WeWork Inc. Class A

Good morning. My name is Chantelle, and I'll be your conference operator today. At this time, I would like to welcome everyone to the WeWork Q1 2022 earnings call. As a reminder, today's conference call is being recorded. 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'd 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, please press star 1 again. Thank you. Chandler Salisbury, Vice President of Investor Relations, you may begin your conference.

Good morning, and welcome to our first quarter 2022 earnings call. I'm Chandler Salisbury, VP of Investor Relations. With me today is Sandeep Mathrani, 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.wework.com. Today's presentation includes forward-looking statements that are subject to risks and uncertainties that may cause actual results to differ materially. We will 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.

Thanks, Chandler. Kicking off 2022, I'm pleased to share that our first quarter results reflect the position of strength that WeWork has been working to achieve over the last two years. Underpinned by a strong business model and diverse range of offerings, WeWork remains exceptionally well-positioned to capture renewed demand for office and continues to lead the flexible-based market. While we have seen new workplace models and trends emerge from the pandemic, we are beginning to see these strategies shift from short-term COVID solutions to the future of work. We see the shift in tenant demand towards high-quality and amenitized spaces. Today we see companies looking for space that is well-designed, engaging, and amenitized. In short, a place where their employees want to spend time. Flexible space within a building, allowing tenants to optimize their footprint by providing expansion space and shared conference facilities is an important amenity. A recent headline from Wired said, everything is a WeWork now. While there has been much talk about the great resignation for WeWork, it has presented as the great hiring as companies turn to us to house their new hires, most of whom are coming into the office for the first time and need a place to collaborate and productively engage with one another. Our turnkey spaces in central business districts and gateway cities put WeWork at an advantage to solve for their immediate space needs. Nearly 5.4 million applicants were filed to form new businesses in the United States in 2021, the most of any year on record based on the latest data from the Census Bureau Business Formation Statistics. WeWork has always been a home for entrepreneurs and startups, as our pre-built Turkey spaces and member-first hospitality provide entrepreneurs and small businesses with the resources they need from day one. As companies form and grow, WeWork's flexible terms allow companies to choose a real estate solution that works for them right now and adjust their footprint as it makes sense for them. WeWork's portfolio and business model are well positioned in the current macro environment, as inflation and supply chain delays have created more uncertainty and volatility in the world. Companies that grew in the pandemic need space now. Between construction and procurement delays, a traditional tenant could spend 18 to 24 months sourcing and building out a space that may not be the best solution for their company and strategy once the project is ready. With WeWork, members are able to take immediate occupancy as nearly 80% of our members move in within two months of executing an agreement. Aside from the prolonged build-out period that tenants are experiencing, The inflationary environment has also created a material increase for the cost to build out turnkey space. Throughout 2021, we have seen the need for flexibility driving demand for the WeWork product suite, so much so that our members have been willing to pay a premium for that flexibility. Now, as tenants evaluate the cost of traditional real estate solutions, between rent and tenancy, the amortized build-out costs, the cost of other amenities and services that are included in our turnkey solution, they're seeing that WeWork is competitive price versus traditional alternatives. From a business perspective, our inflation-linked leases represent less than 20% of our total portfolio and are primarily located in Latin America and EMEA. This case, in our assumptions, was a 3% increase in inflation. For every 1% increase in inflation above the base case, our annual rent expense would increase by $3 million. In Latin America, almost all of our membership agreements provide for inflation indexing, thereby functioning as offsets to any inflation-linked adjustments to rent. As for other building-level expenses, consumables, which are the operating expenses most impacted by inflation, represents less than 1% of direct location operating expenses, so even a 25% increase in consumables would impact building margin by less than a quarter of a percentage point based on our Q1 