Q4 2021 WeWork Inc Earnings Call
Patients suffering with relief efforts.
With that I will now turn to our financial results for the quarter and fiscal year 2021 .
For the past year I opened our earnings calls battery remarking on some of the distantly and recent pandemic that need we look score product more valuable than ever before.
And flexibility are no longer a nice to have but our market cap.
Rebuilt has established itself as one of the organizations best positioned to support our growing today want to work with its hybrid and flexible environment.
Before COVID-19 .
So many companies have dominant amenity rich on campus experience as a foundation for visibility culture and recruitment strategy.
While the pandemic, we've cleared from the organizations and their priority is finding a way to maintain and foster the same sense of culture and connection in a hybrid world.
Companies that denies the need for purpose built engagement and intentional collaboration and design a strategy to enter the unique needs of that piece of those businesses.
<unk> and leadership in flex.
CBRE Ngls at projected flex, becoming between 30% and 30% of total office.
<unk> in the U S alone.
Which represent a revenue opportunity of at least 45 billion and 105 billion from a $7 million in 2019.
<unk> seen these projections play out in real time, just last month <unk> annual report on the state of the flex market reported that over half of those surveyed expect to have more than 10% of their real estate portfolio and flexible spaces over the next two years.
With this in mind, we feel confident that we will continue to lead the category based on several key factors.
All working spaces that image of SMB with a small and medium businesses provide both a design environment that fosters engagement and collaboration economically to validate devices and our hospitality one community team delineates the painful.
Our footprint includes established locations in high demand gateway cities. This.
This would leave us with a prime position to provide turnkey solutions in markets that have become magnets for knowledge workers.
That also presents barriers to entry with limited inventory high cost and pull on Philadelphia.
Our flexible space focus on high quality enterprise ready spaces at scale.
With an average of 70000 square feet per location, nearly 400 locations with over 50000 square feet and $100 that or even over 100000 square feet. We believe we have the only player who is able to serve enterprise clients at scale.
While remaining focused on our call workspace businesses, we have an average that's acknowledged to be built to further monetize our existing footprint.
We wanted to access we have created a product that provides access to be a guy and we built the network for our members that are serving as an additional monetization opportunity for our existing footprint.
I'll now turn to our Q4 and fiscal year numbers.
The key metrics that we use to measure our business are occupancy average revenue from membership a month our phones all access memberships building margin adjusted EBITDA and free cash flow.
Occupancy is a function of gross asset sales new debt sales churn as capacity.
<unk> is our price per seat than ever ship. All access membership is a driver all access revenue builds.
Building margin is how we measure the full on EBITDA of our open locations.
<unk> EBITDA is how we measure the profitability of our business and finally free cash flow net of capital expenditures is a measure of cash generated by our existing business operations.
Phase of service is our core business.
A variety of co working space, where F&B members and flexible solutions for enterprise companies.
Regardless of the cycle on stage. The company. We also have an implementation dedicated best to an office suite wholesale build out.
Building.
Our collaboration costs.
Our fourth quarter results continued the positive momentum Debbie solar in the third quarter.
<unk> gross debt sales, which includes new desk sales as those renewals with 217000 in the fourth quarter of 13 million square feet.
Just as like new sales of 113000 in the fourth quarter.
On a consolidated basis gross net sales were 164000 in the fourth quarter, which equates to approximately $9 9 million square feet sold and new debt sales what 80000 houses.
For the full year 2021, consolidated gross debt sales were 593000 or equivalent to $35 6 million square feet, we would have.
That's an increase of 40% compared with full year 2020.
As we have said for the past few quarter. Thanks office and we book in particular has taken an outsized share of the market demand is.
2021, we would have represented approximately one 5% of all commercial space in the United States, We have made up.
The equivalents of 90% of the square feet used in midyear at the market level. We look at 2021 gross sales in Manhattan were equivalent to 16% in the traditional office market, we see on a square foot basis, but a levered portfolio of 5 million square feet of paths for approximately 1% of the two.
All of our office staff.
Leasing activity represented 70% out of Boston, Paypal Philippine percent, San Francisco obesity, Miami, despite representing 2% of that of the total office stock each of those markets.
The same is true internationally revoke represented approximately half a percent of commercial office space and a European market is sort of the furthest off 8% of the total square feet in 2021.
