Q3 2022 WeWork Inc Earnings Call
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If you would like to ask a question. During this time simply press Star then 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 Berry Senior Vice President of Investor Relations. Please go ahead. Thank.
Thank you Dennis good morning, and welcome than we were a third quarter of 2022 earnings conference call. During this call we will refer to our earnings release and Investor presentation, which has been furnished with the SEC and can be accessed at investors that we worked dot 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 with 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 we will also be included in our quarterly report I'd like to introduce ending with Ronnie Chairman and C.
We work and Andre Fernandez, Chief Financial Officer, with that let me turn it over to Sandy.
Thanks, Kevin and thank you all for joining our call. This morning.
We will beat consensus by $3 million.
<unk> wasn't budget foreign exchange incentives was $865 million, our revenue came in at $868 million.
The third quarter, we have been able to demonstrate continued momentum and growth across revenue memberships occupancy our all access product and our newest software solution. We look workplace. We are consistently working to strengthen our business model and meet the growing demand for more flexible office solutions for a new world of work.
At a macro level. This falls in line with the ongoing trend, we've seen with flex space seeking increased market share from the traditional office sector our.
Third quarter revenue increased 24% year over year and was up 33% using budget foreign exchange rates in New York City in London, We occupy approximately 1% of the office staff and sold equivalent up 15% and 35% of the traditional square feet sold in the quarter.
Respectively consolidated physical occupancy continues to grow up 200 basis points from the last quarter to 72% for our mature buildings over the past year, we have spoken about how our transforming and differentiated business model has enabled us to capitalize on the hedge.
<unk> across the traditional office sector in the face of an evolving and uncertain macro environment. We have proved our flexibility is a key lever to best weathered challenging and evolving conditions.
Let me turn to our capital structure.
I wanted to start with a continued focus on the balance sheet. We ended the third quarter with $460 million of cash and cash equivalents $500 million of issued senior secured notes fully available to us and at least $500 million of secured debt covenant capacity.
The commitment for and if draw on the majority of the senior secured notes have been extended.
On February 2024 to March 2025, and the commitment amount was updated to 500 million subject to certain terms and conditions.
Turning to our $1 5 billion senior.
Other credit tranche I'd like to provide some historical perspective on how this has evolved since early 2020.
When I joined in February of 2020, this tranche was 175 billion.
Serving as collateral for our lease obligations as a result of a steady burn down of a lease obligations and not putting up new letters of credit we reduced debt tranche to 125 billion earlier this year a reduction of $500 million.
This will further be reduced by an incremental 200 million by February of 2023.
We recently launched the former process without participating banks to extend the maturity to March 2025.
And then an incremental burn down of 250 million will occur for us.
<unk> reduction from early 2020 to March 2025 of $950 million.
At close and affiliate of Softbank Group will continue to provide credit support for the amendment amended letter of credit Crunch. We are very pleased with our progress to date and are grateful for the continued support we look by affiliates of the Softbank group.
Turning to our portfolio. Our strategy has continued to continually improve the quality of the portfolio by opening new locations and exiting underperforming locations.
Our portfolio strategy is similar to our retailers approach to their store fleet, whereby investments are made into high performing stores and lower performing stores approved from the portfolio.
We have continued our ongoing efforts to optimize and enhance our global real estate portfolio by executing new deals.
And exiting others systemwide, we entered into management and revenue share agreements as well as traditional leases for over 20, new locations globally comprising of approximately 18000 workstations. This year.
As you know we significantly pruned the portfolio upright joined in early 2020, and we've continued these efforts in earnest with the planned exit of approximately 40 locations.
These locations comprising approximately 41000 workstations are all in the United States and are those that don't meet our design criteria have obsolescence or there is an oversupply in the market.
Our members in these locations have all been notified and most have already been relocated to higher quality. We look assets. These planned exits I expected to reduce topline revenue. However are expected to also did use the rent tenancy and building operating expenses and once fully implemented I expect it to.
Approximately $140 million of annual adjusted EBITDA.
Most of these locations will be exited by the end of November of this year, a couple of style into December and into January .
In connection with these planned exits we will pay early termination payments to our landlords since we expect to make the majority of these payments over time, we don't expect these payments to materially impact, our 2022 or 2023 liquidity outlook since they essentially represent future rental obligations that do not affect that.
Cash forecast.
The overall effect on our portfolio from this exit is expected to be positive taking into account. These exits as if they occurred at the end of the quarter occupancy for mature buildings will be 76% versus 72% as reported.
So we look consolidated portfolio will be 608 locations and comprised of 714000 workstations.
With a streamlined and higher quality portfolio, we further aligned our corporate expenses to even more efficiently support our business plan during our first quarter call we estimated SG.
SG&A run rate would be $750 million to $800 million by the fourth quarter of this year. Our revised annual run rate is now closer to approximately $725 million and believe we have a path to operate even more efficiently.
Turning to our third quarter results revenue for the quarter was in line with our expectation, but was impacted by the strong quarter.
