Q4 2022 WeWork Inc Earnings Call
Hum.
[music].
Welcome everyone to the we work fourth quarter 2022 earnings conference call.
All lines have been placed on mute to prevent any background noise.
After the Speakers' remarks, there will be a question and answer session.
If you would like to ask a question at this time prestige star followed by the number one on your telephone keypad.
To withdraw your question Press Star one again.
I'd now like to turn the conference over to Kevin Berry Senior Vice President of Investor Relations. Please go ahead.
Thank you Angela and good morning, and welcome that we worked fourth quarter and full year 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 periodic reports filed with the SEC.
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 will also be included in our Form 10-K, one style.
I'd like to introduce Andy with Ronnie Chairman, and Chief Executive Officer, and Andre Fernandez, Chief Financial Officer.
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 we work for the first time in its history posted positive adjusted EBITDA.
EBITDA.
Our team was 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 date to 2022 2025, sorry on a letter of credit, including the junior and senior secured facility.
Our liquidity remains intact.
At the level, we anticipated.
Approximately $1 3 billion at year end comprised of cash on hand secured loan commitments of which we do 250 minute in January and covenant capacity.
Revenue for the fourth quarter of $848 million, an 18% increase year over year.
During 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, but $257 million improvement year over year, and a $15 million better than midpoint of guidance.
During the fourth quarter, we continued to see strength in our space that 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 four.
37% 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 Paolo 84% Barrus, 80%, So Korea at 94% Los Angeles, 68% Boston 60.
7%, San Francisco, 83% and in Singapore at 82%.
Some highlights in other markets include Berlin, 85%, Toronto, 84% also a 91% unique 99% Miami, 96%, Nashville, 94%, Milan, 92% Madrid, 96% and even product 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 with the E. Commerce sales were rising in bricks and mortar state flatter decline. The pool was the same but the market share shifted as youll see in our earnings deck on pages 22, and 'twenty three.
The growth pace of a market share accelerated during the fourth quarter in New York, our fourth quarter 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%, Parison, burdened, 11% and London, London, a whopping, 44% today and Bloomberg. Okay. It was stated a quarter of.
London companies downsized 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.
Increasing building margin illustrating the operating leverage of the we work 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.
Yes.
I spoke to focus on memberships the memberships rose to 547000, 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, <unk> was impacted by unfavorable foreign exchange movements during the year, excluding the foreign exchange moves ARPA 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 70000 members of 56% increase year over year.
And now a business started only two years ago that is generating $200 million of annual revenue.
ARPA for all access was approximately $240 oil.
All access continues its growth trajectory in January with the second highest month ever of gross deals higher ARPA 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 292090 company signs and 51000 licenses.
At the end.
<unk>.
Q4, 2022 that number was about 220 companies and about 42000 license. So it has accelerated in January .
The Tam for the work plus workplace business is estimated to be approximately $3 billion just in the USA and the 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 we look at its founding.
In the week of the global financial crisis businesses of all sized faced uncertainty they.
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.
Not only solve for bringing people together with intention, but also put 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 have concentrated on transforming our business. We are 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 co working spaces can positively impact employee will be.
As part of their results.
A coat respondents periods working from a third place like a co working site as more socially fulfilling and working from the office offer a whole.
On the office, an increase of 64% and hold 67% it.
They went on to say one major reason is that a co working space offers not just the flexibility employees creep in terms of where they work, but also with Hulu.
As businesses face uncertainty around the future work originally still ring true as our strongest differentiator.
And Ram, which is a corporate card and spend management software provider, which released their Q4 spending benchmark support on that business is increasing moving to flex.
Workspaces.
And specifically site, we look at spending with rework increased 97% in 2022 in fact, we will consistently ranked as the second largest office vendors through the year just behind the Microsoft store.
Our increased market share the testament to the value of our product and the variability of our offerings.
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 to find their future work.
<unk> workplace, our solution has rounded out our site of offerings by enabling companies to efficiently manage the size cost and employee experience.