<unk> gross sales included a 39% of <unk> traditional office leasing market that is a leading shift effects 30 focus entered got lose 8% of patterns and 6% on a permit.
Our commitment land.
<unk> clients has been 14 months in the fourth quarter and the average commitment for enterprise was 27 months.
Yes.
SMB and enterprise volumes, our average commitment length was 20 months.
Sure with three 4% in the fourth quarter below our pre pandemic churn level of around four 5%.
On a system wide basis, we ended the fourth quarter with 900 developed housing workstations across 756 locations and 590000 physical members.
On a consolidated basis, we accounted for 746000 workstations across 624 locations and 469000 physical members as of December our quarter over quarter increase of 9% and a year over year increase of 21%.
Physical occupancy of 63% at the end of the quarter, a seven percentage point, we see from Q3.
If you look at 'twenty, one how is the net membership that was already contracted to move at a physical occupancy, including signed but not occupied members with an increase of 66% as of year end 2021.
The other side of the revenue equation, despite the catheter physical memberships.
<unk> by taking memberships and service revenues on the income statement and removing revenue attributable to all access and onto 90 membership and management fees.
Consolidated joint ventures.
This is then divided by the sum of the ending memberships in each of the three months of the quarter.
Fourth quarter revenue from physical membership was $665 million and average physical minimum shares were 458 power savings.
<unk> doing a membership.
<unk> hundred 84, once again has an average physical membership over the three year period with 458 with its year end was 469000.
Okay.
As of June 2021, ARPA in the U S and Canada was 530 feet and Arkoma costs International operations was 536.
In the U S and Canada are from increased 5% in the year and across international also increased 2% of the year.
<unk>.
Regions combined represent 94% of our revenues on an ownership weighted basis occupancy in Japan in Latam with 737 and $199 perspective.
The increase in physical membership and all access revenue and stabilization of our coding resulted in a total revenue of $718 million in the fourth quarter.
Up 9% from $666 million in the third quarter.
Looking forward to 2022, it's important to call out the expected embedded growth in our hospital as discounted membership agreements we signed during the pandemic I'll also renewable we haven't been able to mark those to renewing rates to market, creating a revenue tailwind of non existing membership base.
Membership agreements at assigned a 2021 approximately 140000 memberships are up for renewals.
In the U S and international regions in 2020 to restart.
Which correspond to approximately one 5% higher than our Q4 physical membership arcos <unk> equal.
On the basis of 469 houses.
The number of $10 <unk> translate to an increase in annual revenue of about $56 million all else equal.
Similarly, each additional percentage point of occupancy equates to a $44 million decrease in annual revenue.
Given our fleet and adding Q4 2019 half almost $542 and a mature buildings operated at 88% physical occupancy level. In 2019, we believe there is ample room to materially increase pricing and occupancy from current levels.
As we've said before we have spent a lot of past few years rationalizing our cost structure and have an outside our expenses by over $2 6 billion on an annualized basis since Q4 2019.
The annualized rent and tenancy expenses by about $500 million by exiting over 210 buildings and re negotiating an additional 430 leases.
We have also save $600 million and add new locations operating expenses by refueling building operations.
And as the management systems.
And the like and have reduced SG&A by over one 5 billion from quarter from fourth quarter 2019.
We wanted to provide an update on building margin, which we see as a maintenance steppingstone for profitability and activation of the meaningful progress we've made.
This market is having you mentioned that all of the EBITDA of our open locations we've got.
Please building margin by taking some started of membership and service strategy. Excluding the management fee and then subtracting E source macchiato rent and tenancy costs rent Cam and taxes in the U S and direct locations operating expenses, which are consumables cleaning and include our onsite staffing.
Pivoting margin was negative <unk> 9 million in the fourth quarter of $94 million improvement quarter over quarter and $174 million improvement year over year.
We continue to see sequential improvements in our building margin in vivo building margin positive in the month of December for the first time since the start of the pandemic.
Because of the inherent operating leverage in the business.
The buildings are particularly to improve with increases in physical occupancy and pricing as we tightly manage our largely fixed direct locations operating expenses.
We'll now take this point at the end of the fourth quarter. So let me see markets with greater than 70% occupied up from 21 in the third quarter and six in the first quarter of 2021.