financials. Similarly, utilities, which may be impacted by oil prices, represents 2% of our direct location operating expenses, So a 25% increase in utility expenses would impact building margin by just half a percentage point. In this way, our costs between rent and tenancy and direct location OPEX are resilient to inflation and many of the macro challenges the world is facing today, creating a tailwind for our business model as our cost structure gives us a competitive advantage. Finally, as it relates to current foreign exchange rate environment, our business is naturally hedged as we generally collect revenue and pay expenses in the same currency. Therefore, while revenue may be impacted by exchange rate volatility, the impact on EBITDA will be more muted. With that, I'll turn to our Q1 results. Our first quarter performance reaffirms the transformation of the traditional office market landscape and reworks value propositions. Looking at our space of the service business, our first quarter results continued the positive momentum that we saw in 2021. On a system-wide basis, we ended the quarter with 916,000 workstations across 765 locations and 626,000 physical memberships. Our consolidated operations accounted for 746,000 workstations across 633 locations, and 501,000 physical memberships as of March. This membership growth represents 7% quarter-over-quarter increase and 30% year-over-year increase. System-wide gross debt sales, which includes new debt sales as well as renewals, were 211,000 in the first quarter, or the equivalent of 12.7 million square feet sold. On a consolidated basis, gross debt sales were the highest sales reported since Q1 2020 with 166,000 deaths, or the equivalent of 10 million square feet sold in the first quarter. System-wide new sales were 106,000 in the first quarter, and consolidated new sales were 83,000 in the first quarter, equating to 6.3 million and 5 million square feet sold, respectively. Similar to 2021, We will continue to represent an outsized share of market demand in the first quarter. In Q1, WeWork represented approximately half a percent of all commercial office space in both the U.S. and European markets, yet sold the equivalent of 9% and 10%, respectively, of total square feet leased in the quarter. At the market level, WeWork's Q1 2022 gross sales in Manhattan and San Francisco were equivalent to 17% of the traditional office market leasing on a square foot basis, while WeWork's portfolios of 5 million square feet in New York and 2 million square feet in San Francisco account for approximately 1% of total office stock in the two cities. WeWork's leasing activity represented 25% of Boston's take-up, 8% of Miami's, despite representing 2% or less of the total office stock in each of those markets. While Miami leasing also represent an outsized portion of demand in the quarter, our 92% occupancy levels create natural leasing limits, giving low inventory available to be sold. WeWork's gross sales equate to 39% of London's traditional office leasing, a market that is leading the shift to flex. 13% of Dublin's leasing 8% of Paris' leasing, and 15% of Berlin's leasing, despite representing approximately 1% or less of the total office stock in each of those markets. The average commitment term for small and medium businesses was 14 months in the first quarter, and the average commitment term for enterprise was 26 months. Across all physical memberships, our average commitment length was 20 months. Monthly churn continued to decrease for the third consecutive quarter, reaching 3% in the first quarter versus 3.5% in the prior quarter. Physical occupancy was 67% at the end of the quarter, a 4 percentage point increase from Q4, driven by the strength in our international markets, especially across Europe. If we include the incremental 19,000 net memberships that were already contracted to move in, our physical occupancy, including signed but not occupied memberships, was 70% as of the end of the quarter. Turning to pricing, our physical memberships ARPM for the first quarter held steady at $484 unchanged in the prior quarter. Pricing for new contracts signed in the quarter, a leading indicator of future ARPM as prior commitments roll off, increased by mid to high single digits on a consolidated basis quarter over quarter and also increase in each of our four regions, the United States and Canada, international, Latin America, and Japan. We also saw a similar increase in renewal prices versus prior contract levels across both the United States and Canada and international regions. This increase will be reflected in the ARPM in the next quarter or two. Our WeWork access offerings continue to find traction both as a highly flexible stand-alone solution and as a complement to members' dedicated office space. Companies use all access in a variety of ways to provide greater flexibility in order to attract and retain talent, to be able to use models by providing a productive location proximate to

employ homes.