As reported on a GAAP basis revenue was $817 million, an increase of 24% year over year at a budget foreign exchange rates revenue would be $868 million this quarter up 33% year over year versus consensus of $865 million.
Adjusted EBITDA for the quarter was negative $105 million in line with our expectations 29 million better than the second quarter, and a $251 million improvement year over year.
Our consolidated financial results include Noncontrolling interest Stakes, primarily in Japan, and Latin America.
And excludes unconsolidated investments, primarily in India and China.
Accounting for our ownership stake adjusted EBITDA attributable to <unk> was negative $86 million in the quarter or $19 million better than as reported.
Consolidated physical occupancy increased 71% at quarter end and taking into account the planned exits.
Would have been 75%.
Occupancy for mature building a metric we've asked for by some investors was 72% and taking into account the planned exits would have been 76%.
Approximately 8000, physical memberships and 7000 workstations were added during the quarter.
But your occupancy in the U S and Canada continued to improve take into account. The planned exits reached 75% with New York now at 81% and San Francisco at 83%.
Footfall in this region is steadily growing.
Turning to the United Kingdom, Ireland.
EMEA and the Pacific regions occupancy for mature buildings reached 82% with London at 79% Paris at 81% sold at 91%, Singapore at 90% Sydney at 70%, Dublin at 81% in Berlin at 88%.
In this region has actually reached pre pandemic levels and in certain markets like Paris, and Milan, it's actually above pre pandemic levels.
Our <unk> was 477 in the third quarter and trending as we expected but impacted by the very strong dollar on budget FX.
<unk> would be $508, an increase of 6% year over year and above our original expectations for the year.
System wide workstation sales with 205000, which is equivalent to 12 3 million square feet in the quarter.
Consolidated workstations was 162000 or $9 7 million square feet in the quarter. The average commitment term remained flat.
Moving on to our all access on demand products membership grew to 67000 in the third quarter and revenue was $47 million. We plan to end the year with approximately 70000, all access memberships and we expect to generate approximately $185 million to $195 million of annual revenue.
We launched our all access product in 2020, and it has become an established and growing business.
Now, let me turn to we look workplace.
Turning to us worthy solution that we launched in late July of this year.
Have actually signed over 100 companies that are using the product with almost 15000 licenses to manage and optimize their use of office space within we work locations and within their own locations.
Turning to guidance, we expect fourth quarter revenue to be $870 million to $890 million adjusted EBITDA to be 65 negative 65 million to negative $85 million and adjusted EBITDA accounting for our ownership Stakes of consolidated and unconsolidated operations, which is <unk>.
Find has adjusted EBITDA at <unk> to be negative 55 million to negative $75 million.
We expect full year revenue to be between 335 billion to $3 $3 7 billion adjusted to be adjusted EBITDA to be negative $515 million to negative $535 million and adjusted EBITDA attributable to we work to be negative $435 million to negative $455 million the guidance on <unk>.
<unk> excludes the impact of fluctuations in foreign currency exchange from our original budget rate. However, our guidance for adjusted EBITDA is based on spot foreign exchange currency rates.
Our fourth quarter guidance was impacted primarily by slower than expected growth in the operations in the United States and Japan regions, the impact of planned exits and fluctuations in foreign exchange.
Andre will provide further.
Our financial results.
Thanks, Sandeep and good morning, everyone Sandy.
Sandeep touched on a number of the financial highlights in his remarks, so I'll quickly provide some additional color here.
First total company revenue was $817 million.
Up slightly sequentially and up 24% year over year.
Foreign exchange headwinds, primarily weakness in the euro pound Sterling and Japanese yen had an even greater negative impact on revenue this quarter, reducing revenue by approximately $51 million compared.
Compared to our original budget and foreign exchange rates as.
As we mentioned excluding that impact total revenue would have been $868 million for the quarter and up 33% year over year.
Building margin in the third quarter, a measure of gross profit at the building level was $105 million up sequentially from $86 million and a $208 million improvement year over year.
Within the building margin increase we were able to reduce our location operating expenses quarter over quarter, despite higher occupancy.
And while we have seen the impact of inflation and our building operating expenses, particularly energy costs in Europe , we've been diligent in managing our overall operating expenses.
Favorable foreign exchange rate has also helped reduce our reported operating expenses.
Next our adjusted EBITDA loss in the third quarter was $105 million or $29 million sequential improvement from the second quarter and over a $250 million improvement versus last year, driven by higher revenue and lower overall expenses.
A particular note is SG&A, which fell 24% year over year, and our combined location operating and pre opening expenses dropped $40 million year over year or 5% and despite higher occupancy.
Our net loss was $629 million in the third quarter recall, our net loss includes approximately $430 million of noncash and below the line items, including unrealized FX losses, depreciation and amortization.
Moving on now to liquidity and cash flow our free cash flow for the third quarter was negative $205 million, which was a $93 million sequential improvement from the second quarter, driven by improved operating performance and working capital and lower Capex.