The average occupancy of these therapy market is 82% and the average building margin is 28%.
Some of the markets is a steroid goods sold silicon valley by adding back the 11 in Singapore.
33 markets may seven markets that are greater than 90% occupancy, including cities, such as Miami allowance Nashville and music.
These seven markets had an average occupancy of 94% and a busy margin of 41%.
What gives us confidence in our calculus breakeven is a group of markets that up into the 60% to 70% occupancy rate, but according to go over 70% in the first half of this year.
F 16 market in this year, including some of our largest market.
Looking at the total set of market at 60% occupancy or greater.
These markets represent 63% of our total debt capacity up from 43% in the third quarter and 72% of our membership in service revenue in the fourth quarter.
We continue to see demand as company has done to revoke access to create a global office solution.
We launched the access product during the pandemic as another way to enhance our existing.
Product to better meet the needs of our customers, where we are able to set a logic.
Keeping our spaces.
In this.
If any of the products that with another way to monetize our physical footprint at a high margin.
But also providing a complementary and synergistic product to existing dedicated space users.
Access memberships also drive additional ancillary service revenue.
The conference room bookings.
All active membership that go into 45000 members as of December 2021, an increase of 41% quarter over quarter.
As in the fourth quarter.
Human clinical members.
Membership sign but not.
As membership brings the total occupancy of 72% in theory could be.
What.
Finally, we remain excited about the opportunity we have with our <unk>.
Which leather leverages the proprietary side.
Portfolio.
We continue to hear the members that we delayed pack a universal platform. This Thursday.
The hybrid environment.
We will work with as of this week, we will workplace make tightened about possible.
With a single platform that is O&M.
And operator agnostic.
By empowering employees of choice controller, and an optimized booking periods relative can drive employee productivity collaboration engagement and ultimately retention.
Real estate also supports employees and management space in optimizing the portfolio through <unk>.
Data and analytical insights.
A tactical choices regarding the litigation type and size of offense.
Dave is sourcing the feedback loop in the second half of 2021, we announced partnership with landlords and operators that island of opinion Rousseau Paolo their old flexible space solutions.
At the end of the year, we signed our first we will work with enterprise clients with organ on a global healthcare company. The action that boundary list workplace strategy across locations in 34 cities.
Make sure we both locations one location and non rebuilt location.
Finally, I want to spend a minute talking about the transactions, we recently announced with common best and outlook.
Asset light opportunities with good economy.
Colorado and cultural fit.
In early 2020, we completed.
We did a strategic acquisition of common that a Dallas based co working operator.
Okay, starting in 2000 into our dominate operated 23 locations in Texas, and North COVID-19, English by asset management agreements with landlords. The total of these 50% cash and 50% stock at $10 per share price.
Action is accretive from day one.
Also makes up a battery.
And his colleagues.
Uplifts.
In February we completed a 5 million strategic investment and partnership with Opex.
A platform that aggregates over 4800 gig co working locations around the world through our partnership we look like have the exclusive a bit of a reset up that inventory of third party spaces and offer our access customers an expanded number of real estate options by offering bookings access to outlets.
Looking into the future and we see this partnership as a benefit that provides more optionality and location choices and as a technology integration that will allow us to develop and sell new premium priced products that leverage opex.
And at scale across the network.
We will continue to look at opportunistic.
Acquisitions and transactions like this the scale of the business in a cost effective and asset light pattern now I'd like to turn it over to Ben to walk you through our fourth quarter financial results.
Thanks Danny.
Quarter revenue of $718 million increased $57 million or 9% quarter over quarter, driven by a 9% increase the digital membership and a 44% increase in access revenue.
Adjusted location operating expenses, which includes both leased $729 million in the fourth quarter, representing a decrease.
With $23 million.
Versus the prior quarter, driven by lower lease costs.
It was also a decrease of $8 million or 11% compared to Q4 2020.
Lease cost effectively our rent and tenancy cost per open locations was $587 million in the fourth quarter and other location operating expenses were $146 million.
Noncash straight line lease cost and tenant improvement allowances in accordance with U S. GAAP.
Adjusted <unk> margin was negative $9 million in the fourth quarter.
$94 million improvement quarter over quarter, and a $174 million improvement year over year.