Our All Access product also represents a more affordable alternative than a traditional physical space, coming in at about 50% of the price of a traditional physical space. In this way, the product provides an accessible entry point to the WeWork platform and creates the opportunity to upgrade to longer-term membership options. From the business side, All Access represents another way to monetize our existing physical footprints. We have talked about the calories of this product to the airplane and gym membership model in that we are able to oversell all access memberships as we leverage our booking system and capacity algorithms. As of the first quarter, all access memberships had grown to 55,000, an increase of 22% quarter over quarter, and equivalent to 1.7 times our current available all access capacity. From that perspective, and taking into account the conference room booking and other services fees paid by all access members, our all access product already monetizes our existing space at approximately the same rate as our space as a service solution and has room to grow. Our 55,000 all access members represent an additional seven percentage points of occupancy on top of our physical occupancy. All-access revenue for the quarter was $36 million, based on 55,000 all-access memberships at the Q1 ARPM of $235, yielding an annual run-rate revenue of $155 million as of March. A strong increase in physical memberships combined with a stable ARPM and continued increase in all-access revenue resulted in the total revenue of $765 million in the first quarter, which exceeded the high end of our $740 to $760 million prior guidance by $15 million from the midpoint of $750 million. This represents a 7% increase from Q4 revenue of $718 million and a 28% increase year over year. We continue to grow revenue while tightly managing our building level costs, translating the significant building margin improvements in the first quarter Building margin was $34 million in the first quarter, representing our first quarter of positive building margin since Q1 2020. Our building margin in the first quarter represented a $43 million improvement quarter over quarter and a $243 million improvement year over year. As of the first quarter, our international region was building margin profitable, reaching 75% physical occupancy. Our U.S. and Canada regions have 64% physical occupancy, and we also expect the region to become building margin profitable in the next quarter. Together, these two regions comprise our wholly-owned businesses and represent 86% of our revenue in the first quarter. Finally, we announced a partnership with Yardi, a leading provider of real estate management and property management software for for commercial real estate owners and operators across 12 billion square feet in over 100,000 commercial properties globally. The partnership will combine our broad network of over 32,000 member organizations and an accurate understanding of these members' needs with Yardi's 40 years of experience and proven expertise in creating real estate management platforms to develop an end-to-end solution for real estate management needs. The solution will include WeWork's booking and capacity management solutions, as well as Yardie's lease administration and real estate management tools. We're excited to begin commercially selling by July of 2022. Lastly, and before I turn it over to Ben, I wanted to touch on our go-forward franchising efforts. On a square footage basis, 37% of our portfolio is comprised of franchises or joint ventures, As we have said previously, we expect to expand our franchise model as part of our asset-light growth strategy. Our markets currently operating under franchise or joint venture arrangements demonstrate the value of this model and prove that experienced, well-capitalized local partners can optimize our business in region while also charting towards market growth. India and Israel are both adjusted EBITDA positive. This morning, WeWork India signed a management agreement for $660,000 square feet with the Bhutani Group in Noida. Partnering with WeWork allows commercial landlords to diversify their offerings. Landlords will be able to deliver flexible space themselves rather than simply leasing the space to a flex-based operator, giving them the opportunity to capitalize on the growing demand for these versatile office spaces. Although landlords absorb the cost of the fit-outs, they receive a greater share of the revenue and reduce the risk of leasing to a single tenant. According to Ramesh Nair, CEO of Colliers India, in Q1 2022, flex operators accounted for 15% of the total leasing, and we see this number only going higher. Now I'd like to turn it over to Ben to walk through our first quarter financial results.