We ended the third quarter with consolidated cash of 460 million.
Down from $625 million at the end of the second quarter and in line with expectations.
Net capital expenditures for the quarter was $55 million down from $71 million in the second quarter.
On liquidity as Sandeep mentioned, we ended the quarter with cash commitments and debt covenant capacity of approximately one 5 billion as of quarter end.
That concludes our prepared remarks, thank you and with that operator, please open the lines for questions.
At this time I would like to remind everyone in order to ask a question simply press Star then the number one on your telephone keypad.
Pause for a moment to compile the Q&A roster.
Your first question is from the line of Alex Kramm with UBS. Please go ahead.
Yeah, Hey, good morning, everyone.
Just on the exiting that Youre doing here I think Sandeep, you mentioned that there will be some some costs, but they will be.
I don't know what you think you said immaterial, but can you give a little bit more detail.
You said all of this will be done in November so maybe help us a little bit with the cash outlays.
Over the next couple of quarters.
Driven by that because clearly you're still burning a decent amount of cash.
Good morning, Alex So we've accounted for paying rent over the course of 2022 and 2023, so essentially the exit cost is equivalent to our rent payments and there'll be paid monthly according to the rental schedule. So we have no.
<unk> impact no further impact to our liquidity or our cash position.
Okay, and then maybe just shifting gears you also said that you're changing some of the.
Revenue share agreements I don't think Youll really touched upon that on your in your prepared remarks can you can you talk a little bit more about what exactly youre doing and how that's going to impact.
Yeah.
Going forward.
The agreements thank you.
So we've actually as I mentioned in my remarks.
We have signed revenue share and management agreements for about 18000, new desk and.
And essentially they are.
Virtually all management agreements will be get a management fee.
Some of them a revenue share agreements like in unit who've done a revenue share agreement.
So effective they don't come online till 2023 and 2024.
I don't know that should provide any further details, but essentially we collected about 10% of the revenue and the management agreement.
Alright, and then just one quick last one if I may.
On the all access side it seems like the trends remain decent money year over year basis, but it has slowed a little bit here over the last few months. So maybe just give a little bit more color.
What's been happening on that and then also can you. Please provide the RPM for all access I don't think you gave it this quarter.
So as I mentioned in the last few quarters, our capacity for all access cap cited about 70 75000 members.
In the process of increasing that capacity in 2023 to 100000, so effective at near capacity. So and we've also mentioned we drilled about 1000 or so members a month and we've continued that trend to about 67000 in this quarter and as I said with probably reach our capacity by year end.
70000, so the way to increase capacity as you put it increased the common area lounge areas.
And we're in the process of doing that in some of our locations. So we can get the capacity under 1000.
The ARPA is about the same about $225 or so.
For the all access members.
Alright, I'll jump back in the queue. Thanks.
Your next question comes from the line of <unk>.
Vikram Malhotra with Mizuho. Please go ahead.
Alright, thanks for taking the question. So I guess, just maybe some deep starting off can you give us a sense of how much revenue visibility you have.
Now going into I guess fourth quarter, mostly covered but you usually have revenue.
Two quarters out, but what's the revenue visibility over the next two quarters and what's embedded in terms of occupancy expectation.
Again, we will provide you with our Q4 call with.
Q1, and Q2 revenue projections.
We continue to see we continue to see growth in occupancy and revenue.
As well as we continue to see reduction in expenses.
And so we continue to guide towards.
Two points or so increase in occupancy quarter. We ended this year with the exits at about 75%. So we think Q1 will be closer to 77% occupancy and they get sequential increase in revenue.
As we've seen in the last few quarters.
Okay, just maybe if you could add some color on what youre seeing specifically on the tech side, we've obviously heard.
Meta laying off people matter of giving back few leases.
Other smaller technology firms with Mayo ops can you just give us a sense of as you look at the portfolio are there is there a watch list are there any impact was there any impact specifically in the third quarter.
Yes, we don't really comment on.
An hour.
On the decision to bump.
Members.
And we said before that the enterprise part of our business has had the highest occupancy almost 80%.
In the U S.
Over 80% in.
In the EMEA region.
So we continue to see demand for our for our enterprise space.
And the locations, we have gotten back and I think I pointed out at the last call. We've been able to successfully re lease most of the enterprise space.
In our portfolio.
And we actually do see continued growth.
Sure.
Paul our client base.
In the enterprise space. So again, the point of flexibility as you get the ability to.
To increase our occupancy so we've actually done we've been able to refill our refill that space.
That we've gotten back so far.
Okay and then just this last one so with the restructuring you mentioned the boost to EBITDA or adjusted EBITDA I think its $150 million, so youre sitting at roughly $500 million in cash.
You still have some cash burn from here on.
I think in the past you've mentioned when the portfolio is at 70, 475% you actually start to January .
Breakeven on EBITDA can you just walk us through liquidity needs from year on.
Unused capacity over the next few quarters is there a need to draw on that.