As Sandy mentioned, we are pleased you are the first time since the pandemic began by further information regarding building margin in our supplemental presentation on the investor.
G&A was $230 million in the fourth quarter slightly higher.
Stock related compensation.
Great in the fourth quarter driven by our sequential.
We focus on managing our cost structure.
Adjusted EBITDA.
<unk>, which is a $73 million.
Prudent relative to the prior quarter at $189 million improvement relative to Q.
Quarter, and the fourth quarter of 2020.
The key components of bridging.
From adjusted EBITDA to net loss in the fourth quarter include $195 million of net restructuring and impairment expense related to the write off of lease right of use assets associated with our portfolio rationalization activity.
$174 million depreciation and amortization.
$103 million of interest and other expenses and $48 million of stock based compensation compensation associated with the closing of a business combination with <unk> in the fourth quarter.
We recorded a free cash flow of negative $467 million.
Operating cash flow was negative $373 million and growth Capex expenditures were $94 million for the fourth quarter of 2021, net capex was a $3 million inflow in the fourth quarter. When you account for the $98 million of tenant allowances are received in the fourth quarter.
I will now discuss our balance sheet and liquidity, we ended the year with approximately $2 billion in cash and unfunded cash commitments. This includes approximately $924 million.
Our available cash on hand, $550 million available on our senior secured debt facility and an additional five.
For some comments before we open the line for Q&A.
Okay.
Looking forward, we expect first quarter revenue to be between 740 and $760 million.
We've had a midpoint of $750 million.
As approximately 20% of the desk stores moving within one month of the contracting side and 60% moving if you have a high level of visibility into it.
Second quarter revenue to be between $70 million to $75 million in the.
The midpoint of $800 million.
Over 90% of our second quarter revenue is committed to date, which gives us a high level of cabinet business to achieve these goals.
Numbers for the full year, we expect to achieve three 8% to $4 billion of system wide revenue and three five to $3 5 billion of consolidated revenue.
Future between $902 billion of revenue in Q3, and Q4, each which is a range we become adjusted EBITDA positive and a revenue level.
Maybe you have enjoyed in Q4 2019 in Q1 2020.
We also have high level of visibility into the back half of the year as a commitment landfill both SMB and enterprise is an average of 20 months.
So today, we have.
Nearly 60% of the revenue committed for Q3 and Q4.
Over the course of the year, we anticipate spending approximately $100 million of net growth capex to bring an additional 15% to 35000 deaths online in 2020.
We expect end of the year with 760000 to 780000 deaths. In addition, we expect incentive spend about $100 million in maintenance Capex. This year.
Our 2022, beginning cash balance and available liquidity of 1.9 hundred 74 billion adjusted for the.
Midpoint of our adjusted EBITDA guidance of 450 million negative.
$240 million of interest and $200 million net Capex will gave us total liquidity of approximately $1 138 at the end of 2022.
I am confident that our current revenue visibility cost structure and right team in place, we are well positioned to meet our targets.
Shifting topics and expanded I'm excited to expand on some of ESG.
BSG efforts, our environmental efforts focused on key areas, including energy efficiency.
Achieving carbon neutrality, minimizing waste reducing water consumption.
And improving.
The supply chain by aim is to use 100% renewable energy.
Using the LNG reuse to Nike Coolants, IRR basis, and so screen electricity, we are reducing our carbon footprint by minimizing waste, increasing our recycling income costs and rates.
Seen consumption of water.
Overall these efforts continue to point out in the right direction as a sustainable business.
I'd be remiss, if I did not bank and subsequently from his position as chairman that we will explore.
I believe really I'm grateful for his relentless support partnership and leadership over the last two years.
We look we are going to be weighted today. If it was also his efforts.
I wish him the best of luck.
And this new <unk> next chapter.
With that operator, please open up the lines for questions.
At this time I would like to remind everyone in order to ask a question Press Star then the number one on your telephone keypad, we'll pause for just a moment to compile the Q&A roster.
And your first question comes from the line of <unk> Martinson from Jefferies. Your line is open.
Good morning.
When you look at the year, how much do you feel that the omicron maryann for Covid pushed back your outlook for 2022.
I think if you did 42 important delta and and Omnicom, they pushed it back a quarter or two.
Okay.