Thank you, Sandeep. First quarter revenue of $765 million increased $47 million, or 7% quarter over quarter, and 28% year over year, driven by a 7% increase in fiscal memberships and a 24% increase in WeWork access revenue versus the fourth quarter. Building margin was positive $34 million in the first quarter, a $43 million improvement quarter over quarter, and a $243 million improvement year over year. As Sandeep mentioned, we are pleased to report that quarterly building margin was positive for the first time since the beginning of the COVID-19 pandemic. SG&A was $196 million in the first quarter, a decrease of $35 million quarter over quarter, and excludes $11 million of stock-based compensation and $1 million of other non-recurring expenses. Adjusted EBITDA showed further improvement in the first quarter, driven both by increases in revenue and continued management of our cost structure. demonstrating that operating leverage in the business. Adjusted EBITDA loss was $212 million driven by $47 million revenue improvement and a $43 million expense reduction for a total $71 million improvement relative to the prior quarter. This also represents a $234 million improvement relative to Q1, $4 million in the quarter, which was an improvement relative to the prior quarter and first quarter of 2021. The key components bridging from net loss to adjusted EBITDA in the first quarter include $171 million of depreciation and amortization, $147 million of interest and other expenses, and $13 million of stock-based compensation. Part of the offset by a $39 million net gain from restructuring and impairment expenses related to the write-off of lease, write-of-use assets associated with our portfolio rationalization activities. We recorded free cash flow of negative $412 million, which was a $66 million improvement compared to the prior. Operating cash flow was negative $338 million, and gross capital expenditures were $74 million. For the fourth quarter, our capital expenditure was $31 million in the first quarter, as we collected $43 million in tenant improvement and member CapEx. Returning to our capital structure, We ended the first quarter with approximately $1.6 billion in cash and commitments, which includes $519 million of available cash on hand, $550 million available of senior secured notes that we can issue, and $550 million of capacity under our letter of credit facility. Today, we are pleased to announce the amendment of WeWork's $1.75 billion letter of credit facility, which is now subdivided into a $350 million junior LC tranche and a $1.25 billion senior LC tranche. Brookfield Asset Management and its affiliates purchased all participations under the junior LC tranche. The letter of credit under the junior LC tranche gave WeWork immediate access to $350 million for general corporate purposes through November 2023. The amendment provides a more efficient use of our previous $500 million in unused letter of credit capacity that would have expired nine months earlier in February 2023. I'll now turn it back over to Sandy for some comments before we open the line for Q&A.

Thanks, Ben. Looking forward, we would like to update our revenue guidance for the second quarter and full year and also provide an adjusted EBITDA guidance for the same period. We expect the second quarter revenue to be between $800 and $825 million, which is a tightening of the range of $775 to $825,000, we provided on our Q4 earnings call, hence taking the midpoint up by $12.5 million from $800 million to $812.5 million, and also expected adjusted EBITDA of between negative $125 million and negative $175 million. In connection with this, we're also updating our full-year 2022 revenue guidance to $3.4 billion to $3.5 billion which is higher at the midpoint to $3.45 billion compared to what we announced at the Q4 call of the range between $3.35 billion and $3.5 billion. In addition, we are tightening our EBITDA guidance to negative $400 million to negative $475 million from an earlier guidance of $400 to $500 million. I would note that our guidance excludes impact of any foreign exchange fluctuation. And again, I want to reiterate that our business is naturally hedged as we generally collect revenue and pay expenses in the same currency. So it comes as we have increased visibility to the end of the year. As an update on committed revenue for the balance of the year, over 98% of the midpoint of our updated Q2 revenue guidance is committed. and approximately 85 percent of our full-year updated revenue guidance have been actualized and or committed to date. I have confidence that with our current revenue visibility and continued management of our cost structure, we are well positioned to meet our targets. With that, operator, please open the line to questions.

At this time, I would like to remind everyone, in order to ask a question, please press star 1. Our first question comes from the line of Vikram Mahotra with Nazuho. Your line is open.

Good morning. Thanks so much for taking the question, and congrats on a good quarter. I know there's a lot of work that goes into this. Maybe, Sandeep, just to elaborate on your last comments, around the revenue visibility. Can you maybe break it up into, like, what's the visibility you have now in 3Q? I'm assuming it's higher, like, close to 90%, but what's the visibility in 3Q? And can you provide us any stats on how April has trended? So, as I mentioned in my last comment, you know, again, like Q2 is 98% committed, so you could say it's, you know, it's fairly well behind us. Let me just talk about April for a minute. April continued to have strength. You know, it actually may have been, you know, the way our sales work is the first month of a quarter is the weakest month of the quarter, but it turned out to be an incredibly, incredibly strong quarter, which I would say if you were to take the amount of, a desk sold in Q1 and divided by three, we were able to accomplish that in the month of April. So our strength continued, which actually would mean that May and June should be slightly better, and therefore Q2 should be slightly better than Q1 from a total sales perspective. And the last question I think you asked was, do we have visibility into Q3 and Q4? Yes, we have 85% of Q3 and Q4 revenue is now committed, which is slightly higher than where we were last quarter for Q2. So we're actually doing better, and that's what's given us confidence. to raise our revenue guidance and reduce our loss of the negative EBITDA. Okay, that's helpful. And then two more quick ones. So can you just maybe give us a bit more color on your comments around improved ARPUM in the back half? Can you maybe break it down by market? Like what are you seeing in terms of your strong markets with both occupancy and pricing and kind of how is that netting out? Do you actually anticipate the ARPAN to increase sequentially? Yeah, I think we feel we're pretty much on track. You know, the international markets, like I said, are 75% occupied as of – you know, at the end of Q1. And as a matter of fact, at the end of April, it's in the high 70s. So we've got some more traction in April. And when you get to those levels, you start to see, you know, increase in ARPUM. And as I mentioned, we are seeing increases in ARPUM of mid to high single digits. And it's like, you know, because 80% of the revenue is derived within 60 days of signing an agreement, you'll generally see a lag of a quarter or two before you see the increase in ARPUM. So we should be able to demonstrate that for Q2. And then, you know, we are still on target to end the year with the ARPUM of about $500, which is what we had.

