WeWork Inc. Class A

Good day and welcome to the WeWork first quarter 2023 earnings 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 explore your question, please press star one again. For operator assistance throughout the call, Please press star zero. And finally, I would like to advise all participants that this call is being recorded. Thank you. I'd now like to welcome Kevin Berry to begin the conference. Kevin, over to you.

Thank you, Gavin, and good morning, everyone, and welcome to WeWork's first quarter 2023 earnings conference call. During this call, we will refer to our earnings release and investor presentation, which have been furnished with the SEC. It 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 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 release and supplemental presentation, and will also be included in our Form 10Q to be filed tomorrow. I'd like to introduce Sandeep Mathrani, Chairman and Chief Executive Officer, and Andre Fernandez, Chief Financial Officer. With that, let me turn it over to Sandeep.

Thank you, Kevin, and good morning, everyone. I'll review the trends we're seeing in the flex industry, our quarterly results, recent restructuring, and then Andre will provide further comments on the quarter and the outlook. First, I want to talk about flex industry trends and about why I think this is WeWork's moment. WeWork is all about flexibility across costs, time, and space. At a time when the commercial office industry is in flux and fundamentally changing for the long term, WeWork is not only solving for the needs of businesses of all sizes, seeking a turnkey, flexible solution, but we're also working to cement our product offerings as a long-term alternative to traditional office. Ironically, as I walked this morning down Fifth Avenue, I bumped into a CEO of a retail company who actually looked at me and said, aren't you glad you're in the right space in the commercial sector? The trend is coming your way. It is all over the industry that flexibility is the key for turnkey solutions and immediate occupancy. More than ever before, businesses are seeking a solution that is unique, complete, and doesn't require any capital investment. Pre-pandemic, HR departments could predict 10 years out what the headcount growth could be, and CFOs were okay taking on real estate to accommodate that growth. Today, that is unknown. Occupiers need to be able to manage agile decisions as their headcount and in-office plans change, and WeWork offers the flexibility to them on an immediate basis. We continue to read how different types of companies are either entering new markets, growing in their existing markets, or they have a return-to-work policy starting in May or June this year to space their employees now. But why you don't realize and what we see and feel firsthand is that in each case, these companies are turning to WeWork for their solution. One recent example is we signed in April two separate locations in New York City, totaling 310,000 square feet for a large enterprise company that needed the space within two weeks in order to house employees by their mandatory return to office. This same client is now taking over 100,000 square feet with us in London. This is the kind of flexibility we're able to offer that sets us apart from legacy commercial real estate. We provide turnkey solutions for immediate occupancy. As the trend continues, In New York, our first quarter deaths equated to 23% of the total square footage leased in the traditional market, while our portfolio accounts for only 1% of the total office stock. Over the last few quarters, our share that we have taken of the market has steadily increased. Similarly, in Boston, our market share was 16%, Chicago, 9%, Miami, 17%, San Francisco, 21%, Dublin, 27%, Paris, 12%, and Berlin, 9%. We can now see over the last four quarters, each quarter we continue to take market share, demonstrating the trend towards flex and co-working. The other side of the equation that is important to remember is that we work as a tenant, which is a critical element of our business model that I think is sometimes underappreciated. We don't own the building, so we're not handicapped by mortgages and lender companies. In addition, we're not required to give concessions and allowances to go occupancy. While there's undoubtedly uncertainty in the market, this creates opportunities as flexibility and agility become even more important as companies consider their office footprints. I believe this is our moment more than ever. Turning to our first quarter results, revenue in the quarter was $849 million, which is in line with our guidance range. Occupancy increased 6% from the first quarter last year, and was down slightly from year end. As we said on the call for the last quarter, we typically see higher churn in December, resulting in a slower start of the year. This quarter, the decline in memberships was a function of known enterprise churn, the planned closure of some of our locations, and franchising of South Africa. The known enterprise churn was to be replaced which fell from the end of March to the beginning of April with the 300,000 square feet enterprise client I mentioned a little earlier. In April, we saw a reversal in enterprise demand as we