WeWork Inc. Class A

Good morning and welcome to WeWork's Q2 2022 earnings call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question over the phone, you'll need to press star followed by the number one on your telephone keypad. To reach an operator at any time, please press star zero. I would now like to turn the call over to Kevin Berry, Senior Vice President, Investor Relations. Please go ahead.

Thank you, Julianne, and good morning, and welcome everyone to our second quarter 2022 earnings call. With me this morning is Sandeep Mathrani, our chairman and CEO, and Andre Fernandez, our chief financial officer. During today's presentation, we will refer to our earnings release and supplemental presentation, 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 earnings press release and supplemental presentation, and will also be included in our quarterly report. With that, it's my pleasure to introduce Sandy.

Thanks, Kevin. Before we get to the results, I'd like to welcome some key members of the team. First is Kevin Berry, who will lead investor relations going forward. I've had the pleasure of working with Kevin in the past, and I know he will be a great partner to the investor and analyst community. I also want to formally introduce Andre Fernandez, our Chief Financial Officer. Since May, he has hit the ground running and has brought a fresh and valuable perspective. We have a great team here, and I want to welcome Kevin and Andre to the first WeWork earnings call. Now to our results. where I'm pleased to report our second quarter reflects continued positive momentum across the business. Revenue in the second quarter using our budgeted foreign exchange rates was $841 million, above our guidance of $800 to $825 million. At actual foreign exchange rates, revenue was $815 million, an increase of 7% quarter over quarter and 37% year over year. The system-wide revenue was $938 million, an increase of 7% quarter over quarter and 41% year over year. Adjusted EBITDA was negative $134 million in the second quarter, a $78 million improvement from the first quarter, and a $315 million improvement relative to Q2 2021 and within our guidance of negative $125 to $175 million. Our results continue to demonstrate the durability of our operating model and the versatility of our product. With WeWork's ecosystem of flexible offerings that are designed to be symbiotic, we continue to see companies lean towards WeWork's products to continually adapt to their workplace requirements. An interesting analogy is between retail and e-commerce in the early 2000s and what is happening today with the transformational shift in commercial office and flex. In 2000, e-commerce represented 1% of retail sales in the U.S. and grew to 21% in 2020. Today, our footprint represents approximately half a percent of the commercial office space in the U.S. However, our sales in Q2 were equivalent to 9% of traditional leasing. In the pre-pandemic world, Flex was considered part of an office strategy. Today, much like e-commerce, Flex represents its own channel of distribution. In the same way that brick and mortar was disrupted by the speed and convenience of e-commerce, Flex is capturing office-based demand with direct-to-consumer solutions. Approximately 69% of new membership sales this quarter took occupancy within one month, and 86% took occupancy within two months, which is a little faster than in previous quarters. This trend continues to underscore the value proposition of our business and what gives us confidence as the global economic landscape continues to evolve. We learned over the last two years that the speed, convenience, and flexibility of WeWork is what companies look for and rely on during times of uncertainty. As the world has adjusted to the global plant dynamic, we have been steadily selling desks and growing our member base for well over a year because companies have needed a way to quickly adapt to a new and unknown environment. Now, in the face of inflation and recessionary pressures, not only does that need still exist, but on top of that, companies need a solution that can help reduce costs and future-proof workplace strategies. We have seen that various economic disruptors impact every industry differently, but ultimately, the outcome is an increased demand for flexibility as employers seek increased collaboration and connectivity. A quick example can be illustrated through a multi-pronged deal we executed in Q2 with a leading cloud system security platform. Having grown their employee base three-fold in a year while expanding their business globally, the company's priority was mitigating risk while also meeting the needs of their rapidly growing workforce. By leveraging commute analysis and utilization reports, we developed a dynamic solution that blends dedicated spaces across six locations in the US and Europe with 1,500 all-access passes. The result is a cost-effective approach that supports the company's productivity, culture, and connectivity across the markets. Across our three products, the speed and scale at which we are able to tailor offerings to the diverse needs of business today illustrates Flex's position as a separate channel of distribution in the office industry. With that, I'll now turn to our operating results. Spaces of Service, our core product, the second quarter continued the positive momentum from the first quarter. We ended the quarter with 917,000 workstations across 777 locations and 658,000 physical memberships, above Q1 2020 and the highest to date. This far exceeds pre-pandemic levels of membership. System-wide new desk sales were 93,000 and renewals were 111,000 for a total of 205,000 or 12.3 million square feet. One more time, I want to iterate. It's 12.3 million square feet. Our consolidated operations accounted for 749,000 workstations across 641 locations and 528,000 physical memberships as of quarter end. 5% quarter-over-quarter and 37% year-over-year. Occupancy