Their workspace, we continue to see this come to life as companies save on their real estate cost by switching to rebook space paired with workplace and all access.
Turning to our portfolio as I've 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 our retailers approach.
To the store fleet, whereby investments Amit into high performing stores and low 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 26000 square feet in Israel, we leased a new 12000 square feet location for.
For used by a large technology company.
In January in London, we expanded our presence by 27000 square feet at $101 23 Buckingham Palace.
In India, we leased two new locations in golf is a 63000 square feet in Bangalore, and lastly in Scottsdale, we entered into a new management agreement with 30000 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 breakeven.
Achieving the midpoint of guidance would be an increase of $200 million year over year as.
As we continuously improve the portfolio, while 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 <unk> III.
Free cash flow later this year remains intact, but we have significant work to get there.
It is somewhat out of our control is the pace of the recovery in the U S. Our largest market by revenue.
As I challenged our team in 2022 to be 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 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.
We 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.
Thanks, Sandeep and good morning, everyone.
I'll provide some additional color regarding both our fourth quarter and full year financial results.
First total company revenue was $848 million in the fourth quarter up 18% year over year and up $31 million sequentially from the third quarter.
As Sandy mentioned on a budget FX basis fourth quarter revenue of $905 million was above the 870 to 80 to 90 million guidance range. We provided previously.
Quarterly sales benefited from higher membership revenue continued growth in all access and improved pricing.
And for the full year consolidated revenue of $3 billion to $5 billion.
Was up 26% versus 2021, driven by a 12 point increase in physical occupancy and a mirror.
80000 increase in physical memberships.
Foreign exchange, namely a weaker euro and British pound had an approximately $140 million negative impact on our total annual revenue compared with the company's original budget in foreign exchange rates.
Building margin continued its positive trend in the fourth quarter rising to $144 million.
Which was up $39 million sequentially and $153 million year over year.
Despite higher membership revenue and higher occupancy we were once again able to reduce our opex through plan building assets as well as efficient expense management.
And on the earnings line, we narrowed our adjusted EBITDA loss to $26 million loss in the fourth quarter, the smallest reported loss in our history.
Helped by the higher revenue lower Opex and continued reductions in our SG&A expenses.
Fourth quarter SG&A also benefited from a reduction in incentive compensation since despite the improvement in adjusted EBITDA in Q4, the company slightly missed the full year revenue guidance provided a year ago.
Our SG&A run rate ended the year at approximately $700 million.
Sandeep just mentioned, we're expecting a further reduction of SG&A of approximately 10% this year.
Our net loss for the fourth quarter was $527 million, but net loss was driven primarily by impairment on the buildings, we are exiting as well as depreciation and amortization expenses.
Partially offset by unrealized foreign currency gains.
Now moving on to cash and liquidity.
We ended the year with just under $300 million of consolidated cash on the balance sheet, which was in line with our previous projections and our cash burn for the full year was approximately $968 million, which was also in line with estimates.
Our free cash flow continued to improve in the fourth quarter narrowing to negative $156 million.
Which was a $49 million sequential improvement from the third quarter driven by the operating improvement we discussed previously as well as lower Capex.
Net capex for the quarter was $19 million and $176 million for the full year, which was a $243 million reduction year over year.
With little in the way of new capacity expected to come online in 2023, we expect a further reduction in net capex in 2023.
On liquidity as Sandeep mentioned, we ended the year with cash commitments and debt covenant capacity of nearly $1 3 billion.
In January as we reported via 8-K, we drew $250 million on our senior secured line from Softbank, leaving $250 million Undrawn to fall.
And our upcoming liquidity needs.
In addition, just this week as Sandeep mentioned in his remarks, we completed an amend and extend of the $350 million junior LC tranche of our existing LC facility.
As part of the transaction the junior LC tranche was upsized to $470 million.
Surety was extended from November 2023 to March of 2025, a new lender was added and the Softbank Vision fund two replace Softbank group as an obligor under the same structure at the senior LC tranche that we amended in December .