And then when you look at the $100 million of growth Capex plan is that going to flow through those seven markets like Miami, where you are running north of 90% or is that broadly spread out.
Across the platform.
No, it's actually spread out in the market that we are 70% or better.
Occupied in those markets, where we have high occupancy and demand.
You'd appreciate that when we closed a whole lot of locations. In this process. There were many locations that were that were not built and so we gave those back.
When you get the ones, where we had a high degree of either.
Occupancy, although we had pre committed commitment some enterprise clients.
These assets have come online fairly well leased.
Okay, and then when we look at the roughly $1 billion EBITDA improvement here for 2022.
What are you assuming in the guidance for average revenue per member.
So it is at.
It's $484 eight defensive dose of $500 Aqua.
Okay.
Then.
Just switching gears here to the liquidity.
The cash needed for you guys to kind of broaden your buildout tapping the secured notes toward the later lines of credits.
As we go forward through the year.
The working capital needs.
Look and see about $250 million.
Okay.
And then just in terms of tapping the.
Credit for you guys.
I think it's a timing issue again so.
We do have one point to almost $2 billion in liquidity and when you account for the $450 million of negative EBITDA for the year interest and Capex.
You get to $1 1 billion affiliate tightening issue, we may or may not happen.
Okay. Thank you very much guys I appreciate it.
Thank you.
Again, if you would like to ask a question star one on your telephone keypad. Your next question comes from the line of Sam Mcgovern from Credit Suisse. Your line is open.
Hey, guys. Good morning, just following up on Carter's question, Neil Mcmahon impact obviously, that's impacting 2022 guidance how should we think about 2020 for guidance is that still relevant.
2000, 2040 et cetera.
Yeah, that's right yeah.
Yes, I will.
I mean again.
A smile on my face I would expect.
Note that the guidance reverts back by <unk>.
By 2023 to a normalized rate because we do get to the ended the year with a $1 billion run rate. The reshaped every share that we have are not providing guidance for 2023.
We should start to get back to normal run rates.
Okay got it and then can you remind us what level of EBITDA do you expect to get so our free cash flow breakeven level.
It's really.
If we do not expand because we don't intend to do anything but asset light deals going forward.
We do have in our pipeline.
On a box to another 50000 deaths.
That when leases signed that we want to keep.
The leases signed in 2018 to 2019.
So we will need a little bit of Capex, so that in 2023.
So we do need to get to free cash flow in each of about four $5 million of revenue.
Okay got it that's helpful. And then you posted last week that Youre not currently looking at an equity offering at this time, how do you think about your preference for additional debt versus equity.
Bolster your liquidity as you get to that future profitability and how much additional debt capacity do you guys believe you have under the current docs.
So effectively you're right we have no intent to issue equity that were never in the market to have a broader equity issuance.
And so I want to reaffirm that there was a strategic who who have approached us to make a $100 million investment at a substantial premium to the closing by the Thursday. So we would never in the market and unfortunately during the trading day, we look for benefits from responding to market rumors.
Accounting so the app.
Sure.
Again, we would only issue equity at a premium to the pipe investors came in and really the only issue that there was a use for equity.
We don't intend to increase the indebtedness of the company between the LC facility and the senior secured its about $1 billion 50.
If anything we may replace the LCD capacity with senior secured but it will be more of a mix than anything else.
In part our documents, we have the ability to put out $1 billion.
All senior secured which we haven't tapped yet.
Got it okay, great. Thanks, so much I'll pass along.
And there are no further questions at this time ill turn the call back over to Mr. Sandy for some closing remarks.
In closing I want to express how pleased I am with our performance in all we have accomplished in 2021 looking at the market at the macro level an award with budget uncertainty our product becomes even more valuable our rents are fixed which is beneficial to rework in an inflationary market.
Were real estate rates typically rise and at current rates are at or below market space.
<unk> is a pre built which prevent signs are experiencing supply chain issues are inflated construction until an expensive and often includes on site staffing in consumables.
Our turnkey solution for immediate occupancy.
Our progress with David would not be possible without the tremendous work of our employees and the support of our global community. Thank you to everyone for joining today.
These days and the human and decided to run them. Thank you.
This concludes today's conference call. Thank you for your participation you may now disconnect.
Okay.
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Yes.
Okay.