climbed to 70% and 72% when including committed memberships. Consolidated new desk sales were 73,000 and renewals were 87,000 for a total of 160,000 or 9.6 million square feet. At the market level, we were due to 2022 gross sales in Manhattan were equivalent to 18% of the traditional market for office leasing on a square foot basis. WeWork's portfolio of 5 million square feet accounts for approximately 1% of total office stock. WeWork's activity represented 20% of Boston's leasing, 15% of Miami's leasing, and 9% of the leasing in San Francisco, despite representing 2% or less of the total office stock in each of the three markets. WeWork's gross sales equated to 34% of London's traditional office leasing. London is a market that is leading the shift to flex. 45% of Dublin's leasing, 13% of Paris' leasing, and 6% of Berlin's leasing, despite representing approximately 1% or less of total office stock in each market. The average commitment term for our small to medium businesses was 14 months, and the average commitment term for our enterprise clients was 25 months. WeWork reported average revenue per physical member, or ARPM, of 481. ARPM using the budget's foreign exchange rates was 497, an increase of 3% quarter over quarter, or near a projection of 500 by year end. To provide some color on where we are pushing pricing in markets where we are over 70% occupancy, We generally focus on rate, and those where we are below 70% occupancy, we generally focus on growing occupancy. In our international region, where occupancy reached 80% this quarter, pricing for the contract signed in the quarter was approximately 4% higher than the existing membership base. For the USC, pricing for contract signed in the quarter also increased 4%. As these new higher-priced contracts embrace the previous contracts, We expect our reported ARPUM and budget FX to continue growing. Moving on to WeWork Access, which includes our monthly subscription and on-demand pay-as-you-go product, memberships grew 13% to 62,000 in the second quarter, which represents an additional 7 percentage points of occupancy. Revenue was $45 million, up 25% from Q1. Improvements in all-access ARPM and membership growth yield an annual rate of about $180 to $119 million of revenue. From enabling companies to experiment with new ways of working to providing cost-effective solutions amidst market volatility, all-access has become an essential tool for business to deliver flexibility and foster collaboration. Whether leveraged as a standalone solution or as a complement to dedicated space, the rapid adoption of our all-access product underscores the holistic nature of our offerings. For example, one of the leading outdoor gear and apparel retailers acquired all-access passes to complement their dedicated spaces at our Kelly Springfield building in Seattle. Despite being a remote-first company, they wanted to provide employees with the flexibility to come into the office as needed. However, to ensure employees have enough space to collaborate at scale, the company acquired 2,600 all access passes to deliver optionality to employees while minimizing fixed costs. Xerox, an accounting software provider, moved to fully remote work at the start of the pandemic. However, the company's distributed workforce expressed interest in workspace hubs set up across different cities in order for sales teams to come together. host events, and meet with customers. We provided hundreds of Xerox employees with access to our global network of locations within one week of the contracting sign. With access to the proprietary utilization data from all access, Xerox armed with insights to make informed decisions as the company evolved its workplace strategy moving forward. And lastly, two weeks ago, we officially debuted our space management software, WeWork Workplace, in the U.S. and the U.K. We see WeWork Workplace as a national extension of our core business, positioning the company as a true end-to-end solution. Going beyond providing physical space products, WeWork can now enable companies to enhance the way they use and manage space through this software offering. At a time when companies are searching for the best ways to bring employees back with purpose and intentionality, WeWork Workplace is designed to help navigate a new world of work by marrying space, asset, and people management capabilities into one universal platform. In a market that's highly fragmented, WeWork Workplace is the only product that can combine all space types, privately leased or owned. WeWork space and WeWork affiliated spaces within one single experience. Employees can seamlessly view their office space options, book desks, see which colleagues are coming in, and coordinate space for their teams. On the back end, companies can future-proof their real estate strategies with access to utilization data and insights on employee preferences. To date, the company has signed 11 companies to the platform, providing them with 7,400 licenses to manage its spaces in WeWork's portfolio and in non-WeWork locations. The pipeline includes over 100 companies comprising more than 35,000 licenses. WeWork comes to the workplace management space with an established global customer base of 7,000 unique medium to large and enterprise member organizations comprising approximately 360,000 memberships already in our sales channel. Many of these organizations are already leveraging Flex to power hybrid work strategies and see the accretive value of a universal platform for managing their workforce. As we have stated before, WeWork Workplace is a venture with Yari, a leading provider of software in the world. For an update on our asset-light go-forward strategy, I'd like to point out that 37% of our portfolio is held in either joint ventures or franchise agreements. We continue to pursue asset-light opportunities, focusing primarily on our non-core markets, such as Southeast Asia. With that, I'll now hand it over to Andre.