The amendment expand was approved with the consent of the senior LC lenders and the transaction closed this week.
When combined with the previously announced maturity extension of both the senior LC tranche as well as the senior secured notes, we've now extended our debt maturities supporting the wholly owned business to 2025, and providing us with additional runway as we continue down the path to profitability and positive cash flow.
Regarding the first quarter as Sandeep mentioned, we expect consolidated first quarter revenue to be in the range of $830 to $855 million.
And adjusted EBITDA in the range of negative $25 million to breakeven.
On the revenue side, there is some seasonality in our business, which usually results in a slower start to the year due to higher churn or larger number of commitments ending in December .
And on the earnings side, we will continue to see savings in both Opex and SG&A in the first quarter and beyond.
<unk> has helped.
Helped by nearly 10% reduction in our workforce that we announced in mid January .
That concludes our prepared remarks. Thank you all for your continued support and with that I'll turn it back to the operator to open the lines for questions.
As a reminder, if you would like to ask a question simply press star one on your telephone keypad now.
Your first question comes from the line of Vikram Malhotra with Mizuho. Your line is open.
Good morning, Thanks for taking the questions I guess just to start off.
Sandeep can you maybe just outline the visibility you have.
In terms of committed revenue or just.
Known known terminations on move outs heading into <unk> and maybe just the first half usually have like a two quarter visibility just given all of the deck the layoffs and the churn I'm just wondering how much visibility you have.
Good morning, Vikram so.
Actually look at the the committed revenue and we compared it to Q2 2022, and we follow a pattern through the entire year when we when we look at our budget preparation.
We're very pleased to sit back and say that when I looked at where we were in Q1, 'twenty two and where we are in Q1 2023, but actually slightly ahead from a year ago, which is what gives us confidence in being 10% higher year over year.
Again, we have fairly good visibility going into Q2.
Over the last couple of quarters, we've been very focused on providing guidance for the current quarter.
And the reason is the uncertainty that we see in the U S recovery, we have seen an acceleration of the U S recovery.
In January and February .
But at this moment in time, there is a high level of confidence in the guidance we provided you.
And also I would like to for you to appreciate that the guidance includes the closure of 40 locations, which we announced at the last quarter and as you are aware that we do transfer about 70% to 80% of the revenue.
From the close location to alternate locations. So when you look at the reduction in the number of members that relocate and the reduction in the revenue is actually it actually a slight acceleration in revenue in.
In Q1 of 2023 versus Q4 of 2022.
Okay. That's helpful and then how should we think about the impact.
From all the technology churn that we're seeing in both enterprise and SMB now that we've had like two quarters.
Bigger announcements around layoffs can you just maybe qualitatively describe what are some of the larger enterprise users telling you in terms of their space need the ration aviation versus how does that compare and contrast with SMB.
Great.
So to put that in perspective, and generally the companies have announced workforce reductions are the same companies that weren't in our hiring spree during the pandemic and today still employ more than before the pandemic.
We have been impacted in certain locations, we've talked about the higher churn in Q3, mostly due to these actions by less than a handful upon them into enterprise companies.
On the positive side, our space dedicated to enterprise members are generally the fluid floor plates and multiple multiple flow options and a relatively well leased and then as those spaces become available. Okay. We do have a pipeline to replace them.
An example, it meet news that one of our leading tech companies had vacated a mountain view, California location comprising of 400000 square feet.
We are already backfill the space with three new enterprise members Interestingly all three enterprise members are technology companies.
And one of those enterprise members used our space for their corporate headquarters.
Also what we are seeing is newer companies in newer technology companies of non technology companies and other non tech companies that use technology are hiring people and taking advantage of the current layoffs.
Just yesterday, we signed an agreement with a pharmaceutical company for our fluid flow in Seattle again their move to Seattle was triggered by the Tech layoffs, and then taking advantage of the of the ability to find talent.
Just one last point I'll make is that we do have 30000 unique members. So we have a pretty diversified portfolio and deca accounts for about 15% of our business.
