest for multi-site deals.

3. Pipeline conversion at scale. 190k rooms in the pipeline represent ~$1.4bn in potential annual system revenue. IWG has already removed 19k rooms that did not open within 24 months (~9% attrition). Sustained conversion at low attrition rates is critical. While progress has been made in 2025, it needs to be sustained.

4. Competitive moat. CBRE’s acquisition of Industrious confirms that scaled operational capability in flex workspace is difficult to build organically, and positions CBRE as a direct competitor in managed flex. IWG must continue to invest in brand, technology, and sales infrastructure to maintain its advantage against competitors and the risk of landlord insourcing.

5. Summary: SOTP Valuation Framework

The table below summarises the suggested valuation ranges for each segment, drawing on the identified comp groups. Digital services are integrated within both the company-owned and M&F segments and reflected in the fee structures and margin assumptions of each. These are not price targets; they are frameworks for building valuation scenarios.

Key takeaway: The hotel franchisor analogy remains directionally correct for IWG’s M&F segment, now reinforced by cross-checks from CRE services and facilities management.

Due to non-premium positioning and lack of history, IWG deserves a large discount to premium platforms (Hilton, CBRE). Multiples closer to but still below mid-tier hotel franchisors, CRE services and facilities managers seem justified. A 10–15x range for fee income, combined with 6–8x for owned EBITDA, provides a defensible SOTP framework.

There is room to aim higher over time, as IWG continues to execute on openings, RevPAR and proves M&F durability.