<unk> looked for other sources of capital, including the effects of this restructuring.
So.
I think youre right, we do get to the mid <unk> as we get to breakeven adjusted EBITDA. So we are obviously at the precipitous off of that now.
We do.
Do anticipate.
During the next quarter or so to draw on the $500 million of senior secured.
But we don't anticipate the need of additional.
Liquidity beyond the cash on hand, and the senior secured all the way through the end of 2023.
Thank you.
Your next question is from the line of Alexander Goldfarb with Piper Sandler. Please go ahead ma'am.
Good morning, good morning, Sandeep, So just continuing along that you've been.
Pretty consistent over the past year of saying EBITDA positive by year end. This year I think <unk> been saying sort of December you would turn the corner on flipping from negative EBITDA positive and then mid 2023 on positive cash flow and in the response to it.
To Alex's question on the on the lease term fees Youre still paying cash that's still cash going out the door.
And answering Vikram, you said that youre going to start drawing the $500 million.
<unk>.
Beyond that senior unsecured or senior secured but when you put it all together Big picture are we still on track for positive EBITDA in December of this year and by Middle of next year to have the entire we work company positive cash flow with all these elements that you've discussed.
So hi, Alex So so for December 95% of our revenue is committed the balance of the revenue as constant stream revenue on demand revenue our members created and opening month.
It's about $10 million to $15 million over the last.
10 months.
Being able to achieve that $10 million to $15 million gap. If December is in line with the past several months, we will be at breakeven adjusted EBITDA in the month of December .
As I mentioned earlier, we continue to see growth in occupancy and revenue as well as a reduction in expenses. In addition, capex capex spend.
In the months of in the.
In 2023 will be half of 2020 due in 2020 was about $200 million.
In 2020, it's going to be $100 million.
This should allow us to be adjusted EBITDA positive for the year and have a path to cash flow positive in 2023.
Okay, but sandy just going back as everyone's focused on profitability is the view. So it just so we're all the same page.
It sounds like you'll be breakeven in December and hopefully that continues into that should continue into the first quarter, but should we still be thinking about middle of 'twenty three to be cash flow positive or in your view you would say hey, guys based on what we're doing based on that we're going to be exiting some buildings, but we still have to pay rent.
Not going to get the revenue, but we still have to pay the rents that.
The cash flow positivity is back.
Tail end of 'twenty three.
I think thats, a fair comment Alex it will be in the 10 to 23.
Okay and is that because is that mostly because you continue to pay cash on those rents that you're exiting but not getting the revenues or is there. Some other reason.
As a matter of fact as units as we just said that the adjusted EBITDA is going to be a $140 million positive is actually a positive impact to EBITDA.
The reason, we think it'll be in the <unk> has actually everything to do with foreign exchange rates. So what happens is in the in the in the European market and obviously, we are over 80% occupied and above mid seventies occupant occupation once you've crossed mid seventies.
Occupancy.
Yes.
The revenue continues to go up and the profitability continues to grow up so still mid seventy's of occupancy you are making money.
In euros or pounds and expensing it in euros or pounds and so it has a very small impact to cash flow our adjusted EBITDA above mid seventies, okay, you're actually in the profit tenantry and now youre repatriating of converting it into dollars and the impact of foreign exchange is quite large in 2000.
'twenty three because we in the European market International markets, we expect occupancy to be in the mid <unk> by early next year and so now you've got 10 points of occupancy.
And so we did some that the impact on our pump.
Almost $565 in budget FX to about $475 at spot FX, it's almost whatever that is.
$85. So you apply that $85 eight to 10 points of occupancy so thats it.
That's about 20.
20000, or 25000 deaths and you start to see the impact that foreign exchange has.
Two two.
Cash flow, so that's really mainly foreign exchange driven.
Okay. So and can you give us a sense of what the remaining rent payments are on the leases that you are exiting by the end of 'twenty three.
Is it like a $20 million $30 million cost.
Alex Let me just get back to you I am having some like just do a quick math I will answer that question. Okay. Let me just ask a final question.
Occupancy in the in the U S is 66% your total portfolio occupancy is 71. It was 70 last quarter. So it was sort of flat.
<unk> out.
Is is the real.
Are these leases that youre exiting is that what's really needed to get the occupancy to continue to grow meeting.
These 40 leases are these really the sole drags on the portfolio or are there other headwinds that are preventing the U S occupancy too.
Approaching international sort of getting above that 70% level.
Things two questions. So I would sort of sit back and say, we've actually added 8000 members in this quarter right and they have been.
Predominantly in the U S.
The U S has lagged and we've been consistent about that by two or three quarters. We are starting to see a tremendous pickup since after labor day in the U S.
Indeed in the effective is we wanted to give it up are obsolete locations.
Demand didn't come back as swiftly as we thought and so we decided that to be profitable and sustainably profitable we should close locations at our obsolete.
We're able to relocate as you know 80% to 90% of our members into the remaining locations in the same market and they usually are much better located and much better fitted out and so it actually drives better member.
