WeWork, the global flexible space provider, said revenue had lifted and losses narrowed in its results for the three months ended 31 March 2023, but it is unclear whether the figures will lift its share price enough to avoid a delisting from the New York Stock Exchange.
Investors have been keenly following WeWork's battle to be profitable and speaking at an investor call on Tuesday CEO Sandeep Mathrani suggested the company would report free cashflow break-even by the end of 2024, later than previous projections that it would be in early 2024.
WeWork expects its second quarter 2023 revenue to be $840 million to $865 million and adjusted earnings before interest, taxes, depreciation, and amortisation to be somewhere between a loss of $10 million up to a profit of $15 million. Its "cleansing materials" document, published March of this year, says it will be "adjusted EBITDA" positive in full year 2023. Initial premarket trading in response has seen its stock fall slightly again to $0.45 from $0.46 at Friday's close.
On 19 April, the company received a non-compliance notice from the New York Stock Exchange as its share price had refused to budge above $1 a share for 30 trading days. The notice raised the possibility of WeWork having to delist or conduct a reverse stock split as its shares have sunk 90% from a market value of $9 billion (£6.53 billion) since it listed in March 2021.
If the share price refuses to move past $1 after these results the most likely alternative to "cure" its non-compliance is a reverse stock split led by majority shareholder Japan's SoftBank. This is a reduction in the number of a company's outstanding shares in the market which automatically boosts the value of the stock, usually based on a predetermined ratio. For example, a 2:1 reverse stock split would mean that investors would receive 1 share for every 2 shares that they own. On 2 May WeWork said it had written to shareholders requesting support for a reverse stock split but it has not said it will pursue this option. It confirmed to the New York Stock Exchange it planned to cure the deficiency within the six-month deadline.
Responding on Tuesday, Mathrani said: "We did not expect the share price to drop as it did. The business continues to perform. The volatility is affected by a very small float of shares not owned by major institutional investors. What I will say is we will make sure the stock is not delisted. We will see how our stock reacts based on our results over the next quarter. We have filed a proxy to do a reverse split if needs be. I am reminded of great companies like PayPal that did one and look what happened there."
A strong set of results pointing to a clear course to profitability is one factor that could help WeWork to avoid delisting. It reported free cash flow in the first quarter 2023 of minus $343 million was $18 million better than its projection of minus $361 million thanks to its recently completed debt restructuring transaction, another factor it will have been hoping boosts its share price.
The restructuring has resulted in new funding and new and rolled capital commitments of over $1 billion. It has reduced total debt and annual cash-basis interest expense by approximately $1.2 billion and $90 million, respectively, it reports.
Consolidated revenue for the first quarter was $849 million, an increase of 11% year-over-year while the net loss was minud $299 million, a $205 million improvement year-over-year. Adjusted EBITDA was minus $29 million, an $183 million improvement year-over-year.
On investor call, Mathrani again said:"This is WeWork's moment." He explained: "At a time when the commercial property industry is in flux, WeWork is solving for the needs of businesses of all sizes seeking a turnkey solution, and is the alternative to the traditional office. WeWork offers the flexibility on an immediate basis."
Mathrani said this is particularly the case as companies increasingly now pursue mandatory return-to-work policies. He said: "In April at two separate locations in New York City we agreed 310,000 square feet with a large enterprise company that needed the space in two weeks for a mandatory return to office. That same client is now taking 100,000 square feet in London."
Mathrani added: "The share we are taking of markets is steadily increasing. Net sales in America have been positive for the first time in 12 months."
All Access consolidated memberships grew to approximately 75,000 in the first quarter, an increase of 36% year-over-year while consolidated physical occupancy was 73% at the end of the first quarter 2023, an increase from 67% at the end of the first quarter 2022.
Mathrani said a slight decline in memberships over the period was a function of "known enterprise client churn, the closure of some of our locations and the franchising of our South Africa business".
Mathrani said that "critically" after the debt restructuring, "we now have a strengthened balance sheet and liquidity position that gives us the runway to deliver against our plan".
He added: “Our debt restructuring was backed by a large majority of bondholders and investors, demonstrating their conviction in the WeWork business model and our future.”
As of 31 March, WeWork's real estate portfolio consisted of 781 locations across 39 countries, supporting approximately 904,000 workstations and 664,000 physical memberships.
Gross workstation sales totalled 177,000 in the first quarter, or the equivalent of 10.6 million square feet sold. Systemwide new workstation sales were 66,000 in the first quarter or the equivalent of 4 million square feet sold. Average revenue per physical member was $490 in the first quarter of 2023, an increase of 1% from the first quarter 2022.
CEO Mathrani called for patience as the business pursues a number of strategies in a recent letter to shareholders.
He joined in 2020 when WeWork faced a battle to cut debt and shore up investor sentiment in a company battered both by a first failed attempt at a public listing, and in turn the pandemic.
He says the business model is being placed to eventually benefit from structural changes in how offices are occupied.