Okay. That's helpful. And then just one last Andre just if you could clarify I think quarter end cash balance was a little under $300 million.
If I take the $250 million you drew.
You have cash in but the global 550, <unk> am I correct the upsized.
Junior Oc the $120 million upside that would be used to pay the step down.
In the senior tranche and therefore.
What kind of run rate cash balances around $550 million.
I mean, I guess Andre is looking at me.
Yes, we were debating who should address.
Great.
So the answer to your question is the upsize in the letter of credit facility does compensate for the downside of the senior NLC from $1 billion 50 to 960, <unk>. So it's about $90 million and the upsize of the $120 million. So effectively does provide 30 million.
And additional working capital and does take into account the $90 million reduction, but more importantly, the upsize of the LC facility actually in the junior LC facility is more advantageous to us as the Lcs burn throughout this year approximately about $30 million a quarter.
We can actually use that money into working capital versus in the senior LC facility had it stayed at the level. It had stayed and as the burn downs occur that money is not available to be drawn but working capital, but this is actually an advantage from a liquidity perspective.
Okay. Thank you.
Your next question comes from the line of Tayo Okusanya with credit Suisse.
Hi, Yes, good morning, everyone.
EBIT guidance and revenue guidance for one Q again boots.
Very similar.
Kind of where you were in for Q2.
Again wondering exactly.
There's some seasonality to that number.
And kind of how you would kind of think about one <unk> in the context of <unk>, especially given.
All of the great progress you've been making.
Two.
To an extent, where we're somewhat expecting to see a little bit more of that in <unk> 'twenty three but the numbers are very similar to <unk>.
So good morning, <unk>, So again as I mentioned in my prepared remarks.
There is seasonality in our business and I think already mentioned that as well.
And generally the largest churn occurs in the month of December because there a lot of contracts add yield to the calendar year.
So we start to see the logic churn and that churn, but it has an impact really only on January revenue and.
And as a matter of fact from February onwards, as the new leasing activity that we have conducted in Q4 starts to take occupancy.
The revenue starts to increase in February and continues to drive through in the month of March and which is what we are seeing.
We are now in the middle of February .
So in reality, though the revenue actually went up as I've mentioned.
Quarter over quarter, because what you have to take into account is the 40 closures that we announced in Q3, which many executed in Q4 by the end of December 70% of the members transferred to newer locations, 30% didn't so we did compensate it came from.
For that loss of memberships, which is about I think three to 5000 members. So.
So we compensated for that and increase our revenue.
But to answer your question there is an increase quarter over quarter because of that shift plus there is a level of seasonal seasonality seasonality last point I'll make is as a matter of fact in the international markets. Okay Q4 was the best leasing quarter in the history of this company so the positive.
Impacts will start to see we're starting to see like I said in February and accelerating.
To March and further accelerating into Q2.
I would also say on the on the earnings line Youll see Youll see that were going from 20 minus 20 620 to minus 25 remember in my remarks, I mentioned, we took.
A slight credit in our incentive compensation in the fourth quarter. So actually if you go now into the first quarter, where youre starting to accrue at a normal incentive comp rate and youre still able to improve earnings from from 26 now so something between zero to 2000 2025 on comparable revenue I think just shows you the additional cost.
We're taking out of the organization.
That's very helpful. And then just one quick follow up in regards to the workplace products and my access.
Think about the contribution of those businesses.
At the bottom line in 2023.
So, let's just focus on all access we did end the year at about 70000 members and as we mentioned again I think in the last call.
We will be increasing capacity for you to remember the beginning of last year, we talked about the capacity being limited to 70 75000, which of course, we reached capacity end of last year now Thats allowed us to open up additional capacity one not only within our spaces. We are opening pure all access.
Lounges in New York and London.
And because in certain markets, we have actually exceeded our capacity, we're actually using capacity of third parties for our all access product. So us. So we continue to see a lot of confidence in that business, we do anticipate <unk>.
20% to 25% increase.