Experience.
Now that we've gotten our occupancy into the mid <unk>. We believe that we can now drive continue to drive rate.
I think it was important for us too.
Our sales of obsolete locations like any retailer would to drive better experiences to drive rates. So so I think as you know and now that we've gotten about 75% occupancy in New York is now at 81% occupancy.
We believe we can actually drive rate.
That's the driving factor to continue to have sustainable profitability and just to go back and answer your question on the on the on the rent it's about $200 million.
Over the next 15 months.
That youll pay and then that goes away yes.
Thank you very much.
Your next question is from the line of Tom Catherwood with <unk>. Please go ahead.
Thanks, and good morning, everybody.
Following up on Alex's question on occupancy.
Sandeep.
Hi.
Kind of trying to triangulate a couple of pieces in here and the one thing thats not lining up for me is desk sales were kind of consistent on a system wide basis, this quarter and picked up a bit on the consolidated portfolio, but occupancy didn't kind of pick up as much as we would expected given that the volume of activity.
Did you see more churn during this quarter or is there something else driving that kind of gap between what you were doing deals on and kind of what the occupancy ended up at the end of the quarter.
So we also I think you appreciate we also added 7000, new desk in the quarter right. So if you actually increase the numerator and denominator and that's another point. So if I just added the 8000 desk without increasing the denominator at 71% would be closer to 72%, which would be a two points of occupancy.
So I just point that out as a point of reference.
Totally totally fair as far as the churn, though was that was that up in this quarter no.
I see churn was about the same it is about 4%, which is what we model churn in churn in the in the international markets was actually closer to 3%.
Low three percents and churn in the U S was mid fours. So overall churn remained pretty consistent maybe 50 basis points higher but pretty consistent.
Modeling took into account and 12% and was it close.
Got it got it and then can you comment we're obviously into.
Rather than the mid November here, so far in the fourth quarter, how has that leasing activity or membership sales activity progressed, specifically in the United States have you seen that pickup continue as you kind of alluded to post labor day.
The.
In the fourth quarter, the new deals remain pretty much consistent.
Tober, what's probably the best first month of a quarter in.
In a few years so the new activity continued in the United States and in international markets, Although I will say in the U S. Shown also continued.
So effectively we are slightly ahead of the churn because the new activity and the pipeline is quite large.
And with the churn also has speed like I say that that four 5%.
So effectively we will probably be up.
A point or so or maybe two.
Occupancy in the fourth quarter.
International markets continued to thrive.
And growing it.
A substantial pace.
And what's interesting to us the UK and the international markets, even though there is a recessionary fears were seeing no slowdown in activity.
Got it appreciate that Sandeep, and then kind of one more on leasing last quarter. You had mentioned an expected pickup in the SMB portion of the portfolio you, obviously alluded to the strength still at the enterprise level, but did you see that kind of expected to pick up with the.
The smaller operators and is that a trend that you see continuing through the balance of the year.
Absolutely, what's driving our business and the success of our business really and continued growth in occupancy in the U S is our SMB business.
It is at all time highs in the leasing activity almost 70% to 75% of our leasing activity is the SMB business.
That has been the case now for about 15 16 months, they have been pushing occupancy and actually I would sit back and say if I was to look at.
Q3, and I look at the month of October it is actually only accelerated.
In the U S and so we continue to see tremendous strength in the SMB sector.
Got it. Thank you Sandeep and then just one quick last one if I can on the we work workplace. Obviously you mentioned the 15000 licenses.
It's still early days for this part of your platform, but do you have an expectation for what the earnings contribution could be from this side of the business either in the near term or the medium term.
I always like to sit back and say.
Look this is where we look all access was 18 months ago and you can see we look all access is now.
Almost $200 million bid.
Business.
The Tam in the U S for <unk>.
Workplace is now about $3 billion globally, it's about $5 billion.
We have a very good partner of the largest.
Enterprise software customer for property management you already.
And so we.
We haven't really factored in.
Much revenue in 2023, but the take up has been much better than we thought.
So I don't want to speculate on how much of that market share, we can get but as being leaders.
In.
In flex.
Leaders in workplace.
We do hope that we can we can capture our fair share of the Tam over the next 12 to 24 months I would also just sit back and say.
Is it Q3.
Our system wide.
Sales was almost $943 million, which makes us actually the largest now in revenue flex provider in the world.
And that gives us the visibility to almost <unk>.
30000, or so individuals members. So we have a tremendous top of the funnel to go market, we look workplaces product.
I appreciate the color thanks, everyone.
Your next question is from the line of Tayo Okusanya with Credit Suisse. Please go ahead.
Yes, good morning, everyone Sandy just given some of your comments about.
The potential outsized impact of FX. It was the continued to have a strong dollar.
So you mean that suggests.
Can be much more focused on extending debt maturities to that too.
Could you talk a little bit again about some of the progress being made on the senior.
And potentially the JV tranches of the letters of credit.
