WeWork Inc. Class A

Good morning. My name is Rob, and I will be your conference operator today. At this time, I would like to welcome everyone to the WeWork third quarter 2021 results conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, again, press the star one. Thank you. Chandler Salisbury, VP of Investor Relations, you may begin your conference call.

Good morning, and welcome to our third quarter 2021 earnings call. I am Chandler Salisbury, VP of Investor Relations and Corporate Development. With me today is Sangeet Matrani, our CEO, and Ben Dunham, our CFO. During today's presentation, we will refer to our earnings release and supplemental presentations which have been filed with the SEC and can be accessed at investors.weworks.com. Today's presentation may include forward-looking statements that are subject to risks and uncertainty that may cause actual results to differ materially. We'll also discuss certain non-GAAP financial measures, which we believe are meaningful in evaluating the company's performance. Additional disclosures regarding these non-GAAP measures, including a GAAP to non-GAAP reconciliation, are included in our quarterly report and supplemental presentation. With that, let me turn it over to Sandeep.

Thank you, Chanda, and thank you all for joining us today for our very first earnings call as a public company. As I look back on the journey to this point, I recognize that it would not have been possible without the support of our core constituents, our members, employees, shareholders, landlords, and service providers. As I said Before, but can't say enough, I'm a firm believer in the words of Peter Tucker, that culture is strategy for practice. We have spent the past two years focusing on our core values and incorporating them into our company DNA. Our core values are do the right thing, strive to be better together, be entrepreneurial, give gratitude, and be human, be kind. Today, as a public company, we believe we have a clear strategy for growth, with a focus on executing across our product suite. Now turning to the third quarter results. I'd like to break down the results into our three business strategies. Paces of Service, WeWork Access, and WeWork Workplace Management, our workplace management solution. I'd like to call these three elements the three legs of the school. Each provides a unique support to the WeWork organization as a whole by providing differentiated operating and revenue streams. We'll start with our space for the services. As we previewed during our investor day last month, our third quarter sales and operating results were very strong. Consolidated net debt sales were 84,000 in third quarter. Gross debt sales, which include new debt sales as well as renewals, were 155,000 in third quarter, which equates to approximately 9.3 million square feet sold. Through this, we're starting to see Flex as a separate channel of distribution. Certain of immediate large bid members and enterprise clients anticipate Flex growing to approximately 20% of their office network, and in that way, a separate channel of distribution, akin to e-commerce becoming a separate channel of distribution to retail. As of the end of 2019, Flex office grew to 2% of commercial office and is anticipated to grow 20% to 30% according to CBRE and JLL. So we believe the potential span to total addressable market for our business is quite large. For two quarters in a row, they have shown FlexOffice has taken a growing share of the demand. While we work accounts of about half a percent of the U.S. inventory, the company stole the equivalent of over 9% of U.S. offices and activities in the third quarter, an 18x multiple. At the market level, WeWork's Q3 gross sales in Manhattan were equivalent to 20% of the traditional office market take-up, while WeWork's portfolio of 7 million square feet accounts for approximately 1% of the total office. Now, WeWork saw similar leasing activity in a number of its largest markets. WeWork gross sales equated to 37% of London's traditional office take-up and 13% of Paris' take-up, while approximately being 1% of the stock in both those markets. And 23% of Boston's take-up in the third quarter, where WeWork represented approximately 2% of the office market. As you look at some of the largest landlords in the U.S., Boston Properties, which has a national footprint of over 52 million square feet, and Alexandria has a footprint of approximately 32 million square feet, at least 1.4 million and 1.8 million square feet respectively. By comparison, New York has a global footprint of 47 million square feet and enters into membership agreements of over 9 million square feet at the same period. At the city level, if you look at some of the largest levels in New York City, like tornado and SL Green, they have 20 million square feet and 27 million square feet of office space in Manhattan, and daily 757,000 and 450,000 square feet respectively. We work at about 7 million square feet in New York City and entered into membership agreement for approximately 1 million square feet. Again, demonstrating that FLEX is a separate channel distribution. Small and medium businesses comprise roughly two-thirds of our new desk sales in the third quarter. And these smaller-scale businesses continue to see the impact of long-term remote work and look to flexible solutions for bringing people together. The average commitment for SMB small and medium businesses was 14 months in the third quarter. And the average commitment for the enterprise was 28 months. Overall, on average, commitment left remained steady at 21 months. We've also seen a market improvement in SHRN and an average revenue per member. As of the third quarter, SHRN had decreased to approximately 3.5%, which is below pre-pandemic levels and some of the lowest levels in WeWork history. For reference, in 2019, SHRN was about 4.5%. Average revenue per member for new members signing with us has also increased approximately 30% since year end 2020 level. Take New York and London, our two largest markets that were highly impacted by the pandemic. We have seen meaningful improvements in ARPM throughout 2021 in conjunction with membership growth and improving occupancy. In London, ARPM is 14% higher than pandemic lows and is actually 4% greater than the pre-pandemic Q4 2019 levels. Physical occupancy has increased 