In contribution on top line revenue by the all access business as I switch over to workplace.
We officially launched it.
Late last year, we activity started marketing it in the fourth quarter of 2022.
As I mentioned at the end of the year, we had over 200 companies in over 40000 licenses signed in that has accelerated to 290 companies and over 50000 licenses signed in January I almost equated to way it was.
We're all access was two years ago.
A lot of these companies that are assigned a large enterprise clients who are trying it in.
Smaller locations.
We do believe that as the scale that our product into their entire organizations that could be an acceleration of licenses as we go through the year, we're not anticipating a major contribution this year from the workplace product.
As it is an early launch.
But we are entirely very optimistic as to its progress one last point on <unk> being a little repetitive we did when we entered this business.
But actually using the technology that we built and we married that with our partnership with you already was a leader in the in the business of software management for four properties too.
Two actually.
To build the product.
But we also did that and I used the outside consultant to determine what the Tam. The total addressable market was in the U S. Tam was quite large at $3 billion. So we will see what percentage recapture but even if you capture a small percentage it will be a large contributor in the long.
Two reworks topline revenue.
Thank you for the commentary.
Your next question comes from the line of Alex Kramm with UBS.
Yeah, Hey, good morning, everyone.
Understand of course that you're only giving first quarter guidance given some of the uncertainties out there, but maybe remind us about.
<unk> for the full year and you don't have to be specific on revenues and EBITDA, but how do we think about new locations opened ARPA trends in other major kpis.
That may have changed as you think about 2023.
Let me just rewind you to 2022 to give you an idea in 2022 I think our revenue went up $700 million, Okay, let's see.
If you think about the business that we're in that system.
Very good increment occupancy went up 12 points right. So we do see an acceleration as I mentioned in Q2 and continuing through the year. So we do see.
The revenue increase in 2023, and as I said, we've challenged the teams by year end to be free cash flow positive.
In the international markets demand continues to be incredibly strong.
We have reached.
83% occupancy and we know the trends have continued to be positive in.
In the first 45 days or so of this year.
And ARPA.
In the international markets are increasing the increase in RPM that we demonstrated this quarter. It really is a function of the international markets as the pandemic level pricing goals.
It was to basically go to pre pandemic pricing.
International market again sticking true to our original projections at once you get past, 70% occupancy you can start having some pricing power.
And you can you can.
To get above 80% occupancy the margins in our business at the building level is between 25% to 35% so everything that we projected.
In late 2021 early 'twenty two the results are coming into fruition.
As we sort of look at the U S.
Again like I said, we are starting to see.
We're starting to see the.
Come back to work, having a much bigger impact.
And I did mentioned was you know.
Earlier, when Victor Master question about <unk>, I said the debt companies of Hyatt actually more people through the pandemic and the layoffs still.
It will result in having more employees in those companies that pre pandemic again for those companies as they come back to work, we become a natural extension to.
<unk> take up space. So we are cautiously optimistic.
You start to see the rebound last point I'll make is that what we found which I don't think we fully anticipated when we announced the closures of the 40 locations.
We did appreciate that we would we would create a relocation of 70% to 80% of our members.
We didn't anticipate is the demand would actually go up.
Bye bye bye potentially new members as they sort of look forward and realize that we work could be.
Could be workspace could be it could be at a premium and we saw that in market like Chicago.
We closed a couple of locations and took our occupancy up.
But what it also did ward and increased our market share to 19% of the market in Q4, and so we're starting to see that as the as the as our supply is getting minimal people are not seen by the sidelines theyre actually reacting to get space. So quick.
We're cautiously optimistic, but as I've said over and over again the U S has been sluggish.
Alicia as the rest of the world is back to pre pandemic levels.
Okay, just to be a little bit more specific then and maybe I don't remember these numbers right, but I don't feel like in the past you committed to something around 50000.
I guess work capacity added by 2023, and then also I think historically, you said something about occupancy potentially trickling higher 2% a quarter.