Yeah, as I mentioned <unk> that effectively the $500 million senior secured has been extended to March 2025.
On October 25th of this year, we officially launched with R. R.
Our bank group to extend the letter of credit.
February 2024 to March 2025 for both the senior and junior LC tranches.
Softbank the filling of Softbank group continues to be the credit support for the letter of credit. So we are hopeful over the next 30 to 45 days.
To to be able to.
Close on the extension of the letter of credit to March 2025.
Okay. That's helpful and then any commentary at this point from Softbank just around again.
Exploration of the lockup, what they could potentially be doing with the shares.
We really don't have any.
Commentary from them.
But I think it is pretty evident with their continued support of <unk>.
Extending the majority of the 500 million senior secured and providing credit support to the senior and junior LLC tranches.
Their confidence and we look at the support that we book.
Okay. That's helpful.
One more for Andre again, the change in the adjusted EBITDA guidance in particular at the midpoint of the new versus old guidance by about $50 million or so for the full year can you help us better understand how much of that is.
FX how much of it is closing costs lower exit costs associated with the <unk>.
With the restructuring how much of it is kind of slowing U S and Japan versus expectations.
What caused that $2 billion.
Yes, I don't think we want to pin it on one particular I think we said in sandy's remarks, or sort of a mix of those items that you mentioned and you know you know how we did that for the attribution right. So the attributions, so attributing EBITDA at our percentage ownership two two to the various consolidated.
Our non consolidated affiliates of the company. So thats why we added that but I think on the EBITDA range. It was just really more of a mix again between those those variables that.
You mentioned and then I think also Sandeep mentioned sort of okay. What.
What more do we still have to go here a little bit more to get to a profitability point in December and I believe you provided that range also in his remarks.
Okay, one more if you don't mind.
Workplace, the economics behind that business I know a while ago was kind of suggests that it could be like $10 per month per license.
Is that still the idea at this point I was trying to just kind of gauge what kind of revenues that could generate from that business going forward.
Yes, that's the right pricing.
It's going to be when the business stabilizes, it's $10 per user per month.
But again just to be just to be fair.
<unk> going to vary country by country that the pricing in the United States. It's 10 pounds in the UK and then it was different different pricing in different regions of the world.
Okay. That's helpful. Thank you.
Your next question is from the line that Brett Knoblauch with Cantor Fitzgerald. Please go ahead.
Hi team.
Thanks for taking my question on the I guess.
Capacity reductions exiting call it 41000 feet.
How should we think of kind of quarter over quarter membership growth I guess effectively how many of those.
Expect to be able to.
Replace into into other locations, what should we be expecting from a net member add for the fourth quarter.
So generally we've been able to relocate 80% to 90% of our members into.
Into other locations like I said the reason, it's a good member experience.
Because we generally move them into better locations at a better fitted out.
And your question is in Q4, what do we expect at.
At the end of.
At the end of.
If these.
All of these.
All of these.
Closures happened at the end of Q3.
We basically said our occupancy will go up to about $75, 76%.
And so I'm just trying to look forward.
Pro forma to give me a second I'll get to your question because I think we did do some math on the <unk>.
Pro forma.
Number of members.
We ended at 205000 <unk>.
Members at the end of.
Q3.
We leased 205000 members we ended it let me let me get back to you I have it somewhere and I'm just going to look for I'll answer the question before the crossover.
Perfect I appreciate it guys.
Your next.
And then as a follow up from the line of Vikram Malhotra with Mizuho. Please go ahead.
Hi, just two quick ones just wanted to follow up on the.
The exiting impact of the exit things of billings to revenue and expense. Just first can you just maybe give us some color how much term was remaining on those buildings that you're exiting and is it just doing the math on what the EBITDA impact is would be revenue sort of in the low 30 $40 million range from those buildings.
Okay.
Okay.
So the average term that was remaining is still about 10 years.
Average guarantee on those leases is about a year and four months.
And we chose them obviously, because the the arbitrage is quite large between the exit cost and of course the increase in the EBITDA. So if you think about or do you get a $140 to about $12 million. A months was 144 million, we said $1 40.
In my remarks.
$40 million of increase in adjusted EBITDA at a cost of audit $200 million or so to exits of obviously you can see the arbitrage is quite positive.
These locations were about 42% occupied.
And.
So the revenue was about $7 million assortments.
And announce it.
Alright.
And as I was going to answer the previous question that was asked about the memberships. So at the end of Q3 on a consolidated basis, we had 756000 desk accounting for the exits at $7 14 at the end of Q3, we had 536000 members.
Accounting for the pro forma exits, it's 532000 members, which is a loss of 4000 members and as a comparison to Q2, where we ended with 528000.
Our members it is still an increase of 532011.
Okay, Great and then I just wanted to clarify so you just to make sure. You said you will start drawing on the $500 million.
Our commitment that you have that extended to 2025 is that over the next few quarters.