Okay, great. And then just last question. The restructured LC facility with Brookfields, And then you, in 2Q, drawing on that, just I guess two parts to it.

One, does this mean you would not need any more near-term capital, assuming like we're not going to a deep recession in the next six months? But is it safe? Can we assume you've not seen any more capital this year? And number two, how did this come about? Does this have any implications for other capital providers potentially down the road? So let me answer the first question. You know, we do not have any need of capital. You know, we will walk you, Ben's going to walk you through the liquidity and demonstrate that actually we end the year with higher liquidity than we said at the Q1. And the only reason to have drawn on the money was we sit in volatile times. And my prior experience tells me that LC facilities should be drawn on in volatile times to hold on to the cash. But why don't we walk you through the liquidity, and you'll actually see that we're sitting in a stronger position And even if there is a deeper recession, let me just answer that question. Actually, recessions are generally good for the flex business. It provides more uncertainty. It makes people not do long-term deals. The flex product actually goes up in occupancy. And as a matter of fact, the need to collaborate, innovate, be productive increases significantly. So the demand for space actually tends to go up. And if you think about rework, we started the 2010 recession and actually got its start during that period of time. So in a recessionary environment, the demand for our space actually goes up. and the need for people to come back to meet each other, to collaborate and be productive increases as well. So we view that to be a good thing. And again, because our revenues are committed 85% in Q3 and Q4, we don't have a need for additional liquidity, which is why we've actually increased revenue forecasts and reduced cash burn. So it's all In our case, it's all sort of trending in the positive direction.

And so as we announced today, we had $1.6 billion of cash and cash commitments at the end of Q1. That includes our unused LC capacity. Performer for the LC amendment, this amount decreased by $500 million of unused LC capacity, which is mostly offset by our immediate access under the junior LC tranche to $350 million, arriving at a performer liquidity balance of $1.5 billion for Q1. Additionally, as a result of the LC amendment, we unlocked $500 million of secure debt capacity that had previously been allocated to unused LC capacity, bringing us to a total pro forma balance of almost $2 billion. Adjusting the almost $2 billion for a negative $225 million of adjusted EBITDA, $200 million of cash interest, and $175 million of net capex, we now expect to have approximately $1.4 billion in total liquidity at the end of 2022.

That's very helpful. Thank you so much.

Our next question comes from Alexander Goldfarb with Piper Sandler. Your line is open.

Hey, good morning. Good morning down there. So Ben, maybe just continuing on on Vikram's last question. If we look in your presentation, and yeah, I hate to do pages, but I'm going to do it. Page 13, you guys have a great liquidity chart that you publish every quarter. so can you just based on what you just said can you just tie it back to this chart you had like you had about 900 million of cash in the fourth quarter that dropped to a little over 500 or a little over 500 million now and then total liquidity and unused commitments is 1.6 now and with the fourth quarter it was 2 million so can you just tie your comments that you said simply that we can visualize how this chart relates to what you were saying about unused capacity or removing secured whatever and then how this relates to that 1.4 billion that you talked about for a year-end uh liquidity goal

Yeah, absolutely. Thanks for the question. I think if you look at that slide 13, we end at that $1.6 billion cash and commitments at the end of Q1. And so for the LC amendment, if we wanted to make that adjustment, this amount decreases by $500 million of unused LC capacity, which is mostly offset by immediate access under the junior LC tranche of the $350 million. That gets you to the $1.469 billion for Q1 2022. Additionally, as a result of the LC Amendment, we unlocked $500 million of secured debt capacity that was previously unallocated or had been allocated to unused LC capacity. This brings us to that pro forma balance of $1.1 billion, $969 million, or roughly $2 billion.