Are these numbers right and B should we still hold you accountable to that or is that just too much uncertainty that it's hard to commit to any of these numbers.
Yes, we do expect occupancy to rise this year. If I was if I was to provide full year guidance I am actually not doing full year guide is that providing guidance for Q1, and providing your commentary and what I see in the business.
We did add 50000, new members last year.
And occupancy did go up 12% last year.
Do except.
We do expect a moderation of that number this year and the reason for the moderation is much more driven by the high occupancy in the international markets, giving us less inventory to sell than driven by the demand characteristics. So the aspect here is that occupancy.
The portfolio is 75% today, and we do expect that to rise to the end of the year.
Okay. Thanks for clarifying that just one quick follow up the $650 million target for SG&A.
Is that a run rate at the end of the year is that a full year achievement, how should we be thinking about that number full year achievement that's correct.
Fantastic. Thank you very much thank.
Thank you.
Your next question comes from the line of Tom Catherwood with BTG.
Thank you good morning, everybody.
Maybe I wanted to go through the ins and the outs on your number of locations, but first just wanted to loop back on some of the things that you said about closures sandeep. It sounds like the bulk of those locations. The <unk> you had talked about previously were closed at year end are there any kind of still.
<unk> to occur in <unk> or is that is it fully off.
So as part of that 40 closure list.
Simply all Don there are a few stragglers in January but as of now they are all completed.
We do continue to.
We look at our portfolio as I said, you know you achieve we achieved increase in EBITDA a drive towards cash flow positive by continues to continuously looking at our portfolio.
And so we will continue to review our portfolio, but as it relates to that 40% I believe as of now they are all done.
Perfect perfect. Thank you for that and then if we think about the ins throughout the year.
There were some that you've announced in the fourth quarter. Some new management agreements back then there were some buildout still happening and obviously, the new ones you announced today between Bangalore Scottsdale in London.
How many more do you have coming on in 'twenty, three and what do you expect to be the pace of those deliveries.
Oh.
Obviously, we're looking at it very opportunistically in markets.
That'd be performing incredibly well.
I do expect the India business to continue to grow.
This year.
It is at a very high occupancy and has been profitable for quite some time, we do expect the Israel business to grow as well.
But at this moment in time, if you would.
I expect essentially.
Desk count to be flat for the year with new new desk added to the inventory, but I also do expect a little bit of pruning as the year progresses.
Got it I appreciate that Sandeep.
And then on.
Just one last one for me.
Mentioned, obviously that you expect 2023 capex to moderate compared to 2020 twos spend.
You do have it sounds like you continue to expand the all access lounges. So theres some spend there because obviously the new locations youre, adding on what do you expect if you have a sense of either the magnitude of capex spend or kind of how the pace could be throughout the year. What are your expectations that you have built into your outlook.
Yes, I think it's related to the conversation, we just had to write about the number of particularly day, one or to the extent, we opened new facilities that require some capex. So I think there is some variability there with respect to the new openings versus the quote unquote the day to Capex, which is the maintenance Capex I think we've got a good.
Our understanding of what that is on a run rate basis. So it's really the day one that ultimately is going to drive the variability.
If you look at the fourth quarter, that's unusually low.
At a net capex of 19 <unk>.
It benefited because you didn't have or you didn't have a lot of openings in the fourth quarter, but you had a lot of ta coming in from your third quarter.
That broken that number down in the fourth quarter. So I don't think I don't think that <unk> 19, a quarter is the correct run rate is something higher than that so if you figure. Okay could you get to something around again, we spent 176% and 22 could you get something down on 100 or low one hundreds range I think that's fair.
Very achievable for the year on a net basis.
That's it for me thanks, everyone.
Sure.
Your next question comes from the line of Alexander Goldfarb with Piper Sandler.
Okay.
Good morning, good morning.
So just a few questions sandeep and.
Yes first the big picture just wanted to make sure I heard correctly.
Obviously everyone's focus is cash flow profitability last quarter.