Yes, Hi, this is Andre so I think it was worth our cash guidance, we're still in the range of what we said last quarter remember, we said it was going to be about a $300 million burn for the second half of the year and then closing the year with around $300 million of cash remember, we sort of have low points just for working capital.
Requirements during the quarter and then there's sort of a point below which we really don't want to.
Go below so is it possible, we could get through the fourth quarter without having to draw yes.
We'll see how the cash trends, but then again I wouldn't want to go too low on cash.
Just generally on an absolute cash balance which might require me to take the first draw. So so again is it possible we might have to draw on the fourth quarter. Yes. It's also possible cash might actually be favorable and we might be able to defer that through to Q1.
Okay, Great and then just last one some of the bigger picture as we're seeing sort of.
The concerns about recession or on deck job losses.
Any anecdotes you can share with us on how maybe enterprise tenants are thinking between.
Go below so is it possible, we could get through the fourth quarter without having to draw yes, but we will see how the cash trends, but then again I wouldn't want to go too low on cash.
Flex models versus long term as they look at their own real estate holdings, just any specific anecdotes you can share on the exposure to flex from your own.
Actually what we're seeing is more positive because as I mentioned the headwinds in the office sector is really benefiting flex model and as we see a rollover of rents coming off the of the larger tenants there.
Just generally on an absolute cash balance which might require me to take the first draw. So so again is it possible we might have to draw in the fourth quarter. Yes. It's also possible cash might actually be favorable and we might be able to defer that to Q1.
Shifting to consolidate into tighter spaces and moving to flex so were actually seeing an advantage and as I mentioned in my remarks, and if you actually look at it in New York, we could pull 1% of the.
Okay, Great and then just last ones and the bigger picture as we're seeing sort of.
The concerns about recession or on Dec job losses, any any anecdotes you can share with us on how maybe enterprise tenants are thinking between.
All of the of the market and we took 15% or so of the.
Flex models versus long term as they look at their own.
<unk>.
Real estate holdings, just any specific anecdotes you can share on the exposure to flex from your own.
Demand in London, we took 35% so <unk>.
Continuing to see the movement of snacks by traditional office leases and office tenants and that vendors everywhere right. So if you would.
Actually what we're seeing is more positive income because as I mentioned the headwinds in the office sector is really benefiting flex model and as we see rollover of rents coming of the of the larger tenants there.
Look at Boston, We took 12% San Francisco, 20% and.
By doing our closures we were very proactive.
Shifting to consolidate into tighter spaces and moving to flex so were actually seeing an advantage and as I mentioned in my remarks, and if you actually look at it in New York, we could put 1% of the.
To make sure that we have a sustainable adjusted EBITDA model and effectively now that we're in are at 80% occupancy deal. We can start to drive drive price and we actually get to get to select.
Of the of the market and we took 15% or so of the.
The kind of members we want so we continue to see demand or our pipeline in the international markets is one seven times our needs. So we feel pretty comfortable there in the U S. It's about one four times.
<unk>.
Subject demand in London, we took 35% so you can see.
Continuing to see the movement reflects by traditional office leases and office tenants and that vendors everywhere right. So many of you there.
And so we continue to see demand coming coming to us in those markets. So we are feeling actually.
Look at Boston, We took 12% San Francisco, 20% and by by doing our closures we were very proactive.
I said, we guided to growing about 2% or so a quarter. We continue to do that and as you get higher occupancy you are going to moderate.
To make sure that we have a sustainable.
Adjusted EBITDA model and effectively neither way on at 80% occupancy deal, we can start to drive drive price and we actually get to get to select.
The amount of leasing activity, because you have less space available to lease so we continue to see like.
Like I said about two to three points gain in occupancy quarter over quarter.
Kinda members, we want so we continue to see demand.
Thank you.
Our pipeline in the international markets is one seven times our needs. So we feel pretty comfortable there in the U S. It's about a one four times.
Your next question is a follow up from the line of Tayo.
Thank you song Young with credit Suisse. Please go ahead.
And so we continue to see demand coming coming to us in those markets. So we are treating actually I.
Until your line's open check to see if you're on mute.
Oh, Hi, I apologize for that.
Like I said, we guided to growing about 2% or so a quarter. We continue to do that and as you get higher occupancy youre going to moderate.
Just to follow on the contracts that were signed this quarter that were either management fee. The revenue share agreement can you just talk a little bit about what market you are doing that and we're kind of conceptually it seems to make sense.
The amount of leasing activity, because you have less space available to lease.
So we continue to see.
If there were any markets, where you've kind of decided that doesn't make sense for whatever reason.
Like I said about two to three points in occupancy quarter over quarter.
So so again.
Thank you.
The locations we've done are predominantly.
Your next question is a follow up from the line of Tayo.
In Munich in Germany, we've done a few in Irving, Texas, San Antonio, Texas Dallas.
Pakistan Young with credit Suisse. Please go ahead.
Until your line's open check to see if you're on mute.
We opened.
Quite a few in India.
Oh, Hi, I apologize for that.