Okay, so what's missing from this chart is that incremental $500 million-ish of, I guess, sort of tucked away capacity that now you have access to.

That's right. That's what we unlocked. And then, again, just reiterating the point I made earlier, so if we take that going forward, adjusting the almost $2 billion of pro forma liquidity and capacity, you then look at $225 million negative adjusted EBITDA for the balance of year, as well as $200 million of cash interest, and $175 million in net capex. That means we now expect to have approximately $1.4 billion in total liquidity at the end of 2022.

Okay. And then continuing on this line to the year end, that $1.4 billion of liquidity, just so people don't freak out, it sounds like FX is mostly a non-event, but obviously there will be some translation impact to free cash flow. Where do you think cash balance will, I mean, are we going to see cash drop another $500 million in the second quarter? Or where is cash going to go? Because I think there's going to be a lot of focus on cash versus your unused

you know running up the credit line so how do we think about cash the rest of the year yeah so um so really as sandy mentioned earlier we're naturally hedged and so like we said any impact that we see on revenue will actually be very muted when we look at even and that's really what flows through the cash flow so similarly our cash will be very minimally impacted by fx movements

But what about cash? Where do you think cash will go? If that $1.4 billion is your goal for year-end, what should we expect for cash balance? I'm assuming that we don't want to surprise investors and just have $500 million of cash go down to $100 million in the second quarter, or maybe that's what's going to happen. So I'm trying to focus on your actual cash balance expectations.

It should be the actual cash balance at the end of the year. If you take the $1.4 billion, take out the $500 million of unused capacity, take out $350 million of the junior tranche, it's about $500 million.

Okay. Okay. And then, Sandeep, on the users, the enterprise seems to be sort of flat. It's actually gone down a few ticks. So is there something that's holding back enterprise users, or are you seeing just outpaced growth of small business that's driving more of your new revenue towards small business versus enterprise?

So let me just give you the math, right? So Q1 2021, we had 182,000 enterprise members. In Q1 of 2022, we had 240,000 enterprise members. On the small-medium businesses, Q1 2021, we had 190,000 small and medium businesses. And Q1 2022, we have 282,000 small and medium businesses. So they both actually went up from a membership perspective. But generally, SMB, small and medium businesses, tend to come back faster as you come through things like a recession and a pandemic. And if you look at the United States, you know, the offices have just started to open in April and May of the larger companies. And so we should start to see, you know, that trend accelerate where the enterprise clients continue to go up. But even during the last year, enterprise membership went up by 58,000.

okay and then just final question you guys had spoke about some additional cost cuts this year i think there may have been something like 30 if memory serves like 30 million uh of additional quarterly gna i think you guys were targeting but overall what are your cost cut expectations for this year into next

I mean, if you're talking about SG&A, we're completely on track. And as Ben said in his notes, you know, we actually, you know, revenue increased by, I think he said, $47 million, and the expense structure went down by $43 million. And, of course, some of that is the SG&A cost. So we are sort of on track to get to that SG&A run rate by Q4, which is, you know, between $750 and $800 million. Okay. Thank you. Thank you.

Our next question comes from the line of Taru Martinson with Jefferies. Your line is open.

Good morning. So when we look at getting to that 500 bucks per average revenue per member, you know, is it going to be a certainly understanding of the lag with contracts, but is this going to be all kind of fourth quarter weighted that we get to that level? or should we see kind of incremental improvements here in the second and third quarter as well?

Oh, you're definitely going to see incremental improvements in the second and third quarter.

Okay.

I mean, again, 98% of the second quarter is committed, so we do have an idea of what the outcome number is, and it is an improvement.