Because of FX, you've pushed it from mid middle of this year to late this year, great to see sort of FX to be a positive impact in the fourth quarter. Obviously, we don't know what this year is going to be.
Do you still standby from what you've seen that that.
End of this year is when we'll see cash flow profitability.
Alex as I have said a few times today.
We drove the team last year to be adjusted EBITDA positive by December .
<unk> adjusted EBITDA positively by more than a few million dollars.
So which is which was a very good again, we are driving the team this year to achieve.
To be free cash flow by year end.
As long as the.
The U S market doesn't deteriorate it doesn't really have to accelerate okay.
<unk>.
We do believe that is achievable.
The next question and hopefully you'll humor me sandeep, but one of the obviously.
We think that you've done tremendous for what you. The hand, you're dealt you performed but theres still a narrative out there about restructuring debt restructuring et cetera, you know our views we have written our views, but just sort of any comments to help squash.
Some of the some of the Naysayers say like Hey, there needs to be restructured I mean, certainly you did a great job on the refinancing of the debt Softbank gave you a pass on temporarily not charging you certain fees as we transition through but is there anything that you can elaborate to help sort of squash the narrative that's out there.
Okay.
Alex I always say actions speak louder than words right.
It <unk>. The fact that we actually moved to 22022 2023.
Sure.
Maturity to 2025 as an indicator of the confidence in the market to us to actually be able to push that push that maturity to 2025.
We've always maintained and I've maintained this for over a year that once we get to adjusted EBITDA positive we will focus our attention on the balance sheet and started working on towards the end of this year as we have more visibility we'll start working towards the extension of the debt maturities.
And I think you have to learn to walk before running so we actually don't see a need for.
Additional.
Liquidity for 2023 so.
So we feel like we're in a good position and that will allow us to also discuss.
The the debt extensions with our debt holders so.
Like I said, our actions that continue to prove that we have continued to improve our business and continued at each event to extend debt maturities as they come to exploration.
Okay, and just final thing.
Capex you said to the prior question.
Come down versus 2002.
Also if I heard correctly spoke about possibly leasing new spaces. So the capex is it just on existing space that you've already leased that youre building out it sounds like you're also taking some incremental space did I hear correctly and maybe just elaborate how you view new space versus your existing space.
That you've leased but not yet opened.
So let me answer that Alex.
I think Henrique gave a range of 100 to low one hundreds.
For day, one and they do Capex the deals that we've actually signed a fully funded from a tenant allowance perspective by the landlord the one in London, which is fully fully funded.
And the other transactions.
Essentially management agreements as they are and in Houston and in.
And Scottsdale.
India operations as you may have heard.
They raised money to bearings.
And that frees up money for bearings, which closed.
It was actually raised for expansion of that business. So it is a fully funded.
Operation.
Okay. That's awesome. Thank you. Thank you sandy.
Your next question comes from the line of Brett <unk> with Cantor Fitzgerald.
Hi, guys. Thanks for taking the question I guess, you talked about the fourth quarter being one of your best quarters in terms of leasing activity ever could you maybe just.
I guess quality about how.
What type of rates youre getting on those properties compared to previously.
I guess you see a lot of weakness in the commercial office property base I was just wondering if that's allowing you to kind of get more advantageous pricing.
Oh.
Okay.
Sort of sit back and say as I mentioned again in my earlier comments and if I look at the progress that we've made but we leased about 206000 gross des.
On a consolidated basis of 165000 gross des and in Q1 2002. It was 166 or about the same. So that's why we continue to maintain the.
The demand for our space has continued to be very strong.
Again, once you get past that 70% occupancy number you start to get pricing power, which is again, what we've seen.
At least in the international markets is very prevalent.
As I mentioned in the international markets, our pricing is at pre pandemic levels.
The.
It's a slow increase when you when you look at it from a reporting perspective, because obviously the base is still got a lower <unk>. So the impact of the new leasing of small, but we are seeing.
In that and then like I said in the international markets. The reason, we're seeing the strength is the flexibility that we offer.
