WEWORK INC. Management's Discussion and Analysis of Financial Condition and Results of Operations (form 10-Q) - Marketscreener.com

Overview
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of hospitality by not only overseeing onsite operations and supporting day-to-day needs, but also focusing on cultivating meaningful relationships with and between our members to deliver a premium experience.
By providing all of the overhead services required to find and operate office space, WeWork significantly reduces the complexity and cost of leasing real estate to a simplified membership model.
Key Performance Indicators
Workstation Capacity
Workstation capacity represents the estimated number of workstations available at total open locations.
Workstation capacity is presented in this Form 10-Q rounded to the nearest thousand. Workstation capacity is based on management’s best estimates of capacity at a location based on our inventory management system and sales layouts and is not meant to represent the actual count of workstations at our locations.
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Memberships
As of March 2022, we had 681 thousand total memberships, which is an increase of 39% from 490 thousand memberships as of March 2021. This increase in total memberships included a 267% increase in WeWork All Access and Other Legacy Memberships from 15 thousand as of March 2021 to 55 thousand as of March 2022.
Physical Occupancy Rate
Enterprise Physical Membership Percentage
Enterprise memberships represent memberships attributable to Enterprise Members, which we define as organizations with 500 or more full-time employees. Enterprise Members are strategically important for our business as they typically sign membership agreements with longer-term commitments and for multiple solutions, which enhances our revenue visibility.
Non-GAAP Financial Measures
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Adjusted EBITDA is also a key metric used internally by our management to evaluate performance and develop internal budgets and forecasts.
•it does not reflect changes in, or cash requirements for, our working capital needs;
•it does not reflect our interest expense or the cash requirements necessary to service interest or principal payments on our debt;
•it does not reflect our tax expense or the cash requirements to pay our taxes;
•it does not reflect historical capital expenditures or future requirements for capital expenditures or contractual commitments;
•although stock-based compensation expenses are non-cash charges, we rely on equity compensation to compensate and incentivize employees, directors and certain consultants, and we may continue to do so in the future; and
A reconciliation of net cash provided by (used in) operating activities, the most comparable GAAP measure, to Free Cash Flow is set forth below:
Net cash provided by (used in) operating activities (a) $ (338)
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•it only includes cash outflows for purchases of property, equipment and capitalized software and not for other investing cash flow activity or financing cash flow activity;
•it is subject to variation between periods as a result of changes in working capital and changes in timing of receipts and disbursements;
•although stock-based compensation expenses are non-cash charges, we rely on equity compensation to compensate and incentivize employees, directors and certain consultants, and we may continue to do so in the future.
Key Factors Affecting the Comparability of Our Results
Restructuring and Impairments
In September 2019, we commenced an operational restructuring program to improve our financial position and refocus on our core space-as-a-service business, establishing an expected path to profitable growth.
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membership offerings and expand our footprint strategically through flexible and capital light growth alternatives.
As the Company continues to execute on its operational restructuring program and experiences the benefits of our efforts to create a leaner, more efficient organization, results may be less comparable period over period.
See Note 5 of the notes to the Condensed Consolidated Financial Statements included in Part I, Item 1 of this Form 10-Q for additional information regarding our restructuring and impairment activity.
Growth Strategy Changes
In March 2022, WeWork closed the acquisition of Common Desk, a Dallas-based coworking operator with 23 locations in Texas and North Carolina, that operates a majority of its locations under asset-light management agreements with landlords.
COVID-19 and Impact on our Business
We continue to face a period of uncertainty as a result of the ongoing impact of the COVID-19 pandemic on our business and expect there may continue to be a material impact on demand for our space-as-a-service offering in the short-term.
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Components of Results of Operations
Revenue
Revenue includes membership and service revenue as well as other revenue as described below.
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copying allotments, that are included in the base membership fee. All memberships include access to our community through the WeWork app. Membership revenue is recognized monthly, on a ratable basis, over the life of the agreement, as access to space is provided.
Location Operating Expenses
Location operating expenses include the day-to-day costs of operating an open location and exclude pre-opening costs, depreciation and amortization and general sales and marketing, which are separately recorded.
Lease Cost
Our most significant location operating expense is lease cost. Lease cost is recognized on a straight-line basis over the life of the lease term in accordance with GAAP based on the following three key components:
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Other Location Operating Expenses
Pre-Opening Location Expenses
Selling, General and Administrative Expenses
SG&A expenses also include cost of goods sold in connection with our former Powered by We on-site office design, development and management solutions.