10 percentage points throughout the course of 2021 to 51% in September. It's important to note that we achieved these occupancy improvements despite opening approximately 10,000 net debts or approximately 70% of the portfolio between Q3 2019 and Q3 2021 related to locations that had been signed in the pre-pandemic era. Excluding the 10,000 deaths, our occupancy would have been in the high 60s. Similarly, in New York, Arkham is 11% higher than the pandemic lows and is within 10% of Q4 2019 pre-pandemic levels. Occupancy in New York has increased approximately 20 percentage points throughout 2021 to 62% in September. This trend is not isolated to these larger cities. We're experiencing positive ARPM and occupancy momentum across the portfolio and expect this trend to continue as more people return to the office and demand for flex workspace begins to rise. Our strong second quarter debt sales translated into continued sequential occupancy increases in the third quarter and we saw our physical memberships grow by 12% from June to September 2021. Our physical consolidated membership increased to 432,000 for a physical occupancy of 56% as of the end of Q3. If we include the incremental 30,000 net memberships that we were already contracting to move in, our physical occupancy including the signed but not occupied memberships would increase to 60%. In October, preliminary physical membership occupancy rose another three points to 59%. Including signs of not occupied membership, physical occupancy was up to 61%. If you look just at membership, we are only 29,000 physical memberships or 6% lower than pre-pandemic levels in Q3 2019. We've almost recovered to pre-pandemic levels from a membership perspective. It is important to know that this is in support of the footprint expansion, the 31% growth in deaths over the same period. So from Q3 2019 to Q3 2021, we grew our footprint in the pandemic by 31%. which is the primary driver of the lower occupancy figure. Without this increase of 31%, occupancy would have been in the 80s. In October, we also announced the closing of our Latin American joint venture with SoftBank, which we will continue to consolidate. To date, we have franchised or established a joint venture agreement with Japan, Israel, China, India, and Latin America. Now let me turn to the second leg of the story. WeWork Access. Our WeWork Access offerings, which include both our on-demand and monthly subscription products across hundreds of enabled locations around the world, continues to see demand as a full spectrum of flexibility. All Access represented 13,000 memberships as of September 2021, an increase of 60% quarter over quarter, and equivalent to signing roughly 1,000 memberships each week. In October, the total number of all-access memberships was 38,000, almost 1,500 members per week, showing further acceleration of our sales activity. Recently, the all-access product also increases the stickiness of our customer base as companies often bundle access passes with their flex agreement, opening the doors to our global network of all-access locations to their employees. And now, on to the third leg of the stool, workplace management. As companies increasingly embrace more flexible and hybrid work strategies, many are looking for tools to optimize their real estate portfolio while managing how and where employees work across assets and markets. Leveraging the software that we have built to manage and analyze our own spaces, our workplace experience management software provides a turnkey solution that enables companies and their employees to seamlessly implement the right hybrid model for their needs while maximizing on their existing portfolio. We're in the early days, of course, but we anticipate selling our workplace management product commercially beginning in 2022. We've begun to see initial successes in our software product with several key strategic initiatives. The first up-to-date company currently utilizes WeWork's hospitality and workplace management software to power its new co-working business, TaxWorks, at five initial locations in Manassas, Greenwich, Eastchester, and Brookfield Place, and the Tax Academy New York flagship in Manassas. Building on this, we most recently announced an agreement with Ivanoe Cambridge, where WeWork will power Ivanoe's first flexible workplace amenity offering at the iconic Place Ville Marie building in Montreal. Anticipated to open in early 2022, the 11,000 square foot amenity space will be managed by WeWork and offered exclusively to CVM tenants. This further demonstrates the value of WeWork's hospitality and national expertise as certain round-ups look for opportunities to enrich their offerings to tenants with flexibility and community. As initially announced in August of 2021, Cushman and Wakefield completed 150 million investments at the close of our e-SPAC transaction in October as part of our strategic business agreement. We continue to work with Cushman to further develop new offerings for owners and occupiers through two main initiatives. The first initiative is designed to help building owners and corporate occupiers improve the daily user experience through use of WeWork's proprietary software that will integrate traditional building features like access control and reservation systems with on-site hospitality and amenities programs. The second initiative will allow holders to create new revenue streams by operating flexible workspace centers within their portfolio. As enterprises look to seamlessly adopt new flexible hybrid work models and prioritize employee experience, it has begun early discussions with corporate occupiers for pilot program opportunities to leverage these offerings. The Hudson Bay Company, iMino Cambridge, and Cushman & Wakefield, as well as the several other enterprise companies we're currently working with, these tailored solutions help meet the specific needs of the organization, an example of how not only are our memberships still flexible, but our product suite is too. we're able to offer custom combinations of our workplace management software and our hospitality space expertise to create an offering that serves business at different stages in their life cycle and with different hybrid models. And with that, I'd like to send it over to Ben to walk you through our third quarter financial results.