WeWork Inc. Class A

Welcome everyone to the WeWork fourth quarter 2022 earnings 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 at this time, press the star followed by the number one on your telephone keypad. To withdraw your question, press star one again. I would now like to turn the conference over to Kevin Barry. Senior Vice President of Investor Relations. Please go ahead.

Thank you, Angela, and good morning and welcome to WeWork's fourth quarter and full year 2022 earnings conference call. During this call, we will refer to our earnings release and investor presentation, which have been furnished with the SEC and can be accessed at investors.wework.com. This discussion will include forward-looking statements that are subject to risks and uncertainties that may cause actual results to differ materially. Additional information concerning factors that could cause actual results to differ materially is contained in our latest annual and subsequent quarterly and periodic reports filed at the SEC. 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 Form 10-K once filed. I'd like to introduce Sandy Mithrani, Chairman and Chief Executive Officer, and Andre Fernandez, Chief Financial Officer. With that, let me turn it over to Sandy. Thank you, Kevin, and thank you all for joining our call this morning.

I'm incredibly pleased that in 2022, we accomplished what we set out to do. In December, WeWork, for the first time in its history, posted positive adjusted EBITDA. Our team We're set up for the challenge to accomplish that by year end, and they deliver. So thank you all. As we communicated our plans to do so on our last earnings call, we extended maturity dates to 2025 on our letter of credit, including the junior tranche and senior secured facility. Our liquidity remains intact and at the end at the level we anticipated. We had approximately $1.3 billion a year at year end, comprised of cash on hand, secured note commitment, of which we do 250 million in January and carbonate capacity. Revenue for the fourth quarter of 848 million and 18% increase year over year. Excluding the impact of foreign exchange currency fluctuations, fourth quarter revenue was 905 million and 25 million above guidance at the midpoint. Adjusted EBITDA for the quarter was negative $26 million, a $257 million improvement year-over-year, and a $50 million better than midpoint of guidance. During the fourth quarter, we continued to see strength in our space of the service business, with consolidated occupancy rising to 75%, a 12% increase year-over-year. For some regional color on occupancy at year-end, U.S. and Canada reached 70%, up from 62% year over year. International was 83%, up from 68%. Latin America was 73%, up from 59%. And Japan was 66%, up from 47% year over year. At the market level, for some of our largest markets, occupancy ended the year at New York City, 72%, London, 81%, Mexico City, 68%, Sao Paulo, 84%, Paris, 80%, Seoul, Korea, 94%, Los Angeles, 68%, Boston, 67%, San Francisco, 83%, and in Singapore at 82%. Some highlights in other markets include Berlin, 85%, Toronto, 84%, Warsaw, 91%, Munich, 99%, Miami, 96%, Nashville, 94%, Milan 92%, Madrid 96%, and even Prague at 91%. Our market share continues to increase and our occupancy continues to rise. It reminds me of the e-commerce to bricks and mortar relationship. When the e-commerce sales were rising and bricks and mortar stayed flat or declined, the pool was the same, but the market share shifted. As you'll see in our earnings deck, on pages 22 and 23, The growth pace of our market share accelerated during the fourth quarter. In New York, our fourth quarter test sales equated to 23% of the total square feet leased in the traditional market, while our portfolio accounts for approximately 1% of the total office stock. Similarly, in Boston, our market share was 21%, Chicago 19%, San Francisco 13%, Dublin 8%, Paris and Berlin 11%, and London a whopping 44%. Today, in Bloomberg, it was stated a quarter of London companies downsize offices and shift to flexible work solutions. Again, our value proposition is front and center. As occupancy continues to rise, the incremental revenue outpaces the incremental operating expenses, thus increasing building margin illustrating the operating leverage of the WeWork platform. Fourth quarter building margin was $144 million, up $153 million year over year. Two-thirds of our markets are now over 70% occupied and account for 75% of revenue in the fourth quarter. Let's focus on memberships. The memberships rose to $547,000, a 17% increase year over year. We leased approximately 10 million square feet in the fourth quarter, including renewals. And as you can see, it's been fairly steady through all of 2022. Average commitment term remained flat at 19 months. Our ARPA, the price we charge per month for the desk, was $481 in the fourth quarter, up slightly from the third quarter As a reminder, our firm was impacted by unfavorable foreign exchange movements during the year. Excluding the foreign exchange moves, our firm would have been $514 in the fourth quarter, up over 6% year-over-year. Our all-access business continued its growth, ending the quarter with 17,000 members, a 56% increase year-over-year, and now our business started only two years ago that is generating $200 million of annual revenue. ARPUM for all access was approximately $240. All access continues its growth trajectory in January with the second highest month ever of gross deals, higher ARPUM, and lower churn. We recently expanded the on-demand offering to our locations in Brazil, and we are launching our first access lounges in February in New York and