saw net sales in the U.S. turn positive for the first time in 12 months. International has been carrying the day, as I've mentioned over and over again on these calls, and we are pleased to see the U.S. finally turn the corner. As we move forward, we continue to see demand pick up Particularly, as I mentioned, more companies are executing mandatory return-to-office dates for employees that need space immediately. Again, as I have mentioned in the past, with all the headlines of all the layoffs, many of these companies still have more employees today than they did pre-pandemic and are in need for space to house their employees. Adjusted EBITDA attributable to WeWork was negative $17 million. an improvement of $169 million over the first quarter last year due to continued revenue growth and expense reduction. Freed cash flow was negative $343 million in the quarter and also came in $18 million better than we expected. ARPM ticked up a little bit to $490. All access memberships increased to 75,000. The trend continues, as we've mentioned over and over again, to increase our all access by about 1,000 members or so a month. And this time around, it's up about 5,000 over the last quarter, so slightly over 1,000 a month. While all OCSIS memberships are not included in either our membership count or our occupancy total, it represents an additional utilization and monetization of our space and contributed 59 million of revenue this quarter. The trend of the all-access membership also has a tremendous impact on our ancillary revenue as our utilization of conference rooms and private offices improves. Our workplace solution, which we launched in partnership with Yardi, continues to grow with 63,000 licenses sold since launch to approximately 370 companies throughout the world. For the second quarter, we expect revenue to be between $840 and $865 million, and adjusted EBITDA to be between negative $10 million and positive $15 million. Our second quarter projected adjusted EBITDA made in connection with our debt restructuring was better than this range, partially due to approximately $30 million of lower costs on a gap basis. We will realize the benefit of the same $30 million on a cash basis. Again, I'm running this business for revenue and increase in cash flow. We expect our cash and cash equivalents at the end of the second quarter to be consistent with or slightly better than our original projections. Activities and decisions to reduce our expense structure have been occurring since I became CEO in early 2020 and continue. We've been very diligent in right-sizing the organization and streamlining the portfolio. This process never ends. We're grateful to our landlord partners for agreeing to reduce our rent obligations for the near term, which is what's assisted in providing the gains on a cash basis through the second quarter and through the end of the year. In addition, as part of our restructuring, we've guided to approximately $620 million of SG&A and indirect location operating expenses this year. We expect that to come in closer to $575 million. Turning to the global portfolio, as of quarter end, WeWork had 781 locations system-wide, 617 consolidated. Memberships as of quarter end were 664,000 system-wide, 527,000 consolidated. As mentioned earlier, occupancy increased 6% from the first quarter last year and was down slightly from year end. Looking at our major regions, both the United States and Canada in an international were up 5% year over year. And interestingly, Japan finally rebounded and was up 16% year over year. As mentioned previously, we're constantly reviewing the portfolio in the interest of increasing its overall quality. Since the beginning of this year, we have agreed to exit or partially exit an additional eight locations in the U.S. and six outside the U.S. Of those additional locations, all members of those spaces have been notified. We continue to pursue asset-like growth opportunities throughout the world. In March, we signed a franchise agreement with CC Benza, a pan-African real estate investor for a South African business. Throughout this partnership, TC Benza will operate WeWork's existing locations in South Africa and have whole exclusive rights to grow and operate WeWork franchises in Ghana, Kenya, Mauritius, and Nigeria. Additionally, we continue to see growth across our portfolio with nine new locations, including a few expansions closed so far this year, primarily outside the U.S. Turning to our balance sheet, We are very pleased with the tremendous support from my investors to strengthen WeWork's balance sheet to provide the company with a sound financial footing aligned with its outlook. The restructuring significantly improved our liquidity by providing $1 billion of cash, reduced outstanding debt by over $1.2 billion, reduced annual cash interest expense by $19 million, and extended the maturities to 2027. We now have the runway we need to grow our business and go on the offense versus being on the defense. This transaction is evidence of our investor's strong conviction in the WeWork business model, and on behalf of my colleagues, we're grateful and humbled with a strong show in the support. Andre will now provide some additional perspective on the quarter and our financial condition.