In India, our occupancy is almost.
Just a follow on the contracts that we're firing this quarter that we're in.
Maybe 90% or so.
And in India, we've been EBITDA positive through the whole year.
Management fee the revenue share agreement could you talk a little bit about what market you are doing that and we're kind of conceptually it seems to make sense.
It is performing incredibly well, it's even cash flow positive in India. So in India, we own 27% of the business and we collect franchise fees we've done.
And if there were any markets, where you've kind of decided that doesn't make sense for whatever reason.
Quite a few locations.
So so again.
<unk>.
In India going back to the conversation about SMB versus.
The locations we've done are predominantly.
<unk>.
As enterprise, India predominantly enterprise market is almost 70% enterprise market and.
In Munich in Germany, we've done a few in Irving, Texas, San Antonio, Texas Dallas.
And I see the slowdown in the U S has created an acceleration.
We opened.
Quite a few in India.
In India and in Singapore by the way so we see again Israelis so about 90% occupied an EBITDA positive. So we've opened a few locations in Israel.
In India, our occupancy is almost.
Maybe 90% or so.
And in India, we've been EBITDA positive through the whole year.
We opened a location in Lisbon, Portugal, which is basically whats backed by.
It's performing incredibly well, it's even cash flow positive in India. So in India, we will be 127% of the business and we collect franchise fees we've done.
Our member so we opened it pre leased if you will.
Quite a few locations.
And so those are obviously a lot of that being mainly international locations.
<unk>.
And in India going back to the conversation about SMB versus was.
Europe , and Israel and in India, a very few in the United States, because obviously those markets as we've shown have done incredibly well by the way market of Singapore is benefiting tremendously.
Versus enterprise, India that predominantly enterprise market is almost 70% enterprise market.
And I see the slowdown in the U S has created an acceleration.
In India and in Singapore by the way. So we see again Israel is of about 90% occupied at an EBITDA positive. So we've opened a few locations in Israel.
Relocations from Hong Kong down to Singapore.
And so we are benefiting.
And I call it the China, plus one policy. So all our southeast Asian locations are occupied in the mid eighties and in many locations margins have been very high.
We opened a location in Lisbon, Portugal, which is basically was backed by.
Our member so we opened it.
This time you guys asked last time to provide the bar chart of how many markets are above 70% occupied and we've demonstrated that and obviously you had the good part about that is the margin, which we talked about if you are above 70% occupy what would the margin be.
Lisa if you will.
And so so those there's obviously a lot of that being mainly international locations in Europe , and Israel and in India, a very few in the United States, because obviously those markets as we've shown have done incredibly well by the way market of Singapore is benefiting tremendously.
We've always talked about it being 27% to 30% and at those numbers, but at 27%.
Relocations from Hong Kong down to Singapore.
In margins when it goes above 70% occupied.
And so we are benefiting.
So effectively the building margin for the whole consolidated business.
And I call it the China, plus one policy. So all our southeast Asian locations are occupied in the mid eighties and in many locations margins have been very high.
Including the ones that are lower than 70% occupied is now at 13%, which is I think.
Andre talked about the building margin, which has drawn grown quite large so again the trend has continued.
This time you guys asked last time to provide the bar chart of how many markets are above 70% occupied and we've demonstrated that and obviously you had the good part about that is the margin, which we talked about if you are above 70% occupy what would the margin be.
To see the shift.
As to higher occupancy buildings. So so those are the that's sort of some of the feedback.
Alright.
Yes.
We've always talked about it being 27% to 30% and at those numbers, but at 27%.
We couldnt hear you dial.
In margins when it goes above 70% occupied.
Questions and answers thank you.
So effectively the build.
Building margin for the whole consolidated business.
And at this time there are no further questions I will now turn the call over to Sandeep for any closing remarks.
Including the ones that are lower than 70% occupied is now at 13%, which is I think.
Thank you for joining our earnings call. This morning.
As we continue to make sure that we achieve profitability, we are cognizant of our increasing our revenues and continuing to drive down our expenses.
Andre talked about the building margin, which has drawn drawn quite large so again the trend has continued to see the shift.
As to higher occupancy building. So so those are the that's sort of some of the feedback.
Our progress here would not be possible without the many contributions of my colleagues around the world I'm eternally grateful for the hard work of our employee base throughout the world.
Alright.
Okay.
We couldnt hear you tile.
With that please have a good day goodbye.
Thank you all for joining today's conference call you may now disconnect.
Questions and answers thank you.
And at this time there are no further questions I will now turn the call over to Sandeep for any closing remarks.
Thank you for joining our earnings call. This morning.
As we continue to make sure that we achieve profitability, we are cognizant of our increasing our revenues and continuing to drive down our expenses our progress here would not be possible without the many contributions of my colleagues around the world I'm eternally grateful for the hard work of our employees.
Base throughout the world.
With that please have a good day goodbye.
Thank you all for joining today's conference call you may now disconnect.
Okay.
[music].
Okay.