Okay, so it is an improvement there. And then when we – We talk about SG&A, certainly understanding that we're doing the cost cuts, we're growing our top line without really increasing that, but would it be sufficient time to annualize this quarter's run rate and carry that forward in terms of the expense needed to run this business?

You know, actually, this is a very unique company. It's probably the only company I've taken over where I've been able to reduce the cost. And even though all through 2023, you know, and the remainder of 2022, revenue continues to go up, because, you know, we can continue to optimize our SG&A by automation, actually our SG&A will continue to go down in 2023 to the tune of, you know, $50-ish million.

Okay. And then just lastly, as we finish the year with the $1.4 billion of liquidity, $500 or so of cash, are we still feeling that we can achieve break-even EBITDA by the end of fourth quarter, early first quarter of next year?

Yes, we feel by the future was end of Q4, first quarter of next year.

Okay. Thank you very much, guys. Appreciate it. Thank you.

Again, if you would like to ask a question, please press star 1. Our next question comes from the line of Sam McGovern with Credit Suisse. Your line is open.

Hey, guys. Good morning. With regards to the liquidity bridge you provided, As you go from the 1469 to the 1969, that incremental $500 million of debt capacity, are you guys planning to raise a new facility? And if so, in what form? Some sort of revolver or term loan? Or how are you guys thinking about what you might do?

We don't feel it's a necessity to raise any additional debt. The reason we did this is to free up the capacity, but we have no need to raise additional liquid. We have enough liquid at your hand.

Okay, got it. And, you know, we've proved EBITDA in the second half versus the first half. How should we think about the cadence of the cash burn over the course of 22?

I mean, I think Ben sort of provided that a little bit. in his notes, and he said that effectively, you know, there's a remainder of the year, there's a $225 million adjusted EBITDA, you know, and so essentially, again, with the negative EBITDA guidance that provided for Q2, you know, And I think in the last call, I said that, you know, effectively we'll get to that $3, $4, $3, $5 billion of revenue for the full year, which sort of equates to sort of that $900 million to $1 billion of revenue in Q3 and Q4. So, again, if you just do the math, you know, it's about $50 to $75 million of better revenue each quarter, and therefore by Q4 or early Q1, to use your words, we'll be at adjusted EBITDA break-even.

Okay, great. Thanks so much. I'll pass along.

Our next question comes from Vikram Nahotra with Mizzou. Your line is open.

Thanks for taking that clarification. Sandeep, I just want to clarify something. In the prior response, you said, you know, to use someone else's words, adjusted EBITDA positive in 1Q23. I just want to make sure, you know, you had earlier said back half of this year, 3Q, 4Q. Is that still your goal? Forgetting what other words are, are you still, you know, on track to hit break even by year end? Yeah, our plan is, like I said, I'm using other words, Q4, Q1, but our plan is assuming you know, the trajectory as we see it today, uh, is to hit break even by end of year. Okay. And then can you just, um, maybe share any anecdotes of color of just how larger users enterprise users are now are today thinking about utilizing, uh, coworking space, any specific, you know, uh, sectors or examples you can give of recent enterprise tenants, uh, that, that may have come into the WeWork, uh, family. Yeah, I mean, you know, recently I'll just quote some of the transactions that are more public and that are in the news. In the UK, you know, we had a FTSE 100 company called Curry's that essentially closed their corporate headquarters, relocated completely into a rework, and they come to really provide this hybrid flexible solution to their employee base. We've never really seen... large companies close corporate headquarters and relocate, and that was an interesting example. We just saw in Kansas City, a bank, State Street Bank, gave up, I think, 250,000 square feet of their regional headquarters and moved into 25,000 square feet. We were in Kansas City. So this is all about optimizing their real estate, providing the hybrid flexible solution, combining it with the all-access card to provide the ultimate solution.

And even in New York City, there are several examples.