London. Since mid-2022, we've been actively marketing our workplace product and now have over 290 companies signed and 51,000 licenses. At the end of Q4 2022, that number was about 220 companies and about 42,000 licenses. So it has accelerated in January. The TAM for the workplace business is estimated to be approximately $3 billion just in the USA and a multiple of that globally. The driving force behind the shift to flexible solutions is not dissimilar to the environment that contributed to the rise of WeWork at its founding. In the wake of the global financial crisis, businesses of all sizes faced uncertainty. They not only were looking to optimize their costs, but they were looking for a new solution to work. With intentional design and human connection at the forefront of our product and brand, we will not only solve for bringing people together with intention, but also for greater flexibility with turnkey short-term options. Since then, we've clearly created a category of our own separate from the traditional market. While we've concentrated on transforming our business, We're equally focused on listening to what our members need in order to continuously innovate and build solutions that go beyond physical space. Just yesterday, the Harvard Business Review released research on how co-working spaces can positively impact employee well-being. As part of their results, they say, quote, respondents experience working from a third place like a co-working site as more socially fulfilling than working from the office or from home. From the office, an increase of 64% and home, 67%. They went on to say, one major reason is that a co-working space offers not just the flexibility employees crave in terms of where they work, but also with whom. As businesses face uncertainty around the future of work, our origins still ring true as our strongest differentiator. And RAMP, which is a corporate card and Spend Management Software provider, which released their Q4 Spending Benchmarks report, found that businesses are increasingly moving to flex workspaces, and specifically cite WeWork as spending with WeWork increased 90.7% in 2022. In fact, we were consistently ranked as the second largest office vendor through the year, just behind the Microsoft store. Our increased market share is a testament to the value of our product and the variability of our offerings. From our access products, which solve for a more hybrid and evolving world with immediate and frictionless access to workspace at a global scale, to our dedicated space with full service amenities on flexible terms, we are best positioned to help companies of all sizes define their future of work. Now with WeWork Workplace, a solution has rounded out our site of offerings by enabling companies to efficiently manage the size, cost, and employee experience of their workspace. We continue to see this come to life as companies save on their real estate costs by switching to WeWork Space paired with Workplace and All Access. Turning to our portfolio, as I stated before, Our strategy is to continually improve the quality of the portfolio by opening new locations where it is economical and where we see demand, and exiting underperforming locations. Our portfolio strategy is similar to a retailer's approach to their store fleet, whereby investments are made into high-performing stores and lower-performing stores approved from the portfolio. We continue on our ongoing efforts to optimize and enhance our global real estate portfolio by executing deals for new locations. In December, in Houston, we expanded an existing management agreement for 26,000 square feet. In Israel, we leased a new 12,000 square feet location for use by a large technology company. In January, in London, we expanded our presence by 27,000 square feet at 123 Buckingham Palace. In India, we leased two new locations encompassing 63,000 square feet in Bangalore. And lastly, in Scottsdale, we entered into a new management agreement for 30,000 square feet. With 2022 behind us, we're now focused on 2023. We expect first quarter revenue to be $830 million to $855 million at spot FX. The midpoint of guidance is 10% higher year over year. We expect first quarter adjusted EBITDA to be between negative $25 million to break even. Achieving the midpoint of guidance would be an increase of 200 million year-over-year. As we continuously improve the portfolio, we're simultaneously refining our internal operations and resources. During our last earnings call, we estimated our annual SG&A run rate to be approximately 725 million. As a result of previously announced workforce reductions and other planned savings initiatives, we anticipate the SG&A this year to be about 10% lower than the previous run rate, so that would be approximately $650 million. Our goal of generating free cash flow later this year remains intact, but we have significant work to get there. First, somewhat out of our control, is the pace of the recovery in the US, our largest market by revenue. As I challenged our team in 2022 to be adjusted EBITDA positive, we set the same challenge for us this year on being free cash flow positive. In addition, we are pursuing significant reductions in our operating cost, SG&A, and capital expenditure. Our goals this year are focused on continued growth in our financial results, portfolio optimization, and balance sheet improvement. We have the right team in place at the right time to achieve our goals. I remain incredibly confident about the short-term and long-term success of the business. Andy will now provide some additional commentary around our financial results, outlook, and capital transactions.