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Restructuring and Other Related Costs and Impairment Expense
See the section entitled “-Key Factors Affecting Comparability of Our Results-Restructuring and Impairments” above for details surrounding the components of these financial statement line items.
Depreciation and Amortization Expense
Depreciation and amortization primarily relates to the depreciation expense recorded on our property and equipment, the most significant component of which are the leasehold improvements made to our real estate portfolio.
Interest and Other Income (Expense)
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Condensed Consolidated Results of Operations
Condensed consolidated statements of operations information: Revenue: Condensed Consolidated Locations membership and service revenue
(1)Exclusive of depreciation and amortization shown separately on the depreciation and amortization line in the amount of $158 million and $175 million for the three months ended March 31, 2022 and 2021, respectively. (2)Includes cost of revenue in the amount of $13 million and $12 million during the three months ended March 31, 2022 and 2021, respectively.
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(4)Unconsolidated membership and service revenue represents the results of Unconsolidated Locations that typically generate ongoing management fees for the Company at a rate of 2.75-4.00%.
(5)Systemwide Location membership and service revenue represents the results of all locations regardless of ownership.
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Condensed Consolidated Results of Operations as a Percentage of Revenue
(1)Exclusive of depreciation and amortization shown separately on the depreciation and amortization line.
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Comparison of the three months ended March 31, 2022 and 2021
Revenue
Location Operating Expenses
2021 $ %
818 $ (82) (10) %
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Our most significant location operating expense is real estate operating lease cost, which includes the following components and changes:
2021 $ %
699 $ (75) (11) %
34 (4) (12) %
(75) 5 (7) %
658 $ (74) (11) %
124 % (36) %
6 % (2) %
(13) % 3 %
117 % (35) %
The $75 million decrease in lease cost contractually paid or payable was generally due to continued lease terminations throughout the year ended December 31, 2021 and during three months ended March 31, 2022.
The $5 million decrease in amortization of lease incentives benefit was primarily due to locations that incurred amortization of lease incentive benefits during the three months ended March 31, 2021 no longer incurring amortization during the three months ended March 31, 2022 due to lease terminations discussed above.
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months ended March 31, 2022, driven by an increase in physical occupancy from 47% as of March 2021 to 67% as of March 2022.
Pre-Opening Location Expenses
2021 $ %
35 $ 12 34 %
Our most significant pre-opening location expense is real estate operating lease cost for the period before a location is open for member operations, which includes the following components and changes:
Lease cost contractually paid or payable $ 33 $ 31
Selling, General and Administrative Expenses
2021 $ %
274 $ (66) (24) %
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Restructuring and other related costs and Impairment expense
Restructuring and other related costs decreased $624 million to $(130) million for the three months ended March 31, 2022, primarily due to a $536 million decrease in employee termination costs, including the following transactions:
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Depreciation and Amortization Expense
2021 $ %
184 $ (13) (7) %
Interest and Other Income (Expense), Net
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the U.S. dollar-British Pound, U.S. dollar-Euro, U.S. dollar-Japanese Yen, U.S. dollar-South Korean Won and U.S. dollar-Russian Ruble exchange rates.
Interest expense increased by $8 million primarily due to a $10 million increase in interest expense due to the increased principal balance of the SoftBank Senior Unsecured Notes.
Income Tax Benefit (Provision)
(3) $ 4 (133) %
Net Loss Attributable to Noncontrolling Interests
See Note 10 of the notes to the Condensed Consolidated Financial Statements included in Part I, Item 1 of this Form 10-Q for discussion of the Company’s non-consolidated VIEs.
Net Loss Attributable to WeWork Inc.
As a result of the factors described above, we recorded a net loss attributable to WeWork Inc. of $(0.4) billion for the three months ended March 31, 2022 compared to $(2.0) billion for the three months ended March 31, 2021.
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Quarterly Results of Operations
(802) $ (889) $ (2,032) $ (1,140)
$ (941) $ (864) $ (184)
Adjusted EBITDA (2) $ (212) $ (283) $
(356) $ (449) $ (446) $ (472)
$ (527) $ (436) $ (449)
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(844) $ (923) $ (2,062) $ (1,168)
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