Banco Santander moved their headquarters in New York City to 437 Madison, which is a WeWork building, and they're going to be a WeWork member for a period of five years. So they signed a five-year commitment with us. Palantir's New York City headquarters, about 120,000 square feet, is at a WeWork. So they're examples of enterprise clients. They cherish the flexibility. And those clients who take space at that scale generally take space, you know, generally for a three-year term, actually. It's a little longer than that 26-month average term. And so it's – and, again, you know, you have to appreciate that of our locations, you know, 400 locations are over 50,000 square feet, and 130 locations are over 100,000 square feet. So enterprise clients – who want flexible space at scale, today we are the only player in the market who can provide that. Great. And then just last clarification, can you maybe give us some thoughts on just how competitive the market is today in terms of actually landlords either looking to partner with you in management agreements or actually create their own co-working brand? So, you know, I maintain this, that if you look at, you know, CBRE and GLS projections by the end of the decade, they think that flex space is going to go from the current 2.5% to 15% to 30%. So it's going to go up 5x to 10x where it is today. And the only way you're going to achieve, you know, that sort of – growth is if the landlords start to participate at scale. So far, the landlords have started to enter the co-working business by focusing on small-medium businesses and smaller footprints.

But I do believe they'll graduate to the larger footprints.

And I do believe that, you know, what has happened in India, and I think I gave this example, of WeWork India signing a 660,000 square feet, 25-story building with the Gutani Group as a pure management agreement is where we will be part of the ecosystem by providing the environment that WeWork is quite famous for providing. It sort of fosters collaboration and innovation. And again, I think it's hard for people not to appreciate our top of the funnel from a leasing perspective is incredibly strong. We have 32,000 unique members in the top of the funnel. And if you think about our e-commerce business selling to the small and medium businesses, generally we do about almost 2,000 deaths a week. So I do think that there will be some who are going to do it independently, and there will be a handful that will partner with us like the company in India has done and like we are doing in several locations in the United States and actually in Germany right now. Thank you so much.

Sandeep, just curious, I think you said international markets are 75%, average occupancy U.S. is like 60%. What do you think is causing the difference? Is it that maybe in the U.S. people have bigger homes, bigger apartments, better Wi-Fi, that work from home is easier? Or are companies doing something different with their overseas, with their international workforce versus what managers are doing here in the U.S.? ?

Actually, I think the reason, you know, it's 75%, you're right, it actually went up into the high 70s in April. I think I mentioned that, so that growth has continued in the month of April. And in the U.S.C., it's 64%, again, trending up. And as I mentioned, we expect to be building large and positive in the USC in the next quarter. So effectively, the delay in the comeback to office in the US, which is actually exactly a quarter behind, is causing the, I wouldn't even say slower take-up, because we did gain 20 points of occupancy over the last 12 months, which I would say is quite large. but we do see the demand quite good picking up. And as a matter of fact, if I was to use April as a barometer, April desk sales in the USC far exceeded Europe. So you're starting to see United States bounce back as people come back to work. Thank you.

Our next question comes from Amit Nihalani with Mizuho. Your line is open.

Hi, good morning. Do you have a sense of how much revenue the workspace product can generate this year?

You know, we're not making any projections, you know, for what that will be this year. And, you know, I think we'll have a better idea once we start to launch the product in July. So we were having this call in Q4 last for Q3 results, I could give you an indicator. But we do, I will say this, that we have well over 100 clients who we've given demos to. So the need for the product seems quite large. And according to Bain Consulting, the TAM, the total addressable market in the United States for the product is about $3 billion. And So essentially there's a large TAM available for the product, and I think we'll have a better idea, you know, as we start to go to market with the product. Great. Thanks.

We have reached the end of the question and answer session. I'll turn the call back over to Sandy for closing remarks.

Thank you, Chantal. In closing, I want to express how pleased I am with our performance and all we have accomplished in the first quarter. We are confident in our goals this year as we started the year by beating revenue projections and welcoming the highest gross sales in a quarter since the beginning of 2020. Our progress to date would not have been possible without the tremendous work of our colleagues and the support of our global community. We're extremely proud to report that WeWork was named a great place to work across our United States, Australia, and Singapore employee base. I've said on Earnings Call before that I wholeheartedly believe in the saying, culture eats strategy for breakfast. And this certification reinforces that we work as an incredible employee-led culture, enabling us to confidently execute against our business strategy without distraction. I'm very grateful for our team. Thank you, everyone, and have a great day.

This concludes today's conference call. You may now disconnect.