Even though the larger market could be soft the flexibility is very important the turnkey solution to the clients are very important and really what's the icing of the cake at the spaces available today right. So so effectively having space available today, that's turnkey that's flexible.
As people.
Start to come back.
To work it in those international markets that demand actually increases.
And again just to reemphasize the number of companies that have hired more during the pandemic. So even if you account for the layoffs is still higher last point I'll make why our SMB business is so strong in the United States is in 2020.
One I think they were 5 billion new businesses and I think in 2022 of the 11 million new businesses and SMB business is about 50% of our business and so we've seen an incredible strength.
In our in our SMB business, which is more than made up for the churn of the enterprise clients.
And so in the U S.
We are not seeing pricing power, yet, we just about hit 70%, but the international markets. We're seeing very good pricing power, even though there is a softness in the market for me overall.
Commercial office market.
Got it that makes sense and then I guess can you talk about.
Being adjusted EBITDA positive in December , but I guess, the first quarter guiding midpoint negative 12 5 million is that really just because of the kind of elevated churn impact in January revenues, plus the accrual on the incentive comp.
No I would say that.
The two reasons for it are.
That when you look at quarter over quarter. One is that there is the elevated churn like I've mentioned in.
And the second is when you closed locations.
You are moving 70% of the revenues if you take into account, you're losing 30% of the revenue. So you actually have to comp that quarter over quarter.
But but again like I said.
<unk>.
We are guiding to the negative 25 to zero obviously.
We will do everything in the next 45 days to deliver.
Hopefully a better result.
Alright, Thanks, Andy It really appreciate it.
Your next question comes from the line of Vikram Malhotra with Mizuho.
Thanks, So much I just wanted to clarify two things maybe Andreas can be so just based on your comments around the $30 million incremental.
I just wanted to clarify.
Roughly if I just did the math correctly rub $600 million of cash run rate for working capital needs you still have the access to the additional $250 million.
From Softbank, and then and the ability to go out and raise an additional $500 million of that is that all intact.
Yes, I mean again like I said, it's slightly advantages right. So you have the $2 50, which is completely intact and let me just reemphasize what I said earlier, when we increased to 352.
470, <unk>, even though that $120 million 100, it was cash collateralized letters of credits and those letter of credits burn through the die at about $30 million a quarter, we can use that $100 million and working capital so in an ironic way.
Increase in the junior LC actually allowed us to tap into the capacity that we had of the senior secured an additional 500 men in our senior secure so we are actually in a way accessed $100 million of that of that if we need we can.
Use for working capital actually our cash.
Our ability I actually increased by activity of $100 million.
So as we've said that when those Lcs were down but that cash is returned to us as if we had monetize part of that unused capacity and then your other question was yes, we still have $250 million.
Helpful to us on the software line.
And then the ability to raise an additional 500, if you need to.
Yes, but again like I said, the 100 million goes against the 500. So we've got 500, Okay, Florida and restaurants have another 400 400, okay and maybe last one.
Actually raised 100 by default right.
Your next question comes from Tayo Okusanya with credit Suisse.
Hi.
Just to follow up about the extension of the junior tranche through March 25.
Any significant changes to the terms such as do stop paying higher interest rates in 2000 or anything of that nature, we should be aware of.
Yes, the pricing was <unk>.
Generally higher.
Then the pricing of the App.
The paper that was extinguished.
The amount increased term increase in the <unk>.
We placed a lot of people as you know when rates were lower so yes, commensurately the pricing was higher.
I think we will be filing an 8-K with providing all the details on the Marshall tomorrow on the on the.
On the LC.
There are no further questions at this time, Mr. Sandeep, Donnie I turn the call back over to you.
Once again I. Thank you all for joining our call. This morning, and their continued support of <unk> have a great day and have a wonderful long weekend.
This.
Today's call you may now disconnect.
Okay.
Yes.
Yes.
Yes.
Yes.
Yes.
Yes.
Okay.
Yes.
Yes.
Yes.
Yes.
Yes.
Okay.
Yes.
Sure.